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I. Introduction
On February 7, 2008, the American Stock Exchange, LLC ("Amex" or "Exchange") 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 seeking to: (1) Adopt new Amex Rules 1000B, 1001B, 1002B, and 1003B to permit the listing and trading of securities ("Managed Fund Shares") issued by an actively managed, open-end investment management company; (2) list and trade the shares ("Shares") of the Bear Stearns Current Yield Fund ("Fund"), an investment portfolio of the Bear Stearns Active ETF Trust ("Trust"), pursuant to those rules; and (3) amend its original listing and annual listing fees to include Managed Fund Shares and make certain other changes. The proposed rule change was published for comment in the Federal Register on February 14, 2008. /3/ On February 20, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. /4/ On March 14, 2008, the Exchange filed Amendment No. 2 to the proposed rule change. /5/ The Commission received no comments regarding the proposal. This order provides notice and solicits comments from interested persons regarding Amendment No. 2 to the proposed rule change and approves the proposed rule change, as modified by Amendment Nos. 1 and 2 thereto, on an accelerated basis.
FOOTNOTE 1 15 U.S.C. 78s(b)(1). END FOOTNOTE
FOOTNOTE 2 17 CFR 240.19b-4. END FOOTNOTE
FOOTNOTE 3 See Securities Exchange Act Release No. 57297 (February 8, 2008), 73 FR 8723 ("Notice"). END FOOTNOTE
FOOTNOTE 4 In Amendment No. 1, Amex made several clarifying corrections to the definitions of "Disclosed Portfolio" and "Portfolio Indicative Value" and conforming changes to Form 19b-4 and Exhibit 1 thereto to account for such corrections. Because Amendment No. 1 to the proposed rule change is technical in nature, it is not subject to notice and comment. END FOOTNOTE
FOOTNOTE 5 In Amendment No. 2, Amex added Commentary .06 to proposed Amex Rule 1000B which would require: (1) the investment adviser to the Investment Company (as defined herein) issuing Managed Fund Shares to erect a "firewall" around personnel who have access to information concerning the composition and/or changes to the Investment Company portfolio; and (2) personnel who make decisions on the Investment Company's portfolio composition to be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the applicable Investment Company portfolio. In addition, Amex provided a representation describing the ethical and fiduciary requirements under the Investment Advisers Act of 1940 ("Advisers Act"), as they apply to Bear Stearns Asset Management, Inc., the investment adviser of the Fund. END FOOTNOTE
II. Description of the Proposal
The Exchange proposes to add new Amex Rules 1000B, 1001B, 1002B, and 1003B to permit the listing and trading of Managed Fund Shares. Pursuant to these new rules, the Exchange proposes to list and trade the Shares. Amex states that the Shares will conform to the initial and continued listing criteria under proposed Amex Rules 1000B, 1001B, and 1002B. The Exchange also proposes to amend its original listing and annual listing fees in Sections 140 and 141 of the Amex Company Guide to include Managed Fund Shares and make certain other technical and conforming changes in the Amex rules to incorporate references to the new Amex rules proposed herein.
Proposed Listing Rules
Proposed new Amex Rules 1000B, 1001B (for initial listing), and 1002B (for continued listing) define and establish listing standards for Managed Fund Shares. Proposed Amex Rule 1000B(b) sets forth the relevant definitions. In particular, proposed Amex Rule 1000B(b)(1) defines "Managed Fund Share" as a security that: (a) Represents an interest in a registered investment company ("Investment Company"), organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company's investment adviser consistent with the Investment Company's investment objectives and policies; (b) is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value ("NAV"); and (c) when aggregated in the same specified minimum number, may be redeemed at a holder's request for a specified portfolio of securities and/or cash with a value equal to the next determined NAV.
Proposed Amex Rule 1000B(b)(2) defines Disclosed Portfolio as the securities and other assets in the Investment Company portfolio that will form the basis for the Investment Company's calculation of its NAV. The term "Portfolio Indicative Value," set forth in proposed Amex Rule 1000B(b)(3), is defined as the estimated indicative value of a Managed Fund Share based on updated information regarding the value of the securities in the Disclosed Portfolio. Proposed Amex Rule 1000B(b)(4) defines "Reporting Authority" to mean the Exchange, a subsidiary of the Exchange, or an institution or service designated by the Exchange or its subsidiary as the official source for determining and reporting the information relating to a series of Managed Fund Shares, including, but not limited to, the Portfolio Indicative Value, the Disclosed Portfolio, the amount of any cash distribution to holders of Managed Fund Shares, NAV, or other information relating to the issuance, redemption, or trading of Managed Fund Shares.
Proposed Commentaries .01 through .05 to proposed Amex Rule 1000B substantially mirror Commentaries .05, .02(j), .06, .08, and .09 to current Amex Rule 1000A-AEMI, respectively. Specifically, proposed Commentaries .01(a), (b), (c), and (d) are substantively identical to Commentaries .05(d), (f), (e), and (c), respectively, to Amex Rule 1000A-AEMI. The proposed Commentary provisions relate to minimum price variation, hours of trading, listing fees, and surveillance procedures. In addition, the substance of Commentary .05(a) to Amex Rule 1000A-AEMI is set forth in proposed Amex Rule 1000B(b)(3) in connection with the dissemination of information. Proposed Commentary .06 to Amex Rule 1000B is similar to Commentary .02(b)(i) and (iii) to Amex Rule 1000A-AEMI, /6/ except that the required "firewall" to be established around certain personnel and procedures designed to prevent such personnel from using and disseminating material non-public information reflect restricted access and dissemination of the Investment Company's portfolio, as opposed to an underlying benchmark index, as is the case with index-based exchange-traded funds ("ETFs").
FOOTNOTE 6 See Commentary .02(b)(i) and (iii) to Amex Rule 1000A-AEMI (providing that: (1) if the index on which a series of Index Fund Shares is based is maintained by a broker-dealer or fund advisor, the broker-dealer or fund advisor must erect a "firewall" around the personnel who have access to information concerning changes and adjustments to the index, and the index must be calculated by a third party who is not a broker-dealer or fund advisor; and (2) any advisory committee, supervisory board, or similar entity that advises a Reporting Authority or that makes decisions on the index or portfolio composition, methodology, and related matters, must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the applicable index). END FOOTNOTE
Proposed Commentary .02 to Amex Rule 1000B is substantively identical to existing Commentary .02(j) to Amex Rule 1000A-AEMI, which relates to international or global portfolio creations/redemptions. With respect to a Managed Fund Share based on an international or global portfolio, this provision requires that the statutory prospectus or the application for exemption from provisions of the Investment Company Act of 1940 ("1940 Act") for the series of Managed Fund Shares state that such series will comply with the federal securities laws in accepting securities for deposits and satisfying redemptions with redemption securities, including that the securities accepted for deposits and the securities used to satisfy redemption requests are sold in transactions that would be exempt from registration under the Securities Act of 1933.
Proposed Commentary .03 to Amex Rule 1000B is substantively identical to Commentary .06 to Amex Rule 1000A-AEMI in connection with Exchange obligations for those Managed Fund Shares that receive an exemption from certain prospectus delivery requirements under Section 24(d) of the 1940 Act. Proposed Commentary .04 to Amex Rule 1000B, relating to the limitation of entering multiple limit orders by members and member organizations, is also substantively identical to Commentary .09 to Amex Rule 1000A-AEMI. Proposed Commentary .05 to Amex Rule 1000B relating to "trading ahead" is substantively identical to Commentary .09 to Amex Rule 1000A-AEMI. Lastly, proposed Commentary .06 to Amex Rule 1000B provides that the investment adviser of the Investment Company must erect a "firewall" around its personnel who have access to information regarding the composition and/or changes to the Investment Company's portfolio. /7/ In addition, proposed Commentary .06 further requires that personnel who make decisions on the Investment Company's portfolio composition must be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Investment Company's portfolio.
FOOTNOTE 7 The Exchange states that an Investment Company's investment adviser, which is required to be registered under the Advisers Act, would be subject to the provisions of Rule 204A-1 under the Advisers Act (17 CFR 275.204A-1) relating to codes of ethics for investment advisers. Rule 204A-1 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, the Exchange notes that "firewall" procedures, as well as procedures designed to prevent the 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 (17 CFR 275.206(4)-7) 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 rules thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of such policies and procedures and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering such policies and procedures. See also Section 204A of the Advisers Act (15 U.S.C. 80b-4a) (requiring investment advisers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, non-public information by such investment adviser or any person associated with such investment adviser). END FOOTNOTE
--This is a summary of a Federal Register article originally published on the page number listed below--
Citation: "73 FR 15230"
Document Number: "Release No. 34-57514; File No. SR-Amex-2008-02"
Federal Register Page Number: "15230"
"Notices"
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