Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to ALPS ETF Trust, ALPS/GS Momentum Builder Growth Markets Equities and U.S. Treasuries Index ETF, ALPS/GS Momentum Builder Multi-Asset Index ETF, and ALPS/GS Momentum Builder Asia ex-Japan Equities and U.S. Treasuries Index ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M, 76106-76108 [2012-30889]
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76106
Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Fund of Funds in the Fund. The Board
will consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
Beneficial Owners.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities
were acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in the Shares of a
Fund in excess of the limits in section
12(d)(1)(A), a Fund of Funds will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisers or trustee
and Sponsor, as applicable, understand
the terms and conditions of the Order,
and agree to fulfill their responsibilities
under the Order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will
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notify the Fund of the investment. At
such time, the Fund of Funds will also
transmit to the Fund a list of the names
of each Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Fund of Funds will
maintain and preserve a copy of the
Order, the FOF Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30893 Filed 12–21–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
FEDERAL REGISTERCITATION OF PREVIOUS
ANNOUNCEMENT: [77 FR 74894, December
18, 2012].
Closed Meeting.
PLACE: 100 F Street, NE., Washington,
DC.
STATUS:
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DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: Thursday, December 20, 2012
at 2:00 p.m.
Time Change.
The Closed Meeting scheduled for
Thursday, December 20, 2012 at 2:00
p.m. was changed to Thursday,
December 20, 2012 at 9:00 a.m.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items. For further
information and to ascertain what, if
any, matters have been added, deleted
or postponed, please contact the Office
of the Secretary at (202) 551–5400.
CHANGE IN THE MEETING:
Dated: December 20, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–31030 Filed 12–20–12; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68459; File No. TP 13–02]
Order Granting Limited Exemptions
From Exchange Act Rule 10b–17 and
Rules 101 and 102 of Regulation M to
ALPS ETF Trust, ALPS/GS Momentum
Builder Growth Markets Equities and
U.S. Treasuries Index ETF, ALPS/GS
Momentum Builder Multi-Asset Index
ETF, and ALPS/GS Momentum Builder
Asia ex-Japan Equities and U.S.
Treasuries Index ETF Pursuant to
Exchange Act Rule 10b–17(b)(2) and
Rules 101(d) and 102(e) of Regulation
M
December 18, 2012.
By letter dated December 18, 2012
(the ‘‘Letter’’), as supplemented by
conversations with the staff of the
Division of Trading and Markets,
counsel for ALPS ETF Trust (the
‘‘Trust’’) on behalf of the Trust, ALPS/
GS Momentum Builder Growth Markets
Equities and U.S. Treasuries Index ETF,
ALPS/GS Momentum Builder MultiAsset Index ETF, and ALPS/GS
Momentum Builder Asia ex-Japan
Equities and U.S. Treasuries Index ETF
(each a ‘‘Fund’’ and, collectively, the
‘‘Funds’’), any national securities
exchange on or through which shares
issued by the Funds (‘‘Shares’’) may
subsequently trade, and persons or
entities engaging in transactions in
Shares (collectively, the ‘‘Requestors’’)
requested exemptions, or interpretive or
no-action relief, from Rule 10b–17 of the
Securities Exchange Act of 1934, as
amended (‘‘Exchange Act’’) and Rules
101 and 102 of Regulation M in
connection with secondary market
transactions in Shares and the creation
or redemption of aggregations of Shares
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Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
tkelley on DSK3SPTVN1PROD with
of at least 50,000 shares (‘‘Creation
Units’’).
The Trust is registered with the
Commission under the Investment
Company Act of 1940, as amended
(‘‘1940 Act’’) as an open-end
management investment company. Each
Fund seeks to track the performance of
a particular underlying index (‘‘Index’’),
which for each Fund is comprised of
shares of exchange traded products
(‘‘ETPs’’) (primarily exchange-traded
funds, or ‘‘ETFs,’’ but also some
exchange-traded commodity pools).
Using a methodology developed by the
index provider, each Index seeks to
provide exposure to price momentum of
certain equity markets and U.S. fixed
income markets by reflecting the
combination of weightings of the ETPs
that underlie each Index that would
have provided the highest six-month
historical return, subject to constraints
on maximum and minimum weights
and volatility controls.1 The Index is
rebalanced monthly, but may also be
rebalanced as frequently as daily if the
daily volatility control is triggered.2
Each Fund intends to operate as an
‘‘ETF of ETFs’’ by seeking to track the
performance of its underlying Index in
investing at least 80% of its assets in the
ETPs that comprise each Index. Except
for the fact that the Funds will operate
as ETFs of ETFs, the Funds will operate
in a manner identical to the ETPs that
comprise each Index.
The Requestors represent, among
other things, the following:
• Shares of the Funds will be issued
by the Trust, an open-end management
investment company that is registered
with the Commission;
• The Trust will continuously redeem
Creation Units at net asset value
(‘‘NAV’’) and the secondary market
price of the Shares should not vary
substantially from the NAV of such
Shares;
• Shares of the Funds will be listed
and traded on the NYSE Arca (the
‘‘Exchange’’) or other exchange in
accordance with exchange listing
standards that are, or will become,
effective pursuant to Section 19(b) of the
Exchange Act;
• All ETPs in which the Funds are
invested will meet all conditions set
forth in a relevant class relief letter,3 or
will have received individual relief from
the Commission; 4
• At least 70% of each Fund is
comprised of component securities that
meet the minimum public float and
minimum average daily trading volume
thresholds under the ‘‘actively-traded
securities’’ definition found in
Regulation M for excepted securities
during each of the previous two months
of trading prior to formation of the
relevant Fund; provided, however, that
if the Fund has 200 or more component
securities, then 50% of the component
securities must meet the actively-traded
securities thresholds;
• All the components of each Index
will have publicly available last sale
trade information;
• The intra-day proxy value of each
Fund per share and the value of each
Index will be publicly disseminated by
a major market data vendor throughout
the trading day;
• On each business day before the
opening of business on the Exchange,
the Funds’ custodian, through the
National Securities Clearing
Corporation, will make available the list
of the names and the numbers of
securities and other assets of each
Fund’s portfolio that will be applicable
1 Two levels of volatility control are applied. The
monthly volatility control is performed on each
monthly rebalancing date and sets a maximum limit
on the annualized historic six-month ‘‘realized’’
volatility of any selected combination of ETF
weights. Each Index is then rebalanced at that time
to reflect such limit. The daily volatility control
rebalances a portion or all of the current Index
components into short-term fixed income ETFs in
order to reduce volatility when the annualized
historic three-month volatility of the current Index
components exceeds a predetermined level.
Following any rebalance resulting from the Index
components’ volatility exceeding such level, each
Index is rebalanced into its prior composition when
the annualized historic three-month volatility of
such composition declines below the
predetermined level.
2 The Requestors represented to the staff of the
Division of Trading and Markets that, with regards
to these volatility controls, (1) if they trigger a
rebalance, the rebalance will be posted three days
in advance to the relevant Web site by the
calculation agent and (2) based on historical
backtesting performed by the Index Provider, the
daily volatility control would only have been
triggered in the past under rare circumstances.
3 Letter from Catherine McGuire, Esq., Chief
Counsel, Division of Market Regulation, to the
Securities Industry Association Derivative Products
Committee (November 21, 2005); Letter from
Racquel L. Russell, Branch Chief, Division of
Market Regulation, to George T. Simon, Esq., Foley
& Lardner LLP (June 21, 2006); Letter from James
A. Brigagliano, Acting Associate Director, Division
of Market Regulation, to Stuart M. Strauss, Esq.,
Clifford Chance US LLP (October 24, 2006); Letter
from James A. Brigagliano, Associate Director,
Division of Market Regulation, to Benjamin Haskin,
Esq., Willkie, Farr & Gallagher LLP (April 9, 2007);
or Letter from Josephine Tao, Associate Director,
Division of Trading and Markets, to Domenick
Pugliese, Esq., Paul, Hastings, Janofsky and Walker
LLP (June 27, 2007).
4 One Underlying ETF is an actively-managed
ETF and has received individual relief, but also is
entitled to rely in part on a prior letter from
Josephine Tao, Associate Director, Division of
Trading and Markets, to Richard F. Morris of
WisdomTree Asset Management, Inc., dated May 9,
2008, with respect to relief regarding Section
11(d)(1) of the Exchange Act and Rules 10b–10,
11d1–2, 15c1–5, and 15c1–6 under the Exchange
Act.
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76107
that day to creation and redemption
requests;
• The Exchange or other market
information provider will disseminate
every 15 seconds throughout the trading
day through the facilities of the
Consolidated Tape Association an
amount representing on a per-share
basis, the current value of the securities
and cash to be deposited as
consideration for the purchase of
Creation Units;
• The arbitrage mechanism will be
facilitated by the transparency of the
Funds’ portfolio and the availability of
the intra-day indicative value, the
liquidity of securities and other assets
held by the Funds, ability to acquire
such securities, as well as the
arbitrageurs’ ability to create workable
hedges;
• The Funds will invest solely in
liquid securities;
• The Funds will invest in securities
that will facilitate an effective and
efficient arbitrage mechanism and the
ability to create workable hedges;
• The Requestors believe that
arbitrageurs are expected to take
advantage of price variations between
each Fund’s market price and its NAV;
and
• A close alignment between the
market price of Shares and each Fund’s
NAV is expected.
Regulation M
While redeemable securities issued by
an open-end management investment
company are excepted from the
provisions of Rule 101 and 102 of
Regulation M, the Requestors may not
rely upon that exception for the Shares.5
However, we find that it is appropriate
in the public interest and is consistent
with the protection of investors to grant
a conditional exception from Rules 101
and 102 to persons who may be deemed
to be participating in a distribution of
Shares and the Funds as described in
more detail below.
Rule 101 of Regulation M
Generally, Rule 101 of Regulation M
is an anti-manipulation rule that,
subject to certain exceptions, prohibits
any ‘‘distribution participant’’ and its
‘‘affiliated purchasers’’ from bidding for,
purchasing, or attempting to induce any
person to bid for or purchase any
security which is the subject of a
distribution until after the applicable
restricted period, except as specifically
permitted in the rule. Rule 100 of
5 While ETFs operate under exemptions from the
definitions of ‘‘open-end company’’ under Section
5(a)(1) of the 1940 Act and ‘‘redeemable security’’
under Section 2(a)(32) of the 1940 Act, the Funds
and their securities do not meet those definitions.
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Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
Regulation M defines ‘‘distribution’’ to
mean any offering of securities that is
distinguished from ordinary trading
transactions by the magnitude of the
offering and the presence of special
selling efforts and selling methods. The
provisions of Rule 101 of Regulation M
apply to underwriters, prospective
underwriters, brokers, dealers, or other
persons who have agreed to participate
or are participating in a distribution of
securities. The Shares are in a
continuous distribution and, as such,
the restricted period in which
distribution participants and their
affiliated purchasers are prohibited from
bidding for, purchasing, or attempting to
induce others to bid for or purchase
extends indefinitely.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
management investment company that
will continuously redeem at the NAV
Creation Unit size aggregations of the
Shares of the Funds and that a close
alignment between the market price of
Shares and each Fund’s NAV is
expected, the Commission finds that it
is appropriate in the public interest and
consistent with the protection of
investors to grant the Trust an
exemption under paragraph (d) of Rule
101 of Regulation M with respect to the
Funds, thus permitting persons
participating in a distribution of Shares
of the Funds to bid for or purchase such
Shares during their participation in
such distribution.6
Rule 102 of Regulation M
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Rule 102 of Regulation M prohibits
issuers, selling security holders, or any
affiliated purchaser of such person from
bidding for, purchasing, or attempting to
induce any person to bid for or purchase
a covered security during the applicable
restricted period in connection with a
distribution of securities effected by or
on behalf of an issuer or selling security
holder.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
management investment company that
will redeem at the NAV Creation Units
of Shares of the Funds and that a close
alignment between the market price of
Shares and each Fund’s NAV is
expected, the Commission finds that it
6 Additionally, we confirm the interpretation that
a redemption of Creation Unit size aggregations of
Shares of the Fund and the receipt of securities in
exchange by a participant in a distribution of Shares
of the Fund would not constitute an ‘‘attempt to
induce any person to bid for or purchase, a covered
security during the applicable restricted period’’
within the meaning of Rule 101 of Regulation M
and therefore would not violate that rule.
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Jkt 229001
is appropriate in the public interest and
consistent with the protection of
investors to grant the Trust an
exemption under paragraph (e) of Rule
102 of Regulation M with respect to the
Funds, thus permitting the Funds to
redeem Shares of the Funds during the
continuous offering of such Shares.
Rule 10b–17
Rule 10b–17, with certain exceptions,
requires an issuer of a class of publicly
traded securities to give notice of certain
specified actions (for example, a
dividend distribution) relating to such
class of securities in accordance with
Rule 10b–17(b). Based on the
representations and facts in the Letter,
and subject to the conditions below, we
find that it is appropriate in the public
interest, and consistent with the
protection of investors to grant the Trust
a conditional exemption from Rule 10b–
17 because market participants will
receive timely notification of the
existence and timing of a pending
distribution, and thus the concerns that
the Commission raised in adopting Rule
10b–17 will not be implicated.7
Conclusion
It is hereby ordered, pursuant to Rule
101(d) of Regulation M, that the Trust,
based on the representations and facts
presented in the Letter is exempt from
the requirements of Rule 101 with
respect to the Funds, thus permitting
persons who may be deemed to be
participating in a distribution of Shares
of the Funds to bid for or purchase such
Shares during their participation in
such distribution.
It is further ordered, pursuant to Rule
102(e) of Regulation M, that the Trust,
based on the representations and the
facts presented in the Letter, is exempt
from the requirements of Rule 102 with
respect to the Funds, thus permitting
the Funds to redeem Shares of the
Funds during the continuous offering of
such Shares.
It is further ordered, pursuant to Rule
10b–17(b)(2), that the Trust, based on
the representations and the facts
presented in the Letter and subject to
the conditions below, is exempt from
the requirements of Rule 10b–17 with
respect to transactions in the shares of
the Funds.
This exemptive relief is subject to the
following conditions:
7 We also note that timely compliance with Rule
10b–17(b)(1)(v)(a) and (b) would be impractical in
light of the nature of the Fund. This is because it
is not possible for the Fund to accurately project ten
days in advance what dividend, if any, would be
paid on a particular record date.
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• The Trust will comply with Rule
10b–17 except for Rule 10b–
17(b)(1)(v)(a) and (b); and
• The Trust will provide the
information required by Rule 10b–
17(b)(1)(v)(a) and (b) to the Exchange as
soon as practicable before trading begins
on the ex-dividend date, but in no event
later than the time when the Exchange
last accepts information relating to
distributions on the day before the exdividend date.
This exemptive relief is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. Persons relying upon this
exemption shall discontinue
transactions involving the Shares of the
Funds under the circumstances
described above and in the Letter,
pending presentation of the facts for the
Commission’s consideration, in the
event that any material change occurs
with respect to any of the facts or
representations made by the Requestors.
In addition, persons relying on this
exemption are directed to the anti-fraud
and anti-manipulation provisions of the
Exchange Act, particularly Sections 9(a),
10(b), and Rule 10b–5 thereunder.
Responsibility for compliance with
these and any other applicable
provisions of the federal securities laws
must rest with the persons relying on
this exemption. This order should not
be considered a view with respect to
any other question that the proposed
transactions may raise, including, but
not limited to the adequacy of the
disclosure concerning, and the
applicability of other federal or state
laws to, the proposed transactions.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30889 Filed 12–21–12; 8:45 am]
BILLING CODE 8011–01–P
8 17
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CFR 200.30–3(a)(6) and (9).
26DEN1
]]>Agencies
[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76106-76108]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30889]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68459; File No. TP 13-02]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to ALPS ETF Trust, ALPS/GS
Momentum Builder Growth Markets Equities and U.S. Treasuries Index ETF,
ALPS/GS Momentum Builder Multi-Asset Index ETF, and ALPS/GS Momentum
Builder Asia ex-Japan Equities and U.S. Treasuries Index ETF Pursuant
to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of
Regulation M
December 18, 2012.
By letter dated December 18, 2012 (the ``Letter''), as supplemented
by conversations with the staff of the Division of Trading and Markets,
counsel for ALPS ETF Trust (the ``Trust'') on behalf of the Trust,
ALPS/GS Momentum Builder Growth Markets Equities and U.S. Treasuries
Index ETF, ALPS/GS Momentum Builder Multi-Asset Index ETF, and ALPS/GS
Momentum Builder Asia ex-Japan Equities and U.S. Treasuries Index ETF
(each a ``Fund'' and, collectively, the ``Funds''), any national
securities exchange on or through which shares issued by the Funds
(``Shares'') may subsequently trade, and persons or entities engaging
in transactions in Shares (collectively, the ``Requestors'') requested
exemptions, or interpretive or no-action relief, from Rule 10b-17 of
the Securities Exchange Act of 1934, as amended (``Exchange Act'') and
Rules 101 and 102 of Regulation M in connection with secondary market
transactions in Shares and the creation or redemption of aggregations
of Shares
[[Page 76107]]
of at least 50,000 shares (``Creation Units'').
The Trust is registered with the Commission under the Investment
Company Act of 1940, as amended (``1940 Act'') as an open-end
management investment company. Each Fund seeks to track the performance
of a particular underlying index (``Index''), which for each Fund is
comprised of shares of exchange traded products (``ETPs'') (primarily
exchange-traded funds, or ``ETFs,'' but also some exchange-traded
commodity pools). Using a methodology developed by the index provider,
each Index seeks to provide exposure to price momentum of certain
equity markets and U.S. fixed income markets by reflecting the
combination of weightings of the ETPs that underlie each Index that
would have provided the highest six-month historical return, subject to
constraints on maximum and minimum weights and volatility controls.\1\
The Index is rebalanced monthly, but may also be rebalanced as
frequently as daily if the daily volatility control is triggered.\2\
Each Fund intends to operate as an ``ETF of ETFs'' by seeking to track
the performance of its underlying Index in investing at least 80% of
its assets in the ETPs that comprise each Index. Except for the fact
that the Funds will operate as ETFs of ETFs, the Funds will operate in
a manner identical to the ETPs that comprise each Index.
---------------------------------------------------------------------------
\1\ Two levels of volatility control are applied. The monthly
volatility control is performed on each monthly rebalancing date and
sets a maximum limit on the annualized historic six-month
``realized'' volatility of any selected combination of ETF weights.
Each Index is then rebalanced at that time to reflect such limit.
The daily volatility control rebalances a portion or all of the
current Index components into short-term fixed income ETFs in order
to reduce volatility when the annualized historic three-month
volatility of the current Index components exceeds a predetermined
level. Following any rebalance resulting from the Index components'
volatility exceeding such level, each Index is rebalanced into its
prior composition when the annualized historic three-month
volatility of such composition declines below the predetermined
level.
\2\ The Requestors represented to the staff of the Division of
Trading and Markets that, with regards to these volatility controls,
(1) if they trigger a rebalance, the rebalance will be posted three
days in advance to the relevant Web site by the calculation agent
and (2) based on historical backtesting performed by the Index
Provider, the daily volatility control would only have been
triggered in the past under rare circumstances.
---------------------------------------------------------------------------
The Requestors represent, among other things, the following:
Shares of the Funds will be issued by the Trust, an open-
end management investment company that is registered with the
Commission;
The Trust will continuously redeem Creation Units at net
asset value (``NAV'') and the secondary market price of the Shares
should not vary substantially from the NAV of such Shares;
Shares of the Funds will be listed and traded on the NYSE
Arca (the ``Exchange'') or other exchange in accordance with exchange
listing standards that are, or will become, effective pursuant to
Section 19(b) of the Exchange Act;
All ETPs in which the Funds are invested will meet all
conditions set forth in a relevant class relief letter,\3\ or will have
received individual relief from the Commission; \4\
---------------------------------------------------------------------------
\3\ Letter from Catherine McGuire, Esq., Chief Counsel, Division
of Market Regulation, to the Securities Industry Association
Derivative Products Committee (November 21, 2005); Letter from
Racquel L. Russell, Branch Chief, Division of Market Regulation, to
George T. Simon, Esq., Foley & Lardner LLP (June 21, 2006); Letter
from James A. Brigagliano, Acting Associate Director, Division of
Market Regulation, to Stuart M. Strauss, Esq., Clifford Chance US
LLP (October 24, 2006); Letter from James A. Brigagliano, Associate
Director, Division of Market Regulation, to Benjamin Haskin, Esq.,
Willkie, Farr & Gallagher LLP (April 9, 2007); or Letter from
Josephine Tao, Associate Director, Division of Trading and Markets,
to Domenick Pugliese, Esq., Paul, Hastings, Janofsky and Walker LLP
(June 27, 2007).
\4\ One Underlying ETF is an actively-managed ETF and has
received individual relief, but also is entitled to rely in part on
a prior letter from Josephine Tao, Associate Director, Division of
Trading and Markets, to Richard F. Morris of WisdomTree Asset
Management, Inc., dated May 9, 2008, with respect to relief
regarding Section 11(d)(1) of the Exchange Act and Rules 10b-10,
11d1-2, 15c1-5, and 15c1-6 under the Exchange Act.
---------------------------------------------------------------------------
At least 70% of each Fund is comprised of component
securities that meet the minimum public float and minimum average daily
trading volume thresholds under the ``actively-traded securities''
definition found in Regulation M for excepted securities during each of
the previous two months of trading prior to formation of the relevant
Fund; provided, however, that if the Fund has 200 or more component
securities, then 50% of the component securities must meet the
actively-traded securities thresholds;
All the components of each Index will have publicly
available last sale trade information;
The intra-day proxy value of each Fund per share and the
value of each Index will be publicly disseminated by a major market
data vendor throughout the trading day;
On each business day before the opening of business on the
Exchange, the Funds' custodian, through the National Securities
Clearing Corporation, will make available the list of the names and the
numbers of securities and other assets of each Fund's portfolio that
will be applicable that day to creation and redemption requests;
The Exchange or other market information provider will
disseminate every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association an amount representing
on a per-share basis, the current value of the securities and cash to
be deposited as consideration for the purchase of Creation Units;
The arbitrage mechanism will be facilitated by the
transparency of the Funds' portfolio and the availability of the intra-
day indicative value, the liquidity of securities and other assets held
by the Funds, ability to acquire such securities, as well as the
arbitrageurs' ability to create workable hedges;
The Funds will invest solely in liquid securities;
The Funds will invest in securities that will facilitate
an effective and efficient arbitrage mechanism and the ability to
create workable hedges;
The Requestors believe that arbitrageurs are expected to
take advantage of price variations between each Fund's market price and
its NAV; and
A close alignment between the market price of Shares and
each Fund's NAV is expected.
Regulation M
While redeemable securities issued by an open-end management
investment company are excepted from the provisions of Rule 101 and 102
of Regulation M, the Requestors may not rely upon that exception for
the Shares.\5\ However, we find that it is appropriate in the public
interest and is consistent with the protection of investors to grant a
conditional exception from Rules 101 and 102 to persons who may be
deemed to be participating in a distribution of Shares and the Funds as
described in more detail below.
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\5\ While ETFs operate under exemptions from the definitions of
``open-end company'' under Section 5(a)(1) of the 1940 Act and
``redeemable security'' under Section 2(a)(32) of the 1940 Act, the
Funds and their securities do not meet those definitions.
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Rule 101 of Regulation M
Generally, Rule 101 of Regulation M is an anti-manipulation rule
that, subject to certain exceptions, prohibits any ``distribution
participant'' and its ``affiliated purchasers'' from bidding for,
purchasing, or attempting to induce any person to bid for or purchase
any security which is the subject of a distribution until after the
applicable restricted period, except as specifically permitted in the
rule. Rule 100 of
[[Page 76108]]
Regulation M defines ``distribution'' to mean any offering of
securities that is distinguished from ordinary trading transactions by
the magnitude of the offering and the presence of special selling
efforts and selling methods. The provisions of Rule 101 of Regulation M
apply to underwriters, prospective underwriters, brokers, dealers, or
other persons who have agreed to participate or are participating in a
distribution of securities. The Shares are in a continuous distribution
and, as such, the restricted period in which distribution participants
and their affiliated purchasers are prohibited from bidding for,
purchasing, or attempting to induce others to bid for or purchase
extends indefinitely.
Based on the representations and facts presented in the Letter,
particularly that the Trust is a registered open-end management
investment company that will continuously redeem at the NAV Creation
Unit size aggregations of the Shares of the Funds and that a close
alignment between the market price of Shares and each Fund's NAV is
expected, the Commission finds that it is appropriate in the public
interest and consistent with the protection of investors to grant the
Trust an exemption under paragraph (d) of Rule 101 of Regulation M with
respect to the Funds, thus permitting persons participating in a
distribution of Shares of the Funds to bid for or purchase such Shares
during their participation in such distribution.\6\
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\6\ Additionally, we confirm the interpretation that a
redemption of Creation Unit size aggregations of Shares of the Fund
and the receipt of securities in exchange by a participant in a
distribution of Shares of the Fund would not constitute an ``attempt
to induce any person to bid for or purchase, a covered security
during the applicable restricted period'' within the meaning of Rule
101 of Regulation M and therefore would not violate that rule.
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Rule 102 of Regulation M
Rule 102 of Regulation M prohibits issuers, selling security
holders, or any affiliated purchaser of such person from bidding for,
purchasing, or attempting to induce any person to bid for or purchase a
covered security during the applicable restricted period in connection
with a distribution of securities effected by or on behalf of an issuer
or selling security holder.
Based on the representations and facts presented in the Letter,
particularly that the Trust is a registered open-end management
investment company that will redeem at the NAV Creation Units of Shares
of the Funds and that a close alignment between the market price of
Shares and each Fund's NAV is expected, the Commission finds that it is
appropriate in the public interest and consistent with the protection
of investors to grant the Trust an exemption under paragraph (e) of
Rule 102 of Regulation M with respect to the Funds, thus permitting the
Funds to redeem Shares of the Funds during the continuous offering of
such Shares.
Rule 10b-17
Rule 10b-17, with certain exceptions, requires an issuer of a class
of publicly traded securities to give notice of certain specified
actions (for example, a dividend distribution) relating to such class
of securities in accordance with Rule 10b-17(b). Based on the
representations and facts in the Letter, and subject to the conditions
below, we find that it is appropriate in the public interest, and
consistent with the protection of investors to grant the Trust a
conditional exemption from Rule 10b-17 because market participants will
receive timely notification of the existence and timing of a pending
distribution, and thus the concerns that the Commission raised in
adopting Rule 10b-17 will not be implicated.\7\
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\7\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature
of the Fund. This is because it is not possible for the Fund to
accurately project ten days in advance what dividend, if any, would
be paid on a particular record date.
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Conclusion
It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that
the Trust, based on the representations and facts presented in the
Letter is exempt from the requirements of Rule 101 with respect to the
Funds, thus permitting persons who may be deemed to be participating in
a distribution of Shares of the Funds to bid for or purchase such
Shares during their participation in such distribution.
It is further ordered, pursuant to Rule 102(e) of Regulation M,
that the Trust, based on the representations and the facts presented in
the Letter, is exempt from the requirements of Rule 102 with respect to
the Funds, thus permitting the Funds to redeem Shares of the Funds
during the continuous offering of such Shares.
It is further ordered, pursuant to Rule 10b-17(b)(2), that the
Trust, based on the representations and the facts presented in the
Letter and subject to the conditions below, is exempt from the
requirements of Rule 10b-17 with respect to transactions in the shares
of the Funds.
This exemptive relief is subject to the following conditions:
The Trust will comply with Rule 10b-17 except for Rule
10b-17(b)(1)(v)(a) and (b); and
The Trust will provide the information required by Rule
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable
before trading begins on the ex-dividend date, but in no event later
than the time when the Exchange last accepts information relating to
distributions on the day before the ex-dividend date.
This exemptive relief is subject to modification or revocation at
any time the Commission determines that such action is necessary or
appropriate in furtherance of the purposes of the Exchange Act. Persons
relying upon this exemption shall discontinue transactions involving
the Shares of the Funds under the circumstances described above and in
the Letter, pending presentation of the facts for the Commission's
consideration, in the event that any material change occurs with
respect to any of the facts or representations made by the Requestors.
In addition, persons relying on this exemption are directed to the
anti-fraud and anti-manipulation provisions of the Exchange Act,
particularly Sections 9(a), 10(b), and Rule 10b-5 thereunder.
Responsibility for compliance with these and any other applicable
provisions of the federal securities laws must rest with the persons
relying on this exemption. This order should not be considered a view
with respect to any other question that the proposed transactions may
raise, including, but not limited to the adequacy of the disclosure
concerning, and the applicability of other federal or state laws to,
the proposed transactions.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(6) and (9).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30889 Filed 12-21-12; 8:45 am]
BILLING CODE 8011-01-P
