AlphaMark Advisors, LLC, et al.; Notice of Application, 5834-5840 [2015-02018]
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Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices
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
fully recorded 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 the Fund acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund to acquire securities of one or
more investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–02064 Filed 2–2–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31430; 812–14402]
AlphaMark Advisors, LLC, et al.; Notice
of Application
January 28, 2015.
Securities and Exchange
Commission (the ‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
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AGENCY:
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for an exemption from sections 17(a)(1)
and (2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
ETF Series Solutions (the
‘‘Trust’’), AlphaMark Advisors, LLC
(‘‘AlphaMark’’), and Quasar
Distributors, LLC (‘‘Quasar’’).
SUMMARY: Applicants request an order
that permits: (a) Actively-managed
series of the Trust to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days after the tender of
Creation Units for redemption; (d)
certain affiliated persons of the series to
deposit securities into, and receive
securities from, the series in connection
with the purchase and redemption of
Creation Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
DATES: Filing Dates: The application
was filed on December 18, 2014.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on Februry 23, 2015, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549. Applicants:
AlphaMark Advisors, LLC, 250
Grandview Drive, Suite 175, Ft.
Mitchell, Kentucky 41017; ETF Series
Solutions and Quasar Distributors, LLC,
615 East Michigan Street, 4th Floor,
Milwaukee, WI 53202.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel,
at (202) 551–6812 or David P. Bartels,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
APPLICANTS:
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The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is registered as an openend management investment company
under the Act and is organized as a
Delaware statutory trust. The Trust will
offer Funds (as defined below), each of
which will have distinct investment
strategies and will attempt to achieve its
investment objective by utilizing an
active management strategy.
2. AlphaMark, an Ohio limited
liability company, is, and any other
Adviser (as defined below) will be,
registered as an investment adviser
under the Investment Advisers Act of
1940 (the ‘‘Advisers Act’’). An Adviser
will be the investment adviser to each
Fund and may enter into subadvisory
agreements with one or more affiliated
or unaffiliated investment sub-advisers
to a Fund (each, a ‘‘Sub-Adviser’’). Any
Sub-Adviser will be registered or not
subject to registration under the
Advisers Act. Quasar, a Delaware
limited liability company, is, and any
other Distributor will be, registered as a
broker-dealer (‘‘Broker’’) under the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’).1 A Distributor will
serve as the principal underwriter and
distributor for each of the Funds.
3. Applicants request that the order
apply to AlphaMark Small Cap Growth
ETF (the ‘‘Initial Fund’’) and to future
series of the Trust or of any other openend investment company that may be
created in the future that, in each case,
(a) is an actively managed exchangetraded fund (‘‘ETF’’), (b) is advised by
AlphaMark or an entity controlling,
controlled by, or under common control
with AlphaMark (each such entity or
any successor entity thereto, an
‘‘Adviser’’) 2 and (c) complies with the
terms and conditions of the application
(individually a ‘‘Fund,’’ and
collectively, the ‘‘Funds’’).3
1 For purposes of the requested order, the term
‘‘Distributor’’ shall include any other entity that
acts as the distributor and principal underwriter of
the Creation Units of Shares of the Funds in the
future and complies with the terms and conditions
of the application.
2 For the purposes of the requested order,
‘‘successor’’ is limited to an entity that results from
a reorganization into another jurisdiction or a
change in the type of business organization.
3 All entities that currently intend to rely on the
order are named as applicants. Any entity that
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4. The Funds may invest in equity
securities or fixed income securities
traded in the U.S. or non-U.S. markets.
Funds that invest in equity securities or
fixed income securities traded in the
U.S. or non-U.S. markets are ‘‘Global
Funds.’’ Funds that invest solely in
foreign equity securities or foreign fixed
income securities are ‘‘Foreign Funds.’’
The Funds may also invest in
‘‘Depositary Receipts’’ 4 and may engage
in TBA Transactions (as defined below).
Applicants further state that, in order to
implement each Fund’s investment
strategy, the Adviser and/or SubAdvisers of a Fund may review and
change the securities, or instruments, or
other assets or positions held by the
Fund (‘‘Portfolio Positions’’) daily.5
5. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) apply to: (i) Any Fund; (ii) any
Acquiring Fund (as defined below); and
(iii) any Brokers selling Shares of a
Fund to an Acquiring Fund or any
principal underwriter of a Fund. A
management investment company or
unit investment trust registered under
the Act that is not part of the same
‘‘group of investment companies’’ as the
Fund within the meaning of section
12(d)(1)(G)(ii) of the Act and that
acquires Shares of a Fund in excess of
the limits of Section 12(d)(1)(A) of the
Act is referred to as an ‘‘Acquiring
Management Company’’ or an
‘‘Acquiring Trust,’’ respectively, and the
Acquiring Management Companies and
Acquiring Trusts are referred to
collectively as ‘‘Acquiring Funds.’’ 6
6. A Creation Unit will consist of at
least 25,000 Shares and applicants
expect that the trading price of a Share
will range from $20 to $100. All orders
to purchase Creation Units must be
placed with the Distributor by or
relies on the order in the future will comply with
the terms and conditions of the application.
4 Depositary Receipts are typically issued by a
financial institution (a ‘‘Depository’’) and evidence
ownership in a security or pool of securities that
have been deposited with the Depository. A Fund
will not invest in any Depositary Receipts that the
Adviser or any Sub-Adviser deems to be illiquid or
for which pricing information is not readily
available. No affiliated persons of applicants or any
Sub-Adviser will serve as the Depository for any
Depositary Receipts held by a Fund.
5 If a Fund invests in derivatives, then (a) the
Fund’s board of trustees or directors (for any entity,
the ‘‘Board’’) will periodically review and approve
the Fund’s use of derivatives and how the Fund’s
investment adviser assesses and manages risk with
respect to the Fund’s use of derivatives and (b) the
Fund’s disclosure of its use of derivatives in its
offering documents and periodic reports will be
consistent with relevant Commission and staff
guidance.
6 An Acquiring Fund may rely on the order only
to invest in a Fund and not in any other registered
investment company.
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through an ‘‘Authorized Participant,’’
which is a participant in the Depository
Trust Company (‘‘DTC,’’ such
participant a ‘‘DTC Participant’’) that
has executed a ‘‘Participant Agreement’’
with the Distributor. Purchase orders for
Funds will be processed either through
the enhanced clearing process of the
Continuous Net Settlement System of
the National Securities Clearing
Corporation (‘‘NSCC’’, and such process
the ‘‘NSCC Process’’) or through the
manual clearing process of the DTC
(‘‘DTC Process’’).
7. In order to keep costs low and
permit each Fund to be as fully invested
as possible, Shares will be purchased
and redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).7 On any given Business
Day 8 the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, and these instruments
may be referred to, in the case of either
a purchase or a redemption, as the
‘‘Creation Basket.’’ In addition, the
Creation Basket will correspond pro rata
to the positions in a Fund’s portfolio
(including cash positions),9 except: (a)
In the case of bonds, for minor
differences when it is impossible to
break up bonds beyond certain
minimum sizes needed for transfer and
settlement; (b) for minor differences
when rounding is necessary to eliminate
fractional shares or lots that are not
tradeable round lots; 10 or (c) TBA
7 The Funds must comply with the federal
securities laws in accepting Deposit Instruments
and satisfying redemptions with Redemption
Instruments, including that the Deposit Instruments
and Redemption Instruments are sold in
transactions that would be exempt from registration
under the Securities Act of 1933 (‘‘Securities Act’’).
In accepting Deposit Instruments and satisfying
redemptions with Redemption Instruments that are
restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act, the Funds will
comply with the conditions of Rule 144A.
8 Each Fund will sell and redeem Creation Units
on any day that the Trust is open for business,
including as required by section 22(e) of the Act
(each, a ‘‘Business Day’’).
9 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s net asset
value (‘‘NAV’’) for that Business Day.
10 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
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5835
Transactions,11 short positions and
other positions that cannot be
transferred in kind 12 will be excluded
from the Creation Basket.13 If there is a
difference between the NAV attributable
to a Creation Unit and the aggregate
market value of the Creation Basket
exchanged for the Creation Unit, the
party conveying instruments with the
lower value will also pay to the other an
amount in cash equal to that difference
(the ‘‘Balancing Amount’’).
8. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Balancing Amount, as described
above; (b) if, on a given Business Day,
a Fund announces before the open of
trading that all purchases, all
redemptions or all purchases and
redemptions on that day will be made
entirely in cash; (c) if, upon receiving a
purchase or redemption order from an
Authorized Participant, a Fund
determines to require the purchase or
redemption, as applicable, to be made
entirely in cash; (d) if, on a given
Business Day, a Fund requires all
Authorized Participants purchasing or
redeeming Shares on that day to deposit
or receive (as applicable) cash in lieu of
some or all of the Deposit Instruments
or Redemption Instruments,
respectively, solely because: (i) Such
instruments are not eligible for transfer
through either the NSCC Process or DTC
Process; or (ii) in the case of Global
Funds and Foreign Funds, such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund or
11 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
parameters such as agency, settlement date, par
amount and price.
12 This includes instruments that can be
transferred in kind only with the consent of the
original counterparty to the extent the Fund does
not intend to seek such consents.
13 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Balancing
Amount (defined below).
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Foreign Fund would be subject to
unfavorable income tax treatment if the
holder receives redemption proceeds in
kind.14
9. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (a ‘‘Listing Market’’), on
which Shares are listed and traded, each
Fund will cause to be published through
the NSCC the names and quantities of
the instruments comprising the Creation
Basket, as well as the estimated
Balancing Amount (if any), for that day.
The published Creation Basket will
apply until a new Creation Basket is
announced on the following Business
Day, and there will be no intra-day
changes to the Creation Basket except to
correct errors in the published Creation
Basket. The Listing Market will
disseminate, every 15 seconds
throughout the regular trading hours,
through the facilities of the
Consolidated Tape Associate, an
estimated NAV, which is an amount per
Share representing the current value of
the Portfolio Positions that were
publicly disclosed prior to the
commencement of trading in Shares on
the Listing Market.
10. Each Fund will recoup the
settlement costs charged by NSCC and
DTC by imposing a fee (the
‘‘Transaction Fee’’) on investors
purchasing or redeeming Creation Units.
Where a Fund permits an in-kind
purchaser or redeemer to deposit or
receive cash in lieu of one or more
Deposit or Redemption Instruments, the
purchaser or redeemer may be assessed
a higher Transaction Fee to offset the
cost of buying or selling those particular
Deposit or Redemption Instruments. In
all cases, such Transaction Fees will be
limited in accordance with
requirements of the Commission
applicable to management investment
companies offering redeemable
securities. All orders to purchase
Creation Units must be placed with the
Distributor by or through an Authorized
Participant and the Distributor will
transmit such orders to the Funds. The
Distributor will maintain a record of
Creation Unit purchases and will send
out confirmations of such purchases.
11. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded at
negotiated prices on a Listing Market
and it is expected that the relevant
Listing Market will designate one or
more member firms to maintain a
14 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis in reliance on clause (e)(i) or (e)(ii).
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market for the Shares.15 The price of
Shares trading on a Listing Market will
be based on a current bid-offer in the
secondary market. Purchases and sales
of Shares in the secondary market will
not involve a Fund and will be subject
to customary brokerage commissions
and charges.
12. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Applicants expect that secondary
market purchasers of Shares will
include both institutional and retail
investors.16 Applicants believe that the
structure and operation of the Funds
will be designed to enable efficient
arbitrage and, thereby, minimize the
probability that Shares will trade at a
material premium or discount to a
Fund’s NAV.
13. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund, or
tender such shares for redemption to the
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
placed by or through an Authorized
Participant. As discussed above,
redemptions of Creation Units will
generally be made on an in-kind basis,
subject to certain specified exceptions
under which redemptions may be made
in whole or in part on a cash basis, and
will be subject to a Transaction Fee.
14. Neither a Trust nor any Fund will
be advertised or marketed or otherwise
held out as a traditional open-end
investment company or mutual fund.
Instead, each Fund will be marketed as
an ‘‘actively-managed exchange-traded
fund.’’ All marketing materials that
describe the features or method of
obtaining, buying, or selling Creation
Units, or Shares traded on a Listing
Market, or refer to redeemability, will
prominently disclose that Shares are not
15 If Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’) or a similar electronic
Listing Market (including NYSE Arca, Inc.), one or
more member firms of that Listing Market will act
as market maker (a ‘‘Market Maker’’) and maintain
a market for Shares trading on that Listing Market.
On Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares.
However, the listing requirements on Nasdaq
stipulate that at least two Market Makers must be
registered in Shares to maintain a listing. Registered
Market Makers are required to make a continuous
two-sided market or subject themselves to
regulatory sanctions. No Market Maker will be an
affiliated person, or an affiliated person of an
affiliated person, of the Funds, except within the
meaning of section 2(a)(3)(A) or (C) of the Act due
solely to ownership of Shares.
16 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. Beneficial
ownership of Shares will be shown on the records
of DTC or DTC Participants.
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individually redeemable and that the
owners of Shares may acquire those
Shares from a Fund or tender those
Shares for redemption to the Fund in
Creation Units only.
15. Each Fund’s Web site (‘‘Web
site’’), which will be publicly available
prior to the offering of Shares, will
include the Fund’s prospectus
(‘‘Prospectus’’), statement of additional
information (‘‘SAI’’), and summary
prospectus, if used. The Web site will
contain, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
the bid/ask spread at the time of
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or the Bid/Ask Price
against such NAV. On each Business
Day, prior to the commencement of
trading in Shares on a Listing Market,
each Fund shall post on the Web site the
identities and quantities of the Portfolio
Positions held by the Fund that will
form the basis for the calculation of the
NAV at the end of that Business Day.17
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
exemption from sections 2(a)(32),
5(a)(1), 22(d) and 22(e) of the Act and
rule 22c–1 under the Act; and under
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (2) of the Act, and under
section 12(d)(1)(J) for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
17 Under accounting procedures followed by the
Fund, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (T+1). Accordingly, the Funds will be
able to disclose at the beginning of the Business Day
the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
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Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
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Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Trust to register as an openend management investment company
and issue Shares that are redeemable in
Creation Units only. Applicants state
that investors may purchase Shares in
Creation Units from each Fund and that
Creation Units will always be
redeemable in accordance with the
provisions of the Act. Applicants further
state that because the market price of
Shares will be disciplined by arbitrage
opportunities, investors should be able
to sell Shares in the secondary market
at prices that do not vary materially
from their NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security that is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants state that, while there is
little legislative history regarding
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section 22(d), its provisions, as well as
those of rule 22c–1, appear to have been
designed (a) to prevent dilution caused
by certain riskless-trading schemes by
principal underwriters and contract
dealers, (b) to prevent unjust
discrimination or preferential treatment
among buyers and (c) to ensure an
orderly distribution system of shares by
contract dealers by eliminating price
competition from non-contract dealers
who could offer investors shares at less
than the published sales price and who
could pay investors a little more than
the published redemption price.
6. Applicants assert that the
protections intended to be afforded by
Section 22(d) and rule 22c–1 are
adequately addressed by the proposed
methods for creating, redeeming and
pricing Creation Units and pricing and
trading Shares. Applicants state that (a)
secondary market trading in Shares does
not involve the Funds as parties and
cannot result in dilution of an
investment in Shares and (b) to the
extent different prices exist during a
given trading day, or from day to day,
such variances occur as a result of thirdparty market forces but do not occur as
a result of unjust or discriminatory
manipulation. Finally, applicants assert
that competitive forces in the
marketplace should ensure that the
margin between NAV and the price for
the Shares in the secondary market
remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
observe that the settlement of
redemptions of Creation Units of the
Foreign and Global Funds is contingent
not only on the settlement cycle of the
U.S. securities markets but also on the
delivery cycles present in foreign
markets for underlying foreign Portfolio
Positions in which those Funds invest.
Applicants have been advised that,
under certain circumstances, the
delivery cycles for transferring Portfolio
Positions to redeeming investors,
coupled with local market holiday
schedules, will require a delivery
process of up to fifteen (15) calendar
days. Applicants therefore request relief
from section 22(e) in order to provide
payment or satisfaction of redemptions
within a longer number of calendar days
as required for such payment or
satisfaction in the principal local
markets where transactions in the
Portfolio Positions of each Foreign and
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5837
Global Fund customarily clear and
settle, but in all cases no later than
fifteen (15) days following the tender of
a Creation Unit.18
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed or unforeseen delays in the
actual payment of redemption proceeds.
Applicants assert that the protections
intended to be afforded by Section 22(e)
are adequately addressed by the
proposed method and securities
delivery cycles for redeeming Creation
Units. Applicants state that allowing
redemption payments for Creation Units
of a Fund to be made within a
maximum of fifteen (15) calendar
days 19 would not be inconsistent with
the spirit and intent of section 22(e).
Applicants represent that each Fund’s
Prospectus and/or SAI will identify
those instances in a given year where,
due to local holidays, more than seven
calendar days, up to a maximum of
fifteen (15) calendar days, will be
needed to deliver redemption proceeds
and will list such holidays. Applicants
are not seeking relief from section 22(e)
with respect to Foreign and Global
Funds that do not effect redemptions inkind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request relief to permit
Acquiring Funds to acquire Shares in
excess of the limits in section
18 Applicants acknowledge that no relief obtained
from the requirements of Section 22(e) of the Act
will affect any obligations that it may otherwise
have under Rule 15c6–1 under the Exchange Act.
Rule 15c6–1 requires that most securities
transactions be settled within three business days
of the trade date.
19 Certain countries in which a Fund may invest
have historically had settlement periods of up to 15
calendar days.
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12(d)(1)(A) of the Act and to permit the
Funds, their principal underwriters and
any Broker to sell Shares to Acquiring
Funds in excess of the limits in section
12(d)(l)(B) of the Act. Applicants submit
that the proposed conditions to the
requested relief address the concerns
underlying the limits in section 12(d)(1),
which include concerns about undue
influence, excessive layering of fees and
overly complex structures.
11. Applicants submit that their
proposed conditions address concerns
regarding the potential for undue
influence. To limit the control that an
Acquiring Fund may have over a Fund,
applicants propose a condition
prohibiting the adviser of an Acquiring
Management Company (‘‘Acquiring
Fund Advisor’’), sponsor of an
Acquiring Trust (‘‘Sponsor’’), any
person controlling, controlled by, or
under common control with the
Acquiring Fund Advisor or Sponsor,
and any investment company or issuer
that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the
Act that is advised or sponsored by the
Acquiring Fund Advisor, the Sponsor,
or any person controlling, controlled by,
or under common control with the
Acquiring Fund Advisor or Sponsor
(‘‘Acquiring Fund’s Advisory Group’’)
from controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any subadviser to an Acquiring Fund
(‘‘Acquiring Fund Sub-Advisor’’), any
person controlling, controlled by or
under common control with the
Acquiring Fund Sub-Advisor, and any
investment company or issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Acquiring Fund Sub-Advisor or any
person controlling, controlled by or
under common control with the
Acquiring Fund Sub-Advisor
(‘‘Acquiring Fund’s Sub-Advisory
Group’’).
12. Applicants propose a condition to
ensure that no Acquiring Fund or
Acquiring Fund Affiliate 20 (except to
the extent it is acting in its capacity as
an investment adviser to a Fund) will
cause a Fund to purchase a security in
an offering of securities during the
20 An ‘‘Acquiring Fund Affiliate’’ is any
Acquiring Fund Advisor, Acquiring Fund SubAdvisor, Sponsor, promoter and principal
underwriter of an Acquiring Fund, and any person
controlling, controlled by or under common control
with any of these entities. ‘‘Fund Affiliate’’ is an
investment adviser, promoter, or principal
underwriter of a Fund or any person controlling,
controlled by or under common control with any
of these entities.
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existence of an underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Acquiring Fund Advisor, Acquiring
Fund Sub-Advisor, employee or
Sponsor of the Acquiring Fund, or a
person of which any such officer,
director, member of an advisory board,
Acquiring Fund Advisor, Acquiring
Fund Sub-Advisor, employee or
Sponsor is an affiliated person (except
any person whose relationship to the
Fund is covered by section 10(f) of the
Act is not an Underwriting Affiliate).
13. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
Board of any Acquiring Management
Company, including a majority of the
directors or trustees who are not
‘‘interested persons’’ within the
meaning of section 2(a)(19) of the Act
(for any Board, the ‘‘Independent
Trustees’’), will be required to find that
the advisory fees charged under the
contract are based on services provided
that will be in addition to, rather than
duplicative of, services provided under
the advisory contract of any Fund in
which the Acquiring Management
Company may invest. Applicants also
state that any sales charges and/or
service fees charged with respect to
shares of an Acquiring Fund will not
exceed the limits applicable to a fund of
funds as set forth in NASD Conduct
Rule 2830.21
14. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any 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.
15. To ensure that an Acquiring Fund
is aware of the terms and conditions of
the requested order, the Acquiring
Funds must enter into an agreement
with the respective Funds (‘‘Acquiring
Fund Agreement’’). The Acquiring Fund
Agreement will include an
acknowledgement from the Acquiring
Fund that it may rely on the order only
to invest in a Fund and not in any other
investment company.
21 Any reference to NASD Conduct Rule 2830
includes any successor or replacement rule that
may be adopted by the Financial Industry
Regulatory Authority.
22 Applicants anticipate that most Acquiring
Funds will purchase Shares in the secondary
market and will not purchase or redeem Creation
Units directly from a Fund. To the extent that
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Fmt 4703
Sfmt 4703
Section 17(a) of the Act
16. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such person
(‘‘Second Tier Affiliates’’), from selling
any security to or purchasing any
security from the company. Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include any person directly
or indirectly owning, controlling, or
holding with power to vote 5% or more
of the outstanding voting securities of
the other person and any person directly
or indirectly controlling, controlled by,
or under common control with, the
other person. Section 2(a)(9) of the Act
defines ‘‘control’’ as ‘‘the power to
exercise a controlling influence over the
management or policies’’ of the fund
and provides that a control relationship
will be presumed where one person
owns more than 25% of another
person’s voting securities. The Funds
may be deemed to be controlled by the
Adviser or an entity controlling,
controlled by or under common control
with the Adviser and hence affiliated
persons of each other. In addition, the
Funds may be deemed to be under
common control with any other
registered investment company (or
series thereof) advised by the Adviser or
an entity controlling, controlled by or
under common control with the Adviser
(an ‘‘Affiliated Fund’’).
17. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act to permit in-kind purchases and
redemptions of Creation Units from the
Funds by persons that are affiliated
persons or Second Tier Affiliates of the
Funds solely by virtue of one or more
of the following: (a) Holding 5% or
more, or more than 25%, of the Shares
of a Trust of one or more Funds; (b)
having an affiliation with a person with
an ownership interest described in (a);
or (c) holding 5% or more, or more than
25%, of the shares of one or more
Affiliated Funds. Applicants also
request an exemption in order to permit
each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind
transactions that would accompany
such sales and redemptions with, any
Acquiring Fund of which the Fund is an
affiliated person or Second-Tier
Affiliate.22
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18. Applicants assert that no useful
purpose would be served by prohibiting
such affiliated persons or Second Tier
Affiliates from making in-kind
purchases or in-kind redemptions of
Shares of a Fund in Creation Units. Both
the deposit procedures for in-kind
purchases of Creation Units and the
redemption procedures for in-kind
redemptions will be the same for all
purchases and redemptions. Deposit
Instruments and Redemption
Instruments will be valued in the same
manner as those Portfolio Positions
currently held by the relevant Funds
and the valuation of the Deposit
Instruments and Redemption
Instruments will be made in an identical
manner regardless of the identity of the
purchaser or redeemer. Applicants do
not believe that in-kind purchases and
redemptions will result in abusive selfdealing or overreaching of the Fund.
20. Applicants also submit that the
sale of Shares to and redemption of
Shares from an Acquiring Fund satisfies
the standards for relief under sections
17(b) and 6(c) of the Act. Applicants
note that any consideration paid for the
purchase or redemption of Shares
directly from a Fund will be based on
the NAV of the Fund.23 The Acquiring
Fund Agreement will require any
Acquiring Fund that purchases Creation
Units directly from a Fund to represent
that the purchase will be in compliance
with its investment restrictions and
consistent with the investment policies
set forth in its registration statement.
21. Applicants believe that: (a) With
respect to the relief requested pursuant
to section 17(b), the proposed
transactions are fair and reasonable, and
do not involve overreaching on the part
of any person concerned, the proposed
transactions are consistent with the
purchases and sales of Shares occur in the
secondary market and not through principal
transactions directly between an Acquiring Fund
and a Fund, relief from section 17(a) would not be
necessary. However, the requested relief would
apply to direct sales of Shares in Creation Units by
a Fund to an Acquiring Fund and redemptions of
those Shares in Creation Units. The requested relief
is intended to cover transactions that would
accompany such sales and redemptions. Applicants
are not seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions
where a Fund could be deemed an affiliated person,
or an affiliated person of an affiliated person of an
Acquiring Fund because an investment adviser to
the Funds is also an investment adviser to that
Acquiring Fund.
23 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of an
Acquiring Fund, or an affiliated person of such
person, for the purchase by the Acquiring Fund of
Shares of a Fund or (b) an affiliated person of a
Fund, or an affiliated person of such person, for the
sale by the Fund of its Shares to an Acquiring Fund,
may be prohibited by section 17(e)(1) of the Act.
The Acquiring Fund Agreement also will include
this acknowledgment.
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14:46 Feb 02, 2015
Jkt 235001
policy of each Fund and, where
applicable, Acquiring Fund, and the
proposed transactions are consistent
with the general purposes of the Act;
and (b) with respect to the relief
requested pursuant to section 6(c), the
requested exemption for the proposed
transactions is appropriate in the public
interest and consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
A. Actively-Managed Exchange-Traded
Fund Relief
1. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that the
Shares are not individually redeemable
and that owners of the Shares may
acquire those Shares from the Fund and
tender those Shares for redemption to
the Fund in Creation Units only.
2. The Web site, which is and will be
publicly accessible at no charge, will
contain, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or the Bid/Ask
Price, and a calculation of the premium
or discount of the market closing price
or Bid/Ask Price against such NAV.
3. As long as a Fund operates in
reliance on the requested order, its
Shares will be listed on a Listing
Market.
4. On each Business Day, before
commencement of trading in Shares on
a Fund’s Listing Market, the Fund will
disclose on the Web site the identities
and quantities of the Portfolio Positions
held by the Fund that will form the
basis for the Fund’s calculation of NAV
per Share at the end of the Business
Day.
5. The Adviser or any Sub-Advisers,
directly or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Instrument for a
Fund through a transaction in which the
Fund could not engage directly.
6. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of actively-managed
exchange-traded funds.
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5839
B. Section 12(d)(1) Relief
7. The members of an Acquiring
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of an Acquiring
Fund’s Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Acquiring
Fund’s Advisory Group or the Acquiring
Fund’s Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Fund, it will vote
its Shares of the Fund in the same
proportion as the vote of all other
holders of that Fund’s Shares. This
condition does not apply to the
Acquiring Fund’s Sub-Advisory Group
with respect to a Fund for which the
Acquiring Fund Sub-Advisor or a
person controlling, controlled by, or
under common control with the
Acquiring Fund Sub-Advisor acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
8. No Acquiring Fund or Acquiring
Fund Affiliate will cause any existing or
potential investment by the Acquiring
Fund in a Fund to influence the terms
of any services or transactions between
the Acquiring Fund or an Acquiring
Fund Affiliate and the Fund or a Fund
Affiliate.
9. The Board of an Acquiring
Management Company, including a
majority of the Independent Trustees,
will adopt procedures reasonably
designed to ensure that the Acquiring
Fund Advisor and any Acquiring Fund
Sub-Advisor are conducting the
investment program of the Acquiring
Management Company without taking
into account any consideration received
by the Acquiring Management Company
or an Acquiring Fund Affiliate from a
Fund or a Fund Affiliate in connection
with any services or transactions.
10. Once an investment by an
Acquiring Fund in the Shares of a Fund
exceeds the limits in section
12(d)(1)(A)(i) of the Act, the Board of
the Fund, including a majority of the
Independent Trustees, will determine
that any consideration paid by the Fund
to an Acquiring Fund or an Acquiring
Fund Affiliate in connection with any
services or transactions: (i) Is fair and
reasonable in relation to the nature and
quality of the services and benefits
received by the Fund; (ii) is within the
range of consideration that the Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
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Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices
(iii) does not involve overreaching on
the part of any person concerned. This
condition does not apply with respect to
any services or transactions between a
Fund and its investment adviser(s), or
any person controlling, controlled by or
under common control with such
investment adviser(s).
11. No Acquiring Fund or Acquiring
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause the Fund
to purchase a security in any Affiliated
Underwriting.
12. The Board of a Fund, including a
majority of the Independent Trustees,
will adopt procedures reasonably
designed to monitor any purchases of
securities by the Fund in an Affiliated
Underwriting, once an investment by an
Acquiring Fund in the securities of the
Fund exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board of the
Fund will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Acquiring Fund in
the Fund. The Board of the Fund will
consider, among other things: (i)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (ii) 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 (iii)
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 of the Fund 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
shareholders of the Fund.
13. 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,
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14:46 Feb 02, 2015
Jkt 235001
once an investment by an Acquiring
Fund 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 determinations of the Board of the
Fund were made.
14. Before investing in Shares of a
Fund in excess of the limits in section
12(d)(1)(A), each Acquiring Fund and
the Fund will execute an Acquiring
Fund Agreement stating, without
limitation, that their Boards and their
investment adviser(s), or their Sponsors
or trustees (‘‘Trustee’’), as applicable,
understand the terms and conditions of
the requested order, and agree to fulfill
their responsibilities under the
requested order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
12(d)(1)(A)(i), an Acquiring Fund will
notify the Fund of the investment. At
such time, the Acquiring Fund will also
transmit to the Fund a list of the names
of each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring
Fund will notify the Fund of any
changes to the list of the names as soon
as reasonably practicable after a change
occurs. The Fund and the Acquiring
Fund will maintain and preserve a copy
of the requested order, the Acquiring
Fund 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.
15. The Acquiring Fund Advisor,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Acquiring Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted under rule 12b–l under the Act)
received from the Fund by the
Acquiring Fund Advisor, Trustee or
Sponsor, or an affiliated person of the
Acquiring Fund Advisor, Trustee or
Sponsor, other than any advisory fees
paid to the Acquiring Fund Advisor,
Trustee or Sponsor, or its affiliated
person by the Fund in connection with
the investment by the Acquiring Fund
in the Fund. Any Acquiring Fund SubAdvisor will waive fees otherwise
payable to the Acquiring Fund SubAdvisor, directly or indirectly, by the
Acquiring Management Company in an
amount at least equal to any
compensation received from a Fund by
the Acquiring Fund Sub-Advisor, or an
affiliated person of the Acquiring Fund
Sub-Advisor, other than any advisory
fees paid to the Acquiring Fund Sub-
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Sfmt 4703
Advisor or its affiliated person by the
Fund in connection with any
investment by the Acquiring
Management Company in the Fund
made at the direction of the Acquiring
Fund Sub-Advisor. In the event that the
Acquiring Fund Sub-Advisor waives
fees, the benefit of the waiver will be
passed through to the Acquiring
Management Company.
16. Any sales charges and/or service
fees charged with respect to shares of an
Acquiring Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
17. No Fund will acquire securities of
any other 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 the Fund
acquires securities of another
investment company pursuant to
exemptive relief from the Commission
permitting the Fund to acquire
securities of one or more investment
companies for short-term cash
management purposes.
18. Before approving any advisory
contract under section 15 of the Act, the
Board of each Acquiring Management
Company, including a majority of the
Independent Trustees, will find that the
advisory fees charged under such
advisory 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 Acquiring
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Acquiring Management
Company.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–02018 Filed 2–2–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31432; File No. 812–14353]
CSOP ETF Trust and CSOP Asset
Management Limited; Notice of
Application
January 28, 2015
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
AGENCY:
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]]>Agencies
[Federal Register Volume 80, Number 22 (Tuesday, February 3, 2015)]
[Notices]
[Pages 5834-5840]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02018]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31430; 812-14402]
AlphaMark Advisors, LLC, et al.; Notice of Application
January 28, 2015.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of an application for an order under section 6(c) of
the Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1
under the Act, and under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (2) of the Act, and under section
12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and (B) of the
Act.
-----------------------------------------------------------------------
Applicants: ETF Series Solutions (the ``Trust''), AlphaMark Advisors,
LLC (``AlphaMark''), and Quasar Distributors, LLC (``Quasar'').
SUMMARY: Applicants request an order that permits: (a) Actively-
managed series of the Trust to issue shares (``Shares'') redeemable in
large aggregations only (``Creation Units''); (b) secondary market
transactions in Shares to occur at negotiated market prices; (c)
certain series to pay redemption proceeds, under certain circumstances,
more than seven days after the tender of Creation Units for redemption;
(d) certain affiliated persons of the series to deposit securities
into, and receive securities from, the series in connection with the
purchase and redemption of Creation Units; and (e) certain registered
management investment companies and unit investment trusts outside of
the same group of investment companies as the series to acquire Shares.
DATES: Filing Dates: The application was filed on December 18, 2014.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on Februry 23, 2015, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549. Applicants: AlphaMark Advisors, LLC,
250 Grandview Drive, Suite 175, Ft. Mitchell, Kentucky 41017; ETF
Series Solutions and Quasar Distributors, LLC, 615 East Michigan
Street, 4th Floor, Milwaukee, WI 53202.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812 or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act and is organized as a Delaware statutory trust.
The Trust will offer Funds (as defined below), each of which will have
distinct investment strategies and will attempt to achieve its
investment objective by utilizing an active management strategy.
2. AlphaMark, an Ohio limited liability company, is, and any other
Adviser (as defined below) will be, registered as an investment adviser
under the Investment Advisers Act of 1940 (the ``Advisers Act''). An
Adviser will be the investment adviser to each Fund and may enter into
subadvisory agreements with one or more affiliated or unaffiliated
investment sub-advisers to a Fund (each, a ``Sub-Adviser''). Any Sub-
Adviser will be registered or not subject to registration under the
Advisers Act. Quasar, a Delaware limited liability company, is, and any
other Distributor will be, registered as a broker-dealer (``Broker'')
under the Securities Exchange Act of 1934 (the ``Exchange Act'').\1\ A
Distributor will serve as the principal underwriter and distributor for
each of the Funds.
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\1\ For purposes of the requested order, the term
``Distributor'' shall include any other entity that acts as the
distributor and principal underwriter of the Creation Units of
Shares of the Funds in the future and complies with the terms and
conditions of the application.
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3. Applicants request that the order apply to AlphaMark Small Cap
Growth ETF (the ``Initial Fund'') and to future series of the Trust or
of any other open-end investment company that may be created in the
future that, in each case, (a) is an actively managed exchange-traded
fund (``ETF''), (b) is advised by AlphaMark or an entity controlling,
controlled by, or under common control with AlphaMark (each such entity
or any successor entity thereto, an ``Adviser'') \2\ and (c) complies
with the terms and conditions of the application (individually a
``Fund,'' and collectively, the ``Funds'').\3\
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\2\ For the purposes of the requested order, ``successor'' is
limited to an entity that results from a reorganization into another
jurisdiction or a change in the type of business organization.
\3\ All entities that currently intend to rely on the order are
named as applicants. Any entity that relies on the order in the
future will comply with the terms and conditions of the application.
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[[Page 5835]]
4. The Funds may invest in equity securities or fixed income
securities traded in the U.S. or non-U.S. markets. Funds that invest in
equity securities or fixed income securities traded in the U.S. or non-
U.S. markets are ``Global Funds.'' Funds that invest solely in foreign
equity securities or foreign fixed income securities are ``Foreign
Funds.'' The Funds may also invest in ``Depositary Receipts'' \4\ and
may engage in TBA Transactions (as defined below). Applicants further
state that, in order to implement each Fund's investment strategy, the
Adviser and/or Sub-Advisers of a Fund may review and change the
securities, or instruments, or other assets or positions held by the
Fund (``Portfolio Positions'') daily.\5\
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\4\ Depositary Receipts are typically issued by a financial
institution (a ``Depository'') and evidence ownership in a security
or pool of securities that have been deposited with the Depository.
A Fund will not invest in any Depositary Receipts that the Adviser
or any Sub-Adviser deems to be illiquid or for which pricing
information is not readily available. No affiliated persons of
applicants or any Sub-Adviser will serve as the Depository for any
Depositary Receipts held by a Fund.
\5\ If a Fund invests in derivatives, then (a) the Fund's board
of trustees or directors (for any entity, the ``Board'') will
periodically review and approve the Fund's use of derivatives and
how the Fund's investment adviser assesses and manages risk with
respect to the Fund's use of derivatives and (b) the Fund's
disclosure of its use of derivatives in its offering documents and
periodic reports will be consistent with relevant Commission and
staff guidance.
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5. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i)
Any Fund; (ii) any Acquiring Fund (as defined below); and (iii) any
Brokers selling Shares of a Fund to an Acquiring Fund or any principal
underwriter of a Fund. A management investment company or unit
investment trust registered under the Act that is not part of the same
``group of investment companies'' as the Fund within the meaning of
section 12(d)(1)(G)(ii) of the Act and that acquires Shares of a Fund
in excess of the limits of Section 12(d)(1)(A) of the Act is referred
to as an ``Acquiring Management Company'' or an ``Acquiring Trust,''
respectively, and the Acquiring Management Companies and Acquiring
Trusts are referred to collectively as ``Acquiring Funds.'' \6\
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\6\ An Acquiring Fund may rely on the order only to invest in a
Fund and not in any other registered investment company.
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6. A Creation Unit will consist of at least 25,000 Shares and
applicants expect that the trading price of a Share will range from $20
to $100. All orders to purchase Creation Units must be placed with the
Distributor by or through an ``Authorized Participant,'' which is a
participant in the Depository Trust Company (``DTC,'' such participant
a ``DTC Participant'') that has executed a ``Participant Agreement''
with the Distributor. Purchase orders for Funds will be processed
either through the enhanced clearing process of the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC'', and such process the ``NSCC Process'') or through the manual
clearing process of the DTC (``DTC Process'').
7. In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\7\ On
any given Business Day \8\ the names and quantities of the instruments
that constitute the Deposit Instruments and the names and quantities of
the instruments that constitute the Redemption Instruments will be
identical, and these instruments may be referred to, in the case of
either a purchase or a redemption, as the ``Creation Basket.'' In
addition, the Creation Basket will correspond pro rata to the positions
in a Fund's portfolio (including cash positions),\9\ except: (a) In the
case of bonds, for minor differences when it is impossible to break up
bonds beyond certain minimum sizes needed for transfer and settlement;
(b) for minor differences when rounding is necessary to eliminate
fractional shares or lots that are not tradeable round lots; \10\ or
(c) TBA Transactions,\11\ short positions and other positions that
cannot be transferred in kind \12\ will be excluded from the Creation
Basket.\13\ If there is a difference between the NAV attributable to a
Creation Unit and the aggregate market value of the Creation Basket
exchanged for the Creation Unit, the party conveying instruments with
the lower value will also pay to the other an amount in cash equal to
that difference (the ``Balancing Amount'').
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\7\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (``Securities
Act''). In accepting Deposit Instruments and satisfying redemptions
with Redemption Instruments that are restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act, the Funds
will comply with the conditions of Rule 144A.
\8\ Each Fund will sell and redeem Creation Units on any day
that the Trust is open for business, including as required by
section 22(e) of the Act (each, a ``Business Day'').
\9\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's net asset value (``NAV'') for
that Business Day.
\10\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\11\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price.
\12\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
\13\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Balancing Amount (defined below).
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8. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Balancing Amount,
as described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC
Process or DTC Process; or (ii) in the case of Global Funds and Foreign
Funds, such instruments are not eligible for trading due to local
trading restrictions, local restrictions on securities transfers or
other similar circumstances; or (e) if a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) Such instruments are, in the case of
the purchase of a Creation Unit, not available in sufficient quantity;
(ii) such instruments are not eligible for trading by an Authorized
Participant or the investor on whose behalf the Authorized Participant
is acting; or (iii) a holder of Shares of a Global Fund or
[[Page 5836]]
Foreign Fund would be subject to unfavorable income tax treatment if
the holder receives redemption proceeds in kind.\14\
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\14\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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9. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act (a
``Listing Market''), on which Shares are listed and traded, each Fund
will cause to be published through the NSCC the names and quantities of
the instruments comprising the Creation Basket, as well as the
estimated Balancing Amount (if any), for that day. The published
Creation Basket will apply until a new Creation Basket is announced on
the following Business Day, and there will be no intra-day changes to
the Creation Basket except to correct errors in the published Creation
Basket. The Listing Market will disseminate, every 15 seconds
throughout the regular trading hours, through the facilities of the
Consolidated Tape Associate, an estimated NAV, which is an amount per
Share representing the current value of the Portfolio Positions that
were publicly disclosed prior to the commencement of trading in Shares
on the Listing Market.
10. Each Fund will recoup the settlement costs charged by NSCC and
DTC by imposing a fee (the ``Transaction Fee'') on investors purchasing
or redeeming Creation Units. Where a Fund permits an in-kind purchaser
or redeemer to deposit or receive cash in lieu of one or more Deposit
or Redemption Instruments, the purchaser or redeemer may be assessed a
higher Transaction Fee to offset the cost of buying or selling those
particular Deposit or Redemption Instruments. In all cases, such
Transaction Fees will be limited in accordance with requirements of the
Commission applicable to management investment companies offering
redeemable securities. All orders to purchase Creation Units must be
placed with the Distributor by or through an Authorized Participant and
the Distributor will transmit such orders to the Funds. The Distributor
will maintain a record of Creation Unit purchases and will send out
confirmations of such purchases.
11. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded at negotiated prices on a Listing Market and it is expected
that the relevant Listing Market will designate one or more member
firms to maintain a market for the Shares.\15\ The price of Shares
trading on a Listing Market will be based on a current bid-offer in the
secondary market. Purchases and sales of Shares in the secondary market
will not involve a Fund and will be subject to customary brokerage
commissions and charges.
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\15\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Listing Market (including NYSE
Arca, Inc.), one or more member firms of that Listing Market will
act as market maker (a ``Market Maker'') and maintain a market for
Shares trading on that Listing Market. On Nasdaq, no particular
Market Maker would be contractually obligated to make a market in
Shares. However, the listing requirements on Nasdaq stipulate that
at least two Market Makers must be registered in Shares to maintain
a listing. Registered Market Makers are required to make a
continuous two-sided market or subject themselves to regulatory
sanctions. No Market Maker will be an affiliated person, or an
affiliated person of an affiliated person, of the Funds, except
within the meaning of section 2(a)(3)(A) or (C) of the Act due
solely to ownership of Shares.
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12. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Applicants expect
that secondary market purchasers of Shares will include both
institutional and retail investors.\16\ Applicants believe that the
structure and operation of the Funds will be designed to enable
efficient arbitrage and, thereby, minimize the probability that Shares
will trade at a material premium or discount to a Fund's NAV.
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\16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on the records of DTC
or DTC Participants.
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13. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund, or tender such shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be placed by or through an Authorized Participant. As
discussed above, redemptions of Creation Units will generally be made
on an in-kind basis, subject to certain specified exceptions under
which redemptions may be made in whole or in part on a cash basis, and
will be subject to a Transaction Fee.
14. Neither a Trust nor any Fund will be advertised or marketed or
otherwise held out as a traditional open-end investment company or
mutual fund. Instead, each Fund will be marketed as an ``actively-
managed exchange-traded fund.'' All marketing materials that describe
the features or method of obtaining, buying, or selling Creation Units,
or Shares traded on a Listing Market, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may acquire those Shares from a Fund or
tender those Shares for redemption to the Fund in Creation Units only.
15. Each Fund's Web site (``Web site''), which will be publicly
available prior to the offering of Shares, will include the Fund's
prospectus (``Prospectus''), statement of additional information
(``SAI''), and summary prospectus, if used. The Web site will contain,
on a per Share basis for each Fund, the prior Business Day's NAV and
the market closing price or mid-point of the bid/ask spread at the time
of calculation of such NAV (``Bid/Ask Price''), and a calculation of
the premium or discount of the market closing price or the Bid/Ask
Price against such NAV. On each Business Day, prior to the commencement
of trading in Shares on a Listing Market, each Fund shall post on the
Web site the identities and quantities of the Portfolio Positions held
by the Fund that will form the basis for the calculation of the NAV at
the end of that Business Day.\17\
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\17\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (T+1). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (2)
of the Act, and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the
[[Page 5837]]
policies of the registered investment company and the general
provisions of the Act. Section 12(d)(1)(J) of the Act provides that the
Commission may exempt any person, security, or transaction, or any
class or classes of persons, securities or transactions, from any
provision of section 12(d)(1) if the exemption is consistent with the
public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust to register as
an open-end management investment company and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units from each Fund and that Creation
Units will always be redeemable in accordance with the provisions of
the Act. Applicants further state that because the market price of
Shares will be disciplined by arbitrage opportunities, investors should
be able to sell Shares in the secondary market at prices that do not
vary materially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants state that, while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed (a) to prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) to prevent unjust discrimination or preferential treatment
among buyers and (c) to ensure an orderly distribution system of shares
by contract dealers by eliminating price competition from non-contract
dealers who could offer investors shares at less than the published
sales price and who could pay investors a little more than the
published redemption price.
6. Applicants assert that the protections intended to be afforded
by Section 22(d) and rule 22c-1 are adequately addressed by the
proposed methods for creating, redeeming and pricing Creation Units and
pricing and trading Shares. Applicants state that (a) secondary market
trading in Shares does not involve the Funds as parties and cannot
result in dilution of an investment in Shares and (b) to the extent
different prices exist during a given trading day, or from day to day,
such variances occur as a result of third-party market forces but do
not occur as a result of unjust or discriminatory manipulation.
Finally, applicants assert that competitive forces in the marketplace
should ensure that the margin between NAV and the price for the Shares
in the secondary market remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that the settlement of redemptions of Creation Units of the
Foreign and Global Funds is contingent not only on the settlement cycle
of the U.S. securities markets but also on the delivery cycles present
in foreign markets for underlying foreign Portfolio Positions in which
those Funds invest. Applicants have been advised that, under certain
circumstances, the delivery cycles for transferring Portfolio Positions
to redeeming investors, coupled with local market holiday schedules,
will require a delivery process of up to fifteen (15) calendar days.
Applicants therefore request relief from section 22(e) in order to
provide payment or satisfaction of redemptions within a longer number
of calendar days as required for such payment or satisfaction in the
principal local markets where transactions in the Portfolio Positions
of each Foreign and Global Fund customarily clear and settle, but in
all cases no later than fifteen (15) days following the tender of a
Creation Unit.\18\
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\18\ Applicants acknowledge that no relief obtained from the
requirements of Section 22(e) of the Act will affect any obligations
that it may otherwise have under Rule 15c6-1 under the Exchange Act.
Rule 15c6-1 requires that most securities transactions be settled
within three business days of the trade date.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed or unforeseen delays in the actual payment of
redemption proceeds. Applicants assert that the protections intended to
be afforded by Section 22(e) are adequately addressed by the proposed
method and securities delivery cycles for redeeming Creation Units.
Applicants state that allowing redemption payments for Creation Units
of a Fund to be made within a maximum of fifteen (15) calendar days
\19\ would not be inconsistent with the spirit and intent of section
22(e). Applicants represent that each Fund's Prospectus and/or SAI will
identify those instances in a given year where, due to local holidays,
more than seven calendar days, up to a maximum of fifteen (15) calendar
days, will be needed to deliver redemption proceeds and will list such
holidays. Applicants are not seeking relief from section 22(e) with
respect to Foreign and Global Funds that do not effect redemptions in-
kind.
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\19\ Certain countries in which a Fund may invest have
historically had settlement periods of up to 15 calendar days.
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Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its shares to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's voting stock, or if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies generally.
10. Applicants request relief to permit Acquiring Funds to acquire
Shares in excess of the limits in section
[[Page 5838]]
12(d)(1)(A) of the Act and to permit the Funds, their principal
underwriters and any Broker to sell Shares to Acquiring Funds in excess
of the limits in section 12(d)(l)(B) of the Act. Applicants submit that
the proposed conditions to the requested relief address the concerns
underlying the limits in section 12(d)(1), which include concerns about
undue influence, excessive layering of fees and overly complex
structures.
11. Applicants submit that their proposed conditions address
concerns regarding the potential for undue influence. To limit the
control that an Acquiring Fund may have over a Fund, applicants propose
a condition prohibiting the adviser of an Acquiring Management Company
(``Acquiring Fund Advisor''), sponsor of an Acquiring Trust
(``Sponsor''), any person controlling, controlled by, or under common
control with the Acquiring Fund Advisor or Sponsor, and any investment
company or issuer that would be an investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the
Acquiring Fund Advisor, the Sponsor, or any person controlling,
controlled by, or under common control with the Acquiring Fund Advisor
or Sponsor (``Acquiring Fund's Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any sub-adviser
to an Acquiring Fund (``Acquiring Fund Sub-Advisor''), any person
controlling, controlled by or under common control with the Acquiring
Fund Sub-Advisor, and any investment company or issuer that would be an
investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Acquiring Fund Sub-Advisor or any person controlling, controlled by
or under common control with the Acquiring Fund Sub-Advisor
(``Acquiring Fund's Sub-Advisory Group'').
12. Applicants propose a condition to ensure that no Acquiring Fund
or Acquiring Fund Affiliate \20\ (except to the extent it is acting in
its capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in an offering of securities during the existence
of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Acquiring Fund Advisor, Acquiring Fund Sub-
Advisor, employee or Sponsor of the Acquiring Fund, or a person of
which any such officer, director, member of an advisory board,
Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, employee or Sponsor
is an affiliated person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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\20\ An ``Acquiring Fund Affiliate'' is any Acquiring Fund
Advisor, Acquiring Fund Sub-Advisor, Sponsor, promoter and principal
underwriter of an Acquiring Fund, and any person controlling,
controlled by or under common control with any of these entities.
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund or any person controlling, controlled by or
under common control with any of these entities.
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13. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the Board of any Acquiring
Management Company, including a majority of the directors or trustees
who are not ``interested persons'' within the meaning of section
2(a)(19) of the Act (for any Board, the ``Independent Trustees''), will
be required to find that the advisory fees charged under the contract
are based on services provided that will be in addition to, rather than
duplicative of, services provided under the advisory contract of any
Fund in which the Acquiring Management Company may invest. Applicants
also state that any sales charges and/or service fees charged with
respect to shares of an Acquiring Fund will not exceed the limits
applicable to a fund of funds as set forth in NASD Conduct Rule
2830.\21\
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\21\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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14. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any 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.
15. To ensure that an Acquiring Fund is aware of the terms and
conditions of the requested order, the Acquiring Funds must enter into
an agreement with the respective Funds (``Acquiring Fund Agreement'').
The Acquiring Fund Agreement will include an acknowledgement from the
Acquiring Fund that it may rely on the order only to invest in a Fund
and not in any other investment company.
Section 17(a) of the Act
16. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person (``Second Tier Affiliates''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
defines ``control'' as ``the power to exercise a controlling influence
over the management or policies'' of the fund and provides that a
control relationship will be presumed where one person owns more than
25% of another person's voting securities. The Funds may be deemed to
be controlled by the Adviser or an entity controlling, controlled by or
under common control with the Adviser and hence affiliated persons of
each other. In addition, the Funds may be deemed to be under common
control with any other registered investment company (or series
thereof) advised by the Adviser or an entity controlling, controlled by
or under common control with the Adviser (an ``Affiliated Fund'').
17. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units from the Funds by
persons that are affiliated persons or Second Tier Affiliates of the
Funds solely by virtue of one or more of the following: (a) Holding 5%
or more, or more than 25%, of the Shares of a Trust of one or more
Funds; (b) having an affiliation with a person with an ownership
interest described in (a); or (c) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, any Acquiring Fund of which
the Fund is an affiliated person or Second-Tier Affiliate.\22\
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\22\ Applicants anticipate that most Acquiring Funds will
purchase Shares in the secondary market and will not purchase or
redeem Creation Units directly from a Fund. To the extent that
purchases and sales of Shares occur in the secondary market and not
through principal transactions directly between an Acquiring Fund
and a Fund, relief from section 17(a) would not be necessary.
However, the requested relief would apply to direct sales of Shares
in Creation Units by a Fund to an Acquiring Fund and redemptions of
those Shares in Creation Units. The requested relief is intended to
cover transactions that would accompany such sales and redemptions.
Applicants are not seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions where a Fund could
be deemed an affiliated person, or an affiliated person of an
affiliated person of an Acquiring Fund because an investment adviser
to the Funds is also an investment adviser to that Acquiring Fund.
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[[Page 5839]]
18. Applicants assert that no useful purpose would be served by
prohibiting such affiliated persons or Second Tier Affiliates from
making in-kind purchases or in-kind redemptions of Shares of a Fund in
Creation Units. Both the deposit procedures for in-kind purchases of
Creation Units and the redemption procedures for in-kind redemptions
will be the same for all purchases and redemptions. Deposit Instruments
and Redemption Instruments will be valued in the same manner as those
Portfolio Positions currently held by the relevant Funds and the
valuation of the Deposit Instruments and Redemption Instruments will be
made in an identical manner regardless of the identity of the purchaser
or redeemer. Applicants do not believe that in-kind purchases and
redemptions will result in abusive self-dealing or overreaching of the
Fund.
20. Applicants also submit that the sale of Shares to and
redemption of Shares from an Acquiring Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Shares
directly from a Fund will be based on the NAV of the Fund.\23\ The
Acquiring Fund Agreement will require any Acquiring Fund that purchases
Creation Units directly from a Fund to represent that the purchase will
be in compliance with its investment restrictions and consistent with
the investment policies set forth in its registration statement.
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\23\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Acquiring Fund, or an affiliated
person of such person, for the purchase by the Acquiring Fund of
Shares of a Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of its
Shares to an Acquiring Fund, may be prohibited by section 17(e)(1)
of the Act. The Acquiring Fund Agreement also will include this
acknowledgment.
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21. Applicants believe that: (a) With respect to the relief
requested pursuant to section 17(b), the proposed transactions are fair
and reasonable, and do not involve overreaching on the part of any
person concerned, the proposed transactions are consistent with the
policy of each Fund and, where applicable, Acquiring Fund, and the
proposed transactions are consistent with the general purposes of the
Act; and (b) with respect to the relief requested pursuant to section
6(c), the requested exemption for the proposed transactions is
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively-Managed Exchange-Traded Fund Relief
1. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or mutual fund. Any advertising material
that describes the purchase or sale of Creation Units or refers to
redeemability will prominently disclose that the Shares are not
individually redeemable and that owners of the Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only.
2. The Web site, which is and will be publicly accessible at no
charge, will contain, on a per Share basis for each Fund, the prior
Business Day's NAV and the market closing price or the Bid/Ask Price,
and a calculation of the premium or discount of the market closing
price or Bid/Ask Price against such NAV.
3. As long as a Fund operates in reliance on the requested order,
its Shares will be listed on a Listing Market.
4. On each Business Day, before commencement of trading in Shares
on a Fund's Listing Market, the Fund will disclose on the Web site the
identities and quantities of the Portfolio Positions held by the Fund
that will form the basis for the Fund's calculation of NAV per Share at
the end of the Business Day.
5. The Adviser or any Sub-Advisers, directly or indirectly, will
not cause any Authorized Participant (or any investor on whose behalf
an Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for a Fund through a transaction in which the Fund
could not engage directly.
6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of actively-managed exchange-traded
funds.
B. Section 12(d)(1) Relief
7. The members of an Acquiring Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of an Acquiring Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Acquiring Fund's Advisory Group or the Acquiring Fund's Sub-Advisory
Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its Shares
of the Fund in the same proportion as the vote of all other holders of
that Fund's Shares. This condition does not apply to the Acquiring
Fund's Sub-Advisory Group with respect to a Fund for which the
Acquiring Fund Sub-Advisor or a person controlling, controlled by, or
under common control with the Acquiring Fund Sub-Advisor acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
8. No Acquiring Fund or Acquiring Fund Affiliate will cause any
existing or potential investment by the Acquiring Fund in a Fund to
influence the terms of any services or transactions between the
Acquiring Fund or an Acquiring Fund Affiliate and the Fund or a Fund
Affiliate.
9. The Board of an Acquiring Management Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to ensure that the Acquiring Fund Advisor and any Acquiring
Fund Sub-Advisor are conducting the investment program of the Acquiring
Management Company without taking into account any consideration
received by the Acquiring Management Company or an Acquiring Fund
Affiliate from a Fund or a Fund Affiliate in connection with any
services or transactions.
10. Once an investment by an Acquiring Fund in the Shares of a Fund
exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board of
the Fund, including a majority of the Independent Trustees, will
determine that any consideration paid by the Fund to an Acquiring Fund
or an Acquiring Fund Affiliate in connection with any services or
transactions: (i) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (ii) is
within the range of consideration that the Fund would be required to
pay to another unaffiliated entity in connection with the same services
or transactions; and
[[Page 5840]]
(iii) does not involve overreaching on the part of any person
concerned. This condition does not apply with respect to any services
or transactions between a Fund and its investment adviser(s), or any
person controlling, controlled by or under common control with such
investment adviser(s).
11. No Acquiring Fund or Acquiring Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause the Fund to purchase a security in any Affiliated
Underwriting.
12. The Board of a Fund, including a majority of the Independent
Trustees, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting, once
an investment by an Acquiring Fund in the securities of the Fund
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any
purchases made directly from an Underwriting Affiliate. The Board of
the Fund will review these purchases periodically, but no less
frequently than annually, to determine whether the purchases were
influenced by the investment by the Acquiring Fund in the Fund. The
Board of the Fund will consider, among other things: (i) Whether the
purchases were consistent with the investment objectives and policies
of the Fund; (ii) 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 (iii) 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 of the Fund 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
shareholders of the Fund.
13. 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 an Acquiring Fund 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
determinations of the Board of the Fund were made.
14. Before investing in Shares of a Fund in excess of the limits in
section 12(d)(1)(A), each Acquiring Fund and the Fund will execute an
Acquiring Fund Agreement stating, without limitation, that their Boards
and their investment adviser(s), or their Sponsors or trustees
(``Trustee''), as applicable, understand the terms and conditions of
the requested order, and agree to fulfill their responsibilities under
the requested order. At the time of its investment in Shares of a Fund
in excess of the limit in section 12(d)(1)(A)(i), an Acquiring Fund
will notify the Fund of the investment. At such time, the Acquiring
Fund will also transmit to the Fund a list of the names of each
Acquiring Fund Affiliate and Underwriting Affiliate. The Acquiring Fund
will notify the Fund of any changes to the list of the names as soon as
reasonably practicable after a change occurs. The Fund and the
Acquiring Fund will maintain and preserve a copy of the requested
order, the Acquiring Fund 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.
15. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Acquiring Fund in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted under rule 12b-l under the Act) received
from the Fund by the Acquiring Fund Advisor, Trustee or Sponsor, or an
affiliated person of the Acquiring Fund Advisor, Trustee or Sponsor,
other than any advisory fees paid to the Acquiring Fund Advisor,
Trustee or Sponsor, or its affiliated person by the Fund in connection
with the investment by the Acquiring Fund in the Fund. Any Acquiring
Fund Sub-Advisor will waive fees otherwise payable to the Acquiring
Fund Sub-Advisor, directly or indirectly, by the Acquiring Management
Company in an amount at least equal to any compensation received from a
Fund by the Acquiring Fund Sub-Advisor, or an affiliated person of the
Acquiring Fund Sub-Advisor, other than any advisory fees paid to the
Acquiring Fund Sub-Advisor or its affiliated person by the Fund in
connection with any investment by the Acquiring Management Company in
the Fund made at the direction of the Acquiring Fund Sub-Advisor. In
the event that the Acquiring Fund Sub-Advisor waives fees, the benefit
of the waiver will be passed through to the Acquiring Management
Company.
16. Any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
17. No Fund will acquire securities of any other 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 the Fund acquires securities of another investment company
pursuant to exemptive relief from the Commission permitting the Fund to
acquire securities of one or more investment companies for short-term
cash management purposes.
18. Before approving any advisory contract under section 15 of the
Act, the Board of each Acquiring Management Company, including a
majority of the Independent Trustees, will find that the advisory fees
charged under such advisory 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
Acquiring Management Company may invest. These findings and their basis
will be recorded fully in the minute books of the appropriate Acquiring
Management Company.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02018 Filed 2-2-15; 8:45 am]
BILLING CODE 8011-01-P
