Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to ProShares Morningstar Alternatives Solution ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M, 61115-61117 [2014-24101]
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Federal Register / Vol. 79, No. 196 / Thursday, October 9, 2014 / Notices
NUCLEAR REGULATORY
COMMISSION
[Docket Nos. 50–259, 50–260, and 50–296;
NRC–2014–0222]
Tennessee Valley Authority; Browns
Ferry Nuclear Plant, Unit Nos. 1, 2, and
3
Nuclear Regulatory
Commission.
ACTION: License amendment application;
withdrawal by applicant.
AGENCY:
The U.S. Nuclear Regulatory
Commission (NRC) has accepted the
request of Tennessee Valley Authority
(TVA) to withdraw its application dated
June 28, 2004, for a proposed
amendment to Renewed Facility
Operating License (RFOL) No. DPR–33
for Browns Ferry Nuclear Plant (BFN),
Unit No. 1, and its application dated
June 25, 2004, for proposed
amendments to RFOL Nos. DPR–52 and
DPR–68 for BFN Unit Nos. 2 and 3. The
proposed amendments would have
increased the maximum authorized
power level from the current 3458
megawatt thermal (MWt) to 3952 MWt
(approximately 15 percent) for BFN Unit
Nos. 1, 2, and 3.
ADDRESSES: Please refer to Docket ID
NRC–2014–0222 when contacting the
NRC about the availability of
information regarding this document.
You may obtain publicly-available
information related to this document
using any of the following methods:
• Federal Rulemaking Web site: Go to
https://www.regulations.gov and search
for Docket ID NRC–2014–0222. Address
questions about NRC dockets to Carol
Gallagher; telephone: 301–287–3422;
email: Carol.Gallagher@nrc.gov. For
technical questions, contact the
individual(s) listed in the FOR FURTHER
INFORMATION CONTACT section of this
document.
• NRC’s Agencywide Documents
Access and Management System
(ADAMS): You may obtain publicly
available documents online in the
ADAMS Public Documents collection at
https://www.nrc.gov/reading-rm/
adams.html. To begin the search, select
‘‘ADAMS Public Documents’’ and then
select ‘‘Begin Web-based ADAMS
Search.’’ For problems with ADAMS,
please contact the NRC’s Public
Document Room (PDR) reference staff at
1–800–397–4209, 301–415–4737, or by
email to pdr.resource@nrc.gov. The
ADAMS accession number for each
document referenced in this document
(if that document is available in
ADAMS) is provided the first time that
a document is referenced.
mstockstill on DSK4VPTVN1PROD with NOTICES
SUMMARY:
VerDate Sep<11>2014
17:56 Oct 08, 2014
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• NRC’s PDR: You may examine and
purchase copies of public documents at
the NRC’s PDR, Room O1–F21, One
White Flint North, 11555 Rockville
Pike, Rockville, Maryland 20852.
FOR FURTHER INFORMATION CONTACT:
Farideh E. Saba, Office of Nuclear
Reactor Regulation, U.S. Nuclear
Regulatory Commission, Washington,
DC 20555–0001; telephone: 301–415–
1447; email: Farideh.Saba@nrc.gov.
The NRC
has accepted TVA’s withdrawal of its
applications dated June 28, 2004
(ADAMS Accession No. ML041810168),
and June 25, 2004 (ADAMS Accession
No. ML041840301), for proposed
amendments to RFOL No. DPR–33 for
BFN Unit No. 1, and RFOL Nos. DPR–
52 and DPR–68 for BFN Unit Nos. 2 and
3, respectively, located in Limestone
County, Alabama. The proposed change
would have modified the BFN operating
licenses to increase the maximum
authorized power level to 3952
megawatts thermal, by approximately 20
percent above the then maximum
authorized power level for Unit No. 1,
and approximately 15 percent for Unit
Nos. 2 and 3. The licensee, in the
September 18, 2014 (ADAMS Accession
No. ML14265A487), letter stated that it
has been developing a new consolidated
extended power uprate license
amendment request for BFN Unit Nos.
1, 2, and 3 that is expected to be
submitted by October 2015.
The NRC issued Notices of
Consideration of Issuance of
Amendments to Facility Operating
Licenses published in the Federal
Register (FR) on July 11, 2005 (70 FR
39803), for BFN Unit No. 1 and July 12,
2005 (70 FR 40064), for BFN Unit Nos.
2 and 3. However, by letter dated
September 18, 2014, the licensee
requested to withdraw the proposed
amendments.
SUPPLEMENTARY INFORMATION:
Dated at Rockville, Maryland, this 2nd day
of October 2014.
For the Nuclear Regulatory Commission.
Farideh E. Saba,
Senior Project Manager, Plant Licensing
Branch II–2, Division of Operating Reactor
Licensing, Office of Nuclear Reactor
Regulation.
[FR Doc. 2014–24163 Filed 10–8–14; 8:45 am]
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61115
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73298; File No. TP 14–13]
Order Granting Limited Exemptions
From Exchange Act Rule 10b–17 and
Rules 101 and 102 of Regulation M to
ProShares Morningstar Alternatives
Solution ETF Pursuant to Exchange
Act Rule 10b–17(b)(2) and Rules 101(d)
and 102(e) of Regulation M
October 3, 2014.
By letter dated October 3, 2014 (the
‘‘Letter’’), as supplemented by
conversations with the staff of the
Division of Trading and Markets,
counsel for ProShares Trust (the
‘‘Trust’’) on behalf of the Trust,
ProShares Morningstar Alternatives
Solution ETF (the ‘‘Fund’’), any national
securities exchange on or through which
shares issued by the Fund (‘‘Shares’’)
are listed or may subsequently trade,
SEI Investments Distribution Co., and
other 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 of at least 10,000
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. The
Fund will seek results that correspond
generally to the return (before the
Fund’s fees and expenses) of the
Morningstar Alternatives Index (the
‘‘Index’’). The Index is designed to
provide diversified exposure to
alternative asset classes with the goal of
enhancing risk adjusted portfolio
returns when combined with a range of
traditional investments. The Index
allocates among a comprehensive set of
alternative ETFs sponsored or advised
by the Fund’s adviser or its affiliates
that employ alternative and nontraditional strategies such as long/short,
market neutral, managed futures, hedge
fund replication, private equity,
infrastructure or inflation-related
investments. The maximum allocation
to any particular ETF or exchangetraded commodity pool (‘‘ETCP’’) is
30%. The Fund intends to operate as an
‘‘ETF of ETFs’’ by seeking to track the
performance of its Index through
investing at least 80% of its total assets
in the ETFs and ETCPs that comprise its
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61116
Federal Register / Vol. 79, No. 196 / Thursday, October 9, 2014 / Notices
Index. Except for the fact that the Fund
will operate as an ETF of ETFs, the
Fund will operate in a manner
substantially identical to the ETFs that
are included in the Index.
The Requestors represent, among
other things, the following:
• Shares of the Fund 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 Fund will be listed
and traded on NYSE Arca, Inc. or other
exchange in accordance with exchange
listing standards that are, or will
become, effective pursuant to Section
19(b) of the Exchange Act (the
‘‘Exchange’’); 1
• All ETFs in which the Fund is
invested will meet all conditions set
forth in a relevant class relief letter,2
will have received individual relief from
the Commission, or can rely on
individual relief even though they are
not named parties (for example, a noaction letter); 3
• All the components of the Index
will have publicly available last sale
trade information;
• The intra-day proxy value of the
Fund per share and the value of the
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,
mstockstill on DSK4VPTVN1PROD with NOTICES
1 Further,
the Letter states that should the Shares
also trade on a market pursuant to unlisted trading
privileges, such trading will be conducted pursuant
to self-regulatory organization rules that are
effective pursuant to Section 19(b) of the Exchange
Act.
2 Exchange Act Rel. No. 67215 (Jun. 19, 2012); 77
FR 37941 (Jun. 25, 2012); 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,
Assistant Director, Division of Trading and Markets,
to Domenick Pugliese, Esq., Paul, Hastings, Janofsky
and Walker LLP (June 27, 2007). See also Staff Legal
Bulletin No. 9, ‘‘Frequently Asked Questions About
Regulation M’’ (Apr. 12, 2002) (regarding activelymanaged ETFs).
3 See, e.g., Letter from James A. Brigagliano,
Associate Director, Division of Market Regulation,
to Kathleen H. Moriarty, Carter, Ledyard & Milburn,
dated January 24, 2007 (with respect to the
additional funds of ProShares Trust).
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17:56 Oct 08, 2014
Jkt 235001
the Fund’s index receipt agent, through
the National Securities Clearing
Corporation, will make available the list
of the names and the numbers of
securities and other assets of the Fund’s
portfolio that will be applicable that day
to creation and redemption requests;
• The Exchange or other market
information provider will disseminate
(i) continuously every 15 seconds
throughout the trading day, through the
facilities of the consolidated tape, the
market value of a Share and (ii) every
15 seconds throughout the trading day,
a calculation of the intraday indicative
value of a Share;
• The arbitrage mechanism will be
facilitated by the transparency of the
Fund’s portfolio and the availability of
the intra-day indicative value, the
liquidity of securities held by the Fund
and the ability to acquire such
securities, as well as the arbitrageurs’
ability to create workable hedges;
• The Fund will invest solely in
liquid securities;
• The Fund will invest in securities
that will facilitate an effective and
efficient arbitrage mechanism and the
ability to create workable hedges;
• The Trust believes that arbitrageurs
are expected to take advantage of price
variations between the Fund’s market
price and its NAV; and
• A close alignment between the
market price of Shares and the 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.4
However, we find that it is appropriate
in the public interest and is consistent
with the protection of investors to grant
a conditional exemption from Rules 101
and 102 to persons who may be deemed
to be participating in a distribution of
Shares of the Fund 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
4 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 Fund
and its securities do not meet those definitions.
PO 00000
Frm 00070
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restricted period, except as specifically
permitted in the rule. Rule 100 of
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 Fund and that a close
alignment between the market price of
Shares and the 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
Fund, thus permitting persons
participating in a distribution of Shares
of the Fund to bid for or purchase such
Shares during their participation in
such distribution.5
Rule 102 of Regulation M
Rule 102 of Regulation M prohibits
issuers, selling security holders, and 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 Fund and that a close
alignment between the market price of
5 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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Federal Register / Vol. 79, No. 196 / Thursday, October 9, 2014 / Notices
Shares and the 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
Fund, thus permitting the Fund to
redeem Shares of the Fund during the
continuous offering of such Shares.
mstockstill on DSK4VPTVN1PROD with NOTICES
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.6
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 Fund, thus permitting
persons who may be deemed to be
participating in a distribution of Shares
of the Fund 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 Fund, thus permitting the
Fund to redeem Shares of the Fund
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 Fund.
This exemptive relief is subject to the
following conditions:
6 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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17:56 Oct 08, 2014
Jkt 235001
• 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. This exemption is based
on the facts presented and the
representations made in the Letter. Any
different facts or conditions may require
a different response. In the event that
any material change occurs in the facts
or representations in the Letter,
transactions in Shares of the Fund must
be discontinued, pending presentation
of the facts for our consideration. 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.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–24101 Filed 10–8–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73295; File No. SR–BYX–
2014–026]
Self-Regulatory Organizations; BATS
Y-Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Rule 11.13 of BATS YExchange, Inc.
October 3, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
7 17
PO 00000
CFR 200.30–3(a)(6) and (9).
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61117
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 25, 2014, BATS Y-Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 11.13(a) regarding the
handling of orders that have been
posted to the Exchange’s order book
(‘‘BATS Book’’) 5 that are subsequently
locked or crossed by other Trading
Centers.
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 purpose of the proposed rule
change is to provide Users of the
Exchange with additional options with
respect to the Exchange’s method of
processing the unfilled balance of a
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
5 As defined in Rule 1.5(e).
2 17
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]]>Agencies
[Federal Register Volume 79, Number 196 (Thursday, October 9, 2014)]
[Notices]
[Pages 61115-61117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24101]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73298; File No. TP 14-13]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to ProShares Morningstar
Alternatives Solution ETF Pursuant to Exchange Act Rule 10b-17(b)(2)
and Rules 101(d) and 102(e) of Regulation M
October 3, 2014.
By letter dated October 3, 2014 (the ``Letter''), as supplemented
by conversations with the staff of the Division of Trading and Markets,
counsel for ProShares Trust (the ``Trust'') on behalf of the Trust,
ProShares Morningstar Alternatives Solution ETF (the ``Fund''), any
national securities exchange on or through which shares issued by the
Fund (``Shares'') are listed or may subsequently trade, SEI Investments
Distribution Co., and other 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 of at least 10,000 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. The Fund will seek results that
correspond generally to the return (before the Fund's fees and
expenses) of the Morningstar Alternatives Index (the ``Index''). The
Index is designed to provide diversified exposure to alternative asset
classes with the goal of enhancing risk adjusted portfolio returns when
combined with a range of traditional investments. The Index allocates
among a comprehensive set of alternative ETFs sponsored or advised by
the Fund's adviser or its affiliates that employ alternative and non-
traditional strategies such as long/short, market neutral, managed
futures, hedge fund replication, private equity, infrastructure or
inflation-related investments. The maximum allocation to any particular
ETF or exchange-traded commodity pool (``ETCP'') is 30%. The Fund
intends to operate as an ``ETF of ETFs'' by seeking to track the
performance of its Index through investing at least 80% of its total
assets in the ETFs and ETCPs that comprise its
[[Page 61116]]
Index. Except for the fact that the Fund will operate as an ETF of
ETFs, the Fund will operate in a manner substantially identical to the
ETFs that are included in the Index.
The Requestors represent, among other things, the following:
Shares of the Fund 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 Fund will be listed and traded on NYSE Arca,
Inc. or other exchange in accordance with exchange listing standards
that are, or will become, effective pursuant to Section 19(b) of the
Exchange Act (the ``Exchange''); \1\
---------------------------------------------------------------------------
\1\ Further, the Letter states that should the Shares also trade
on a market pursuant to unlisted trading privileges, such trading
will be conducted pursuant to self-regulatory organization rules
that are effective pursuant to Section 19(b) of the Exchange Act.
---------------------------------------------------------------------------
All ETFs in which the Fund is invested will meet all
conditions set forth in a relevant class relief letter,\2\ will have
received individual relief from the Commission, or can rely on
individual relief even though they are not named parties (for example,
a no-action letter); \3\
---------------------------------------------------------------------------
\2\ Exchange Act Rel. No. 67215 (Jun. 19, 2012); 77 FR 37941
(Jun. 25, 2012); 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, Assistant Director, Division of Trading
and Markets, to Domenick Pugliese, Esq., Paul, Hastings, Janofsky
and Walker LLP (June 27, 2007). See also Staff Legal Bulletin No. 9,
``Frequently Asked Questions About Regulation M'' (Apr. 12, 2002)
(regarding actively-managed ETFs).
\3\ See, e.g., Letter from James A. Brigagliano, Associate
Director, Division of Market Regulation, to Kathleen H. Moriarty,
Carter, Ledyard & Milburn, dated January 24, 2007 (with respect to
the additional funds of ProShares Trust).
---------------------------------------------------------------------------
All the components of the Index will have publicly
available last sale trade information;
The intra-day proxy value of the Fund per share and the
value of the 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 Fund's index receipt agent, through the National
Securities Clearing Corporation, will make available the list of the
names and the numbers of securities and other assets of the Fund's
portfolio that will be applicable that day to creation and redemption
requests;
The Exchange or other market information provider will
disseminate (i) continuously every 15 seconds throughout the trading
day, through the facilities of the consolidated tape, the market value
of a Share and (ii) every 15 seconds throughout the trading day, a
calculation of the intraday indicative value of a Share;
The arbitrage mechanism will be facilitated by the
transparency of the Fund's portfolio and the availability of the intra-
day indicative value, the liquidity of securities held by the Fund and
the ability to acquire such securities, as well as the arbitrageurs'
ability to create workable hedges;
The Fund will invest solely in liquid securities;
The Fund will invest in securities that will facilitate an
effective and efficient arbitrage mechanism and the ability to create
workable hedges;
The Trust believes that arbitrageurs are expected to take
advantage of price variations between the Fund's market price and its
NAV; and
A close alignment between the market price of Shares and
the 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.\4\ However, we find that it is appropriate in the public
interest and is consistent with the protection of investors to grant a
conditional exemption from Rules 101 and 102 to persons who may be
deemed to be participating in a distribution of Shares of the Fund as
described in more detail below.
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\4\ 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
Fund and its 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 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 Fund and that a close
alignment between the market price of Shares and the 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 Fund, thus permitting persons participating in a
distribution of Shares of the Fund to bid for or purchase such Shares
during their participation in such distribution.\5\
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\5\ 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, and 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 Fund and that a close alignment between the market price of
[[Page 61117]]
Shares and the 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 Fund, thus permitting the
Fund to redeem Shares of the Fund 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.\6\
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\6\ 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
Fund, thus permitting persons who may be deemed to be participating in
a distribution of Shares of the Fund 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 Fund, thus permitting the Fund to redeem Shares of the Fund 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 Fund.
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. This
exemption is based on the facts presented and the representations made
in the Letter. Any different facts or conditions may require a
different response. In the event that any material change occurs in the
facts or representations in the Letter, transactions in Shares of the
Fund must be discontinued, pending presentation of the facts for our
consideration. 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.\7\
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\7\ 17 CFR 200.30-3(a)(6) and (9).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24101 Filed 10-8-14; 8:45 am]
BILLING CODE 8011-01-P
