# SECURITIES AND EXCHANGE COMMISSION > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A73919f4b97676544 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 July 2,2010 ,)lVISION OF ,.JING AND MARKETS W. John McGuire, Esq. Morgan, Lewis & BockiUs LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 Re: AdvisorShares Mars HiD Global Relative Value Actively Managed ETF File No. TP 10-26 Dear Mr. McGuire: In your letter dated JU~y'l, 2010, as supplemented by conversations with the staff of the Division of Trading and Markets ("Division"), AdvisorShares Trust (the "Trust") on behalf of itself, the Mars Hill ETF, any national securities exchange or national securities association on or through which shares issued by the Mars Hill ETF ("Shares") may subsequently trade, and persons or entities engaging in transactions in Shares, requests exemptions from, or interpretive or no-action advice regarding Section II (d)( 1) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), RuleslOb-IO, IOb-I7, IIdl-2, 15cl-5, and 15cl-6 thereunder, and Rules 101 and 102 of Regutation M in connection with secondary market transactions in Shares and the creation or redemption of Creation Units as discussed in your letter. In your letter, as supplemented by conversations with the staff of the Division; the Trust on behalf of itself, the Original Fund, any national securities exchange or national securities association on or through which shares issued by the Original Fund may subsequently trade, arid persons or entities engaging in transactions in shares of the Original Fund, also reqllests exemptions from, or interpretive or no-actionadyice reg~~n;~.Se#iq;n'll(~f1}qfth¢:'Exchange A¢t and Rules lOb"" I 0, lOb-17, tl~ 1~2, 15p 1­ S'and 15cf.. 6' thereunder., . . . .' . .. '". .' - . ";. ... ", '." .. . , We have enclosed a photocopY-of your letter. Each defined term in this letter has the same meaning as defined in yourletter, unless we note otherwise. The Trust was organized on July 30,2007, as a Delaware statutory trust. The Trustis registered with the Commission under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company. The Trust seeks relief for the Mars Hill ETF which seeks returns in excess of the MSCI World Index with comparable volatility. To obtain this objective, the Mars Hill ETF will take long positions in ETFs and other exchange traded products in what the sub-advisor believes to be the most attractive global regions and countries, while establishing ­ -.;. ... . ·W. J ohnMcGuire ... Morgari, LewIs lk Bockius LLP: .. July 2, 2010 . . Page 2 of6: equivalent short positions inETFs:an.dother exchangetfaded products in umittradive .•. regions and countries. Beyond theseinv~.tments,the'Mars HiH EtF wilt invest in shoit~ term.money market Instruments and 11quid futures cOntracts and other dertvativt?s .tied to . broad market indices.. These investmentsm~y used to seek additional exposure orup . .to 50% on top ofthe Mars HilYETF's Core portfolio. The MarsHill ETF wilLho1d rio . ETF rior .ETFs, that each of the Prior ETFs held , , by the Original Fund and/or the M~s Riil ETF themseives will have either met all, conditioO:s set forth in the Class R¢liefLetter, will have individual relief frOID the' " ' C.o~ission, or will be able to rely on individual'relief even though they are not named parties, and that in no case will the Original Fund or the Mars Hill ETF holdsec\lritfes (other thanETFsor government secwitiesas defined in Section 3(a)(42)(A);(B)~ or (C) of the Exchange Act) issued by a single issuer in excess of20% of the InitialFund's' P~()~fQ)t9.h9.~~Wg~~:4~¢P ,~"", i~ttrej)R~ct to 'shares :0 f the OriID~all"~!1'!,a,n.d~~e _M;~s' ", ,\"':~~~flJ4:i~:!r:'''1;;i~it . ..•. ; ...... "~~l~J'~~~::~!~i:~ll;;lf;t~~%1i=~~:I~~Wl., ': ::-' **, *** °0 '." , "The for~g6ingexeniptiOJifr6.mRulelOb-I? under the.Exchange Ad;', ' interpretations~ofRule~ l()iand l02,ofJ{egulation M,and no-action positi()D.s taken' ~der Section iJ(d)(l) ofthe Exch3Ilge.Act, andRules IOb-lo;'} idl-2; t5~hS,: a.nd~-,',.::, 15cl ~6, thereunder,are'bitsed sotely your tepresentatrons and the facts preserit€d.t~, the: , ()n tha~c~mplianGe withR~le n~tUteofth~_M~$ We also note IOb-17 would be impracticalin light of the Hill ETF. This is because it is'll()tposs.ible for the 'TruSt tp accurately project ten:days in ad\ranc¢~hat', ' diV~dend,if any, would be paid ~n: a:Particular record d a t e . ' " , ' , . . 2 ' . ' . .... '.~ •• ,' ... · W. JohntylcGwr¢ . Morgan, Lewis & BockiUsLLP . ·July 2,2010 Page 6of6 . . Division, and ~e strlCtly limited to the appli6;l6Qfi of those ~l~s to transactions. ltwolving the Shares of th~ Matp Hill ETF a,nd the'Original Fund un.d~r the circumstances descdb~d above and in you~ letter. Such transac~ions should be discontillued, pendingpreseiltation the facts for our consiqeration, in the event that any material change oc~urs with . respect teany of th.cisef~cts·or representations.-Moreover, the foregoIng exemption from 'Rule 1Ob~ 17 under the.Exchange Act~ inteiprdations'otR:uIe~'WI" and '102 ofRegulation M, arid no·aCtion positions taken under Sectionlt"(d)(I) of the Exchpnge.Act, andRules IOb-l0, Ildl-2, 15c 1-5, and 1~cl-6 thereunder are sl.lbjeett;o thec6nd.itioll that such transactions in Shares of the Mars Hill ELF, Portfolio Security, or any related secudties are r{pt made for the purpose of creating~ctual,or apparent, active trading in or raising or . otherwise affecting the price of such securities..' .. of . The.seexempii6ns, interpretations, andmHlction positiollsaresubject to modificatiortor revOCatioriif at any. time the Commission or Division determines that . such, action is necessary or appropri'ate infurtherartce of the purposes ofthe Exchange Act. In addition, persons relyirigon these exemptions; inteq)retations, and no-actlQr! positions are dtreetecl to the anti-fraud and anti-manipulation provisions ofthe Exchange Act, particularlySectiolls 9(a), 10(b), and Rule lOb-5thereundet. Responsibility for . compliance with these and .other provisions of the federal or state securities laws must rest with persons relying on these exemptions and interpretations_ The Division expresses no view with re$pect to other qllestions .that the proposed transactions may raise, inciuding, but not limited to, the adequacy of di$closure cOncerning, and the applicability of other federal and state laws to; the proposed. transactions. . . . .Forthe Commissi(>n~bytheDivislonof .Trading and MarketS, pursuant allthority, . to delegated . ...... ':::-;' ,:': ... ;".: " 0" -.:' .: ·''Z~i'; .· . :.". Assistant Director: ·Attach).nent . '. '­ ".. ' .. ." - ~ &~~ckiu~ " . Morgan, lewis up. 11 11 Pi!rins\"vaniaAv~nue. NW •Washirigton, DC 20004 rei: ·202.739.3000· " ". Morgan Lewis . C 0 U N S E LOR S A T L·A. W· . . .. Fax: 20D39.3001 ·wWw.morganlewis.com w. John McGuire Partner 202.739·,5654 .wjmCguite@Morganlewis.Com July 1, 2010 Ms. Josephine J.·Tao Assistant Director DiVision of Trading and Markets seCurities and Exchange Conunission . 100 F Street, N.E.. . Washington, DC 20549· " " Re: " . " " " . . ' - Request of AdvisorShares Trustfor Additional Interpretive Rdiefftom Rule· 10b-17 and RuleslOI and 102 ofRegulation M promulgated uurler the Securities Exchange Act of 1934 with Respect to Additi(mal Fund and for Exemptive, Interpretive or No-AelI, Branch Chief, Office of TradingPtactices ~d Processes, Qivi~ioil ofMarkd RegUlati9o, to George T. Sittion;Esq., F~ley & Lardner L~PdatedJime}.I, 2906, ' " Se~e.g;, Letter from Josephine J. tao;Associate Director; Division ofTradu'tgao.4Marke~;toRich3Td:M. " ' Morris, WisdoIUTree Asset Managerilent.,inc: dat~May9> 2008) eeWe:note .ihatwe~ha:ve fePeateqly' ' , 'expI:es~Cd oUF viewsoiiEx~hange Act SecttOIi 1I(d)(I)and,Exch~ge A.ct RuleSlOb~io, Ildl":2,:15cl-5,: and , 15clo.:6 with respect to exchange-tnided funds thatartHiot tied to an, index. Ha:0ngstatedOiU; views; we will no , longer respond torequesn:;for reIieffrom'Sectioli 11(d)(l)or'R.1leslOo'-IO, ,i idl-2,i5Cl~$, and 15ci-6 rela~g to exch'lmge.,.n:a:ded'funds tha,t are :npt inanagedto track a paJ:iictilar index uniess tbeypresentnovel9r ' Unusual issues.");· Letter from James'A. Bngaglian6, Assistil~t Director., Division of MarketReg1.llatioli, to: ' Michael SClunidtberger; Esq., Sidley Austin Brown & WoodLLP dated JallMry 19, 2,066 with respect to OIl , Commodit}rItldex TrackingFundandDIi Commodity ServiCes tLC("[W]enole thafwe haverepeated1y "expr~ss'edoiir ~ews on Section 1:I(d)(I) ~d R\l.le Ildt.. 2 with respect.io)he ext~nsionoi mainteoanceor the air~ge~ent for the exte~ion or niainteIlMce of credit shares of coinmoditY-based,exchailg,~-:tta.R Trust;l¢tters from Lairy E. BergQlan, Senior ASsociat~ . ' Director, Division o(Market Re-giilation tosiuart: M:,Strauss·;. Gord~nAltii1ariButowSkY;·dated;.. ,. December 14:, J998 and Deceml;ier n;.t998; .resi>~cii~g:tIi:e tr~ding ofthe Select Sect<>rSPDR . ·Teust;·Letter fro mJames Brigagliarto; ASsist,lini Director, DiVisi~n of MarketRegulatlOn.to Ja:niesDiiffy, Se~or Vic~ Fr~sidenta~d General Counsei, AMEX; .d~t~March 3; 199~with respect to the tr~ding the Nasdaq 100 Trust; Letteifrom James Brigagliano,AssiStao,t Dii-ector;.Divlsion: of Market Regulation to· . Ka:tlil~il Moriarty, Carter, Iidyard& Milbuip d,al¢d May 16, 2000;with respect to tb.e, trading of the iShares .•.. Trust; Letter from James Brigagllano; AssistaIit Du-ector,- .DiVision ofMarket RegQlation, ·to smarr· strauss, Mayer; Brown & Platt datedSeptember26,2090 wi~.i~spectto.thetr'ading of the .. . . streetTRACKS®Series Trust; Utter from James Brigagiiano, Asiiistanf Director, Division ~f.-lvfarket Regu1ittionto W. John McGuire, Morgan, Lewis & BocldusL{;P dated July25; 20Q'i'with respeeUo.the ·tradihg of varioUs series fuli(is ofthe iSfulres TruSt;' Utter from James Brigagliiuio, Assistant Director, , · Division of'MarketRegulation,.to StilartStrauss, Mayer, BmwnRpwe &Maw dateq October21,ZQOZ·· .with ~espect to the trading (.lethe Fresco" Index Sfuu-es· Food; LetterfromjamesBrigagli~o~ Assi~tafit· . Director, Division of Market R~gtilation tolackP. Drogm, Morgan, Lewis &. Bocltius LLP dat¢d Septeinber trading the hares Lehiilan iLS. Treasury Inflation ProtectedSicurities ;F'tirld 25, 2003 With.ieSped to the iShares LeluUanU.S. Aggregate BOIid Fu.nBem~ficiaJ ownership of Shares will be shown oritherecordsofDTCor its participants . . . . . ("DTC Participants") (i.e., securities brokers and dealeis,banks,trust Companies, clearing' corpo~ations and certain other organizations), some of whom (and/or their representatives) . '\ . own DTC~B.eneficiai owners of Shaiesate not entitled. to have Shares regi~tered intheif. " .. - .. Ii~~;~dwinilOt receive or b.e·eri~ided torecei~e physical.·deliy.ery~f:certificates:· . .. ' . . . . . . . . : . , -'". ..' 'A¢corqingly; to exercise .anyrightsas a holder of Shares,e~chb~nefitial~owilermust '. reIyon theprocedm-es of: (i)DTC; (ii) DTe Partic~p~ts; and{iii) brok~rs; deaI4:lfs,bcinksarid relationship With a DTCParticipant, trustcompanies.that clt~ar through or majntalna custodial . .'. . . . . . e.ither directly oi·ifidi.reGtly; through which such beneficial owner holds itsiriterests; . .. ..." - " ..... "M6rgcin~wis:," coo U'N S E L:O Il'S Ms. Jos'ephineJ. Tao " July 1; 2010 , Page 15 A'T, 'L k'll' Calculation ofIntraday Indicative Value The Exchange or other marketinfo~ation provider will'disseminate every 15 seconds ' throughout the trading :day tbi-ough the facilities ofthe Consolidated Tape Association an amount (the "IIV") representing on a per Share basis, the sum of the current value ofthe , . '. . . In,.Kind Creation Securities and the estirriilted Cash Component. The Trust is not involved in or responsible for the calCulation or dissemination of any such amount and makeS no warranty as to its accuracy., The Trading Market , , The Shares will be listed and traded on the Exchange. Shares will be freely tiad~bleQn the Exchange throughout the trading sessioIi.The price of Shares trading on'the Exchange will be ' baSed on a current bid/offer market. The trading market on theExchange affords investors the opportunity to assume ,and liquidate positions in Shares at their discretion, permitting'them to take, ' ' : . " . . " advantage of prices at any time during the trading day. ,This combination of intrad;ay liquiditywith" ' .:.~~ the Creation U riitpur~hase an~red~ptionf~tun~s crea:tespot~jlti~l arbitrage opp~rtlitrities' that; . . . .. in;:tU111;' shouidandhistoriCally have proven to initigate;prici~g·u.ieffici~nties.Ind~eiJ; the high. . . . . . . .' . ' . . . "' ',' degree. ofhistorical andexpeeted corr~lati~ri between EtFs'~NAVsand theifshaie prices CoIitrasts ' .' .. -.... . ',; with the case . - ." .: ofshares of clbsed.,eildequity funds which, Ilot having the ability tocre~te.im(J , " "redeem at the fund level, tyiJicallytrade atamaterial ~ljsc~Wlt(or premiumfio"theIT{mdedYing , . - ' .. 'NAVs. ' . '-. , MQrganLeWis ' , , , ' COUNS·ELoas Ms. JosePl1ine J. Tao , , July 1; 2010 Page 16 The arbitiagemechanism willbe facilitated by the AT LA· ...-. transpaieIl~Y ofthe Mats H~ll ETF's , , portfolio and the availability ofllie IIV, the liquidity of its Portfolio Securities an~ the ability to access those securities1 as well as thearoitrageurs; ability to create workable hedges. Further, thy Mars Hill ETF will solely invest intiquid securities. 'As discussed above, there will be disclosure' ' bneach Business Day of the Mars HillETF's Portfolio SecuritiesandtheIIV'wilLbe disseminated eVery 15 seconds throughout the trading session. The Mars HillETFwilLjnvest in ' . ' . . .. .'. ' '-Portfolio Securities with liqtiidjty ltwels that will facilitate an,effective and efficlentarbitrage mechanism and the a?ility to create workable hedges. For these reasons, we expect arbitrageurs to be able to take advantage ofprice variations between the Mars Hill ETF's market price and its NAV. Thus, we expect aclose alignment between the market price andtheNAV. We believe tha~ like the funds in the Index IQ Letter, the Mars Hill ETF will not present any new issues with respect to the exemptions which allow for current index':baSed ETFs to redeem their shares only in Creation Units. While we recognize thatthe potential for more , ­ sigtiificant deviations between a security's bid/ask price average and NAV exists with actively- ' • - - , • •> • ." "." • • • ,". ,"managed ETFS,suchde~a~~nssh,oritdIi()t.·arise hete,becausefu~MarsHiliETFisport.fblio '.• -. 'hoidinis will be fully trans~ar~nt;19A~notropreviousiy, >­ -' . cOmmencejnent~f ti'adillg' on each Business DaY'befon~ ,. in SharesQ~ the Exchange, the Mars Hill ETF will disClose on its website the identities and quantities ofthe Portfolio Securities and othera$sets held by it that will . ' ~",,-;;_., . '19 .' . . ' . ' . The Board has authorized aPl~11 pur~uant to Rule 12b-llinder the 1940 Act, but nO 8udi fe6:i~cuITently ... being paid· by the Mars lIil1 ETF.and the Board has not approved any payments for the cuIT~ntfiliialyeai-, We believe, ifsuch fees are paid in the futuCe,:thatsueh payDi.ents would not create mote tbande minim_is additionardeviatioi.lsbetween'th~ ~AVaild the riJ.arket pric~ of Shares.' . .Morgan LewiS·, ,·c·o U NS·.E·L 0 Il s. A:T ·L.A ·Ms.Jos~phine J. Tao VI' JulyJ,201O Pagel? form the basis· for the calculation·ofNAV aHhe end ofthe Business Day. The website and· . . . , ' . . informationwill be publicly.available at no charge. Under accounting prOcedures followed by the Mars Hill ETF, trades made onthe prior Business Day ("T")wiU bebooked.an~reflected in · MAVoR the current Business Day ("T+ I') Accordingly,th~Mars Hill ETF win be able to. ' . . . . . . .. .•. disclose at the beginning Qf each· Busiri~ss· Day the Portfolio S~mities and other ~sets that wili . . "..... . . ' . . ' . . . . .. . . form. the.basis [Dr the NAv calculation at theend()f the same Business Day, whedier,pr notth:e ...• · Manager or Mars Hill makes trades for the portfolio during that Business Day.·Since market .. participants will be aware at all tirIl~~ ofthe Mars Hill ETFs portfoiioSecurities and other assets held by it that win form the basis for the NAV calculation, the risk of significant deviation . . . between NAV and market price is similar to that which existsin the caseofindex~basedETFs. Rule 101 ofRegulation M Subject to certain enumerated exceptions, Rule 101 of Regulation M prohibits a . . . .. . . . · "distribution participant," in connection with· a distribution of securities,from bidding for or purchasing, .or from attempting . .". -... ,"' to induce ailyperson tol,Jid fornr purchase, a.".Coveredsecurit}?'. . ' ; '., .:.,',­ . . . ," -,'. .... ", ,,", ' .. ...... . ': . :.dUring the' applicable restricted periol' ''DistribtitjQnp~f sectirities, ·or .... any brok~r;d~let or oth¢r person. who has agte~to'paiticipateorisparticipating:in$uch ... : diStributi~~. We note that Rule 1OO(b) of Regul~tion'Mdefin~s"4istribution?!(lJries with fully.' redeeIJiablesh~es; s~ould' . he applicahle . . theTrust· ,.:: . . . . : .. ". . ' .... . :. ' .". '.' . ". - ' . . ... SectiOli l1(~)(l)of the Securities ExcbangeAct·of~934~mdRulesl0b-lO,11dl-2, 15c1~5·· aild 15Ci-6 thereunder . . . ... . :The'Advi~orShares Request·Letterdid ·not seek telieffrom the above~refer~~ced .•. : pr9Visions based on our understandirig that the Trustcould rely on the generic relief from these 20. . see supr.a note 9. . . SeesujJra note9~ LAW ,.'. ·.. ·.Morgan~~· ~.O.uNSE.L·O •. S AT LA·~. . ·Ms..Josephine I. Tao . July 1,2010' .Page 23 . . provisions provldedin the WisdomTree letter. .Because we ndw understand thatthatgenenc . ... , . ' ~elief . '. '. was not available, the Trost is requesting relief from these provisions prospectively on hehalfof . the·.Original Fund and the Mars HillETF. 22 Rule 10b-IO Rule IOb-lO requires a broker or dealer effecting a lransactio'n in a security for a . . . . . customer to give:orse~d written notification to suchcu~tomerdiscl()sing the infonnatio£l . . . ' . . : . . . " specified in paragraph (a) of Rule 1Ob-l 0, includi~g the identity, price and number of shares or units (or principai amount) of tl1.e security purchased ofsQld. The Trust requests that the . . "" " ' . ' Commission grant an exemption from Rule lOb-I 0, as dis~ussedbeIow,with respect to the creation (i.'e., issu.ance) or redemption ofCreatiori Units. The Trust is notrequesting exemptive. or interpretive relief from Rule 1Ob-l 0 in connection with purchases and sales of shares of the . Mars Hill ETF or the Original Fund in the second