Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade Shares of the iShares Short Maturity Bond Fund, 59227-59231 [2012-23633]
Download as PDF
<![CDATA[
Federal Register / Vol. 77, No. 187 / Wednesday, September 26, 2012 / Notices
Trading Permit Holder (‘‘TPH’’) requests
a change in the classes to which said
TPH is appointed to act as a MarketMaker. This Fee serves to pay for the
labor involved in processing such
requests. Beginning on September 4,
2012, TPHs became responsible for
maintaining their own Market-Maker
appointments via the Exchange’s online
appointments system. TPHs received
prior notification of this change.3
Because TPHs now maintain their own
Market-Maker appointments and the
Exchange no longer processes requests
to change the classes to which TPHs are
appointed to act as Market-Makers, the
Exchange hereby proposes to eliminate
the Fee.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.4 Specifically,
the Exchange believes the proposed rule
change is consistent with Section 6(b)(4)
of the Act5, which provides that
Exchange rules may provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
Trading Permit Holders and other
persons using its facilities. The
proposed change is reasonable because
TPHs will no longer have to pay a fee
for changing their Market-Maker
appointments, and is equitable and not
unfairly discriminatory because it will
apply to all TPHs.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE 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
The Exchange neither solicited nor
received comments on the proposed
rule change.
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 6 of the Act and paragraph (f)
3 See CBOE Regulatory Circular RG12–114
(August 16, 2012).
4 15 U.S.C. 78f(b).
6 15 U.S.C. 78s(b)(3)(A).
VerDate Mar<15>2010
17:27 Sep 25, 2012
Jkt 226001
of Rule 19b–4 7 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily 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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–089 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–CBOE–2012–089. 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 (https://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 on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
the principal offices of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
7 17
PO 00000
CFR [sic] 240.19b–4(f).
Frm 00065
Fmt 4703
Sfmt 4703
59227
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–CBOE–2012–089, and
should be submitted on or before
October 17, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–23632 Filed 9–25–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67894; File No. SR–BATS–
2012–033]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Order Granting
Approval of Proposed Rule Change, as
Modified by Amendment No. 1 Thereto,
To List and Trade Shares of the
iShares Short Maturity Bond Fund
September 20, 2012.
I. Introduction
On July 27, 2012, BATS Exchange,
Inc. (‘‘Exchange’’ or ‘‘BATS’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the iShares Short Maturity
Bond Fund (‘‘Fund’’). The proposed rule
change was published for comment in
the Federal Register on August 8, 2012.3
The Commission received no comments
on the proposal. On September 14,
2012, the Exchange filed Amendment
No. 1 to the proposed rule change.4 This
order grants approval of the proposed
rule change, as modified by Amendment
No. 1.
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 67583
(August 2, 2012), 77 FR 47461 (‘‘Notice’’).
4 Amendment No. 1 reflects a change to the name
of the Fund, from ‘‘iShares Ultrashort Duration
Bond Fund’’ to ‘‘iShares Short Maturity Bond
Fund,’’ and a revision to the citation to the
Registration Statement, a corresponding
amendment to which was filed with the
Commission on September 4, 2012. In Amendment
No. 1, the Exchange states that all other
representations in the proposed rule change remain
as stated therein and no other changes are being
made. Because Amendment No. 1 is technical in
nature and does not materially alter the substance
of the proposed rule change, Amendment No. 1 is
not subject to notice and comment.
1 15
E:\FR\FM\26SEN1.SGM
26SEN1
59228
Federal Register / Vol. 77, No. 187 / Wednesday, September 26, 2012 / Notices
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade the Shares of the Fund pursuant
to BATS Rule 14.11(i), which governs
the listing and trading of Managed Fund
Shares on the Exchange. The Shares will
be offered by iShares U.S. ETF Trust
(‘‘Trust’’), which was established as a
Delaware statutory trust on June 21,
2011.5 BlackRock Fund Advisors is the
investment adviser (‘‘Adviser’’) to the
Fund.6 BlackRock Financial
Management, Inc. serves as sub-adviser
for the Fund (‘‘Sub-Adviser’’).7 State
Street Bank and Trust Company is the
administrator, custodian, and transfer
agent for the Trust. BlackRock
Investments, LLC (‘‘Distributor’’) serves
as the distributor for the Trust. The
Exchange represents the Adviser and
Sub-Adviser are both affiliated with
multiple broker-dealers, and both the
Adviser and Sub-Adviser have
implemented fire walls with respect to
such broker-dealers regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.8
mstockstill on DSK4VPTVN1PROD with NOTICES
Description of the Fund and the Shares
The Fund will seek to maximize
current income. To achieve its objective,
the Fund will invest, under normal
5 The Trust is registered as an open-end
investment company under the Investment
Company Act of 1940 (‘‘1940 Act’’). On September
4, 2012, the Trust filed with the Commission
Amendment No. 1 to Registration Statement on
Form N–1A under the Securities Act of 1933 and
under the 1940 Act relating to the Fund (File Nos.
333–179904 and 811–22649) (‘‘Registration
Statement’’). In addition, the Exchange notes that
the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940
Act. See Investment Company Act Release No.
29571 (January 24, 2011) (File No. 812–13601)
(‘‘Exemptive Order’’).
6 BlackRock Fund Advisors is an indirect wholly
owned subsidiary of BlackRock, Inc.
7 The Adviser manages the Fund’s investments
and its business operations subject to the oversight
of the Board of Trustees of the Trust (‘‘Board’’).
While the Adviser is ultimately responsible for the
management of the Fund, it is able to draw upon
the trading, research, and expertise of its asset
management affiliates for portfolio decisions and
management with respect to portfolio securities.
The Adviser also has ongoing oversight
responsibility. The Sub-Adviser, subject to the
supervision and oversight of the Adviser and the
Board, is responsible for day-to-day management of
the Fund and, as such, typically makes all decisions
with respect to portfolio holdings.
8 See BATS Rule 14.11(i)(7). The Exchange
represents further that, in the event (a) the Adviser
or the Sub-Adviser becomes newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser 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.
VerDate Mar<15>2010
17:27 Sep 25, 2012
Jkt 226001
circumstances,9 at least 80% of its net
assets in a diversified portfolio of U.S.
dollar-denominated investment grade
fixed income securities (‘‘Fixed Income
Securities’’). The Fund will not be a
money market fund and thus will not
seek to maintain a stable net asset value
of $1.00 per Share. In the absence of
normal circumstances, the Fund may
temporarily depart from its normal
investment process, provided that such
departure is, in the opinion of the
portfolio management team of the Fund,
consistent with the Fund’s investment
objective and in the best interest of the
Fund. For example, the Fund may hold
a higher than normal proportion of its
assets in cash in response to adverse
market, economic, or political
conditions.
The Fund will hold Fixed Income
Securities of at least 13 non-affiliated
issuers.
The Fund will not purchase the
securities of issuers conducting their
principal business activity in the same
industry if, immediately after the
purchase and as a result thereof, the
value of the Fund’s investments in that
industry would equal or exceed 25% of
the current value of the Fund’s total
assets, provided that this restriction
does not limit the Fund’s: (i)
Investments in securities of other
investment companies; (ii) investments
in securities issued or guaranteed by the
U.S. government, its agencies or
instrumentalities; or (iii) investments in
repurchase agreements collateralized by
U.S. government securities.
The Fund intends to qualify each year
as a regulated investment company
(‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended. The Fund will invest its
assets, and otherwise conduct its
operations, in a manner that is intended
to satisfy the qualifying income,
diversification, and distribution
requirements necessary to establish and
maintain RIC qualification under
Subchapter M. The Fund will not invest
in non-U.S. equity securities.
Fixed Income Securities
The Fund intends to achieve its
investment objective by investing, under
normal circumstances, at least 80% of
its net assets in a diversified portfolio of
9 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
adverse market, economic, political, or other
conditions, including 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.
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
U.S. dollar-denominated investment
grade Fixed Income Securities, rated a
minimum of BBB- or higher by Standard
& Poor’s Financial Services LLC and/or
Fitch Inc., or Baa3 or higher by Moody’s
Investors Service, Inc., or, if unrated,
determined by the portfolio
management team of the Fund to be of
equivalent quality.
Fixed Income Securities will
primarily include fixed and floating rate
debt securities of varying maturities,
such as corporate 10 and government
bonds, agency securities,11 instruments
of non-U.S. issuers, municipal bonds,
money market instruments,12 and
investment companies that invest in
such Fixed Income Securities. The
Adviser or its affiliates may advise the
money market funds and investment
companies in which the Fund may
10 While the Fund is permitted to invest without
restriction in corporate bonds, the Adviser expects
that, under normal market conditions, the Fund
will generally seek to invest in corporate bond
issuances that have at least $100 million par
amount outstanding in developed countries and at
least $200 million par amount outstanding in
emerging market countries.
11 While the Fund is permitted to invest without
restriction in agency securities, the Adviser expects
that, under normal market conditions, the Fund
will generally not seek to invest more than 50% of
the Fund’s assets in agency securities. ‘‘Agency
securities’’ for these purposes generally includes
securities issued by the following entities:
Government National Mortgage Association (Ginnie
Mae), Federal National Mortgage Association
(Fannie Mae), Federal Home Loan Banks
(FHLBanks), Federal Home Loan Mortgage
Corporation (Freddie Mac), Farm Credit System
(FCS) Farm Credit Banks (FCBanks), Student Loan
Marketing Association (Sallie Mae), Resolution
Funding Corporation (REFCORP), Financing
Corporation (FICO), and the Farm Credit System
(FCS) Financial Assistance Corporation (FAC).
Agency securities can include, but are not limited
to, mortgage-backed securities.
12 While the Fund will invest at least 80% of its
net assets in a diversified portfolio of U.S. dollardenominated investment grade Fixed Income
Securities, the Adviser expects that, under normal
circumstances, the Fund also intends to invest in
money market securities (as described below) in a
manner consistent with its investment objective in
order to help manage cash flows in and out of the
Fund, such as in connection with payment of
dividends or expenses, and to satisfy margin
requirements, to provide collateral or to otherwise
back investments in derivative instruments. For
these purposes, money market securities include:
Short-term, high-quality obligations issued or
guaranteed by the U.S. Treasury or the agencies or
instrumentalities of the U.S. government; Shortterm, high-quality securities issued or guaranteed
by non-U.S. governments, agencies, and
instrumentalities; repurchase agreements backed by
U.S. government securities; money market mutual
funds; commercial paper; and deposits and other
obligations of U.S. and non-U.S. banks and
financial institutions. All money market securities
acquired by the Fund will be rated investment
grade. The Fund does not intend to invest in any
unrated money market securities. However, it may
do so, to a limited extent, such as where a rated
money market security becomes unrated, if such
money market security is determined by the
Adviser or the Sub-Adviser to be of comparable
quality.
E:\FR\FM\26SEN1.SGM
26SEN1
Federal Register / Vol. 77, No. 187 / Wednesday, September 26, 2012 / Notices
part of its principal investment
strategies, as described above, the Fund
may invest in money market securities
in a manner consistent with its
investment objective in order to help
manage cash flows in and out of the
Fund, such as in connection with
payment of dividends or expenses, and
to satisfy margin requirements, to
provide collateral or to otherwise back
investments in derivative instruments.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment), including Rule 144A
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.
Pursuant to the Exemptive Order, the
Fund will not invest in swap
agreements, futures contracts, or option
contracts. The Fund will also not invest
in convertible securities or preferred
stock, but may invest in currency
forwards for hedging against foreign
currency exchange rate risk and/or trade
settlement purposes.
Additional information regarding the
Trust, Shares, and the Fund, including
investment strategies, risks, creation and
redemption procedures, fees and
expenses, portfolio holdings and
disclosure policies, distributions, taxes,
and reports to be distributed to
beneficial owners of the Shares can be
found in the Notice and the Registration
Statement, as applicable.15 Information
can also be found on the Web site for
the Fund (www.iShares.com).
Other Portfolio Holdings
In addition to money market
securities in which the Fund invests as
mstockstill on DSK4VPTVN1PROD with NOTICES
invest, in accordance with the 1940 Act.
The Fund may invest up to 5% of its net
assets in Fixed Income Securities and
instruments of issuers that are
domiciled in emerging market countries.
The Fund will invest in asset-backed
and mortgage-backed Fixed Income
Securities.13 Asset-backed securities are
fixed-income securities that are backed
by a pool of assets, usually loans such
as installment sale contracts or credit
card receivables. Mortgage-backed
securities are asset-backed securities
based on a particular type of asset, a
mortgage. There is a wide variety of
mortgage-backed securities involving
commercial or residential, fixed-rate or
adjustable rate mortgages, and
mortgages issued by banks or
government agencies. Most transactions
in fixed-rate mortgage pass-through
securities occur through standardized
contracts for future delivery in which
the exact mortgage pools to be delivered
are not specified until a few days prior
to settlement, known as TBA
transactions. The Fund may enter into
such contracts on a regular basis. The
Fund, pending settlement of such
contracts, will invest the relevant assets
in high-quality, liquid short-term
instruments, including shares of money
market funds affiliated with the
Adviser. Collateralized mortgage
obligations (‘‘CMOs’’) are Fixed Income
Securities that are backed by cash flows
from pools of mortgages. CMOs may
have multiple classes with different
payment rights and protections.
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage. Under normal
circumstances, the effective duration of
the Fund’s portfolio is expected to be
one year or less, as calculated by the
Adviser.14
III. Discussion and Commission’s
Findings
The Commission has carefully
reviewed the proposed rule change and
finds that it is consistent with the
requirements of Section 6 of the Act 16
and the rules and regulations
thereunder applicable to a national
securities exchange.17 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,18 which requires, among other
things, that the Exchange’s rules be
designed to prevent fraudulent and
13 Although the Fund has not established a fixed
limit to the amount of asset-backed and/or
mortgage-backed debt securities in which it will
invest, as noted above, at least 80% of the Fund’s
net assets will be, under normal circumstances,
invested in U.S. dollar-denominated investment
grade Fixed Income Securities, including assetbacked and/or mortgage-backed debt securities.
Neither high-yield asset-backed securities nor highyield mortgage-backed securities are included in the
Fund’s principal investment strategies. The
liquidity of a security, especially in the case of
asset-backed and mortgage-backed debt securities,
is a substantial factor in the Fund’s security
selection process.
14 Effective duration is a measure of the potential
responsiveness of a bond or portfolio price to small
parallel shifts in interest rates. When measured
across a portfolio, the effective duration of a
portfolio is equivalent to the average portfolio
duration.
VerDate Mar<15>2010
17:27 Sep 25, 2012
Jkt 226001
15 See
supra notes 3 and 5, respectively.
U.S.C. 78f.
17 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
16 15
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
59229
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that the Fund and the Shares must
comply with the requirements of BATS
Rule 14.11(i) to be listed and traded on
the Exchange.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,19 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available on the facilities of the
Consolidated Tape Association
(‘‘CTA’’). The Intraday Indicative Value
(‘‘IIV’’), which will be based upon the
current value for the components of the
Disclosed Portfolio, will be updated and
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s
Regular Trading Hours.20 On each
business day, before commencement of
trading in Shares during Regular
Trading Hours, the Fund will disclose
on its Web site the Disclosed Portfolio
that will form the basis for the Fund’s
calculation of Net Asset Value (‘‘NAV’’)
at the end of the business day.21 The
NAV of the Fund’s Shares generally will
be calculated once daily Monday
through Friday as of the close of regular
trading on the New York Stock
Exchange, generally 4:00 p.m. Eastern
Time. Additionally, information
regarding market price and volume of
the Shares will be continually available
on a real-time basis throughout the day
on brokers’ computer screens and other
electronic services. The previous day’s
19 15
U.S.C. 78k–1(a)(1)(C)(iii).
to the Exchange, several major
market data vendors display and/or make widely
available IIVs published via the CTA or other data
feeds. In addition, the quotations of certain of the
Fund’s holdings may not be updated during U.S.
trading hours if such holdings do not trade in the
United States or if updated prices cannot be
ascertained.
21 The Disclosed Portfolio will include, as
applicable, the names, quantity, percentage
weighting, and market value of Fixed Income
Securities and other assets held by the Fund, and
the characteristics of such assets. The Web site
information will be publicly available at no charge.
20 According
E:\FR\FM\26SEN1.SGM
26SEN1
59230
Federal Register / Vol. 77, No. 187 / Wednesday, September 26, 2012 / Notices
closing price and trading volume
information for the Shares will also be
published daily in the financial section
of newspapers. Intraday, executable
price quotations on Fixed Income
Securities and other assets are available
from major broker-dealer firms. Such
intraday price information is also
available through subscription services,
such as Bloomberg, Thomson Reuters,
and International Data Corporation,
which can be accessed by authorized
participants and other investors. The
Web site for the Fund will include a
form of the prospectus for the Fund,
additional data relating to NAV, and
other applicable quantitative
information.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV 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.22 Trading
in the Shares also will be subject to
BATS Rule 14.11(i)(4)(B)(iv), which sets
forth circumstances under which Shares
of the Fund may be halted.23 The
Exchange may halt trading in the Shares
if trading is not occurring in the
securities and/or the financial
instruments comprising the Disclosed
Portfolio of the Fund, or if other
unusual conditions or circumstances
detrimental to the maintenance of a fair
and orderly market are present.24
Further, the Commission notes that the
Reporting Authority that provides the
Disclosed Portfolio must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material, non-public
information regarding the actual
components of the portfolio.25 The
Exchange states that it prohibits the
distribution of material, non-public
22 See
BATS Rule 14.11(i)(4)(A)(ii).
BATS Rule 14.11(i)(4)(B)(iv).
24 See BATS Rule 14.11(i)(4)(B)(iii) (providing
additional considerations for the suspension of
trading in or removal from listing of Managed Fund
Shares on the Exchange). 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. The
Exchange will halt trading in the Shares under the
conditions specified in BATS Rule 11.18. 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.
25 See BATS Rule 14.11(i)(4)(B)(ii)(B).
mstockstill on DSK4VPTVN1PROD with NOTICES
23 See
VerDate Mar<15>2010
17:27 Sep 25, 2012
Jkt 226001
information by its employees. The
Exchange also states that the Adviser
and Sub-Adviser are both affiliated with
multiple broker-dealers, and both the
Adviser and Sub-Adviser have
implemented fire walls with respect to
such broker-dealers regarding access to
information concerning the composition
and/or changes to the Fund’s
portfolio.26 Moreover, the Exchange
represents that it is able to obtain
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
The Exchange further represents that
the Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will be subject to
BATS Rule 14.11(i), which sets forth the
initial and continued listing criteria
applicable to Managed Fund Shares.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange’s surveillance
procedures applicable to derivative
products, which include Managed Fund
Shares, are adequate to properly
monitor the trading of the Shares on the
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and applicable federal
securities laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
26 See supra note 8 and accompanying text. The
Commission notes that 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, Sub-Adviser, and their
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.
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
members in an Information Circular
(‘‘Circular’’) of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Circular will discuss the following: (a)
The procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (b) BATS Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (c) how
information regarding the IIV is
disseminated; (d) the risks involved in
trading the Shares during the PreOpening 27 and After Hours Trading
Sessions 28 when an updated IIV will
not be calculated or publicly
disseminated; (e) the requirement that
members deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued
listing, the Fund must be in compliance
with Rule 10A–3 under the Act.29
(6) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities (calculated
at the time of investment), including
Rule 144A 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.
(7) Pursuant to the Exemptive Order,
the Fund will not invest in swap
agreements, futures contracts, or option
contracts.
(8) The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage.
(9) The Fund will not invest in nonU.S. equity securities.
(10) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations and
description of the Fund, including those
set forth above and in the Notice.
For the foregoing reasons, the
Commission finds that the proposed
27 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
28 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
29 See 17 CFR 240.10A–3.
E:\FR\FM\26SEN1.SGM
26SEN1
Federal Register / Vol. 77, No. 187 / Wednesday, September 26, 2012 / Notices
rule change is consistent with Section
6(b)(5) of the Act 30 and the rules and
regulations thereunder applicable to a
national securities exchange.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
IV. Conclusion
In its filing with the Commission,
OCC 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 these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B)
and (C) below, of the most significant
aspects of such statements.3
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,31 that the
proposed rule change (SR–BATS–2012–
033), as modified by Amendment No. 1
thereto, be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–23633 Filed 9–25–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67896; File No. SR–OCC–
2012–17]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Relating to the Margining of
Segregated Futures Customer
Accounts on a Gross Basis
September 20, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on
September 14, 2012, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared primarily by OCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
mstockstill on DSK4VPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The proposed rule change would
allow OCC to become compliant with
Commodity Futures Trading
Commission (‘‘CFTC’’) Rule
39.13(g)(8)(i) which requires the
margining of segregated futures
customer accounts on a gross basis.
30 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
32 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
31 15
VerDate Mar<15>2010
17:27 Sep 25, 2012
Jkt 226001
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The purpose of this proposed rule
change is to provide for the margining
of OCC segregated futures customer
accounts on a gross basis, as required by
CFTC Rule 39.13(g)(8)(i).4
The CFTC’s Customer Gross Margin
Rule
On October 18, 2011, the CFTC issued
final regulations implementing many of
the new statutory core principles for
CFTC-registered derivatives clearing
organizations (‘‘DCOs’’) enacted under
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ‘‘DoddFrank Act’’). As a registered DCO (as
well as a registered securities clearing
agency), OCC has previously
implemented rule changes designed to
bring OCC into compliance with CFTC
rules applicable to DCOs that went into
effect on January 9, 2012 5 and May 7,
2012.6 OCC believes it is necessary to
amend its Rules in order to ensure
compliance with the gross margin rule,
which requires a DCO to ‘‘collect initial
margin on a gross basis for each clearing
member’s customer account(s) equal to
the sum of the initial margin amounts
that would be required by the
derivatives clearing organization for
each individual customer within that
account if each individual customer
were a clearing member.’’ 7 The gross
margin rule goes into effect on
November 8, 2012, however, OCC
intends to begin complying with the
gross margin rule on November 5, 2012
as described herein.
3 The Commission has modified the text of the
summaries prepared by OCC.
4 17 CFR 39.13(g)(8)(i).
5 See SR–OCC–2011–18.
6 See SR–OCC–2012–06.
7 Derivatives Clearing Organization General
Provisions and Core Principles, 76 FR 69334, 69439
(November 8, 2011).
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
59231
OCC’s System for Calculating Margin
OCC currently calculates margin
requirements for each clearing member’s
segregated futures customer account
held at OCC on a net basis by applying
OCC’s System for Theoretical Analysis
and Numerical Simulations (‘‘STANS’’).
STANS calculates margin with respect
to each account of a clearing member,
including each clearing member’s
futures customer account(s), on a net
basis. STANS includes both a net asset
value (‘‘NAV’’) component and a risk
component. The NAV component marks
all positions to market and nets long
and short positions to determine the
NAV of each clearing member’s
portfolio of customer positions. The
NAV component represents the cost to
liquidate the portfolio at current prices
by selling the net long positions and
buying in the net short positions. The
risk component is estimated by means
of an expected shortfall risk measure
obtained from ‘‘Monte Carlo’’
simulations designed to measure the
additional asset value required in any
portfolio to eliminate an unacceptable
level of risk that the portfolio would
liquidate to a deficit.
OCC presently lacks sufficient
information about individual customer
positions to calculate margin at the level
of each individual customer. However,
OCC has been coordinating with other
DCOs to establish an industry-wide
mechanism for complying with the
customer gross margin rule. Pursuant to
this new system, each DCO’s clearing
members will submit data files to the
DCO identifying positions by numerical
customer identifiers.8 OCC will use this
information to calculate margins, using
STANS, for each customer identifier of
a clearing member and to aggregate
those margin calculations to determine
the total futures customer margin
requirement for the clearing member’s
segregated futures customer account(s)
held at OCC.9 OCC will then compare
8 The position data provided to OCC by clearing
members will not include (a) information with
respect to the allocation of margin assets to
particular customers, nor (b) information with
respect to settlement obligations arising from the
exercise, assignment or maturity of cleared
contracts. For this reason, OCC will treat all margin
assets and settlement obligations for each account
to which the gross margin rule applies as being in
sub-accounts of the Clearing Member. OCC will
calculate margin, using STANS, separately for each
sub-account and will aggregate the calculated
margin requirements at the level of the clearing
member’s segregated futures customer account to
which the sub-accounts relate.
9 OCC currently carries the following account
types that are segregated pursuant to Section 4d of
the Commodity Exchange Act: Segregated Futures
Accounts, Segregated Futures Professional
Accounts, non-Proprietary X–M accounts, and
E:\FR\FM\26SEN1.SGM
Continued
26SEN1
]]>Agencies
[Federal Register Volume 77, Number 187 (Wednesday, September 26, 2012)]
[Notices]
[Pages 59227-59231]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23633]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67894; File No. SR-BATS-2012-033]
Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, To List and Trade Shares of the iShares Short Maturity Bond
Fund
September 20, 2012.
I. Introduction
On July 27, 2012, BATS Exchange, Inc. (``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the iShares Short Maturity Bond
Fund (``Fund''). The proposed rule change was published for comment in
the Federal Register on August 8, 2012.\3\ The Commission received no
comments on the proposal. On September 14, 2012, the Exchange filed
Amendment No. 1 to the proposed rule change.\4\ This order grants
approval of the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 67583 (August 2,
2012), 77 FR 47461 (``Notice'').
\4\ Amendment No. 1 reflects a change to the name of the Fund,
from ``iShares Ultrashort Duration Bond Fund'' to ``iShares Short
Maturity Bond Fund,'' and a revision to the citation to the
Registration Statement, a corresponding amendment to which was filed
with the Commission on September 4, 2012. In Amendment No. 1, the
Exchange states that all other representations in the proposed rule
change remain as stated therein and no other changes are being made.
Because Amendment No. 1 is technical in nature and does not
materially alter the substance of the proposed rule change,
Amendment No. 1 is not subject to notice and comment.
---------------------------------------------------------------------------
[[Page 59228]]
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares of the Fund
pursuant to BATS Rule 14.11(i), which governs the listing and trading
of Managed Fund Shares on the Exchange. The Shares will be offered by
iShares U.S. ETF Trust (``Trust''), which was established as a Delaware
statutory trust on June 21, 2011.\5\ BlackRock Fund Advisors is the
investment adviser (``Adviser'') to the Fund.\6\ BlackRock Financial
Management, Inc. serves as sub-adviser for the Fund (``Sub-
Adviser'').\7\ State Street Bank and Trust Company is the
administrator, custodian, and transfer agent for the Trust. BlackRock
Investments, LLC (``Distributor'') serves as the distributor for the
Trust. The Exchange represents the Adviser and Sub-Adviser are both
affiliated with multiple broker-dealers, and both the Adviser and Sub-
Adviser have implemented fire walls with respect to such broker-dealers
regarding access to information concerning the composition and/or
changes to the Fund's portfolio.\8\
---------------------------------------------------------------------------
\5\ The Trust is registered as an open-end investment company
under the Investment Company Act of 1940 (``1940 Act''). On
September 4, 2012, the Trust filed with the Commission Amendment No.
1 to Registration Statement on Form N-1A under the Securities Act of
1933 and under the 1940 Act relating to the Fund (File Nos. 333-
179904 and 811-22649) (``Registration Statement''). In addition, the
Exchange notes that the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 29571 (January 24, 2011) (File
No. 812-13601) (``Exemptive Order'').
\6\ BlackRock Fund Advisors is an indirect wholly owned
subsidiary of BlackRock, Inc.
\7\ The Adviser manages the Fund's investments and its business
operations subject to the oversight of the Board of Trustees of the
Trust (``Board''). While the Adviser is ultimately responsible for
the management of the Fund, it is able to draw upon the trading,
research, and expertise of its asset management affiliates for
portfolio decisions and management with respect to portfolio
securities. The Adviser also has ongoing oversight responsibility.
The Sub-Adviser, subject to the supervision and oversight of the
Adviser and the Board, is responsible for day-to-day management of
the Fund and, as such, typically makes all decisions with respect to
portfolio holdings.
\8\ See BATS Rule 14.11(i)(7). The Exchange represents further
that, in the event (a) the Adviser or the Sub-Adviser becomes newly
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser becomes affiliated with a broker-dealer, 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.
---------------------------------------------------------------------------
Description of the Fund and the Shares
The Fund will seek to maximize current income. To achieve its
objective, the Fund will invest, under normal circumstances,\9\ at
least 80% of its net assets in a diversified portfolio of U.S. dollar-
denominated investment grade fixed income securities (``Fixed Income
Securities''). The Fund will not be a money market fund and thus will
not seek to maintain a stable net asset value of $1.00 per Share. In
the absence of normal circumstances, the Fund may temporarily depart
from its normal investment process, provided that such departure is, in
the opinion of the portfolio management team of the Fund, consistent
with the Fund's investment objective and in the best interest of the
Fund. For example, the Fund may hold a higher than normal proportion of
its assets in cash in response to adverse market, economic, or
political conditions.
---------------------------------------------------------------------------
\9\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political, or
other conditions, including 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.
---------------------------------------------------------------------------
The Fund will hold Fixed Income Securities of at least 13 non-
affiliated issuers.
The Fund will not purchase the securities of issuers conducting
their principal business activity in the same industry if, immediately
after the purchase and as a result thereof, the value of the Fund's
investments in that industry would equal or exceed 25% of the current
value of the Fund's total assets, provided that this restriction does
not limit the Fund's: (i) Investments in securities of other investment
companies; (ii) investments in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities; or (iii)
investments in repurchase agreements collateralized by U.S. government
securities.
The Fund intends to qualify each year as a regulated investment
company (``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended. The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification, and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M. The Fund will not invest in non-U.S. equity securities.
Fixed Income Securities
The Fund intends to achieve its investment objective by investing,
under normal circumstances, at least 80% of its net assets in a
diversified portfolio of U.S. dollar-denominated investment grade Fixed
Income Securities, rated a minimum of BBB- or higher by Standard &
Poor's Financial Services LLC and/or Fitch Inc., or Baa3 or higher by
Moody's Investors Service, Inc., or, if unrated, determined by the
portfolio management team of the Fund to be of equivalent quality.
Fixed Income Securities will primarily include fixed and floating
rate debt securities of varying maturities, such as corporate \10\ and
government bonds, agency securities,\11\ instruments of non-U.S.
issuers, municipal bonds, money market instruments,\12\ and investment
companies that invest in such Fixed Income Securities. The Adviser or
its affiliates may advise the money market funds and investment
companies in which the Fund may
[[Page 59229]]
invest, in accordance with the 1940 Act. The Fund may invest up to 5%
of its net assets in Fixed Income Securities and instruments of issuers
that are domiciled in emerging market countries.
---------------------------------------------------------------------------
\10\ While the Fund is permitted to invest without restriction
in corporate bonds, the Adviser expects that, under normal market
conditions, the Fund will generally seek to invest in corporate bond
issuances that have at least $100 million par amount outstanding in
developed countries and at least $200 million par amount outstanding
in emerging market countries.
\11\ While the Fund is permitted to invest without restriction
in agency securities, the Adviser expects that, under normal market
conditions, the Fund will generally not seek to invest more than 50%
of the Fund's assets in agency securities. ``Agency securities'' for
these purposes generally includes securities issued by the following
entities: Government National Mortgage Association (Ginnie Mae),
Federal National Mortgage Association (Fannie Mae), Federal Home
Loan Banks (FHLBanks), Federal Home Loan Mortgage Corporation
(Freddie Mac), Farm Credit System (FCS) Farm Credit Banks (FCBanks),
Student Loan Marketing Association (Sallie Mae), Resolution Funding
Corporation (REFCORP), Financing Corporation (FICO), and the Farm
Credit System (FCS) Financial Assistance Corporation (FAC). Agency
securities can include, but are not limited to, mortgage-backed
securities.
\12\ While the Fund will invest at least 80% of its net assets
in a diversified portfolio of U.S. dollar-denominated investment
grade Fixed Income Securities, the Adviser expects that, under
normal circumstances, the Fund also intends to invest in money
market securities (as described below) in a manner consistent with
its investment objective in order to help manage cash flows in and
out of the Fund, such as in connection with payment of dividends or
expenses, and to satisfy margin requirements, to provide collateral
or to otherwise back investments in derivative instruments. For
these purposes, money market securities include: Short-term, high-
quality obligations issued or guaranteed by the U.S. Treasury or the
agencies or instrumentalities of the U.S. government; Short-term,
high-quality securities issued or guaranteed by non-U.S.
governments, agencies, and instrumentalities; repurchase agreements
backed by U.S. government securities; money market mutual funds;
commercial paper; and deposits and other obligations of U.S. and
non-U.S. banks and financial institutions. All money market
securities acquired by the Fund will be rated investment grade. The
Fund does not intend to invest in any unrated money market
securities. However, it may do so, to a limited extent, such as
where a rated money market security becomes unrated, if such money
market security is determined by the Adviser or the Sub-Adviser to
be of comparable quality.
---------------------------------------------------------------------------
The Fund will invest in asset-backed and mortgage-backed Fixed
Income Securities.\13\ Asset-backed securities are fixed-income
securities that are backed by a pool of assets, usually loans such as
installment sale contracts or credit card receivables. Mortgage-backed
securities are asset-backed securities based on a particular type of
asset, a mortgage. There is a wide variety of mortgage-backed
securities involving commercial or residential, fixed-rate or
adjustable rate mortgages, and mortgages issued by banks or government
agencies. Most transactions in fixed-rate mortgage pass-through
securities occur through standardized contracts for future delivery in
which the exact mortgage pools to be delivered are not specified until
a few days prior to settlement, known as TBA transactions. The Fund may
enter into such contracts on a regular basis. The Fund, pending
settlement of such contracts, will invest the relevant assets in high-
quality, liquid short-term instruments, including shares of money
market funds affiliated with the Adviser. Collateralized mortgage
obligations (``CMOs'') are Fixed Income Securities that are backed by
cash flows from pools of mortgages. CMOs may have multiple classes with
different payment rights and protections.
---------------------------------------------------------------------------
\13\ Although the Fund has not established a fixed limit to the
amount of asset-backed and/or mortgage-backed debt securities in
which it will invest, as noted above, at least 80% of the Fund's net
assets will be, under normal circumstances, invested in U.S. dollar-
denominated investment grade Fixed Income Securities, including
asset-backed and/or mortgage-backed debt securities. Neither high-
yield asset-backed securities nor high-yield mortgage-backed
securities are included in the Fund's principal investment
strategies. The liquidity of a security, especially in the case of
asset-backed and mortgage-backed debt securities, is a substantial
factor in the Fund's security selection process.
---------------------------------------------------------------------------
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. Under
normal circumstances, the effective duration of the Fund's portfolio is
expected to be one year or less, as calculated by the Adviser.\14\
---------------------------------------------------------------------------
\14\ Effective duration is a measure of the potential
responsiveness of a bond or portfolio price to small parallel shifts
in interest rates. When measured across a portfolio, the effective
duration of a portfolio is equivalent to the average portfolio
duration.
---------------------------------------------------------------------------
Other Portfolio Holdings
In addition to money market securities in which the Fund invests as
part of its principal investment strategies, as described above, the
Fund may invest in money market securities in a manner consistent with
its investment objective in order to help manage cash flows in and out
of the Fund, such as in connection with payment of dividends or
expenses, and to satisfy margin requirements, to provide collateral or
to otherwise back investments in derivative instruments.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A 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.
Pursuant to the Exemptive Order, the Fund will not invest in swap
agreements, futures contracts, or option contracts. The Fund will also
not invest in convertible securities or preferred stock, but may invest
in currency forwards for hedging against foreign currency exchange rate
risk and/or trade settlement purposes.
Additional information regarding the Trust, Shares, and the Fund,
including investment strategies, risks, creation and redemption
procedures, fees and expenses, portfolio holdings and disclosure
policies, distributions, taxes, and reports to be distributed to
beneficial owners of the Shares can be found in the Notice and the
Registration Statement, as applicable.\15\ Information can also be
found on the Web site for the Fund (www.iShares.com).
---------------------------------------------------------------------------
\15\ See supra notes 3 and 5, respectively.
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of Section 6 of the
Act \16\ and the rules and regulations thereunder applicable to a
national securities exchange.\17\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\18\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. The Commission notes that
the Fund and the Shares must comply with the requirements of BATS Rule
14.11(i) to be listed and traded on the Exchange.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\19\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available on the facilities of
the Consolidated Tape Association (``CTA''). The Intraday Indicative
Value (``IIV''), which will be based upon the current value for the
components of the Disclosed Portfolio, will be updated and widely
disseminated by one or more major market data vendors at least every 15
seconds during the Exchange's Regular Trading Hours.\20\ On each
business day, before commencement of trading in Shares during Regular
Trading Hours, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of Net
Asset Value (``NAV'') at the end of the business day.\21\ The NAV of
the Fund's Shares generally will be calculated once daily Monday
through Friday as of the close of regular trading on the New York Stock
Exchange, generally 4:00 p.m. Eastern Time. Additionally, information
regarding market price and volume of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services. The previous day's
[[Page 59230]]
closing price and trading volume information for the Shares will also
be published daily in the financial section of newspapers. Intraday,
executable price quotations on Fixed Income Securities and other assets
are available from major broker-dealer firms. Such intraday price
information is also available through subscription services, such as
Bloomberg, Thomson Reuters, and International Data Corporation, which
can be accessed by authorized participants and other investors. The Web
site for the Fund will include a form of the prospectus for the Fund,
additional data relating to NAV, and other applicable quantitative
information.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\20\ According to the Exchange, several major market data
vendors display and/or make widely available IIVs published via the
CTA or other data feeds. In addition, the quotations of certain of
the Fund's holdings may not be updated during U.S. trading hours if
such holdings do not trade in the United States or if updated prices
cannot be ascertained.
\21\ The Disclosed Portfolio will include, as applicable, the
names, quantity, percentage weighting, and market value of Fixed
Income Securities and other assets held by the Fund, and the
characteristics of such assets. The Web site information will be
publicly available at no charge.
---------------------------------------------------------------------------
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV 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.\22\
Trading in the Shares also will be subject to BATS Rule
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted.\23\ The Exchange may halt trading in the
Shares if trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund,
or if other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\24\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\25\ The Exchange states that it prohibits the distribution
of material, non-public information by its employees. The Exchange also
states that the Adviser and Sub-Adviser are both affiliated with
multiple broker-dealers, and both the Adviser and Sub-Adviser have
implemented fire walls with respect to such broker-dealers regarding
access to information concerning the composition and/or changes to the
Fund's portfolio.\26\ Moreover, the Exchange represents that it is able
to obtain information via the Intermarket Surveillance Group (``ISG'')
from other exchanges that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
\22\ See BATS Rule 14.11(i)(4)(A)(ii).
\23\ See BATS Rule 14.11(i)(4)(B)(iv).
\24\ See BATS Rule 14.11(i)(4)(B)(iii) (providing additional
considerations for the suspension of trading in or removal from
listing of Managed Fund Shares on the Exchange). 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. The Exchange will halt trading in the Shares under the
conditions specified in BATS Rule 11.18. 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.
\25\ See BATS Rule 14.11(i)(4)(B)(ii)(B).
\26\ See supra note 8 and accompanying text. The Commission
notes that 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, Sub-Adviser, and their 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.
---------------------------------------------------------------------------
The Exchange further represents that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will be subject to BATS Rule 14.11(i), which sets
forth the initial and continued listing criteria applicable to Managed
Fund Shares.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures applicable to derivative
products, which include Managed Fund Shares, are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws.
(4) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular (``Circular'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Circular will discuss the following: (a) The
procedures for purchases and redemptions of Shares in Creation Units
(and that Shares are not individually redeemable); (b) BATS Rule 3.7,
which imposes suitability obligations on Exchange members with respect
to recommending transactions in the Shares to customers; (c) how
information regarding the IIV is disseminated; (d) the risks involved
in trading the Shares during the Pre-Opening \27\ and After Hours
Trading Sessions \28\ when an updated IIV will not be calculated or
publicly disseminated; (e) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (f) trading
information.
---------------------------------------------------------------------------
\27\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\28\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------
(5) For initial and/or continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\29\
---------------------------------------------------------------------------
\29\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
(6) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A 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.
(7) Pursuant to the Exemptive Order, the Fund will not invest in
swap agreements, futures contracts, or option contracts.
(8) The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
(9) The Fund will not invest in non-U.S. equity securities.
(10) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations
and description of the Fund, including those set forth above and in the
Notice.
For the foregoing reasons, the Commission finds that the proposed
[[Page 59231]]
rule change is consistent with Section 6(b)(5) of the Act \30\ and the
rules and regulations thereunder applicable to a national securities
exchange.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-BATS-2012-033), as modified
by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23633 Filed 9-25-12; 8:45 am]
BILLING CODE 8011-01-P
