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]

Download as PDF 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. mstockstill on DSK3G9T082PROD with NOTICES 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. VerDate Sep<11>2014 18:24 Jul 19, 2016 Jkt 238001 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 (http://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. PO 00000 Frm 00039 Fmt 4703 Sfmt 4703 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 (http://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 E:\FR\FM\20JYN1.SGM CFR 200.30–3(a)(12). 20JYN1 mstockstill on DSK3G9T082PROD with NOTICES 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). VerDate Sep<11>2014 18:24 Jul 19, 2016 Jkt 238001 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, PO 00000 Frm 00040 Fmt 4703 Sfmt 4703 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). E:\FR\FM\20JYN1.SGM 20JYN1 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. mstockstill on DSK3G9T082PROD with NOTICES 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. VerDate Sep<11>2014 18:24 Jul 19, 2016 Jkt 238001 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. PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 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. E:\FR\FM\20JYN1.SGM 20JYN1 47196 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 mstockstill on DSK3G9T082PROD with NOTICES [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). VerDate Sep<11>2014 18:24 Jul 19, 2016 Jkt 238001 PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 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]


-----------------------------------------------------------------------

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

    \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).
---------------------------------------------------------------------------

    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;
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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

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

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

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

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

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

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

    \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