Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to Janus Detroit Street Trust, the Janus Velocity Tail Risk Hedged Large Cap ETF, and the Janus Velocity Volatility Hedged Large Cap ETF, 47193-47196 [2016-17107]
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Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposal is
consistent with the Act. In particular,
the Commission seeks comment on the
issue described below.
In the Approval Order, the
Commission stressed the importance of
testing the impact of wider tick sizes on
the trading and liquidity of the
securities of small capitalization
companies, and doing so in a way that
produces robust results that inform
future policy decisions.49 The
Commission acknowledged the
complexity of the Pilot and the costs
that its implementation would create for
market participants, but concluded that
the benefits of the empirical data that
would be produced by the Pilot
warranted incurring those costs.50 As a
result, the Plan requires that each
Participant, including the Exchange,
adopt rules that are necessary for
compliance with the provisions of the
Plan.51
While the Exchange states that the
proposed rule change describes the
system changes necessary to implement
the Pilot, the Commission notes that the
scope of the proposed changes extends
beyond those required for compliance
with the Plan, and would eliminate
certain order types for Pilot Securities
during the Pilot Period, or modify their
operation in ways not required by the
Plan. For example, the Exchange
proposes not to accept Market Pegged
Orders, Discretionary Orders, and
Supplemental Peg Orders, and certain
types of Mid-Point Peg Orders, in some
or all Test Groups of Pilot Securities for
49 See
Approval Order, supra note 4, at 80 FR
27515.
50 Id at 27516.
51 See Section II(B) of the Plan. See also Section
IV of the Plan.
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the duration of the Pilot Period.52 These
proposals appear designed to permit the
Exchange to avoid the costs of
modifying these order types to comply
with the Plan. The Exchange notes that
these order types are infrequently used
in Pilot Securities, and takes the
position that ‘‘[t]he limited usage and
execution scenarios do not justify the
additional system complexity which
would be created by modifying the
System to support such order types in
order to comply with the Plan.’’ 53 At
the same time, the Exchange also does
not appear prepared to propose to
eliminate these order types indefinitely.
By contrast, the Exchange proposes to
modify, in ways not required by the
Plan, the operation of Market Pegged
Orders and Non-Displayed Orders, and
certain orders subject to the DisplayPrice Sliding process, in some or all
Test Groups of Pilot Securities, and to
incur the associated system change
costs, in order to increase the
‘‘execution opportunities’’ for these
order types for the duration of the Pilot
Period.54
The Commission is concerned that
proposed rule changes, other than those
necessary for compliance with Plan, that
are targeted at Pilot Securities, that have
a disparate impact on different Test
Groups and the Control Group, and that
are to apply temporarily only for the
Pilot Period, could bias the results of the
Pilot and undermine the value of the
data generated in informing future
policy decisions. Accordingly, the
Commission is concerned that the
proposed rule change may not be
consistent with Act, including Section
6(b)(5) thereof and Rule 608 of
Regulation NMS, or with the Plan.
Comments may be 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 No. SR–
BatsBZX–2016–29 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–BatsBZX–2016–29. This file number
should be included on the subject line
52 The Exchange also proposes to cancel certain
orders subject to the Display-Price Sliding process
in certain Pilot Securities for the duration of the
Pilot Period.
53 See supra Item II.A.2.
54 See supra Item II.A.1–2.
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47193
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 such
filing will also 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 No. SR–BatsBZX–
2016–29 and should be submitted on or
before August 10, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016–17093 Filed 7–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78332; File No. TP 16–10]
Order Granting Limited Exemptions
From Exchange Act Rule 10b–17 and
Rules 101 and 102 of Regulation M to
Janus Detroit Street Trust, the Janus
Velocity Tail Risk Hedged Large Cap
ETF, and the Janus Velocity Volatility
Hedged Large Cap ETF
July 14, 2016.
By letter dated July 14, 2016 (the
‘‘Letter’’), as supplemented by
conversations with the staff of the
Division of Trading and Markets,
counsel for Janus Detroit Street Trust
(the ‘‘Trust’’) on behalf of the Trust, the
Janus Velocity Tail Risk Hedged Large
Cap ETF and the Janus Velocity
55 17
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CFR 200.30–3(a)(12).
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47194
Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices
Volatility Hedged Large Cap ETF (each
a ‘‘New Fund’’ and, collectively, the
‘‘New Funds’’), any national securities
exchange on or through which shares
issued by the New Funds (‘‘Shares’’)
may subsequently trade, ALPS
Distributors, Inc., and persons or
entities engaging in transactions in
Shares (collectively, the ‘‘Requestors’’)
requested exemptions, or interpretive or
no-action relief, from Rule 10b–17 of the
Securities Exchange Act of 1934, as
amended (‘‘Exchange Act’’) and Rules
101 and 102 of Regulation M in
connection with secondary market
transactions in Shares and the creation
or redemption of aggregations of Shares
of at least 50,000 shares (‘‘Creation
Units’’).
The Trust is registered with the
Commission under the Investment
Company Act of 1940, as amended
(‘‘1940 Act’’), as an open-end
management investment company. Each
New Fund seeks to track the
performance of a particular underlying
index (‘‘Index’’), which for each New
Fund is comprised of shares of
exchange-traded products (‘‘ETPs’’). As
a result of the Trust and the ALPS ETF
Trust 1 entering into an Agreement and
Plan of Reorganization and Termination,
the Janus Velocity Tail Risk Hedged
Large Cap ETF and the Janus Velocity
Volatility Hedged Large Cap ETF will
acquire the VelocityShares Tail Risk
Hedged Large Cap ETF and the
VelocityShares Volatility Hedged Large
Cap ETF, respectively, in exchange for
shares of such New Fund (or cash in
exchange for any fractional shares of an
Existing Fund) and the assumption by
each New Fund of all of the respective
corresponding Existing Fund’s
liabilities, if any, as of the closing date.
In return, the Existing Funds will
distribute the shares of the New Funds
to the Existing Funds’ shareholders, and
the Existing Funds will terminate.
Immediately after the reorganization,
each former shareholder of each
Existing Fund will own shares of the
corresponding New Fund that will be
approximately equal to the value of that
shareholder’s full shares of such
Existing Fund as of the closing date.
Thus, Requestors represent that
although the New Funds will effectively
be the continuation of the Existing
Funds, and will be substantially
identical in all material respects to the
Existing Funds, they cannot rely on the
1 On June 21, 2013, the Division of Trading and
Markets granted ALPS ETF Trust exemptive relief
(the ‘‘Existing Relief’’) for the VelocityShares Tail
Risk Hedged Large Cap ETF and the VelocityShares
Volatility Hedged Large Cap ETF (each an ‘‘Existing
Fund’’ and, collectively, the ‘‘Existing Funds’’).
Exchange Act Release No. 69831 (June 21, 2013).
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terms and conditions of the Existing
Relief because the Trust and the New
Funds are legal entities different and
distinct from the ALPS ETF Trust and
the Existing Funds.
The Requestors represent that each
New Fund’s underlying index will
reflect the performance of a portfolio
consisting of an exposure to a large cap
equity portfolio, consisting of three
underlying ETFs which track the S&P
500 index (‘‘Underlying Large-Cap
ETFs’’) and a volatility strategy to hedge
‘‘tail risk’’ events (which are market
events that occur rarely but may have
severe consequences when they do
occur) consisting of two underlying
ETFs which reflect leveraged or inverse
positions on the S&P 500 VIX ShortTerm Futures Index (‘‘Underlying
Volatility ETFs’’). The underlying index,
at each monthly rebalance, consists of
an 85% allocation to the Underlying
Large-Cap ETFs and a 15% allocation to
the Underlying Volatility ETFs. The
New Funds intend to operate as ‘‘ETFs
of ETFs’’ by seeking to track the
performance of the respective
underlying Index by investing at least
80% of their assets in the ETPs that
comprise each Index. Substantially
identical in all material respects to the
Existing Funds, the Requestors
represent that they intend to enter into
swap agreements for each New Fund
designed to provide exposure to (a) the
Underlying Volatility ETFs and/or (b)
leveraged and/or inverse positions on
the S&P 500 VIX Short-Term Futures
Index directly. Except for the fact that
the New Funds will operate as ETFs of
ETFs and the Requestors represent that
they intend to enter into swaps for each
New Fund to obtain the leveraged and/
or inverse exposure to the Underlying
Volatility ETFs and/or the S&P 500 VIX
Short-Term Futures Index, the
Requestors represent that the New
Funds will operate in a manner
identical to the ETPs that comprise each
Index and will effectively be the
continuation of the Existing Funds.
The Requestors represent, among
other things, the following:
• Shares of the New Funds will be
issued by the Trust, an open-end
management investment company that
is registered with the Commission;
• The Trust will continuously redeem
Creation Units at net asset value
(‘‘NAV’’) and the secondary market
price of the Shares should not vary
substantially from the NAV of such
Shares;
• Shares of the New Funds will be
listed and traded on the NYSE Arca (the
‘‘Exchange’’) or other exchange in
accordance with exchange listing
standards that are, or will become,
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effective pursuant to Section 19(b) of the
Exchange Act;
• All ETPs in which the New Funds
invest will meet all conditions set forth
in a relevant class relief letter,2 will
have received individual relief from the
Commission, or will be able to rely on
individual relief even though they are
not named parties;
• At least 70% of each New Fund will
be comprised of component securities
that meet the minimum public float and
minimum average daily trading volume
thresholds under the ‘‘actively-traded
securities’’ definition found in
Regulation M for excepted securities
during each of the previous two months
of trading prior to formation of the
relevant New Fund; provided, however,
that if the New Fund has 200 or more
component securities, then 50% of the
component securities will meet the
actively-traded securities thresholds;
• All the components of each Index
will have publicly available last sale
trade information;
• The intra-day proxy value of each
New Fund per share and the value of
each Index will be publicly
disseminated by a major market data
vendor throughout the trading day;
• On each business day before the
opening of business on the Exchange,
the New Funds’ custodian, through the
National Securities Clearing
Corporation, will make available the list
of the names and the numbers of
securities and other assets of each New
Fund’s portfolio that will be applicable
that day to creation and redemption
requests;
• The Exchange or other market
information provider will disseminate
every 15 seconds throughout the trading
day through the facilities of the
Consolidated Tape Association an
amount representing on a per-share
basis, the current value of the securities
and cash to be deposited as
consideration for the purchase of
Creation Units;
• The arbitrage mechanism will be
facilitated by the transparency of the
New Funds’ portfolio and the
2 Letter from Catherine McGuire, Esq., Chief
Counsel, Division of Market Regulation, to the
Securities Industry Association Derivative Products
Committee (November 21, 2005); Letter from
Racquel L. Russell, Branch Chief, Division of
Market Regulation, to George T. Simon, Esq., Foley
& Lardner LLP (June 21, 2006); Letter from James
A. Brigagliano, Acting Associate Director, Division
of Market Regulation, to Stuart M. Strauss, Esq.,
Clifford Chance US LLP (October 24, 2006); Letter
from James A. Brigagliano, Associate Director,
Division of Market Regulation, to Benjamin Haskin,
Esq., Willkie. Farr & Gallagher LLP (April 9, 2007);
or Letter from Josephine Tao, Assistant Director,
Division of Trading and Markets, to Domenick
Pugliese, Esq., Paul, Hastings, Janofsky and Walker
LLP (June 27, 2007).
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Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices
availability of the intra-day indicative
value, the liquidity of securities and
other assets held by the New Funds, the
ability of the New Funds and
arbitrageurs to acquire such securities,
as well as the arbitrageurs’ ability to
create workable hedges;
• The New Funds will invest solely
in liquid securities;
• The New Funds will invest in
securities that will facilitate an effective
and efficient arbitrage mechanism and
the ability to create workable hedges;
• The Requestors believe that
arbitrageurs are expected to take
advantage of price variations between
each New Fund’s market price and its
NAV; and
• A close alignment between the
market price of Shares and each New
Fund’s NAV is expected.
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Regulation M
While redeemable securities issued by
an open-end management investment
company are excepted from the
provisions of Rule 101 and 102 of
Regulation M, the Requestors may not
rely upon that exception for the Shares.3
Rule 101 of Regulation M
Generally, Rule 101 of Regulation M
is an anti-manipulation rule that,
subject to certain exceptions, prohibits
any ‘‘distribution participant’’ and its
‘‘affiliated purchasers’’ from bidding for,
purchasing, or attempting to induce any
person to bid for or purchase any
security which is the subject of a
distribution until after the applicable
restricted period, except as specifically
permitted in the rule. Rule 100 of
Regulation M defines ‘‘distribution’’ to
mean any offering of securities that is
distinguished from ordinary trading
transactions by the magnitude of the
offering and the presence of special
selling efforts and selling methods. The
provisions of Rule 101 of Regulation M
apply to underwriters, prospective
underwriters, brokers, dealers, and other
persons who have agreed to participate
or are participating in a distribution of
securities. The Shares are in a
continuous distribution and, as such,
the restricted period in which
distribution participants and their
affiliated purchasers are prohibited from
bidding for, purchasing, or attempting to
induce others to bid for or purchase
extends indefinitely.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
3 ETFs operate under exemptions from the
definitions of ‘‘open-end company’’ under Section
5(a)(1) of the 1940 Act and ‘‘redeemable security’’
under Section 2(a)(32) of the 1940 Act. The ETFs
and their securities do not meet those definitions.
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management investment company that
will continuously redeem at the NAV
Creation Units of Shares of the New
Funds and that a close alignment
between the market price of Shares and
the New Funds’ NAV is expected, the
Commission finds that it is appropriate
in the public interest, and consistent
with the protection of investors, to grant
the Trust an exemption from Rule 101
of Regulation M, pursuant to paragraph
(d) of Rule 101 of Regulation M with
respect to transactions in the New
Funds as described in the Letter, thus
permitting persons who may be deemed
to be participating in a distribution of
Shares of the New Funds to bid for or
purchase such Shares during their
participation in such distribution.4
Rule 102 of Regulation M
Rule 102 of Regulation M prohibits
issuers, selling security holders, and any
affiliated purchaser of such person from
bidding for, purchasing, or attempting to
induce any person to bid for or purchase
a covered security during the applicable
restricted period in connection with a
distribution of securities effected by or
on behalf of an issuer or selling security
holder.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
management investment company that
will redeem at the NAV Creation Units
of Shares of the New Funds and that a
close alignment between the market
price of Shares and the New Funds’
NAV is expected, the Commission finds
that it is appropriate in the public
interest, and consistent with the
protection of investors, to grant the
Trust an exemption from Rule 102 of
Regulation M, pursuant to paragraph (e)
of Rule 102 of Regulation M with
respect to transactions in the New
Funds as described in the Letter, thus
permitting the New Funds to redeem
Shares of the New Funds during the
continuous offering of such Shares.
Rule 10b–17
Rule 10b–17, with certain exceptions,
requires an issuer of a class of publicly
traded securities to give notice of certain
specified actions (for example, a
dividend distribution) relating to such
class of securities in accordance with
Rule 10b–17(b). Based on the
representations and facts in the Letter,
4 Additionally, we confirm the interpretation that
a redemption of Creation Units of Shares of the New
Funds and the receipt of securities in exchange by
a participant in a distribution of Shares of the New
Funds would not constitute an ‘‘attempt to induce
any person to bid for or purchase, a covered
security during the applicable restricted period’’
within the meaning of Rule 101 of Regulation M
and therefore would not violate that rule.
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47195
in particular that the concerns that the
Commission raised in adopting Rule
10b–17 generally will not be implicated
if exemptive relief, subject to the
conditions below, is granted to the Trust
because market participants will receive
timely notification of the existence and
timing of a pending distribution,5 we
find that it is appropriate in the public
interest, and consistent with the
protection of investors, to grant the
Trust a conditional exemption from
Rule 10b–17.
Conclusion
It is hereby ordered, pursuant to Rule
101(d) of Regulation M, that the Trust is
exempt from the requirements of Rules
101 with respect to transactions in the
Shares of the New Funds as described
in the Letter, thus permitting persons
who may be deemed to be participating
in a distribution of Shares of the New
Funds to bid for or purchase such
Shares during their participation in
such distribution as described in the
Letter.
It is further ordered, pursuant to Rule
102(e) of Regulation M, that the Trust is
exempt from the requirements of Rule
102 with respect to transaction in the
Shares of the New Funds as described
in the Letter, thus permitting the New
Funds to redeem Shares of the New
Funds during the continuous offering of
such Shares as described in the Letter.
It is further ordered, pursuant to Rule
10b–17(b)(2), that the Trust, subject to
the conditions contained in this order,
is exempt from the requirements of Rule
10b–17 with respect to transactions in
the Shares of the New Funds as
described in the Letter.
This exemption from Rule 10b–17 is
subject to the following conditions:
• The Trust will comply with Rule
10b–17 except for Rule 10b–
17(b)(1)(v)(a) and (b); and
• The Trust will provide the
information required by Rule 10b–
17(b)(1)(v)(a) and (b) to the Exchange as
soon as practicable before trading begins
on the ex-dividend date, but in no event
later than the time when the Exchange
last accepts information relating to
distributions on the day before the exdividend date.
5 We also note that timely compliance with Rule
10b–17(b)(1)(v)(a) and (b) would be impractical in
light of the nature of the New Funds. This is
because it is not possible for the New Funds to
accurately project ten days in advance what
dividend, if any, would be paid on a particular
record date. Further, the Commission finds, based
upon the representations of the Requestors in the
Letter, that the provision of the notices as described
in the Letter would not constitute a manipulative
or deceptive device or contrivance comprehended
within the purpose of Rule 10b–17.
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Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices
This exemptive relief is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. This exemption is based
on the facts presented and the
representations made in the Letter. Any
different facts or representations may
require a different response. Persons
relying upon this exemption shall
discontinue transactions involving the
Shares of the New Funds, pending
presentation of the facts for the
Commission’s consideration, in the
event that any material change occurs
with respect to any of the facts or
representations made by the Requestors,
and as is the case with all preceding
letters, particularly with respect to the
close alignment between the market
price of Shares and the New Fund’s
NAV. In addition, persons relying on
this exemption are directed to the antifraud and anti-manipulation provisions
of the Exchange Act, particularly
Sections 9(a) and 10(b), and Rule 10b–
5 thereunder. Responsibility for
compliance with these and any other
applicable provisions of the federal
securities laws must rest with the
persons relying on this exemption. This
order should not be considered a view
with respect to any other question that
the proposed transactions may raise,
including, but not limited to the
adequacy of the disclosure concerning,
and the applicability of other federal or
state laws to, the proposed transactions.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016–17107 Filed 7–19–16; 8:45 am]
BILLING CODE 8011–01–P
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on July 8,
2016, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. 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 proposes to extend the
pilot period applicable to the Customer
Best Execution Auction (‘‘CUBE’’), per
Rule 971.1NY, until January 18, 2017.
The proposed rule change is available
on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those 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
SECURITIES AND EXCHANGE
COMMISSION
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[Release No. 34–78324; File No. SR–
NYSEMKT–2016–69]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Extending the Pilot
Period Applicable to the Customer
Best Execution Auction per Rule
971.1NY
July 14, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
The Exchange proposes to extend the
pilot period applicable to certain
aspects of the Customer Best
Execution—or CUBE—Auction, which
is currently set to expire on July 18,
2016, until January 18, 2017.
Background
Rule 971.1NY sets forth an electronic
crossing mechanism for single-leg
orders with a price improvement
auction on the Exchange, referred to as
the CUBE Auction.4 The CUBE Auction,
which was approved in April 2014, is
designed to provide price improvement
2 15
U.S.C. 78a.
CFR 240.19b–4.
4 See generally Rule 971.1NY (Electronic Cross
Transactions).
3 17
6 17
1 15
CFR 200.30–3(a)(6) and (9).
U.S.C. 78s(b)(1).
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for paired orders of any size.5 Two
aspects of the CUBE were approved on
a pilot basis—Rule 971.1NY(b)(1)(B),
which establishes the permissible range
of executions for CUBE Auctions for
fewer than 50 contracts; and Rule
971.1NY(b)(8), which establishes that
the minimum size for a CUBE Auction
is one contract (together, the ‘‘CUBE
Pilot’’).
An ATP Holder may initiate a CUBE
Auction by electronically submitting for
execution a limit order it represents as
agent on behalf of a public customer,
broker dealer, or any other entity
(‘‘CUBE Order’’) against principal
interest or against any other order it
represents as agent, provided the
initiating ATP Holder complies with
Rule 971.1NY.6 Rule 971.1NY(b)(1) sets
forth the permissible range of
executions for a CUBE Order.7 Pursuant
to the CUBE Pilot, a CUBE Order for
fewer than 50 contracts is subject to
tighter ranges of execution than larger
CUBE Orders to maximize price
improvement.8 Specifically, if the CUBE
Order is for fewer than 50 contracts, the
range of permissible execution will be
equal to or better than the National Best
Bid/Offer (‘‘NBBO’’), provided that such
price must be at least one cent better
than any displayed interest in the
Exchange’s Consolidated Book.9
The CUBE Pilot was initially
approved for a one-year pilot, and has
since been extended for two subsequent
years.10 Pursuant to Commentary .01 to
Rule 971.1NY, the CUBE Pilot would, if
not amended, end on July 18, 2016. In
connection with the CUBE Pilot, the
Exchange agreed to submit certain data
to provide supporting evidence that,
among other things, there is meaningful
competition for all size orders and that
5 See Securities Exchange Act Release No. 72025
(April 25, 2014), 79 FR 24779 (May 1, 2014)
(NYSEMKT–2014–17) (the ‘‘CUBE Approval
Order’’).
6 In addition, CUBE provides for the automatic
execution, under certain conditions, of a crossing
transaction where there is a public customer order
in the same options series on each side.
7 Subject to specified exceptions, a CUBE Order
to buy (sell) may execute at prices equal to or
between the initiating price as the upper (lower)
bound and the National Best Bid (‘‘NBB’’) (National
Best Offer (‘‘NBO’’)) as the lower (upper) bound.
See Rule 971.1NY(b).
8 See Rule 971.1NY(b)(1)(B). Rule 971.1NY(b)(8),
also subject to the pilot period, provides that the
minimum size for a CUBE Auction is one contract.
9 See Rule 971.1NY(b)(1)(B).
10 See CUBE Approval Order, supra, n. 5. The
CUBE Pilot was subsequently extended, most
recently until July 18, 2016, in order to align the
expiration of the pilot period with that of other
competing options exchange that offer electronic
price improvement auctions similar to the CUBE.
See Securities Exchange Act Release Nos. 74695
(April 9, 2015), 80 FR 20274 (April 15, 2015) (SR–
NYSEMKT–2015–28); 75460 (July 15, 2015), 80 FR
43140 (July 21, 2015) (SR–NYSEMKT–2015–48).
E:\FR\FM\20JYN1.SGM
20JYN1
]]>Agencies
[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47193-47196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78332; File No. TP 16-10]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to Janus Detroit Street Trust,
the Janus Velocity Tail Risk Hedged Large Cap ETF, and the Janus
Velocity Volatility Hedged Large Cap ETF
July 14, 2016.
By letter dated July 14, 2016 (the ``Letter''), as supplemented by
conversations with the staff of the Division of Trading and Markets,
counsel for Janus Detroit Street Trust (the ``Trust'') on behalf of the
Trust, the Janus Velocity Tail Risk Hedged Large Cap ETF and the Janus
Velocity
[[Page 47194]]
Volatility Hedged Large Cap ETF (each a ``New Fund'' and, collectively,
the ``New Funds''), any national securities exchange on or through
which shares issued by the New Funds (``Shares'') may subsequently
trade, ALPS Distributors, Inc., and persons or entities engaging in
transactions in Shares (collectively, the ``Requestors'') requested
exemptions, or interpretive or no-action relief, from Rule 10b-17 of
the Securities Exchange Act of 1934, as amended (``Exchange Act'') and
Rules 101 and 102 of Regulation M in connection with secondary market
transactions in Shares and the creation or redemption of aggregations
of Shares of at least 50,000 shares (``Creation Units'').
The Trust is registered with the Commission under the Investment
Company Act of 1940, as amended (``1940 Act''), as an open-end
management investment company. Each New Fund seeks to track the
performance of a particular underlying index (``Index''), which for
each New Fund is comprised of shares of exchange-traded products
(``ETPs''). As a result of the Trust and the ALPS ETF Trust \1\
entering into an Agreement and Plan of Reorganization and Termination,
the Janus Velocity Tail Risk Hedged Large Cap ETF and the Janus
Velocity Volatility Hedged Large Cap ETF will acquire the
VelocityShares Tail Risk Hedged Large Cap ETF and the VelocityShares
Volatility Hedged Large Cap ETF, respectively, in exchange for shares
of such New Fund (or cash in exchange for any fractional shares of an
Existing Fund) and the assumption by each New Fund of all of the
respective corresponding Existing Fund's liabilities, if any, as of the
closing date. In return, the Existing Funds will distribute the shares
of the New Funds to the Existing Funds' shareholders, and the Existing
Funds will terminate. Immediately after the reorganization, each former
shareholder of each Existing Fund will own shares of the corresponding
New Fund that will be approximately equal to the value of that
shareholder's full shares of such Existing Fund as of the closing date.
Thus, Requestors represent that although the New Funds will effectively
be the continuation of the Existing Funds, and will be substantially
identical in all material respects to the Existing Funds, they cannot
rely on the terms and conditions of the Existing Relief because the
Trust and the New Funds are legal entities different and distinct from
the ALPS ETF Trust and the Existing Funds.
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\1\ On June 21, 2013, the Division of Trading and Markets
granted ALPS ETF Trust exemptive relief (the ``Existing Relief'')
for the VelocityShares Tail Risk Hedged Large Cap ETF and the
VelocityShares Volatility Hedged Large Cap ETF (each an ``Existing
Fund'' and, collectively, the ``Existing Funds''). Exchange Act
Release No. 69831 (June 21, 2013).
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The Requestors represent that each New Fund's underlying index will
reflect the performance of a portfolio consisting of an exposure to a
large cap equity portfolio, consisting of three underlying ETFs which
track the S&P 500 index (``Underlying Large-Cap ETFs'') and a
volatility strategy to hedge ``tail risk'' events (which are market
events that occur rarely but may have severe consequences when they do
occur) consisting of two underlying ETFs which reflect leveraged or
inverse positions on the S&P 500 VIX Short-Term Futures Index
(``Underlying Volatility ETFs''). The underlying index, at each monthly
rebalance, consists of an 85% allocation to the Underlying Large-Cap
ETFs and a 15% allocation to the Underlying Volatility ETFs. The New
Funds intend to operate as ``ETFs of ETFs'' by seeking to track the
performance of the respective underlying Index by investing at least
80% of their assets in the ETPs that comprise each Index. Substantially
identical in all material respects to the Existing Funds, the
Requestors represent that they intend to enter into swap agreements for
each New Fund designed to provide exposure to (a) the Underlying
Volatility ETFs and/or (b) leveraged and/or inverse positions on the
S&P 500 VIX Short-Term Futures Index directly. Except for the fact that
the New Funds will operate as ETFs of ETFs and the Requestors represent
that they intend to enter into swaps for each New Fund to obtain the
leveraged and/or inverse exposure to the Underlying Volatility ETFs
and/or the S&P 500 VIX Short-Term Futures Index, the Requestors
represent that the New Funds will operate in a manner identical to the
ETPs that comprise each Index and will effectively be the continuation
of the Existing Funds.
The Requestors represent, among other things, the following:
Shares of the New Funds will be issued by the Trust, an
open-end management investment company that is registered with the
Commission;
The Trust will continuously redeem Creation Units at net
asset value (``NAV'') and the secondary market price of the Shares
should not vary substantially from the NAV of such Shares;
Shares of the New Funds will be listed and traded on the
NYSE Arca (the ``Exchange'') or other exchange in accordance with
exchange listing standards that are, or will become, effective pursuant
to Section 19(b) of the Exchange Act;
All ETPs in which the New Funds invest will meet all
conditions set forth in a relevant class relief letter,\2\ will have
received individual relief from the Commission, or will be able to rely
on individual relief even though they are not named parties;
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\2\ Letter from Catherine McGuire, Esq., Chief Counsel, Division
of Market Regulation, to the Securities Industry Association
Derivative Products Committee (November 21, 2005); Letter from
Racquel L. Russell, Branch Chief, Division of Market Regulation, to
George T. Simon, Esq., Foley & Lardner LLP (June 21, 2006); Letter
from James A. Brigagliano, Acting Associate Director, Division of
Market Regulation, to Stuart M. Strauss, Esq., Clifford Chance US
LLP (October 24, 2006); Letter from James A. Brigagliano, Associate
Director, Division of Market Regulation, to Benjamin Haskin, Esq.,
Willkie. Farr & Gallagher LLP (April 9, 2007); or Letter from
Josephine Tao, Assistant Director, Division of Trading and Markets,
to Domenick Pugliese, Esq., Paul, Hastings, Janofsky and Walker LLP
(June 27, 2007).
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At least 70% of each New Fund will be comprised of
component securities that meet the minimum public float and minimum
average daily trading volume thresholds under the ``actively-traded
securities'' definition found in Regulation M for excepted securities
during each of the previous two months of trading prior to formation of
the relevant New Fund; provided, however, that if the New Fund has 200
or more component securities, then 50% of the component securities will
meet the actively-traded securities thresholds;
All the components of each Index will have publicly
available last sale trade information;
The intra-day proxy value of each New Fund per share and
the value of each Index will be publicly disseminated by a major market
data vendor throughout the trading day;
On each business day before the opening of business on the
Exchange, the New Funds' custodian, through the National Securities
Clearing Corporation, will make available the list of the names and the
numbers of securities and other assets of each New Fund's portfolio
that will be applicable that day to creation and redemption requests;
The Exchange or other market information provider will
disseminate every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association an amount representing
on a per-share basis, the current value of the securities and cash to
be deposited as consideration for the purchase of Creation Units;
The arbitrage mechanism will be facilitated by the
transparency of the New Funds' portfolio and the
[[Page 47195]]
availability of the intra-day indicative value, the liquidity of
securities and other assets held by the New Funds, the ability of the
New Funds and arbitrageurs to acquire such securities, as well as the
arbitrageurs' ability to create workable hedges;
The New Funds will invest solely in liquid securities;
The New Funds will invest in securities that will
facilitate an effective and efficient arbitrage mechanism and the
ability to create workable hedges;
The Requestors believe that arbitrageurs are expected to
take advantage of price variations between each New Fund's market price
and its NAV; and
A close alignment between the market price of Shares and
each New Fund's NAV is expected.
Regulation M
While redeemable securities issued by an open-end management
investment company are excepted from the provisions of Rule 101 and 102
of Regulation M, the Requestors may not rely upon that exception for
the Shares.\3\
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\3\ ETFs operate under exemptions from the definitions of
``open-end company'' under Section 5(a)(1) of the 1940 Act and
``redeemable security'' under Section 2(a)(32) of the 1940 Act. The
ETFs and their securities do not meet those definitions.
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Rule 101 of Regulation M
Generally, Rule 101 of Regulation M is an anti-manipulation rule
that, subject to certain exceptions, prohibits any ``distribution
participant'' and its ``affiliated purchasers'' from bidding for,
purchasing, or attempting to induce any person to bid for or purchase
any security which is the subject of a distribution until after the
applicable restricted period, except as specifically permitted in the
rule. Rule 100 of Regulation M defines ``distribution'' to mean any
offering of securities that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of
special selling efforts and selling methods. The provisions of Rule 101
of Regulation M apply to underwriters, prospective underwriters,
brokers, dealers, and other persons who have agreed to participate or
are participating in a distribution of securities. The Shares are in a
continuous distribution and, as such, the restricted period in which
distribution participants and their affiliated purchasers are
prohibited from bidding for, purchasing, or attempting to induce others
to bid for or purchase extends indefinitely.
Based on the representations and facts presented in the Letter,
particularly that the Trust is a registered open-end management
investment company that will continuously redeem at the NAV Creation
Units of Shares of the New Funds and that a close alignment between the
market price of Shares and the New Funds' NAV is expected, the
Commission finds that it is appropriate in the public interest, and
consistent with the protection of investors, to grant the Trust an
exemption from Rule 101 of Regulation M, pursuant to paragraph (d) of
Rule 101 of Regulation M with respect to transactions in the New Funds
as described in the Letter, thus permitting persons who may be deemed
to be participating in a distribution of Shares of the New Funds to bid
for or purchase such Shares during their participation in such
distribution.\4\
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\4\ Additionally, we confirm the interpretation that a
redemption of Creation Units of Shares of the New Funds and the
receipt of securities in exchange by a participant in a distribution
of Shares of the New Funds would not constitute an ``attempt to
induce any person to bid for or purchase, a covered security during
the applicable restricted period'' within the meaning of Rule 101 of
Regulation M and therefore would not violate that rule.
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Rule 102 of Regulation M
Rule 102 of Regulation M prohibits issuers, selling security
holders, and any affiliated purchaser of such person from bidding for,
purchasing, or attempting to induce any person to bid for or purchase a
covered security during the applicable restricted period in connection
with a distribution of securities effected by or on behalf of an issuer
or selling security holder.
Based on the representations and facts presented in the Letter,
particularly that the Trust is a registered open-end management
investment company that will redeem at the NAV Creation Units of Shares
of the New Funds and that a close alignment between the market price of
Shares and the New Funds' NAV is expected, the Commission finds that it
is appropriate in the public interest, and consistent with the
protection of investors, to grant the Trust an exemption from Rule 102
of Regulation M, pursuant to paragraph (e) of Rule 102 of Regulation M
with respect to transactions in the New Funds as described in the
Letter, thus permitting the New Funds to redeem Shares of the New Funds
during the continuous offering of such Shares.
Rule 10b-17
Rule 10b-17, with certain exceptions, requires an issuer of a class
of publicly traded securities to give notice of certain specified
actions (for example, a dividend distribution) relating to such class
of securities in accordance with Rule 10b-17(b). Based on the
representations and facts in the Letter, in particular that the
concerns that the Commission raised in adopting Rule 10b-17 generally
will not be implicated if exemptive relief, subject to the conditions
below, is granted to the Trust because market participants will receive
timely notification of the existence and timing of a pending
distribution,\5\ we find that it is appropriate in the public interest,
and consistent with the protection of investors, to grant the Trust a
conditional exemption from Rule 10b-17.
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\5\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature
of the New Funds. This is because it is not possible for the New
Funds to accurately project ten days in advance what dividend, if
any, would be paid on a particular record date. Further, the
Commission finds, based upon the representations of the Requestors
in the Letter, that the provision of the notices as described in the
Letter would not constitute a manipulative or deceptive device or
contrivance comprehended within the purpose of Rule 10b-17.
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Conclusion
It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that
the Trust is exempt from the requirements of Rules 101 with respect to
transactions in the Shares of the New Funds as described in the Letter,
thus permitting persons who may be deemed to be participating in a
distribution of Shares of the New Funds to bid for or purchase such
Shares during their participation in such distribution as described in
the Letter.
It is further ordered, pursuant to Rule 102(e) of Regulation M,
that the Trust is exempt from the requirements of Rule 102 with respect
to transaction in the Shares of the New Funds as described in the
Letter, thus permitting the New Funds to redeem Shares of the New Funds
during the continuous offering of such Shares as described in the
Letter.
It is further ordered, pursuant to Rule 10b-17(b)(2), that the
Trust, subject to the conditions contained in this order, is exempt
from the requirements of Rule 10b-17 with respect to transactions in
the Shares of the New Funds as described in the Letter.
This exemption from Rule 10b-17 is subject to the following
conditions:
The Trust will comply with Rule 10b-17 except for Rule
10b-17(b)(1)(v)(a) and (b); and
The Trust will provide the information required by Rule
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable
before trading begins on the ex-dividend date, but in no event later
than the time when the Exchange last accepts information relating to
distributions on the day before the ex-dividend date.
[[Page 47196]]
This exemptive relief is subject to modification or revocation at
any time the Commission determines that such action is necessary or
appropriate in furtherance of the purposes of the Exchange Act. This
exemption is based on the facts presented and the representations made
in the Letter. Any different facts or representations may require a
different response. Persons relying upon this exemption shall
discontinue transactions involving the Shares of the New Funds, pending
presentation of the facts for the Commission's consideration, in the
event that any material change occurs with respect to any of the facts
or representations made by the Requestors, and as is the case with all
preceding letters, particularly with respect to the close alignment
between the market price of Shares and the New Fund's NAV. In addition,
persons relying on this exemption are directed to the anti-fraud and
anti-manipulation provisions of the Exchange Act, particularly Sections
9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for
compliance with these and any other applicable provisions of the
federal securities laws must rest with the persons relying on this
exemption. This order should not be considered a view with respect to
any other question that the proposed transactions may raise, including,
but not limited to the adequacy of the disclosure concerning, and the
applicability of other federal or state laws to, the proposed
transactions.
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\6\ 17 CFR 200.30-3(a)(6) and (9).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17107 Filed 7-19-16; 8:45 am]
BILLING CODE 8011-01-P
