MainStay Funds Trust, et al.;, 43301-43306 [2016-15584]
Download as PDF
<![CDATA[
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2016–44 on the subject line.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–44. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–44 and should be
submitted on or before July 22, 2016.
VI. Accelerated Approval of the
Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of notice of Amendment No.
1 in the Federal Register. In
Amendment No. 1, the Exchange added
subsection (E) to proposed Rule
7.31P(h)(3), which would provide that if
the PBBO is locked or crossed, both an
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
arriving and resting Discretionary
Pegged Order would wait for a PBBO
that is not locked or crossed before the
working price is adjusted and the order
becomes eligible to trade. As noted
above, this aspect of the proposed
Discretionary Pegged Order is consistent
with Exchange Rule 7.31P(h)(1)(B),
which governs the treatment of other
non-displayed pegged orders on the
Exchange (i.e., Market Pegged Orders)
when the market is locked or crossed. In
Amendment No. 1, the Exchange also
provided additional responses to the
comment letters and provided more
information regarding the
implementation date for the proposed
rule change. These two changes do not
alter the substance of the proposed rule
change. Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Act,52 to approve the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,53 that the
proposed rule change (SR–NYSEArca–
2016–44), as modified by Amendment
No. 1, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–15718 Filed 6–30–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No. IC–
32163; File No. 812–14523]
MainStay Funds Trust, et al.; Notice of
Application
June 27, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to: (a) Section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule
AGENCY:
52 15
U.S.C. 78s(b)(2).
53 Id.
54 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00120
Fmt 4703
Sfmt 4703
43301
17d–1 under the Act to permit certain
joint arrangements and transactions.
Summary of the Application:
Applicants request an order that would
permit certain registered open-end
management investment companies to
participate in a joint lending and
borrowing facility.
Applicants: MainStay Funds Trust,
The MainStay Funds and MainStay VP
Funds Trust (each a ‘‘Trust’’ and
collectively the ‘‘Trusts’’) and New York
Life Investment Management LLC
(‘‘New York Life Investments’’).
Filing Dates: The application was
filed on July 30, 2015, and amended on
September 28, 2015, January 19, 2016,
May 12, 2016, and June 20, 2016.
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 July 22, 2016 and
should be accompanied by proof of
service on the 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 20549–1090;
Applicants: New York Life Investment
Management LLC, 51 Madison Avenue,
New York, NY 10010.
FOR FURTHER INFORMATION CONTACT:
Robert Shapiro, Senior Counsel, at (202)
551–7758 or Mary Kay Frech, 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 an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. Each Trust is organized as a
Massachusetts business trust or a
Delaware statutory trust and is
registered under the Act as an open-end
E:\FR\FM\01JYN1.SGM
01JYN1
43302
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
management investment company. Each
Trust has issued shares of one or more
Funds with its own distinctive
investment objectives, policies and
restrictions.1 New York Life
Investments, an indirect, wholly-owned
subsidiary of New York Life, is a
Delaware limited liability company that
is registered as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’).2 Any Adviser
which serves as investment advisor to
an applicant will be registered as an
investment adviser under the Advisers
Act.
2. At any particular time, those Funds
with uninvested cash may, in effect,
lend money to banks or other entities by
entering into repurchase agreements or
purchasing other short-term money
market instruments. At the same time,
other Funds may need to borrow money
from the same or similar banks for
temporary purposes, to cover
unanticipated cash shortfalls such as a
trade ‘‘fail’’ or for other temporary
purposes. The Funds are parties to an
unsecured 364-day, $600 million
revolving credit facility with a group of
lenders (the ‘‘Credit Facility’’), to meet
unanticipated or excessive redemption
requests.
3. If Funds that experience a cash
shortfall were to borrow under the
Credit Facility (or another credit
facility), they would pay interest at a
rate that is likely to be higher than the
rate that could be earned by nonborrowing Funds on investments in
repurchase agreements and other shortterm money market instruments.
Applicants assert the difference between
the higher rate paid on a borrowing and
what the bank pays to borrow under
repurchase agreements or other
arrangements represents the bank’s
profit for serving as the middleperson
between a borrower and lender and is
not attributable to any material
difference in the credit quality or risk of
such transactions.
1 Applicants request that the order apply to any
existing or future registered open-end management
investment company or series thereof for which
New York Life Investments or any successor thereto
or an investment adviser controlling, controlled by,
or under common control (within the meaning of
section 2(a)(9) of the Act) with New York Life
Investments or any successor thereto serves as
investment adviser (each such investment company
or series thereof, a ‘‘Fund’’ and collectively the
‘‘Funds’’ or each such investment adviser an
‘‘Adviser’’). For purposes of the requested order,
‘‘successor’’ is limited to any entity that results
from a reorganization into another jurisdiction or a
change in the type of a business organization.
2 All Funds that currently intend to rely on the
requested order have been named as applicants.
Any other Fund that relies on the requested order
in the future will comply with the terms and
conditions of the application.
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
4. The Funds seek to enter into master
interfund lending agreements with each
other (the ‘‘InterFund Program’’) that
will allow each Fund whose policies
permit it to do so to lend money directly
to and borrow money directly from
other Funds for temporary purposes
through the InterFund Program (an
‘‘InterFund Loan’’).3 Applicants state
that the requested relief will enable the
Funds to access an available source of
money and reduce costs incurred by the
Funds that need to obtain loans for
temporary purposes and permit those
Funds that have uninvested cash
available: (i) To earn a return on the
money that they might not otherwise be
able to invest; or (ii) to earn a higher rate
of interest on investment of their shortterm balances. Although the proposed
InterFund Program would reduce the
Funds’ need to borrow from banks or
through custodian overdrafts, the Funds
would be free to establish and/or
continue lines of credit or other
borrowing arrangements with banks.
5. Applicants anticipate that the
proposed InterFund Program would
provide a borrowing Fund with a source
of liquidity at a rate lower than the bank
borrowing rate and also operational
flexibility at times when the cash
position of the borrowing Fund is
insufficient to meet temporary cash
requirements. This situation could arise
when shareholder redemptions exceed
anticipated cash volumes and certain
Funds have insufficient cash on hand to
satisfy such redemptions. When the
Funds liquidate portfolio securities to
meet redemption requests, they often do
not receive payment in settlement for up
to three days (or longer for certain
foreign transactions and fixed income
instruments). However, redemption
requests for the Funds normally are
effected on the day following the trade
date.4 The InterFund Program would
provide a source of immediate, shortterm liquidity pending settlement of the
sale of portfolio securities.
6. Applicants also anticipate that a
Fund could use the InterFund Program
when a sale of securities ‘‘fails’’ due to
circumstances beyond the Fund’s
control, such as a delay in the delivery
of cash to the Fund’s custodian or
improper delivery instructions by the
broker effecting the transaction. ‘‘Sales
3 No money market fund advised by an Adviser
that complies with the requirements of rule 2a–7
under the Act will participate in the InterFund
Program as either a borrower or a lender.
4 Applicants represent that although a significant
amount of redemption requests for the Funds
normally are effected on a trade date plus 1 (T+1)
basis, redemption payments can take as long as
seven days from receipt of a request in good order
and may be delayed further in certain limited
circumstances to the extent permitted by law.
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
fails’’ may result in a cash shortfall if
the Fund has undertaken to purchase a
security using the proceeds from
securities sold. Applicants state that, in
the event of a sales fail, the custodian
typically extends temporary credit to
cover the shortfall, and the Fund incurs
overdraft charges. Alternatively, the
Fund could: (i) ‘‘Fail’’ on its intended
purchase due to lack of funds from the
previous sale, resulting in additional
cost to the Fund; or (ii) sell a security
on a same-day settlement basis, earning
a lower return on the investment. Use of
the InterFund Program under these
circumstances would enable the Fund to
have access to immediate short-term
liquidity.
7. While bank borrowings (including
the Credit Facility) and/or custodian
overdrafts generally could supply Funds
with a portion of the needed cash to
cover unanticipated redemptions and
sales fails, under the proposed
InterFund Program, a borrowing Fund
would pay lower interest rates than
those that typically would be payable
under short-term loans offered by banks
or custodian overdrafts. In addition,
Funds making short-term cash loans
directly to other Funds would earn
interest at a rate higher than they
otherwise could obtain from investing
their cash in repurchase agreements or
certain other short-term money market
instruments. Thus, applicants assert that
the proposed InterFund Program would
benefit both borrowing and lending
Funds.
8. The interest rate to be charged to
the Funds on any InterFund Loan (the
‘‘InterFund Loan Rate’’) would be the
average of the ‘‘Repo Rate’’ and the
‘‘Bank Loan Rate,’’ each as defined
below. The Repo Rate would be the
highest current overnight repurchase
agreement rate available to a lending
Fund. The Bank Loan Rate for any day
would be calculated by the InterFund
Program Team (as defined below) on
each day an InterFund Loan is made
according to a formula established by
each Fund’s board of trustees (the
‘‘Board’’) intended to approximate the
lowest interest rate at which a bank
short-term loan would be available to
the Fund. The formula would be based
upon a publicly available rate (e.g.,
Federal funds rate and/or LIBOR) plus
an additional spread of basis points and
would vary with this rate so as to reflect
changing bank loan rates. The initial
formula and any subsequent
modifications to the formula would be
subject to the approval of the Board. In
addition, the Board periodically would
review the continuing appropriateness
of reliance on the formula used to
determine the Bank Loan Rate, as well
E:\FR\FM\01JYN1.SGM
01JYN1
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
as the relationship between the Bank
Loan Rate and current bank loan rates
that would be available to the Fund.
9. Certain members of the Trusts’
administration personnel (other than
investment advisory personnel) (the
‘‘InterFund Program Team’’) will
administer the InterFund Program. No
portfolio manager of any Fund will
serve as a member of the InterFund
Program Team. Under the proposed
InterFund Program, the portfolio
managers for each participating Fund
would have the ability to provide
standing instructions to participate
daily as a borrower or lender. The
InterFund Program Team on each
business day would collect data on the
uninvested cash and borrowing
requirements of all participating Funds.
Once the InterFund Program Team has
determined the aggregate amount of
cash available for loans and borrowing
demand, the InterFund Program Team
will allocate loans among borrowing
Funds without any further
communication from the portfolio
managers of the Funds. After the
InterFund Program Team has allocated
cash for InterFund Loans, the InterFund
Program Team will invest any
remaining cash in accordance with the
standing instructions of the relevant
portfolio manager or such remaining
amounts will be invested directly by the
portfolio managers of the Funds.
10. The InterFund Program Team will
allocate borrowing demand and cash
available for lending among the Funds
on what the InterFund Program Team
believes to be an equitable basis, subject
to certain administrative procedures
applicable to all Funds, such as the time
of filing requests to participate,
minimum loan lot sizes, and the need to
minimize the number of transactions
and associated administrative costs. To
reduce transaction costs, each InterFund
Loan normally would be allocated in a
manner intended to minimize the
number of participants necessary to
complete the loan transaction. The
procedures for allocating cash among
borrowers and determining loan
participations among lenders, together
with related administrative procedures,
will be approved by the Board,
including a majority of the Board
members who are not ‘‘interested
persons,’’ as defined in section 2(a)(19)
of the Act (‘‘Independent Board
Members’’), to ensure that both
borrowing and lending Funds
participate on an equitable basis.
11. The InterFund Program Team will:
(a) Monitor the InterFund Loan Rate and
the other terms and conditions of the
InterFund Loans; (b) limit the
borrowings and loans entered into by
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
each Fund to ensure that they comply
with the Fund’s investment policies and
limitations; (c) implement and follow
procedures designed to ensure equitable
treatment of each Fund; and (d) make
quarterly reports to the Board of each
Fund concerning any transactions by
the applicable Fund under the
InterFund Program and the InterFund
Loan Rate.
12. New York Life Investments,
through the InterFund Program Team,
would administer the InterFund
Program as a disinterested fiduciary as
part of its duties under the investment
management agreements with each
Fund and would receive no additional
fee as compensation for its services in
connection with the administration of
the InterFund Program.
13. No Fund may participate in the
InterFund Program unless: (a) The Fund
has obtained shareholder approval for
its participation, if such approval is
required by law; (b) the Fund has fully
disclosed all material information
concerning the InterFund Program in its
registration statement on Form N–1A;
and (c) the Fund’s participation in the
InterFund Program is consistent with its
investment objectives, investment
restrictions, policies, limitations, and
organizational documents.
14. As part of the Board’s review of
the continuing appropriateness of a
Fund’s participation in the proposed
InterFund Program as required by
condition 14, the Board members of the
Fund, including a majority of the
Independent Board Members, also will
review the process in place to
appropriately assess: (i) If the Fund
participates as a lender, any effect its
participation may have on the Fund’s
liquidity risk; and (ii) if the Fund
participates as a borrower, whether the
Fund’s portfolio liquidity is sufficient to
satisfy its obligations under the facility
along with its other liquidity needs.
15. In connection with the InterFund
Program, applicants request an order
under section 6(c) of the Act exempting
them from the provisions of sections
18(f) and 21(b) of the Act; under section
12(d)(1)(J) of the Act exempting them
from section 12(d)(1) of the Act; under
sections 6(c) and 17(b) of the Act
exempting them from sections 17(a)(1),
17(a)(2), and 17(a)(3) of the Act; and
under section 17(d) of the Act and rule
17d–1 under the Act to permit certain
joint arrangements and transactions.
Applicants’ Legal Analysis:
1. Section 17(a)(3) of the Act generally
prohibits any affiliated person of a
registered investment company, or
affiliated person of an affiliated person,
from borrowing money or other property
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
43303
from the registered investment
company. Section 21(b) of the Act
generally prohibits any registered
management company from lending
money or other property to any person,
directly or indirectly, if that person
controls or is under common control
with that company. Section 2(a)(3)(C) of
the Act defines an ‘‘affiliated person’’ of
another person, in part, to be any person
directly or indirectly controlling,
controlled by, or under common control
with, such 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 a company,’’ but excludes
circumstances in which ‘‘such power is
solely the result of an official position
with such company.’’ Applicants state
that the Funds may be under common
control by virtue of having common
investment advisers and/or by having
common trustees, managers and/or
officers.
2. Section 6(c) of the Act provides that
an exemptive order may be granted
where an 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)
provided that the terms of the
transaction, including the consideration
to be paid or received, are fair and
reasonable and do not involve
overreaching on the part of any person
concerned, and the transaction is
consistent with the policy of the
investment company as recited in its
registration statement and with the
general purposes of the Act. Applicants
believe that the proposed arrangements
satisfy these standards for the reasons
discussed below.
3. Applicants assert that sections
17(a)(3) and 21(b) of the Act were
intended to prevent a party with strong
potential adverse interests to, and some
influence over the investment decisions
of, a registered investment company
from causing or inducing the investment
company to engage in lending
transactions that unfairly inure to the
benefit of such party and that are
detrimental to the best interests of the
investment company and its
shareholders. Applicants assert that the
proposed transactions do not raise these
concerns because: (a) New York Life
Investments, through the InterFund
Program Team members, would
administer the InterFund Program as a
disinterested fiduciary as part of its
duties under the investment
management and administrative
E:\FR\FM\01JYN1.SGM
01JYN1
asabaliauskas on DSK3SPTVN1PROD with NOTICES
43304
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
agreements with each Fund; (b) all
InterFund Loans would consist only of
uninvested cash reserves that the Fund
otherwise would invest in short-term
repurchase agreements or other shortterm investments; (c) the InterFund
Loans would not involve a greater risk
than such other investments; (d) the
lending Fund would receive interest at
a rate higher than it could obtain
through short-term repurchase
agreements or certain other short-term
investments; and (e) the borrowing
Fund would pay interest at a rate lower
than otherwise available to it under its
bank loan agreements. Moreover,
applicants assert that the other terms
and conditions that applicants propose
also would effectively preclude the
possibility of any Fund obtaining an
undue advantage over any other Fund.
4. Section 17(a)(1) of the Act generally
prohibits an affiliated person of a
registered investment company, or any
affiliated person of such a person, from
selling securities or other property to
the investment company. Section
17(a)(2) of the Act generally prohibits an
affiliated person of a registered
investment company, or any affiliated
person of such a person, from
purchasing securities or other property
from the investment company. Section
12(d)(1) of the Act generally prohibits a
registered investment company from
purchasing or otherwise acquiring any
security issued by any other investment
company except in accordance with the
limitations set forth in that section.
5. Applicants state that the obligation
of a borrowing Fund to repay an
InterFund Loan could be deemed to
constitute a security for the purposes of
sections 17(a)(1) and 12(d)(1).
Applicants also state that any pledge of
securities to secure an InterFund Loan
by the borrowing Fund to the lending
Fund could constitute a purchase of
securities for purposes of section
17(a)(2) of the Act. Section 12(d)(1)(J) of
the Act provides that the Commission
may exempt persons or transactions
from any provision of section 12(d)(1) if
and to the extent that such exemption
is consistent with the public interest
and the protection of investors.
Applicants contend that the standards
under sections 6(c), 17(b), and
12(d)(1)(J) are satisfied for all the
reasons set forth above in support of
their request for relief from sections
17(a)(3) and 21(b) and for the reasons
discussed below. Applicants state that
the requested relief from section 17(a)(2)
of the Act meets the standards of section
6(c) and 17(b) because any collateral
pledged to secure an InterFund Loan
would be subject to the same conditions
imposed by any other lender to a Fund
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
that imposes conditions on the quality
of or access to collateral for a borrowing
(if the lender is another Fund) or the
same or better conditions (in any other
circumstance).
6. Applicants state that section
12(d)(1) was intended to prevent the
pyramiding of investment companies in
order to avoid imposing on investors
additional and duplicative costs and
fees attendant upon multiple layers of
investment companies. Applicants
submit that the proposed InterFund
Program does not involve the type of
abuse at which section 12(d)(1) of the
Act was directed. Applicants note that
there will be no duplicative costs or fees
to the Funds or their shareholders, and
that New York Life Investments will
receive no additional compensation for
its services in administering the
InterFund Program. Applicants also
note that the purpose of the proposed
InterFund Program is to provide
economic benefits for all the
participating Funds and their
shareholders.
7. Section 18(f)(1) of the Act prohibits
open-end investment companies from
issuing any senior security except that
a company is permitted to borrow from
any bank, provided, that immediately
after the borrowing, there is asset
coverage of at least 300 per centum for
all borrowings of the company. Under
section 18(g) of the Act, the term ‘‘senior
security’’ generally includes any bond,
debenture, note or similar obligation or
instrument constituting a security and
evidencing indebtedness. Applicants
request exemptive relief under section
6(c) from section 18(f)(1) to the limited
extent necessary to allow a Fund to
borrow through the InterFund Program
(because the lending Funds are not
banks).
8. Applicants believe that granting
relief under section 6(c) is appropriate
because the Funds would remain
subject to the requirement of section
18(f)(1) that all borrowings of a Fund,
including combined InterFund Loans
and bank borrowings, have at least
300% asset coverage. Based on the
conditions and safeguards described in
the application, applicants also submit
that to allow the Funds to borrow from
other Funds pursuant to the proposed
InterFund Program is consistent with
the purposes and policies of section
18(f)(1).
9. Section 17(d) of the Act and rule
17d–1 under the Act generally prohibit
an affiliated person of a registered
investment company, or any affiliated
person of such a person, when acting as
principal, from effecting any joint
transaction in which the investment
company participates, unless, upon
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
application, the transaction has been
approved by the Commission. Rule 17d–
1(b) under the Act provides that in
passing upon an application filed under
the rule, the Commission will consider
whether the participation of the
registered investment company in a
joint enterprise, joint arrangement or
profit sharing plan on the basis
proposed is consistent with the
provisions, policies and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of the
other participants.
10. Applicants assert that the purpose
of section 17(d) is to avoid overreaching
by and unfair advantage to insiders.
Applicants assert that the InterFund
Program is consistent with the
provisions, policies and purposes of the
Act in that it offers both reduced
borrowing costs and enhanced returns
on loaned funds to all participating
Funds and their shareholders.
Applicants note that each Fund would
have an equal opportunity to borrow
and lend on equal terms consistent with
its investment policies and fundamental
investment limitations. Applicants
assert that each Fund’s participation in
the proposed InterFund Program would
be on terms that are no different from
or less advantageous than that of other
participating Funds.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The InterFund Loan Rate will be
the average of the Repo Rate and the
Bank Loan Rate.
2. On each business day, when an
interfund loan is to be made, the
InterFund Program Team will compare
the Bank Loan Rate with the Repo Rate
and will make cash available for
InterFund Loans only if the InterFund
Loan Rate is: (i) More favorable to the
lending Fund than the Repo Rate; and
(ii) more favorable to the borrowing
Fund than the Bank Loan Rate.
3. If a Fund has outstanding bank
borrowings, any InterFund Loan to the
Fund will: (i) Be at an interest rate equal
to or lower than the interest rate of any
outstanding bank borrowing; (ii) be
secured at least on an equal priority
basis with at least an equivalent
percentage of collateral to loan value as
any outstanding bank loan that requires
collateral; (iii) have a maturity no longer
than any outstanding bank loan (and in
any event not over seven days); and (iv)
provide that, if an event of default
occurs under any agreement evidencing
an outstanding bank loan to the Fund,
that the event of default by the Fund,
E:\FR\FM\01JYN1.SGM
01JYN1
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
will automatically (without need for
action or notice by the lending Fund)
constitute an immediate event of default
under the interfund lending agreement,
which both (aa) entitles the lending
Fund to call the InterFund Loan
immediately and exercise all rights with
respect to any collateral and (bb) causes
the call to be made if the lending bank
exercises its right to call its loan under
its agreement with the borrowing Fund.
4. A Fund may borrow on an
unsecured basis through the InterFund
Program only if the relevant borrowing
Fund’s outstanding borrowings from all
sources immediately after the interfund
borrowing total 10% or less of its total
assets, provided that if the borrowing
Fund has a secured loan outstanding
from any other lender, including but not
limited to another Fund, the lending
Fund’s InterFund Loan will be secured
on at least an equal priority basis with
at least an equivalent percentage of
collateral to loan value as any
outstanding loan that requires collateral.
If a borrowing Fund’s total outstanding
borrowings immediately after an
InterFund Loan would be greater than
10% of its total assets, the Fund may
borrow through the InterFund Program
only on a secured basis. A Fund may
not borrow through the InterFund
Program or from any other source if its
total outstanding borrowings
immediately after the borrowing would
be more than 331⁄3% of its total assets
or any lower threshold provided for by
a Fund’s fundamental restriction or nonfundamental policy.
5. Before any Fund that has
outstanding interfund borrowings may,
through additional borrowings, cause its
outstanding borrowings from all sources
to exceed 10% of its total assets, it must
first secure each outstanding InterFund
Loan by the pledge of segregated
collateral with a market value at least
equal to 102% of the outstanding
principal value of the loan. If the total
outstanding borrowings of a Fund with
outstanding InterFund Loans exceed
10% of its total assets for any other
reason (such as a decline in net asset
value or because of shareholder
redemptions), the Fund will within one
business day thereafter either: (i) Repay
all its outstanding InterFund Loans; (ii)
reduce its outstanding indebtedness to
10% or less of its total assets; or (iii)
secure each outstanding InterFund Loan
by the pledge of segregated collateral
with a market value at least equal to
102% of the outstanding principal value
of the loan until the Fund’s total
outstanding borrowings cease to exceed
10% of its total assets, at which time the
collateral called for by this condition 5
shall no longer be required. Until each
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
InterFund Loan that is outstanding at
any time that a Fund’s total outstanding
borrowings exceed 10% of its total
assets is repaid or the Fund’s total
outstanding borrowings cease to exceed
10% of its total assets, the Fund will
mark the value of the collateral to
market each day and will pledge such
additional collateral as is necessary to
maintain the market value of the
collateral that secures each outstanding
InterFund Loan to Funds at least equal
to 102% of the outstanding principal
value of the InterFund Loans.
6. No Fund may lend to another Fund
through the InterFund Program if the
loan would cause the lending Fund’s
aggregate outstanding loans through the
InterFund Program to exceed 15% of its
current net assets at the time of the loan.
7. A Fund’s InterFund Loans to any
one Fund shall not exceed 5% of the
lending Fund’s net assets.
8. The duration of InterFund Loans
will be limited to the time required to
receive payment for securities sold, but
in no event more than seven days. Loans
effected within seven days of each other
will be treated as separate loan
transactions for purposes of this
condition.
9. A Fund’s borrowings through the
InterFund Program, as measured on the
day when the most recent loan was
made, will not exceed the greater of
125% of the Fund’s total net cash
redemptions for the preceding seven
calendar days or 102% of the Fund’s
sales fails for the preceding seven
calendar days.
10. Each InterFund Loan may be
called on one business day’s notice by
a lending Fund and may be repaid on
any day by a borrowing Fund.
11. A Fund’s participation in the
InterFund Program must be consistent
with its investment objectives and
limitations, and organizational
documents.
12. The InterFund Program Team will
calculate total Fund borrowing and
lending demand through the InterFund
Program, and allocate InterFund Loans
on an equitable basis among the Funds,
without the intervention of any portfolio
manager of the Funds. The InterFund
Program Team will not solicit cash for
the InterFund Program from any Fund
or prospectively publish or disseminate
loan demand data to portfolio managers
of the Funds. The InterFund Program
Team will invest all amounts remaining
after satisfaction of borrowing demand
in accordance with the standing
instructions of the relevant portfolio
manager or such remaining amounts
will be invested directly by the portfolio
managers of the Funds.
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
43305
13. The InterFund Program Team will
monitor the InterFund Loan Rate and
the other terms and conditions of the
InterFund Loans and will make a
quarterly report to the Board concerning
the participation of the Funds in the
InterFund Program and the terms and
other conditions of any extensions of
credit under the InterFund Program.
14. The Board, including a majority of
its Independent Board Members, will:
(i) Review, no less frequently than
quarterly, the participation of each Fund
in the InterFund Program during the
preceding quarter for compliance with
the conditions of any order permitting
such participation;
(b) establish the Bank Loan Rate
formula used to determine the interest
rate on InterFund Loans;
(c) review, no less frequently than
annually, the continuing
appropriateness of the Bank Loan Rate
formula; and
(d) review, no less frequently than
annually, the continuing
appropriateness of the participation in
the InterFund Program by each Fund it
oversees.
15. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any transaction by it under the
InterFund Program occurred, the first
two years in an easily accessible place,
written records of all such transactions
setting forth a description of the terms
of the transaction, including the
amount, the maturity and the InterFund
Loan Rate, the rate of interest available
at the time each InterFund Loan is made
on overnight repurchase agreements and
bank borrowings, and such other
information presented to the Board of
the Funds in connection with the
review required by conditions 13 and
14.
16. In the event an InterFund Loan is
not paid according to its terms and the
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
interfund lending agreement, the
Adviser to the lending Fund promptly
will refer the loan for arbitration to an
independent arbitrator selected by the
Board of any Fund involved in the loan
who will serve as arbitrator of disputes
concerning InterFund Loans. The
arbitrator will resolve any problem
promptly, and the arbitrator’s decision
will be binding on both Funds. The
arbitrator will submit, at least annually,
a written report to the Board of each
Fund setting forth a description of the
nature of any dispute and the actions
taken by the Funds to resolve the
dispute.
E:\FR\FM\01JYN1.SGM
01JYN1
asabaliauskas on DSK3SPTVN1PROD with NOTICES
43306
Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices
17. The Adviser will prepare and
submit to the Board for review an initial
report describing the operations of the
InterFund Program and the procedures
to be implemented to ensure that all
Funds are treated fairly. After the
commencement of the InterFund
Program, the Adviser will report on the
operations of the InterFund Program at
the Board’s quarterly meetings. Each
Fund’s chief compliance officer, as
defined in rule 38a–1(a)(4) under the
Act, shall prepare an annual report for
the Board each year that the Fund
participates in the InterFund Program,
that evaluates the Fund’s compliance
with the terms and conditions of the
application and the procedures
established to achieve such compliance.
Each Fund’s chief compliance officer
will also annually file a certification
pursuant to Item 77Q3 of Form N–SAR
as such Form may be revised, amended
or superseded from time to time, for
each year that the Fund participates in
the InterFund Program, that certifies
that the Fund and its Adviser have
implemented procedures reasonably
designed to achieve compliance with
the terms and conditions of the order. In
particular, such certification will
address procedures designed to achieve
the following objectives:
(a) That the InterFund Loan Rate will
be higher than the Repo Rate but lower
than the Bank Loan Rate;
(b) compliance with the collateral
requirements as set forth in the
application;
(c) compliance with the percentage
limitations on interfund borrowing and
lending;
(d) allocation of interfund borrowing
and lending demand in an equitable
manner and in accordance with
procedures established by the Board;
and
(e) that the InterFund Loan Rate does
not exceed the interest rate on any third
party borrowings of a borrowing Fund at
the time of the InterFund Loan.
Additionally, each Fund’s
independent public accountants, in
connection with their audit examination
of the Fund, will review the operation
of the InterFund Program for
compliance with the conditions of the
application and their review will form
the basis, in part, of the auditor’s report
on internal accounting controls in Form
N–SAR.
18. No Fund will participate in the
InterFund Program, upon receipt of
requisite regulatory approval, unless it
has fully disclosed in its prospectus
and/or statement of additional
information all material facts about its
intended participation.
VerDate Sep<11>2014
19:05 Jun 30, 2016
Jkt 238001
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–15584 Filed 6–30–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78180; File No. SR–
BatsBYX–2016–15]
Self-Regulatory Organizations; Bats
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change to Rule 11.24,
Retail Price Improvement Program, To
Extend the Pilot Period
June 28, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 23,
2016, Bats BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange filed a proposal to
extend the pilot period for the
Exchange’s Retail Price Improvement
(‘‘RPI’’) Program (the ‘‘Program’’), which
is currently set to expire on July 31,
2016, for 12 months, to expire on July
31, 2017.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 17
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In November 2012, the Commission
approved the RPI Program on a pilot
basis.5 The Program is designed to
attract retail order flow to the Exchange,
and allows such order flow to receive
potential price improvement. The
Program is currently limited to trades
occurring at prices equal to or greater
than $1.00 per share. Under the
Program, all Exchange Users 6 are
permitted to provide potential price
improvement for Retail Orders 7 in the
form of non-displayed interest that is
better than the national best bid that is
a Protected Quotation (‘‘Protected
NBB’’) or the national best offer that is
a Protected Quotation (‘‘Protected
NBO’’, and together with the Protected
NBB, the ‘‘Protected NBBO’’).8
5 See Securities Exchange Act Release No. 68303
(November 27, 2012), 77 FR 71652 (December 3,
2012) (‘‘RPI Approval Order’’) (SR–BYX–2012–019).
6 A ‘‘User’’ is defined in BYX Rule 1.5(cc) as any
member or sponsored participant of the Exchange
who is authorized to obtain access to the System.
7 A ‘‘Retail Order’’ is defined in Rule 11.24(a)(2)
as an agency order that originates from a natural
person and is submitted to the Exchange by a RMO,
provided that no change is made to the terms of the
order with respect to price or side of market and
the order does not originate from a trading
algorithm or any computerized methodology. See
Rule 11.24(a)(2).
8 The term Protected Quotation is defined in BYX
Rule 1.5(t) and has the same meaning as is set forth
in Regulation NMS Rule 600(b)(58). The terms
Protected NBB and Protected NBO are defined in
BYX Rule 1.5(s). The Protected NBB is the bestpriced protected bid and the Protected NBO is the
best-priced protected offer. Generally, the Protected
NBB and Protected NBO and the national best bid
(‘‘NBB’’) and national best offer (‘‘NBO’’, together
with the NBB, the ‘‘NBBO’’) will be the same.
However, a market center is not required to route
to the NBB or NBO if that market center is subject
to an exception under Regulation NMS Rule
611(b)(1) or if such NBB or NBO is otherwise not
available for an automatic execution. In such case,
the Protected NBB or Protected NBO would be the
best-priced protected bid or offer to which a market
E:\FR\FM\01JYN1.SGM
01JYN1
]]>Agencies
[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43301-43306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15584]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. IC-32163; File No. 812-14523]
MainStay Funds Trust, et al.; Notice of Application
June 27, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order pursuant to: (a) Section
6(c) of the Investment Company Act of 1940 (``Act'') granting an
exemption from sections 18(f) and 21(b) of the Act; (b) section
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of
the Act; (c) sections 6(c) and 17(b) of the Act granting an exemption
from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d)
section 17(d) of the Act and rule 17d-1 under the Act to permit certain
joint arrangements and transactions.
-----------------------------------------------------------------------
Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.
Applicants: MainStay Funds Trust, The MainStay Funds and MainStay
VP Funds Trust (each a ``Trust'' and collectively the ``Trusts'') and
New York Life Investment Management LLC (``New York Life
Investments'').
Filing Dates: The application was filed on July 30, 2015, and
amended on September 28, 2015, January 19, 2016, May 12, 2016, and June
20, 2016.
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 July 22, 2016 and should be accompanied by proof of
service on the 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 20549-1090; Applicants: New York Life
Investment Management LLC, 51 Madison Avenue, New York, NY 10010.
FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel, at
(202) 551-7758 or Mary Kay Frech, 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 an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Each Trust is organized as a Massachusetts business trust or a
Delaware statutory trust and is registered under the Act as an open-end
[[Page 43302]]
management investment company. Each Trust has issued shares of one or
more Funds with its own distinctive investment objectives, policies and
restrictions.\1\ New York Life Investments, an indirect, wholly-owned
subsidiary of New York Life, is a Delaware limited liability company
that is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act'').\2\ Any Adviser which serves as
investment advisor to an applicant will be registered as an investment
adviser under the Advisers Act.
---------------------------------------------------------------------------
\1\ Applicants request that the order apply to any existing or
future registered open-end management investment company or series
thereof for which New York Life Investments or any successor thereto
or an investment adviser controlling, controlled by, or under common
control (within the meaning of section 2(a)(9) of the Act) with New
York Life Investments or any successor thereto serves as investment
adviser (each such investment company or series thereof, a ``Fund''
and collectively the ``Funds'' or each such investment adviser an
``Adviser''). For purposes of the requested order, ``successor'' is
limited to any entity that results from a reorganization into
another jurisdiction or a change in the type of a business
organization.
\2\ All Funds that currently intend to rely on the requested
order have been named as applicants. Any other Fund that relies on
the requested order in the future will comply with the terms and
conditions of the application.
---------------------------------------------------------------------------
2. At any particular time, those Funds with uninvested cash may, in
effect, lend money to banks or other entities by entering into
repurchase agreements or purchasing other short-term money market
instruments. At the same time, other Funds may need to borrow money
from the same or similar banks for temporary purposes, to cover
unanticipated cash shortfalls such as a trade ``fail'' or for other
temporary purposes. The Funds are parties to an unsecured 364-day, $600
million revolving credit facility with a group of lenders (the ``Credit
Facility''), to meet unanticipated or excessive redemption requests.
3. If Funds that experience a cash shortfall were to borrow under
the Credit Facility (or another credit facility), they would pay
interest at a rate that is likely to be higher than the rate that could
be earned by non-borrowing Funds on investments in repurchase
agreements and other short-term money market instruments. Applicants
assert the difference between the higher rate paid on a borrowing and
what the bank pays to borrow under repurchase agreements or other
arrangements represents the bank's profit for serving as the
middleperson between a borrower and lender and is not attributable to
any material difference in the credit quality or risk of such
transactions.
4. The Funds seek to enter into master interfund lending agreements
with each other (the ``InterFund Program'') that will allow each Fund
whose policies permit it to do so to lend money directly to and borrow
money directly from other Funds for temporary purposes through the
InterFund Program (an ``InterFund Loan'').\3\ Applicants state that the
requested relief will enable the Funds to access an available source of
money and reduce costs incurred by the Funds that need to obtain loans
for temporary purposes and permit those Funds that have uninvested cash
available: (i) To earn a return on the money that they might not
otherwise be able to invest; or (ii) to earn a higher rate of interest
on investment of their short-term balances. Although the proposed
InterFund Program would reduce the Funds' need to borrow from banks or
through custodian overdrafts, the Funds would be free to establish and/
or continue lines of credit or other borrowing arrangements with banks.
---------------------------------------------------------------------------
\3\ No money market fund advised by an Adviser that complies
with the requirements of rule 2a-7 under the Act will participate in
the InterFund Program as either a borrower or a lender.
---------------------------------------------------------------------------
5. Applicants anticipate that the proposed InterFund Program would
provide a borrowing Fund with a source of liquidity at a rate lower
than the bank borrowing rate and also operational flexibility at times
when the cash position of the borrowing Fund is insufficient to meet
temporary cash requirements. This situation could arise when
shareholder redemptions exceed anticipated cash volumes and certain
Funds have insufficient cash on hand to satisfy such redemptions. When
the Funds liquidate portfolio securities to meet redemption requests,
they often do not receive payment in settlement for up to three days
(or longer for certain foreign transactions and fixed income
instruments). However, redemption requests for the Funds normally are
effected on the day following the trade date.\4\ The InterFund Program
would provide a source of immediate, short-term liquidity pending
settlement of the sale of portfolio securities.
---------------------------------------------------------------------------
\4\ Applicants represent that although a significant amount of
redemption requests for the Funds normally are effected on a trade
date plus 1 (T+1) basis, redemption payments can take as long as
seven days from receipt of a request in good order and may be
delayed further in certain limited circumstances to the extent
permitted by law.
---------------------------------------------------------------------------
6. Applicants also anticipate that a Fund could use the InterFund
Program when a sale of securities ``fails'' due to circumstances beyond
the Fund's control, such as a delay in the delivery of cash to the
Fund's custodian or improper delivery instructions by the broker
effecting the transaction. ``Sales fails'' may result in a cash
shortfall if the Fund has undertaken to purchase a security using the
proceeds from securities sold. Applicants state that, in the event of a
sales fail, the custodian typically extends temporary credit to cover
the shortfall, and the Fund incurs overdraft charges. Alternatively,
the Fund could: (i) ``Fail'' on its intended purchase due to lack of
funds from the previous sale, resulting in additional cost to the Fund;
or (ii) sell a security on a same-day settlement basis, earning a lower
return on the investment. Use of the InterFund Program under these
circumstances would enable the Fund to have access to immediate short-
term liquidity.
7. While bank borrowings (including the Credit Facility) and/or
custodian overdrafts generally could supply Funds with a portion of the
needed cash to cover unanticipated redemptions and sales fails, under
the proposed InterFund Program, a borrowing Fund would pay lower
interest rates than those that typically would be payable under short-
term loans offered by banks or custodian overdrafts. In addition, Funds
making short-term cash loans directly to other Funds would earn
interest at a rate higher than they otherwise could obtain from
investing their cash in repurchase agreements or certain other short-
term money market instruments. Thus, applicants assert that the
proposed InterFund Program would benefit both borrowing and lending
Funds.
8. The interest rate to be charged to the Funds on any InterFund
Loan (the ``InterFund Loan Rate'') would be the average of the ``Repo
Rate'' and the ``Bank Loan Rate,'' each as defined below. The Repo Rate
would be the highest current overnight repurchase agreement rate
available to a lending Fund. The Bank Loan Rate for any day would be
calculated by the InterFund Program Team (as defined below) on each day
an InterFund Loan is made according to a formula established by each
Fund's board of trustees (the ``Board'') intended to approximate the
lowest interest rate at which a bank short-term loan would be available
to the Fund. The formula would be based upon a publicly available rate
(e.g., Federal funds rate and/or LIBOR) plus an additional spread of
basis points and would vary with this rate so as to reflect changing
bank loan rates. The initial formula and any subsequent modifications
to the formula would be subject to the approval of the Board. In
addition, the Board periodically would review the continuing
appropriateness of reliance on the formula used to determine the Bank
Loan Rate, as well
[[Page 43303]]
as the relationship between the Bank Loan Rate and current bank loan
rates that would be available to the Fund.
9. Certain members of the Trusts' administration personnel (other
than investment advisory personnel) (the ``InterFund Program Team'')
will administer the InterFund Program. No portfolio manager of any Fund
will serve as a member of the InterFund Program Team. Under the
proposed InterFund Program, the portfolio managers for each
participating Fund would have the ability to provide standing
instructions to participate daily as a borrower or lender. The
InterFund Program Team on each business day would collect data on the
uninvested cash and borrowing requirements of all participating Funds.
Once the InterFund Program Team has determined the aggregate amount of
cash available for loans and borrowing demand, the InterFund Program
Team will allocate loans among borrowing Funds without any further
communication from the portfolio managers of the Funds. After the
InterFund Program Team has allocated cash for InterFund Loans, the
InterFund Program Team will invest any remaining cash in accordance
with the standing instructions of the relevant portfolio manager or
such remaining amounts will be invested directly by the portfolio
managers of the Funds.
10. The InterFund Program Team will allocate borrowing demand and
cash available for lending among the Funds on what the InterFund
Program Team believes to be an equitable basis, subject to certain
administrative procedures applicable to all Funds, such as the time of
filing requests to participate, minimum loan lot sizes, and the need to
minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each InterFund Loan normally would
be allocated in a manner intended to minimize the number of
participants necessary to complete the loan transaction. The procedures
for allocating cash among borrowers and determining loan participations
among lenders, together with related administrative procedures, will be
approved by the Board, including a majority of the Board members who
are not ``interested persons,'' as defined in section 2(a)(19) of the
Act (``Independent Board Members''), to ensure that both borrowing and
lending Funds participate on an equitable basis.
11. The InterFund Program Team will: (a) Monitor the InterFund Loan
Rate and the other terms and conditions of the InterFund Loans; (b)
limit the borrowings and loans entered into by each Fund to ensure that
they comply with the Fund's investment policies and limitations; (c)
implement and follow procedures designed to ensure equitable treatment
of each Fund; and (d) make quarterly reports to the Board of each Fund
concerning any transactions by the applicable Fund under the InterFund
Program and the InterFund Loan Rate.
12. New York Life Investments, through the InterFund Program Team,
would administer the InterFund Program as a disinterested fiduciary as
part of its duties under the investment management agreements with each
Fund and would receive no additional fee as compensation for its
services in connection with the administration of the InterFund
Program.
13. No Fund may participate in the InterFund Program unless: (a)
The Fund has obtained shareholder approval for its participation, if
such approval is required by law; (b) the Fund has fully disclosed all
material information concerning the InterFund Program in its
registration statement on Form N-1A; and (c) the Fund's participation
in the InterFund Program is consistent with its investment objectives,
investment restrictions, policies, limitations, and organizational
documents.
14. As part of the Board's review of the continuing appropriateness
of a Fund's participation in the proposed InterFund Program as required
by condition 14, the Board members of the Fund, including a majority of
the Independent Board Members, also will review the process in place to
appropriately assess: (i) If the Fund participates as a lender, any
effect its participation may have on the Fund's liquidity risk; and
(ii) if the Fund participates as a borrower, whether the Fund's
portfolio liquidity is sufficient to satisfy its obligations under the
facility along with its other liquidity needs.
15. In connection with the InterFund Program, applicants request an
order under section 6(c) of the Act exempting them from the provisions
of sections 18(f) and 21(b) of the Act; under section 12(d)(1)(J) of
the Act exempting them from section 12(d)(1) of the Act; under sections
6(c) and 17(b) of the Act exempting them from sections 17(a)(1),
17(a)(2), and 17(a)(3) of the Act; and under section 17(d) of the Act
and rule 17d-1 under the Act to permit certain joint arrangements and
transactions.
Applicants' Legal Analysis:
1. Section 17(a)(3) of the Act generally prohibits any affiliated
person of a registered investment company, or affiliated person of an
affiliated person, from borrowing money or other property from the
registered investment company. Section 21(b) of the Act generally
prohibits any registered management company from lending money or other
property to any person, directly or indirectly, if that person controls
or is under common control with that company. Section 2(a)(3)(C) of the
Act defines an ``affiliated person'' of another person, in part, to be
any person directly or indirectly controlling, controlled by, or under
common control with, such 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 a company,'' but excludes
circumstances in which ``such power is solely the result of an official
position with such company.'' Applicants state that the Funds may be
under common control by virtue of having common investment advisers
and/or by having common trustees, managers and/or officers.
2. Section 6(c) of the Act provides that an exemptive order may be
granted where an 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) provided that the terms of the
transaction, including the consideration to be paid or received, are
fair and reasonable and do not involve overreaching on the part of any
person concerned, and the transaction is consistent with the policy of
the investment company as recited in its registration statement and
with the general purposes of the Act. Applicants believe that the
proposed arrangements satisfy these standards for the reasons discussed
below.
3. Applicants assert that sections 17(a)(3) and 21(b) of the Act
were intended to prevent a party with strong potential adverse
interests to, and some influence over the investment decisions of, a
registered investment company from causing or inducing the investment
company to engage in lending transactions that unfairly inure to the
benefit of such party and that are detrimental to the best interests of
the investment company and its shareholders. Applicants assert that the
proposed transactions do not raise these concerns because: (a) New York
Life Investments, through the InterFund Program Team members, would
administer the InterFund Program as a disinterested fiduciary as part
of its duties under the investment management and administrative
[[Page 43304]]
agreements with each Fund; (b) all InterFund Loans would consist only
of uninvested cash reserves that the Fund otherwise would invest in
short-term repurchase agreements or other short-term investments; (c)
the InterFund Loans would not involve a greater risk than such other
investments; (d) the lending Fund would receive interest at a rate
higher than it could obtain through short-term repurchase agreements or
certain other short-term investments; and (e) the borrowing Fund would
pay interest at a rate lower than otherwise available to it under its
bank loan agreements. Moreover, applicants assert that the other terms
and conditions that applicants propose also would effectively preclude
the possibility of any Fund obtaining an undue advantage over any other
Fund.
4. Section 17(a)(1) of the Act generally prohibits an affiliated
person of a registered investment company, or any affiliated person of
such a person, from selling securities or other property to the
investment company. Section 17(a)(2) of the Act generally prohibits an
affiliated person of a registered investment company, or any affiliated
person of such a person, from purchasing securities or other property
from the investment company. Section 12(d)(1) of the Act generally
prohibits a registered investment company from purchasing or otherwise
acquiring any security issued by any other investment company except in
accordance with the limitations set forth in that section.
5. Applicants state that the obligation of a borrowing Fund to
repay an InterFund Loan could be deemed to constitute a security for
the purposes of sections 17(a)(1) and 12(d)(1). Applicants also state
that any pledge of securities to secure an InterFund Loan by the
borrowing Fund to the lending Fund could constitute a purchase of
securities for purposes of section 17(a)(2) of the Act. Section
12(d)(1)(J) of the Act provides that the Commission may exempt persons
or transactions from any provision of section 12(d)(1) if and to the
extent that such exemption is consistent with the public interest and
the protection of investors. Applicants contend that the standards
under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the
reasons set forth above in support of their request for relief from
sections 17(a)(3) and 21(b) and for the reasons discussed below.
Applicants state that the requested relief from section 17(a)(2) of the
Act meets the standards of section 6(c) and 17(b) because any
collateral pledged to secure an InterFund Loan would be subject to the
same conditions imposed by any other lender to a Fund that imposes
conditions on the quality of or access to collateral for a borrowing
(if the lender is another Fund) or the same or better conditions (in
any other circumstance).
6. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid imposing on
investors additional and duplicative costs and fees attendant upon
multiple layers of investment companies. Applicants submit that the
proposed InterFund Program does not involve the type of abuse at which
section 12(d)(1) of the Act was directed. Applicants note that there
will be no duplicative costs or fees to the Funds or their
shareholders, and that New York Life Investments will receive no
additional compensation for its services in administering the InterFund
Program. Applicants also note that the purpose of the proposed
InterFund Program is to provide economic benefits for all the
participating Funds and their shareholders.
7. Section 18(f)(1) of the Act prohibits open-end investment
companies from issuing any senior security except that a company is
permitted to borrow from any bank, provided, that immediately after the
borrowing, there is asset coverage of at least 300 per centum for all
borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' generally includes any bond, debenture, note or
similar obligation or instrument constituting a security and evidencing
indebtedness. Applicants request exemptive relief under section 6(c)
from section 18(f)(1) to the limited extent necessary to allow a Fund
to borrow through the InterFund Program (because the lending Funds are
not banks).
8. Applicants believe that granting relief under section 6(c) is
appropriate because the Funds would remain subject to the requirement
of section 18(f)(1) that all borrowings of a Fund, including combined
InterFund Loans and bank borrowings, have at least 300% asset coverage.
Based on the conditions and safeguards described in the application,
applicants also submit that to allow the Funds to borrow from other
Funds pursuant to the proposed InterFund Program is consistent with the
purposes and policies of section 18(f)(1).
9. Section 17(d) of the Act and rule 17d-1 under the Act generally
prohibit an affiliated person of a registered investment company, or
any affiliated person of such a person, when acting as principal, from
effecting any joint transaction in which the investment company
participates, unless, upon application, the transaction has been
approved by the Commission. Rule 17d-1(b) under the Act provides that
in passing upon an application filed under the rule, the Commission
will consider whether the participation of the registered investment
company in a joint enterprise, joint arrangement or profit sharing plan
on the basis proposed is consistent with the provisions, policies and
purposes of the Act and the extent to which such participation is on a
basis different from or less advantageous than that of the other
participants.
10. Applicants assert that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to insiders. Applicants assert
that the InterFund Program is consistent with the provisions, policies
and purposes of the Act in that it offers both reduced borrowing costs
and enhanced returns on loaned funds to all participating Funds and
their shareholders. Applicants note that each Fund would have an equal
opportunity to borrow and lend on equal terms consistent with its
investment policies and fundamental investment limitations. Applicants
assert that each Fund's participation in the proposed InterFund Program
would be on terms that are no different from or less advantageous than
that of other participating Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The InterFund Loan Rate will be the average of the Repo Rate and
the Bank Loan Rate.
2. On each business day, when an interfund loan is to be made, the
InterFund Program Team will compare the Bank Loan Rate with the Repo
Rate and will make cash available for InterFund Loans only if the
InterFund Loan Rate is: (i) More favorable to the lending Fund than the
Repo Rate; and (ii) more favorable to the borrowing Fund than the Bank
Loan Rate.
3. If a Fund has outstanding bank borrowings, any InterFund Loan to
the Fund will: (i) Be at an interest rate equal to or lower than the
interest rate of any outstanding bank borrowing; (ii) be secured at
least on an equal priority basis with at least an equivalent percentage
of collateral to loan value as any outstanding bank loan that requires
collateral; (iii) have a maturity no longer than any outstanding bank
loan (and in any event not over seven days); and (iv) provide that, if
an event of default occurs under any agreement evidencing an
outstanding bank loan to the Fund, that the event of default by the
Fund,
[[Page 43305]]
will automatically (without need for action or notice by the lending
Fund) constitute an immediate event of default under the interfund
lending agreement, which both (aa) entitles the lending Fund to call
the InterFund Loan immediately and exercise all rights with respect to
any collateral and (bb) causes the call to be made if the lending bank
exercises its right to call its loan under its agreement with the
borrowing Fund.
4. A Fund may borrow on an unsecured basis through the InterFund
Program only if the relevant borrowing Fund's outstanding borrowings
from all sources immediately after the interfund borrowing total 10% or
less of its total assets, provided that if the borrowing Fund has a
secured loan outstanding from any other lender, including but not
limited to another Fund, the lending Fund's InterFund Loan will be
secured on at least an equal priority basis with at least an equivalent
percentage of collateral to loan value as any outstanding loan that
requires collateral. If a borrowing Fund's total outstanding borrowings
immediately after an InterFund Loan would be greater than 10% of its
total assets, the Fund may borrow through the InterFund Program only on
a secured basis. A Fund may not borrow through the InterFund Program or
from any other source if its total outstanding borrowings immediately
after the borrowing would be more than 33\1/3\% of its total assets or
any lower threshold provided for by a Fund's fundamental restriction or
non-fundamental policy.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, it must first secure
each outstanding InterFund Loan by the pledge of segregated collateral
with a market value at least equal to 102% of the outstanding principal
value of the loan. If the total outstanding borrowings of a Fund with
outstanding InterFund Loans exceed 10% of its total assets for any
other reason (such as a decline in net asset value or because of
shareholder redemptions), the Fund will within one business day
thereafter either: (i) Repay all its outstanding InterFund Loans; (ii)
reduce its outstanding indebtedness to 10% or less of its total assets;
or (iii) secure each outstanding InterFund Loan by the pledge of
segregated collateral with a market value at least equal to 102% of the
outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition 5 shall no
longer be required. Until each InterFund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceed 10% of its
total assets is repaid or the Fund's total outstanding borrowings cease
to exceed 10% of its total assets, the Fund will mark the value of the
collateral to market each day and will pledge such additional
collateral as is necessary to maintain the market value of the
collateral that secures each outstanding InterFund Loan to Funds at
least equal to 102% of the outstanding principal value of the InterFund
Loans.
6. No Fund may lend to another Fund through the InterFund Program
if the loan would cause the lending Fund's aggregate outstanding loans
through the InterFund Program to exceed 15% of its current net assets
at the time of the loan.
7. A Fund's InterFund Loans to any one Fund shall not exceed 5% of
the lending Fund's net assets.
8. The duration of InterFund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the InterFund Program, as measured
on the day when the most recent loan was made, will not exceed the
greater of 125% of the Fund's total net cash redemptions for the
preceding seven calendar days or 102% of the Fund's sales fails for the
preceding seven calendar days.
10. Each InterFund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the InterFund Program must be
consistent with its investment objectives and limitations, and
organizational documents.
12. The InterFund Program Team will calculate total Fund borrowing
and lending demand through the InterFund Program, and allocate
InterFund Loans on an equitable basis among the Funds, without the
intervention of any portfolio manager of the Funds. The InterFund
Program Team will not solicit cash for the InterFund Program from any
Fund or prospectively publish or disseminate loan demand data to
portfolio managers of the Funds. The InterFund Program Team will invest
all amounts remaining after satisfaction of borrowing demand in
accordance with the standing instructions of the relevant portfolio
manager or such remaining amounts will be invested directly by the
portfolio managers of the Funds.
13. The InterFund Program Team will monitor the InterFund Loan Rate
and the other terms and conditions of the InterFund Loans and will make
a quarterly report to the Board concerning the participation of the
Funds in the InterFund Program and the terms and other conditions of
any extensions of credit under the InterFund Program.
14. The Board, including a majority of its Independent Board
Members, will:
(i) Review, no less frequently than quarterly, the participation of
each Fund in the InterFund Program during the preceding quarter for
compliance with the conditions of any order permitting such
participation;
(b) establish the Bank Loan Rate formula used to determine the
interest rate on InterFund Loans;
(c) review, no less frequently than annually, the continuing
appropriateness of the Bank Loan Rate formula; and
(d) review, no less frequently than annually, the continuing
appropriateness of the participation in the InterFund Program by each
Fund it oversees.
15. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
by it under the InterFund Program occurred, the first two years in an
easily accessible place, written records of all such transactions
setting forth a description of the terms of the transaction, including
the amount, the maturity and the InterFund Loan Rate, the rate of
interest available at the time each InterFund Loan is made on overnight
repurchase agreements and bank borrowings, and such other information
presented to the Board of the Funds in connection with the review
required by conditions 13 and 14.
16. In the event an InterFund Loan is not paid according to its
terms and the default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the interfund lending agreement, the Adviser to
the lending Fund promptly will refer the loan for arbitration to an
independent arbitrator selected by the Board of any Fund involved in
the loan who will serve as arbitrator of disputes concerning InterFund
Loans. The arbitrator will resolve any problem promptly, and the
arbitrator's decision will be binding on both Funds. The arbitrator
will submit, at least annually, a written report to the Board of each
Fund setting forth a description of the nature of any dispute and the
actions taken by the Funds to resolve the dispute.
[[Page 43306]]
17. The Adviser will prepare and submit to the Board for review an
initial report describing the operations of the InterFund Program and
the procedures to be implemented to ensure that all Funds are treated
fairly. After the commencement of the InterFund Program, the Adviser
will report on the operations of the InterFund Program at the Board's
quarterly meetings. Each Fund's chief compliance officer, as defined in
rule 38a-1(a)(4) under the Act, shall prepare an annual report for the
Board each year that the Fund participates in the InterFund Program,
that evaluates the Fund's compliance with the terms and conditions of
the application and the procedures established to achieve such
compliance. Each Fund's chief compliance officer will also annually
file a certification pursuant to Item 77Q3 of Form N-SAR as such Form
may be revised, amended or superseded from time to time, for each year
that the Fund participates in the InterFund Program, that certifies
that the Fund and its Adviser have implemented procedures reasonably
designed to achieve compliance with the terms and conditions of the
order. In particular, such certification will address procedures
designed to achieve the following objectives:
(a) That the InterFund Loan Rate will be higher than the Repo Rate
but lower than the Bank Loan Rate;
(b) compliance with the collateral requirements as set forth in the
application;
(c) compliance with the percentage limitations on interfund
borrowing and lending;
(d) allocation of interfund borrowing and lending demand in an
equitable manner and in accordance with procedures established by the
Board; and
(e) that the InterFund Loan Rate does not exceed the interest rate
on any third party borrowings of a borrowing Fund at the time of the
InterFund Loan.
Additionally, each Fund's independent public accountants, in
connection with their audit examination of the Fund, will review the
operation of the InterFund Program for compliance with the conditions
of the application and their review will form the basis, in part, of
the auditor's report on internal accounting controls in Form N-SAR.
18. No Fund will participate in the InterFund Program, upon receipt
of requisite regulatory approval, unless it has fully disclosed in its
prospectus and/or statement of additional information all material
facts about its intended participation.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15584 Filed 6-30-16; 8:45 am]
BILLING CODE 8011-01-P
