Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the iShares Sovereign Screened Global Bond Fund, 65740-65747 [2012-26639]
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Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest. There is a considerable
amount of platinum and palladium
price and platinum and palladium
market information available on public
Web sites and through professional and
subscription services. Investors may
obtain on a 24-hour basis platinum or
palladium pricing information based on
the spot price for an ounce of platinum
or palladium from various financial
information service providers. Complete
real-time data for platinum and
palladium futures and options prices
traded on the COMEX are available by
subscription from Reuters and
Bloomberg. In addition, the London AM
Fix and London PM Fix are publicly
available at no charge at
www.thebulliondesk.com. The Trust’s
daily (or as determined by the Manager
in accordance with the trust agreement)
NAV will be posted on the Trust’s Web
site as soon as practicable. The Trust’s
Web site will provide an IIV per Unit,
as calculated by a third party financial
data provider during the Exchange’s
Core Trading Session. The IIV will be
widely disseminated by one or more
major market data venders at least every
15 seconds during the NYSE Arca Core
Trading Session. The Trust’s Web site
will also provide the Trust’s prospectus,
as well as the two most recent reports
to Unitholders. In addition, the
Exchange will make available over the
Consolidated Tape quotation
information, trading volume, closing
prices and NAV per Unit from the
previous day.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of additional types of Commodity-Based
Trust Shares that will enhance
competition among market participants,
to the benefit of investors and the
marketplace. As noted above, the
Exchange has in place surveillance
procedures relating to trading in the
Units and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding platinum and
palladium pricing and platinum and
palladium futures information.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
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any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Exchange Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, is consistent with the Exchange 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–NYSEArca–2012–111 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2012–111. 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
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change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2012–111, and should be
submitted on or before November 20,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–26589 Filed 10–29–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68094; File No. SR–BATS–
2012–042]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of
Proposed Rule Change To List and
Trade Shares of the iShares Sovereign
Screened Global Bond Fund
October 24, 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 October
12, 2012, BATS Exchange, Inc.
(‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared substantially by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to list and
trade shares of the iShares Sovereign
Screened Global Bond Fund (‘‘Fund’’) of
the iShares Sovereign Screened Global
Bond Fund, Inc. (‘‘Company’’) under
BATS Rule 14.11(i) (‘‘Managed Fund
Shares’’). The shares of the Fund are
collectively referred to herein as the
‘‘Shares.’’ The text of the proposed rule
change is available at the Exchange’s
Web site at https://www.batstrading.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade the Shares under BATS Rule
14.11(i), which governs the listing and
trading of Managed Fund Shares on the
Exchange.3 The Fund will be an actively
managed ETF. The Shares will be
offered by the Company, which was
established as a Maryland corporation
on December 2, 2011. The Company is
registered with the Commission as an
open-end investment company and has
3 The Commission approved BATS Rule 14.11(i)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018). Although the Fund would
be the first actively-managed exchange traded fund
(‘‘ETF’’) listed on the Exchange, the Commission
has previously approved the listing and trading of
a number of actively managed ETFs on NYSE Arca,
Inc. pursuant to Rule 8.600 of that exchange. See,
e.g., Securities Exchange Act Release Nos. 66343
(February 7, 2012), 77 FR 7647 (February 13, 2012)
(SR–NYSEArca-2011–85) (order approving listing
and trading of five actively managed ETFs); and
66345 (February 7, 2012), 77 FR 7643 (February 13,
2012) (SR–NYSEArca-2011–84) (order approving
listing and trading of three actively managed ETFs,
including Russell Bond ETF). The Exchange
believes the proposed rule change raises no
significant issues not previously addressed in those
prior Commission orders.
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filed a registration statement on behalf
of the Fund on Form N–1A
(‘‘Registration Statement’’) with the
Commission.4
Description of the Shares and the Fund
BlackRock Fund Advisors is the
investment adviser (‘‘BFA’’ or
‘‘Adviser’’) to the Fund.5 BlackRock
International Limited serves as subadviser for the Fund (‘‘Sub-Adviser’’).6
State Street Bank and Trust Company is
the administrator, custodian, and
transfer agent for the Company.
BlackRock Investments, LLC
(‘‘Distributor’’) serves as the distributor
for the Company.
BATS Rule 14.11(i)(7) provides that, if
the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition, Rule
4 See Registration Statement on Form N–1A for
the Company, dated March 5, 2012 (File Nos. 333–
179905 and 811–22674). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
The Commission has issued an order granting
certain exemptive relief to the Company under the
Investment Company Act of 1940 (15 U.S.C. 80a-1)
(‘‘1940 Act’’) (‘‘Exemptive Order’’). See Investment
Company Act Release No. 29571 (January 24, 2011)
(File No. 812–13601).
5 BlackRock Fund Advisors is an indirect wholly
owned subsidiary of BlackRock, Inc.
6 The Adviser manages the Fund’s investments
and its business operations subject to the oversight
of the Board of Directors of the Company (‘‘Board’’).
While BFA 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.
Portfolio managers employed by the Adviser are
generally responsible for day-to-day management of
the Fund and, as such, typically make all decisions
with respect to portfolio holdings. The Adviser also
has ongoing oversight responsibility. The SubAdviser, subject to the supervision and oversight of
the Board and BFA, will be primarily responsible
for execution of securities transactions outside the
United States and Canada and may, from time to
time, participate in the management of specified
assets in the Fund’s portfolio. The Sub-Adviser may
be responsible for the day-to-day management of
the Fund.
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and 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
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14.11(i)(7) 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, nonpublic information regarding the
applicable investment company
portfolio. Rule 14.11(i)(7) is similar to
BATS Rule 14.11(b)(5)(A)(i); however,
Rule 14.11(i)(7) in connection with the
establishment of a ‘‘fire wall’’ between
the investment adviser and the brokerdealer reflects the applicable open-end
fund’s portfolio, not an underlying
benchmark index, as is the case with
index-based funds. The Adviser and
Sub-Adviser are both affiliated with
multiple broker-dealers and have both
implemented ‘‘fire walls’’ with respect
to such broker-dealers regarding access
to information concerning the
composition and/or changes to the
Fund’s portfolio. In addition, Adviser
and Sub-Adviser personnel who make
decisions regarding the Fund’s portfolio
are subject to procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the Fund’s portfolio. In the
event that (a) the Adviser or the SubAdviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or
sub-adviser becomes affiliated with a
broker-dealer, they 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.
iShares Sovereign Screened Global
Bond Fund
According to the Registration
Statement, the Fund will seek to
generate current income while striving
to mitigate downside risk by investing
principally in global sovereign debt
obligations. To achieve its objective, the
Fund will invest, under normal
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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circumstances,8 at least 80% of its net
assets in sovereign government bonds
from both developed and emerging
market countries. 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 sovereign debt
obligations 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.9 The Fund
will not invest in equity 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.10 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 Subchapter M
diversification tests generally require
that (1) the Fund invest no more than
25% of its total assets in securities
(other than securities of the U.S.
government or other RICs) of any one
8 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.
9 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
10 26 U.S.C. 851.
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issuer or two or more issuers that are
controlled by the Fund and that are
engaged in the same, similar, or related
trades or businesses, and (2) at least
50% of the Fund’s total assets consist of
cash and cash items, U.S. government
securities, securities of other RICs, and
other securities, with investments in
such other securities limited in respect
of any one issuer to an amount not
greater than 5% of the value of the
Fund’s total assets and not greater than
10% of the outstanding voting securities
of such issuer.
Sovereign Debt
The Fund intends to achieve its
investment objective by investing, under
normal circumstances, at least 80% of
its net assets in bonds denominated in
local currencies and the U.S. dollar,
issued by governments in both
developed and emerging market
countries.
The Fund intends to maintain specific
exposure to global government bonds
with targeted investment characteristics.
The Adviser will utilize a model-based
proprietary investment process to
assemble the investment portfolio from
a defined group of developed and
emerging market countries across all
credit rating categories, including below
investment grade. The investment
process primarily will utilize the
universe of sovereign debt issuers
included in the BlackRock Sovereign
Risk Index, a proprietary model that
scores countries using a comprehensive
list of relevant fiscal, financial, and
institutional metrics to assess sovereign
credit risk. These country scores, along
with other model-driven factors, will be
used to construct the Fund’s investment
portfolio by screening out lower scoring
countries and weighting the remaining
sovereigns based on their scores. As of
July 31, 2012, there were 48 countries in
the universe of eligible countries, any of
which may or may not be held by the
Fund.11 This proprietary investment
process is intended to provide an
increased exposure to sovereign debt
securities issued by countries with
higher credit quality, as defined by the
model, than would a fund that seeks to
replicate the performance of a broad
global government bond index that is
weighted more heavily towards
countries based on their amount of debt
outstanding. As of July 31, 2012, the
following countries were included in
the universe of eligible countries:
Argentina, Australia, Austria, Belgium,
11 Countries must have at least $5 billion of
outstanding debt principal amounts at the
beginning of the calendar year in order to be
included in the eligible universe.
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Brazil, Canada, Chile, China, Colombia,
Croatia, the Czech Republic, Denmark,
Egypt, Finland, France, Germany,
Greece, Hungary, India, Indonesia,
Ireland, Israel, Italy, Japan, Malaysia,
Mexico, the Netherlands, New Zealand,
Norway, Peru, the Philippines, Poland,
Portugal, Russia, South Africa, South
Korea, Singapore, Slovakia, Slovenia,
Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, the United Kingdom,
the United States, and Venezuela.12
Countries may be added to, eliminated
from, or replaced in the universe of
eligible countries at any time, and the
model may score countries differently
over time, which means that countries
may be added to, deleted from, or reweighted within the model.
The universe of sovereign debt
currently includes securities that are
rated ‘‘investment grade’’ as well as
‘‘below investment grade.’’ 13 The Fund
intends to provide an increased
exposure to sovereign debt securities
issued by countries with higher credit
quality, as defined by the model, than
would a fund that seeks to replicate the
performance of a broad global
government bond index that is weighted
more heavily toward countries based on
their amount of debt outstanding.14 The
Fund expects that, under normal
circumstances, the securities included
in the Fund will be primarily
investment grade. As of July 31, 2012,
97% of the securities in the BlackRock
Sovereign Risk Index were rated
investment grade.
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
12 Each country’s approximate value of
outstanding debt principal amounts as of July 31,
2012, is as follows (in billions): Argentina $160;
Australia $246; Austria $248; Belgium $421; Brazil
$498; Canada $865; Chile $58; China $1,216;
Colombia $76; Croatia $22; the Czech Republic $79;
Denmark $133; Egypt $116; Finland $106; France
$1,696; Germany $1,347; Greece $169; Hungary $86;
India $593; Indonesia $112; Ireland $109; Israel
$151; Italy $2,007; Japan $11,554; Malaysia $142;
Mexico $379; the Netherlands $384; New Zealand
$58; Norway $64; Peru $27; the Philippines $98;
Poland $221; Portugal $143; Russia $140; Singapore
$136; Slovakia $40; Slovenia $18; South Africa
$138; South Korea $380; Spain $844; Sweden $143;
Switzerland $98; Taiwan $162; Thailand $104;
Turkey $265; the United Kingdom $1,878; the
United States $10,743; and Venezuela $72.
13 When constructing the model, the distribution
of ratings across issues in each country will be
considered in order to ensure that no single issue
is over weighted and that the model is diversified.
The ratings-based caps will be imposed on a per
country basis, and will be generally as follows:
AAA/AA=5%; A=4%; BBB=3%; Junk=2% (ratings
are averaged across Moody’s and S&P).
14 The Fund will not invest in distressed debt.
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the Fund’s portfolio is expected to be 5–
7 years, as calculated by the Adviser.15
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Other Portfolio Holdings
While the Fund will invest at least
80% of its net assets in bonds
denominated in local currencies and the
U.S. dollar, issued by governments in
both developed and emerging market
countries, the Adviser expects that,
under normal market circumstances, the
Fund also intends to invest its
remaining assets 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, highquality 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 nonU.S. governments, agencies, and
instrumentalities; repurchase
agreements backed by U.S. government
securities; money market mutual funds;
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.
Additionally, 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.16 The Fund will
15 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.
16 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
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monitor its portfolio liquidity on an
ongoing basis to determine whether, in
light of current circumstances, an
adequate level of liquidity is being
maintained, and will consider taking
appropriate steps in order to maintain
adequate liquidity if, through a change
in values, net assets, or other
circumstances, more than 15% of the
Fund’s net assets are held in illiquid
securities. Illiquid securities include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
Pursuant to the Exemptive Order, the
Fund will not invest in swap
agreements, futures contracts, or option
contracts. The Fund may invest in
currency forwards for hedging against
foreign currency exchange rate risk and/
or trade settlement purposes.
The Shares
The Fund will issue and redeem
Shares on a continuous basis at the net
asset value per share (‘‘NAV’’) 17 only in
large blocks of a specified number of
Shares or multiples thereof (‘‘Creation
Units’’) in transactions with authorized
participants who have entered into
agreements with the Distributor. The
Fund currently anticipates that a
Creation Unit will consist of 100,000
Shares, though this number may change
from time to time, including prior to the
listing of the Fund. The exact number of
Shares that will comprise a Creation
Unit will be disclosed in the
Registration Statement of the Fund.
Once created, Shares of the Fund trade
on the secondary market in amounts
less than a Creation Unit.
The consideration for purchase of
Creation Units of the Fund generally
will consist of the in-kind deposit of a
designated portfolio of securities
(including any portion of such securities
for which cash may be substituted)
(‘‘Deposit Securities’’), and the ‘‘Cash
Component’’ computed as described
below. Together, the Deposit Securities
and the Cash Component constitute the
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
17 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
(‘‘NAV Calculation Time’’). NAV per Share is
calculated by dividing the Fund’s net assets by the
number of Fund Shares outstanding. For more
information regarding the valuation of Fund
investments in calculating the Fund’s NAV, see the
Registration Statement.
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65743
‘‘Fund Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund.
The portfolio of securities required for
purchase of a Creation Unit may not be
identical to the portfolio of securities
the Fund will deliver upon redemption
of Fund Shares. The Deposit Securities
and Fund Securities (as defined below),
as the case may be, in connection with
a purchase or redemption of a Creation
Unit, generally will correspond pro rata,
to the extent practicable, to the
securities held by the Fund.
The Cash Component will be an
amount equal to the difference between
the NAV of the Shares (per Creation
Unit) and the ‘‘Deposit Amount,’’ which
will be an amount equal to the market
value of the Deposit Securities, and
serve to compensate for any differences
between the NAV per Creation Unit and
the Deposit Amount. The Fund
currently will offer Creation Units for
in-kind deposits, but reserves the right
to utilize a ‘‘cash’’ option in lieu of
some or all of the applicable Deposit
Securities for creation of Shares.
BFA will make available through the
National Securities Clearing Corporation
(‘‘NSCC’’) on each business day, prior to
the opening of business on the
Exchange, the list of names and the
required number or par value of each
Deposit Security and the amount of the
Cash Component to be included in the
current Fund Deposit (based on
information as of the end of the
previous business day) for the Fund.
The identity and number or par value
of the Deposit Securities may change
pursuant to changes in the composition
of the Fund’s portfolio as rebalancing
adjustments and corporate action events
occur from time to time. The
composition of the Deposit Securities
may also change in response to
adjustments to the weighting or
composition of the holdings of the
Fund.
The Fund reserves the right to permit
or require the substitution of a ‘‘cash in
lieu’’ amount to be added to the Cash
Component to replace any Deposit
Security that may not be available in
sufficient quantity for delivery or that
may not be eligible for transfer through
the Depository Trust Company (‘‘DTC’’)
or the clearing process through the
NSCC.
Except as noted below, all creation
orders must be placed for one or more
Creation Units and must be received by
the Distributor in proper form no later
than 4:00 p.m., Eastern Time, in each
case on the date such order is placed in
order for creation of Creation Units to be
effected based on the NAV of Shares of
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the Fund as next determined on such
date after receipt of the order in proper
form. Orders requesting substitution of
a ‘‘cash in lieu’’ amount generally must
be received by the Distributor no later
than 2:00 p.m., Eastern Time on the
Settlement Date. The ‘‘Settlement Date’’
is generally the third business day after
the transmittal date. On days when the
Exchange or the bond markets close
earlier than normal, the Fund may
require orders to create or to redeem
Creation Units to be placed earlier in the
day.
Fund Deposits must be delivered
through the Federal Reserve System (for
cash and government securities),
through DTC (for corporate and
municipal securities), or through a
central depository account, such as with
Euroclear or DTC, maintained by State
Street or a sub-custodian (‘‘Central
Depository Account’’) by an authorized
participant. Any portion of a Fund
Deposit that may not be delivered
through the Federal Reserve System or
DTC must be delivered through a
Central Depository Account. The Fund
Deposit transfer must be ordered by the
authorized participant in a timely
fashion so as to ensure the delivery of
the requisite number of Deposit
Securities to the account of the Fund by
no later than 3:00 p.m., Eastern Time on
the Settlement Date.
A standard creation transaction fee
will be imposed to offset the transfer
and other transaction costs associated
with the issuance of Creation Units.
Shares of the Fund may be redeemed
only in Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the
Distributor and only on a business day.
BFA will make available through the
NSCC, prior to the opening of business
on the Exchange on each business day,
the designated portfolio of securities
(including any portion of such securities
for which cash may be substituted) that
will be applicable (subject to possible
amendment or correction) to
redemption requests received in proper
form on that day (‘‘Fund Securities’’).
Fund Securities received on redemption
may not be identical to Deposit
Securities that are applicable to
creations of Creation Units.
Unless cash redemptions are available
or specified for the Fund, the
redemption proceeds for a Creation Unit
generally will consist of a specified
amount of cash, Fund Securities, plus
additional cash in an amount equal to
the difference between the NAV of the
Shares being redeemed, as next
determined after the receipt of a request
in proper form, and the value of the
specified amount of cash and Fund
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Securities, less a redemption transaction
fee. The Fund currently will redeem
Shares for Fund Securities, but the Fund
reserves the right to utilize a ‘‘cash’’
option for redemption of Shares.
A standard redemption transaction fee
will be imposed to offset transfer and
other transaction costs that may be
incurred by the Fund.
Redemption requests for Creation
Units of the Fund must be submitted to
the Distributor by or through an
authorized participant no later than 4:00
p.m., Eastern Time on any business day
in order to receive that day’s NAV. The
authorized participant must transmit the
request for redemption in the form
required by the Fund to the Distributor
in accordance with procedures set forth
in the authorized participant agreement.
Additional information regarding the
Shares and the Fund, including
investment strategies, risks, creation and
redemption procedures, fees and
expenses, portfolio holdings disclosure
policies, distributions, taxes, and
reports to be distributed to beneficial
owners of the Shares can be found in
the Registration Statement or on the
Web site for the Fund
(www.iShares.com), as applicable.
Availability of Information
The Fund’s Web site, which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) the prior
business day’s reported NAV, mid-point
of the bid/ask spread at the time of
calculation of such NAV (‘‘Bid/Ask
Price’’),18 daily trading volume, and a
calculation of the premium and
discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
displaying the frequency distribution of
discounts and premiums of the daily
Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters. Daily
trading volume information will be
available in the financial section of
newspapers, through subscription
services such as Bloomberg, Thomson
Reuters, and International Data
Corporation, which can be accessed by
authorized participants and other
investors, as well as through other
electronic services, including major
public Web sites. On each business day,
18 The Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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before commencement of trading in
Shares during Regular Trading
Hours 19on the Exchange, the Fund will
disclose on its Web site the identities
and quantities of the portfolio of
securities and other assets (‘‘Disclosed
Portfolio’’) held by the Fund that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.20
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 and information will be publicly
available at no charge.
In addition, for the Fund, an
estimated value, defined in BATS Rule
14.11(i)(3)(C) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s portfolio,
will be disseminated. Moreover, the
Intraday Indicative Value will be based
upon the current value for the
components of the Disclosed Portfolio
and 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.21 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.
Further, there may be periods of time
during Regular Trading Hours during
which the Intraday Indicative Value
would be static to the extent securities
that comprise the Fund’s holdings are
not actively trading.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and provide a close estimate of that
value throughout the trading day.
Intraday, executable price quotations
on sovereign bonds and other assets are
available from major broker-dealer
firms. Such intraday price information
19 Regular Trading Hours are 9:30 a.m. to 4:00
p.m., Eastern Time.
20 Under accounting procedures to be followed by
the Fund, trades made on the prior business day
(‘‘T’’) will be booked and reflected in NAV on the
current business day (‘‘T+1’’). Notwithstanding the
foregoing, portfolio trades that are executed prior to
the opening of the Exchange on any business day
may be booked and reflected in NAV on such
business day. Accordingly, the Fund will be able to
disclose at the beginning of the business day the
portfolio that will form the basis for the NAV
calculation at the end of the business day.
21 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Intraday Indicative Values
published via the Consolidated Tape Association
(‘‘CTA’’) or other data feeds.
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is available through subscription
services, such as Bloomberg, Thomson
Reuters, and International Data
Corporation, which can be accessed by
authorized participants and other
investors.
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. The previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last-sale information for
the Shares will be available on the
facilities of the CTA.
wreier-aviles on DSK7SPTVN1PROD with NOTICES
Initial and Continued Listing
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. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 under the
Act.22 A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the 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.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. The Exchange will halt
trading in the Shares under the
conditions specified in BATS Rule
11.18. Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
14.11(i)(4)(B)(iv), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
22 See
17 CFR 240.10A–3.
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existing rules governing the trading of
equity securities. BATS will allow
trading in the Shares from 8:00 a.m.
until 5:00 p.m., Eastern Time. The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in BATS Rule 11.11(a), the minimum
price variation for quoting and entry of
orders in Managed Fund Shares traded
on the Exchange is $0.01, with the
exception of securities that are priced
less than $1.00, for which the minimum
price variation for order entry is
$0.0001.
Surveillance
The Exchange believes that its
surveillance procedures 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 the
applicable federal securities laws.
Trading of the Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including Managed
Fund Shares. The Exchange may obtain
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges who are members or affiliates
of the ISG or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.23 The
Exchange prohibits the distribution of
material, non-public information by its
employees.
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) BATS Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value is disseminated; (4) the
risks involved in trading the Shares
during the Pre-Opening 24 and After
Hours Trading Sessions 25 when an
updated Intraday Indicative Value will
not be calculated or publicly
disseminated; (5) a reminder that there
23 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
24 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m., Eastern Time.
25 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m., Eastern Time.
PO 00000
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65745
may be periods of time during Regular
Trading Hours during which the
Intraday Indicative Value would be
static to the extent securities that
comprise the Fund’s holdings are not
actively trading; (6) the requirement that
members deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (7)
trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Fund for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action, and
interpretive relief granted by the
Commission from any rules under the
Act.
In addition, the Information Circular
will reference that the Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
Calculation Time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’s Web site. In addition, the
Information Circular will reference that
the Company is subject to various fees
and expenses described in the Fund’s
Registration Statement.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 26 in general and Section
6(b)(5) of the Act 27 in particular in that
it is 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 Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in BATS Rule 14.11(i).
The Exchange believes that its
surveillance procedures are adequate to
26 15
27 15
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30OCN1
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properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws. If the
investment adviser to the investment
company issuing Managed Fund Shares
is affiliated with a broker-dealer, such
investment adviser to the investment
adviser [sic] shall erect a ‘‘fire wall’’
between the investment adviser and the
broker-dealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. The Adviser and
Sub-Adviser are both affiliated with
multiple broker-dealers and 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. The Exchange may
obtain information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement.
According to the Registration
Statement, the Fund expects that it will
have at least 80% of its assets invested
in sovereign bonds. The Fund’s
exposure to any single industry will
generally be limited to 25% of the
Fund’s assets. Countries must have at
least $5 billion of outstanding debt
principal amounts at the beginning of
the calendar year in order to be
included in the eligible universe. The
Fund expects that, under normal
circumstances, the securities included
in the Fund will be primarily
investment grade. As of July 31, 2012,
97% of the securities in the BlackRock
Sovereign Risk Index were rated
investment grade. The Fund’s
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage. The
Fund also may invest its net assets in
money market instruments at the
discretion of the Adviser or SubAdviser.
Additionally, 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. Illiquid securities include
securities subject to contractual or other
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13:17 Oct 29, 2012
Jkt 229001
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
Pursuant to the Exemptive Order, the
Fund will not invest in swap
agreements, futures contracts, or option
contracts. The Fund may invest in
currency forwards for hedging against
foreign currency exchange rate risk and/
or trade settlement purposes.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Moreover, the
Intraday Indicative Value will be
disseminated by one or more major
market data vendors at least every 15
seconds during Regular Trading Hours.
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 NAV
at the end of the business day. Pricing
information will be available on the
Fund’s Web site including: (1) The prior
business day’s reported NAV, the Bid/
Ask Price of the Fund, daily trading
volume, and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV; and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. Additionally, information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services, and
quotation and last-sale information for
the Shares will be available on the
facilities of the CTA, which contain
information for widely followed indexes
and securities traded on the Exchange.
The Web site for the Fund will include
a form of the prospectus for the Fund
and additional data relating to NAV and
other applicable quantitative
information. Trading in Shares of the
Fund will be halted under the
conditions specified in BATS Rule
11.18. Trading may also be halted
because of market conditions or for
reasons that, in the view of the
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Exchange, make trading in the Shares
inadvisable. Finally, trading in the
Shares 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. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holding, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last-sale information for
the Shares.
Intraday, executable price quotations
on global sovereign debt obligations and
other assets are available from major
broker-dealer firms. Such intraday price
information is available through
subscription services, such as
Bloomberg, Thomson Reuters, and
International Data Corporation, which
can be accessed by authorized
participants and other investors.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of actively
managed exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change imposes any
burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
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Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2012–042 and should be submitted on
or before November 20, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–26639 Filed 10–29–12; 8:45 am]
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–BATS–2012–042 on the
subject line.
wreier-aviles on DSK7SPTVN1PROD with NOTICES
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:
Self-Regulatory Organizations; CBOE
Futures Exchange, LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Adopt and
Amend Certain Rules That Are
Applicable to Security Futures
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–BATS–2012–042. 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, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
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13:17 Oct 29, 2012
Jkt 229001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68100; File No. SR–CFE–
2012–001]
October 24, 2012.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
October 17, 2012, CBOE Futures
Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change described in
Items I, II, and III below, which Items
have been prepared by CFE. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons. CFE
also has filed this proposed rule change
with the Commodity Futures Trading
Commission (‘‘CFTC’’). CFE filed a
written certification with the CFTC
under Section 5c(c) of the Commodity
Exchange Act (‘‘CEA’’) 2 on October 2,
2012 for effectiveness on October 17,
2012.
I. Self-Regulatory Organization’s
Description of the Proposed Rule
Change
The Exchange proposes to adopt and
amend certain rules that are applicable
to security futures traded on CFE. The
only security futures currently traded on
CFE are traded under Chapter 16 of
CFE’s Rulebook which is applicable to
Individual Stock Based and ExchangeTraded Fund Based Volatility Index
(‘‘Volatility Index’’) security futures.
The rule amendments included as part
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(7).
2 7 U.S.C. 7a–2(c).
of this rule change relate generally to
improper trading practices,
recordkeeping, reporting, and
coordinated trading halts. The text of
the proposed rule change is attached as
Exhibit 4.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, CFE
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. CFE has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed CFE rule
amendments included as part of this
rule change is to amend CFE rules
consistent with the rules, acceptable
practices, and guidance adopted by the
Commodity Futures Trading
Commission (‘‘CFTC’’) under the
caption Core Principles and Other
Requirements for Designated Contract
Markets (‘‘DCMs’’) and published in the
Federal Register at 77 FR 36611 (June
19, 2012) (‘‘CFTC Rulemaking’’). The
rule amendments included as part of
this rule change are to apply to all
products traded on CFE, including both
non-security futures and security
futures. CFE is making these rule
amendments in conjunction with other
rule amendments being made by CFE
consistent with the CFTC Rulemaking
that are not required to be submitted to
the Commission pursuant to Section
19(b)(7) of the Act 3 and thus are not
included as part of this rule change.
Improper Trading Practices
CFE is proposing to add to its Rules
CFE Rule 616 relating to wash trades,
CFE Rule 617 relating to money passes,
CFE Rule 618 relating to
accommodation trading, and CFE Rule
619 relating to front-running. In
addition, CFE is proposing to add CFE
Rule 620 to its Rulebook in order to
specifically prohibit the disruptive
practices enumerated in Section 4c(a)(5)
of the Commodity Exchange Act,4
28 17
1 15
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
65747
3 15
47
U.S.C. 78s(b)(7).
U.S.C. 6c(a)(5).
E:\FR\FM\30OCN1.SGM
30OCN1
]]>Agencies
[Federal Register Volume 77, Number 210 (Tuesday, October 30, 2012)]
[Notices]
[Pages 65740-65747]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26639]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68094; File No. SR-BATS-2012-042]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Proposed Rule Change To List and Trade Shares of the iShares
Sovereign Screened Global Bond Fund
October 24, 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 October 12, 2012, BATS Exchange, Inc. (``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared substantially by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 65741]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to list and trade shares of the iShares
Sovereign Screened Global Bond Fund (``Fund'') of the iShares Sovereign
Screened Global Bond Fund, Inc. (``Company'') under BATS Rule 14.11(i)
(``Managed Fund Shares''). The shares of the Fund are collectively
referred to herein as the ``Shares.'' The text of the proposed rule
change is available at the Exchange's Web site at https://www.batstrading.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BATS Rule
14.11(i), which governs the listing and trading of Managed Fund Shares
on the Exchange.\3\ The Fund will be an actively managed ETF. The
Shares will be offered by the Company, which was established as a
Maryland corporation on December 2, 2011. The Company is registered
with the Commission as an open-end investment company and has filed a
registration statement on behalf of the Fund on Form N-1A
(``Registration Statement'') with the Commission.\4\
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\3\ The Commission approved BATS Rule 14.11(i) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018). Although the Fund would be
the first actively-managed exchange traded fund (``ETF'') listed on
the Exchange, the Commission has previously approved the listing and
trading of a number of actively managed ETFs on NYSE Arca, Inc.
pursuant to Rule 8.600 of that exchange. See, e.g., Securities
Exchange Act Release Nos. 66343 (February 7, 2012), 77 FR 7647
(February 13, 2012) (SR-NYSEArca-2011-85) (order approving listing
and trading of five actively managed ETFs); and 66345 (February 7,
2012), 77 FR 7643 (February 13, 2012) (SR-NYSEArca-2011-84) (order
approving listing and trading of three actively managed ETFs,
including Russell Bond ETF). The Exchange believes the proposed rule
change raises no significant issues not previously addressed in
those prior Commission orders.
\4\ See Registration Statement on Form N-1A for the Company,
dated March 5, 2012 (File Nos. 333-179905 and 811-22674). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement. The
Commission has issued an order granting certain exemptive relief to
the Company under the Investment Company Act of 1940 (15 U.S.C. 80a-
1) (``1940 Act'') (``Exemptive Order''). See Investment Company Act
Release No. 29571 (January 24, 2011) (File No. 812-13601).
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Description of the Shares and the Fund
BlackRock Fund Advisors is the investment adviser (``BFA'' or
``Adviser'') to the Fund.\5\ BlackRock International Limited serves as
sub-adviser for the Fund (``Sub-Adviser'').\6\ State Street Bank and
Trust Company is the administrator, custodian, and transfer agent for
the Company. BlackRock Investments, LLC (``Distributor'') serves as the
distributor for the Company.
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\5\ BlackRock Fund Advisors is an indirect wholly owned
subsidiary of BlackRock, Inc.
\6\ The Adviser manages the Fund's investments and its business
operations subject to the oversight of the Board of Directors of the
Company (``Board''). While BFA 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. Portfolio managers employed by the Adviser are generally
responsible for day-to-day management of the Fund and, as such,
typically make all decisions with respect to portfolio holdings. The
Adviser also has ongoing oversight responsibility. The Sub-Adviser,
subject to the supervision and oversight of the Board and BFA, will
be primarily responsible for execution of securities transactions
outside the United States and Canada and may, from time to time,
participate in the management of specified assets in the Fund's
portfolio. The Sub-Adviser may be responsible for the day-to-day
management of the Fund.
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BATS Rule 14.11(i)(7) provides that, if the investment adviser to
the investment company issuing Managed Fund Shares is affiliated with a
broker-dealer, such investment adviser shall erect a ``fire wall''
between the investment adviser and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
investment company portfolio.\7\ In addition, Rule 14.11(i)(7) 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 applicable investment company portfolio. Rule 14.11(i)(7) is
similar to BATS Rule 14.11(b)(5)(A)(i); however, Rule 14.11(i)(7) in
connection with the establishment of a ``fire wall'' between the
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case
with index-based funds. The Adviser and Sub-Adviser are both affiliated
with multiple broker-dealers and have both implemented ``fire walls''
with respect to such broker-dealers regarding access to information
concerning the composition and/or changes to the Fund's portfolio. In
addition, Adviser and Sub-Adviser personnel who make decisions
regarding the Fund's portfolio are subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the Fund's portfolio. In the event that (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,
they will implement a fire wall with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding such portfolio.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and 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.
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iShares Sovereign Screened Global Bond Fund
According to the Registration Statement, the Fund will seek to
generate current income while striving to mitigate downside risk by
investing principally in global sovereign debt obligations. To achieve
its objective, the Fund will invest, under normal
[[Page 65742]]
circumstances,\8\ at least 80% of its net assets in sovereign
government bonds from both developed and emerging market countries. 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.
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\8\ 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.
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The Fund will hold sovereign debt obligations 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.\9\ The Fund will not
invest in equity securities.
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\9\ See Form N-1A, Item 9. The Commission has taken the position
that a fund is concentrated if it invests more than 25% of the value
of its total assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975), 40 FR 54241
(November 21, 1975).
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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.\10\ 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 Subchapter M diversification tests generally require that (1)
the Fund invest no more than 25% of its total assets in securities
(other than securities of the U.S. government or other RICs) of any one
issuer or two or more issuers that are controlled by the Fund and that
are engaged in the same, similar, or related trades or businesses, and
(2) at least 50% of the Fund's total assets consist of cash and cash
items, U.S. government securities, securities of other RICs, and other
securities, with investments in such other securities limited in
respect of any one issuer to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer.
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\10\ 26 U.S.C. 851.
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Sovereign Debt
The Fund intends to achieve its investment objective by investing,
under normal circumstances, at least 80% of its net assets in bonds
denominated in local currencies and the U.S. dollar, issued by
governments in both developed and emerging market countries.
The Fund intends to maintain specific exposure to global government
bonds with targeted investment characteristics. The Adviser will
utilize a model-based proprietary investment process to assemble the
investment portfolio from a defined group of developed and emerging
market countries across all credit rating categories, including below
investment grade. The investment process primarily will utilize the
universe of sovereign debt issuers included in the BlackRock Sovereign
Risk Index, a proprietary model that scores countries using a
comprehensive list of relevant fiscal, financial, and institutional
metrics to assess sovereign credit risk. These country scores, along
with other model-driven factors, will be used to construct the Fund's
investment portfolio by screening out lower scoring countries and
weighting the remaining sovereigns based on their scores. As of July
31, 2012, there were 48 countries in the universe of eligible
countries, any of which may or may not be held by the Fund.\11\ This
proprietary investment process is intended to provide an increased
exposure to sovereign debt securities issued by countries with higher
credit quality, as defined by the model, than would a fund that seeks
to replicate the performance of a broad global government bond index
that is weighted more heavily towards countries based on their amount
of debt outstanding. As of July 31, 2012, the following countries were
included in the universe of eligible countries: Argentina, Australia,
Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Croatia, the
Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece,
Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines,
Poland, Portugal, Russia, South Africa, South Korea, Singapore,
Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, the United Kingdom, the United States, and Venezuela.\12\
Countries may be added to, eliminated from, or replaced in the universe
of eligible countries at any time, and the model may score countries
differently over time, which means that countries may be added to,
deleted from, or re-weighted within the model.
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\11\ Countries must have at least $5 billion of outstanding debt
principal amounts at the beginning of the calendar year in order to
be included in the eligible universe.
\12\ Each country's approximate value of outstanding debt
principal amounts as of July 31, 2012, is as follows (in billions):
Argentina $160; Australia $246; Austria $248; Belgium $421; Brazil
$498; Canada $865; Chile $58; China $1,216; Colombia $76; Croatia
$22; the Czech Republic $79; Denmark $133; Egypt $116; Finland $106;
France $1,696; Germany $1,347; Greece $169; Hungary $86; India $593;
Indonesia $112; Ireland $109; Israel $151; Italy $2,007; Japan
$11,554; Malaysia $142; Mexico $379; the Netherlands $384; New
Zealand $58; Norway $64; Peru $27; the Philippines $98; Poland $221;
Portugal $143; Russia $140; Singapore $136; Slovakia $40; Slovenia
$18; South Africa $138; South Korea $380; Spain $844; Sweden $143;
Switzerland $98; Taiwan $162; Thailand $104; Turkey $265; the United
Kingdom $1,878; the United States $10,743; and Venezuela $72.
---------------------------------------------------------------------------
The universe of sovereign debt currently includes securities that
are rated ``investment grade'' as well as ``below investment grade.''
\13\ The Fund intends to provide an increased exposure to sovereign
debt securities issued by countries with higher credit quality, as
defined by the model, than would a fund that seeks to replicate the
performance of a broad global government bond index that is weighted
more heavily toward countries based on their amount of debt
outstanding.\14\ The Fund expects that, under normal circumstances, the
securities included in the Fund will be primarily investment grade. As
of July 31, 2012, 97% of the securities in the BlackRock Sovereign Risk
Index were rated investment grade.
---------------------------------------------------------------------------
\13\ When constructing the model, the distribution of ratings
across issues in each country will be considered in order to ensure
that no single issue is over weighted and that the model is
diversified. The ratings-based caps will be imposed on a per country
basis, and will be generally as follows: AAA/AA=5%; A=4%; BBB=3%;
Junk=2% (ratings are averaged across Moody's and S&P).
\14\ The Fund will not invest in distressed debt.
---------------------------------------------------------------------------
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
[[Page 65743]]
the Fund's portfolio is expected to be 5-7 years, as calculated by the
Adviser.\15\
---------------------------------------------------------------------------
\15\ 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
While the Fund will invest at least 80% of its net assets in bonds
denominated in local currencies and the U.S. dollar, issued by
governments in both developed and emerging market countries, the
Adviser expects that, under normal market circumstances, the Fund also
intends to invest its remaining assets 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; 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.
Additionally, 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.\16\ The Fund will monitor
its portfolio liquidity on an ongoing basis to determine whether, in
light of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are held
in illiquid securities. Illiquid securities include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance.
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\16\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
---------------------------------------------------------------------------
Pursuant to the Exemptive Order, the Fund will not invest in swap
agreements, futures contracts, or option contracts. The Fund may invest
in currency forwards for hedging against foreign currency exchange rate
risk and/or trade settlement purposes.
The Shares
The Fund will issue and redeem Shares on a continuous basis at the
net asset value per share (``NAV'') \17\ only in large blocks of a
specified number of Shares or multiples thereof (``Creation Units'') in
transactions with authorized participants who have entered into
agreements with the Distributor. The Fund currently anticipates that a
Creation Unit will consist of 100,000 Shares, though this number may
change from time to time, including prior to the listing of the Fund.
The exact number of Shares that will comprise a Creation Unit will be
disclosed in the Registration Statement of the Fund. Once created,
Shares of the Fund trade on the secondary market in amounts less than a
Creation Unit.
---------------------------------------------------------------------------
\17\ 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
(``NAV Calculation Time''). NAV per Share is calculated by dividing
the Fund's net assets by the number of Fund Shares outstanding. For
more information regarding the valuation of Fund investments in
calculating the Fund's NAV, see the Registration Statement.
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The consideration for purchase of Creation Units of the Fund
generally will consist of the in-kind deposit of a designated portfolio
of securities (including any portion of such securities for which cash
may be substituted) (``Deposit Securities''), and the ``Cash
Component'' computed as described below. Together, the Deposit
Securities and the Cash Component constitute the ``Fund Deposit,''
which represents the minimum initial and subsequent investment amount
for a Creation Unit of the Fund.
The portfolio of securities required for purchase of a Creation
Unit may not be identical to the portfolio of securities the Fund will
deliver upon redemption of Fund Shares. The Deposit Securities and Fund
Securities (as defined below), as the case may be, in connection with a
purchase or redemption of a Creation Unit, generally will correspond
pro rata, to the extent practicable, to the securities held by the
Fund.
The Cash Component will be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the ``Deposit
Amount,'' which will be an amount equal to the market value of the
Deposit Securities, and serve to compensate for any differences between
the NAV per Creation Unit and the Deposit Amount. The Fund currently
will offer Creation Units for in-kind deposits, but reserves the right
to utilize a ``cash'' option in lieu of some or all of the applicable
Deposit Securities for creation of Shares.
BFA will make available through the National Securities Clearing
Corporation (``NSCC'') on each business day, prior to the opening of
business on the Exchange, the list of names and the required number or
par value of each Deposit Security and the amount of the Cash Component
to be included in the current Fund Deposit (based on information as of
the end of the previous business day) for the Fund.
The identity and number or par value of the Deposit Securities may
change pursuant to changes in the composition of the Fund's portfolio
as rebalancing adjustments and corporate action events occur from time
to time. The composition of the Deposit Securities may also change in
response to adjustments to the weighting or composition of the holdings
of the Fund.
The Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through
the Depository Trust Company (``DTC'') or the clearing process through
the NSCC.
Except as noted below, all creation orders must be placed for one
or more Creation Units and must be received by the Distributor in
proper form no later than 4:00 p.m., Eastern Time, in each case on the
date such order is placed in order for creation of Creation Units to be
effected based on the NAV of Shares of
[[Page 65744]]
the Fund as next determined on such date after receipt of the order in
proper form. Orders requesting substitution of a ``cash in lieu''
amount generally must be received by the Distributor no later than 2:00
p.m., Eastern Time on the Settlement Date. The ``Settlement Date'' is
generally the third business day after the transmittal date. On days
when the Exchange or the bond markets close earlier than normal, the
Fund may require orders to create or to redeem Creation Units to be
placed earlier in the day.
Fund Deposits must be delivered through the Federal Reserve System
(for cash and government securities), through DTC (for corporate and
municipal securities), or through a central depository account, such as
with Euroclear or DTC, maintained by State Street or a sub-custodian
(``Central Depository Account'') by an authorized participant. Any
portion of a Fund Deposit that may not be delivered through the Federal
Reserve System or DTC must be delivered through a Central Depository
Account. The Fund Deposit transfer must be ordered by the authorized
participant in a timely fashion so as to ensure the delivery of the
requisite number of Deposit Securities to the account of the Fund by no
later than 3:00 p.m., Eastern Time on the Settlement Date.
A standard creation transaction fee will be imposed to offset the
transfer and other transaction costs associated with the issuance of
Creation Units.
Shares of the Fund may be redeemed only in Creation Units at their
NAV next determined after receipt of a redemption request in proper
form by the Distributor and only on a business day. BFA will make
available through the NSCC, prior to the opening of business on the
Exchange on each business day, the designated portfolio of securities
(including any portion of such securities for which cash may be
substituted) that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day
(``Fund Securities''). Fund Securities received on redemption may not
be identical to Deposit Securities that are applicable to creations of
Creation Units.
Unless cash redemptions are available or specified for the Fund,
the redemption proceeds for a Creation Unit generally will consist of a
specified amount of cash, Fund Securities, plus additional cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after the receipt of a request in proper
form, and the value of the specified amount of cash and Fund
Securities, less a redemption transaction fee. The Fund currently will
redeem Shares for Fund Securities, but the Fund reserves the right to
utilize a ``cash'' option for redemption of Shares.
A standard redemption transaction fee will be imposed to offset
transfer and other transaction costs that may be incurred by the Fund.
Redemption requests for Creation Units of the Fund must be
submitted to the Distributor by or through an authorized participant no
later than 4:00 p.m., Eastern Time on any business day in order to
receive that day's NAV. The authorized participant must transmit the
request for redemption in the form required by the Fund to the
Distributor in accordance with procedures set forth in the authorized
participant agreement.
Additional information regarding the Shares and the Fund, including
investment strategies, risks, creation and redemption procedures, fees
and expenses, portfolio holdings disclosure policies, distributions,
taxes, and reports to be distributed to beneficial owners of the Shares
can be found in the Registration Statement or on the Web site for the
Fund (www.iShares.com), as applicable.
Availability of Information
The Fund's Web site, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Fund that may be downloaded. The Web site will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) the prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (``Bid/Ask
Price''),\18\ daily trading volume, and a calculation of the premium
and discount of the Bid/Ask Price against the NAV; and (2) data in
chart format displaying the frequency distribution of discounts and
premiums of the daily Bid/Ask Price against the NAV, within appropriate
ranges, for each of the four previous calendar quarters. Daily trading
volume information will be available in the financial section of
newspapers, through subscription services such as Bloomberg, Thomson
Reuters, and International Data Corporation, which can be accessed by
authorized participants and other investors, as well as through other
electronic services, including major public Web sites. On each business
day, before commencement of trading in Shares during Regular Trading
Hours \19\on the Exchange, the Fund will disclose on its Web site the
identities and quantities of the portfolio of securities and other
assets (``Disclosed Portfolio'') held by the Fund that will form the
basis for the Fund's calculation of NAV at the end of the business
day.\20\ 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 and information will be publicly available at
no charge.
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\18\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\19\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m., Eastern
Time.
\20\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on such business day. Accordingly, the
Fund will be able to disclose at the beginning of the business day
the portfolio that will form the basis for the NAV calculation at
the end of the business day.
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In addition, for the Fund, an estimated value, defined in BATS Rule
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's portfolio, will be disseminated.
Moreover, the Intraday Indicative Value will be based upon the current
value for the components of the Disclosed Portfolio and 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.\21\
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. Further,
there may be periods of time during Regular Trading Hours during which
the Intraday Indicative Value would be static to the extent securities
that comprise the Fund's holdings are not actively trading.
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\21\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
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The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and provide a
close estimate of that value throughout the trading day.
Intraday, executable price quotations on sovereign bonds and other
assets are available from major broker-dealer firms. Such intraday
price information
[[Page 65745]]
is available through subscription services, such as Bloomberg, Thomson
Reuters, and International Data Corporation, which can be accessed by
authorized participants and other investors.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
Quotation and last-sale information for the Shares will be available on
the facilities of the CTA.
Initial and Continued Listing
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. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 under the
Act.\22\ A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
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\22\ See 17 CFR 240.10A-3.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. The Exchange will halt trading in
the Shares under the conditions specified in BATS Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments comprising the Disclosed
Portfolio of the Fund; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BATS will allow
trading in the Shares from 8:00 a.m. until 5:00 p.m., Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BATS Rule 11.11(a), the
minimum price variation for quoting and entry of orders in Managed Fund
Shares traded on the Exchange is $0.01, with the exception of
securities that are priced less than $1.00, for which the minimum price
variation for order entry is $0.0001.
Surveillance
The Exchange believes that its surveillance procedures 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 the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Fund Shares. The
Exchange may obtain information via the Intermarket Surveillance Group
(``ISG'') from other exchanges who are members or affiliates of the ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\23\ The Exchange prohibits the
distribution of material, non-public information by its employees.
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\23\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) BATS Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value is disseminated; (4) the risks involved
in trading the Shares during the Pre-Opening \24\ and After Hours
Trading Sessions \25\ when an updated Intraday Indicative Value will
not be calculated or publicly disseminated; (5) a reminder that there
may be periods of time during Regular Trading Hours during which the
Intraday Indicative Value would be static to the extent securities that
comprise the Fund's holdings are not actively trading; (6) the
requirement that members deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (7) trading information.
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\24\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.,
Eastern Time.
\25\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m., Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
In addition, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site. In addition, the Information Circular will reference that the
Company is subject to various fees and expenses described in the Fund's
Registration Statement.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \26\ in general and Section 6(b)(5) of the Act \27\ in
particular in that it is 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.
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\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in BATS Rule 14.11(i). The
Exchange believes that its surveillance procedures are adequate to
[[Page 65746]]
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. If the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser to the investment adviser
[sic] shall erect a ``fire wall'' between the investment adviser and
the broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio. The
Adviser and Sub-Adviser are both affiliated with multiple broker-
dealers and 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. The Exchange may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.
According to the Registration Statement, the Fund expects that it
will have at least 80% of its assets invested in sovereign bonds. The
Fund's exposure to any single industry will generally be limited to 25%
of the Fund's assets. Countries must have at least $5 billion of
outstanding debt principal amounts at the beginning of the calendar
year in order to be included in the eligible universe. The Fund expects
that, under normal circumstances, the securities included in the Fund
will be primarily investment grade. As of July 31, 2012, 97% of the
securities in the BlackRock Sovereign Risk Index were rated investment
grade. The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. The Fund
also may invest its net assets in money market instruments at the
discretion of the Adviser or Sub-Adviser.
Additionally, 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. Illiquid securities include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance.
Pursuant to the Exemptive Order, the Fund will not invest in swap
agreements, futures contracts, or option contracts. The Fund may invest
in currency forwards for hedging against foreign currency exchange rate
risk and/or trade settlement purposes.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Moreover, the Intraday
Indicative Value will be disseminated by one or more major market data
vendors at least every 15 seconds during Regular Trading Hours. 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 NAV at
the end of the business day. Pricing information will be available on
the Fund's Web site including: (1) The prior business day's reported
NAV, the Bid/Ask Price of the Fund, daily trading volume, and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. Additionally, information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last-sale information for
the Shares will be available on the facilities of the CTA, which
contain information for widely followed indexes and securities traded
on the Exchange. The Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. Trading in Shares of the Fund will
be halted under the conditions specified in BATS Rule 11.18. Trading
may also be halted because of market conditions or for reasons that, in
the view of the Exchange, make trading in the Shares inadvisable.
Finally, trading in the Shares 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. In addition, as noted above, investors will
have ready access to information regarding the Fund's holding, the
Intraday Indicative Value, the Disclosed Portfolio, and quotation and
last-sale information for the Shares.
Intraday, executable price quotations on global sovereign debt
obligations and other assets are available from major broker-dealer
firms. Such intraday price information is available through
subscription services, such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Intraday Indicative Value, the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal
[[Page 65747]]
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2012-042 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-BATS-2012-042. 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, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2012-042 and should be
submitted on or before November 20, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26639 Filed 10-29-12; 8:45 am]
BILLING CODE 8011-01-P
