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]

Download as PDF 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 http://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 http://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 Jkt 235001 • 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] BILLING CODE 7590–01–P PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 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 E:\FR\FM\09OCN1.SGM 09OCN1 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). VerDate Sep<11>2014 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 Fmt 4703 Sfmt 4703 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. E:\FR\FM\09OCN1.SGM 09OCN1 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. VerDate Sep<11>2014 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). Frm 00071 Fmt 4703 Sfmt 4703 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 http://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 E:\FR\FM\09OCN1.SGM 09OCN1

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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