Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to Amplify YieldShares Prime 5 Dividend ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M, 66109-66111 [2016-23043]
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Federal Register / Vol. 81, No. 186 / Monday, September 26, 2016 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2016–064 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
Number SR–CBOE–2016–064. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
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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
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those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
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available publicly. All submissions
should refer to File Number SR–CBOE–
2016–064 and should be submitted on
or before October 17, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–23044 Filed 9–23–16; 8:45 am]
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BILLING CODE 8011–01–P
23 17
19:40 Sep 23, 2016
[Release No. 34–78882; File No. TP 16–13]
Order Granting Limited Exemptions
From Exchange Act Rule 10b–17 and
Rules 101 and 102 of Regulation M to
Amplify YieldShares Prime 5 Dividend
ETF Pursuant to Exchange Act Rule
10b–17(b)(2) and Rules 101(d) and
102(e) of Regulation M
September 20, 2016.
By letter dated September 20, 2016
(the ‘‘Letter’’), as supplemented by
conversations with the staff of the
Division of Trading and Markets,
counsel for Amplify ETF Trust (the
‘‘Trust’’) on behalf of the Trust, Amplify
YieldShares Prime 5 Dividend ETF (the
‘‘Fund’’), any national securities
exchange on or through which shares of
the Fund (‘‘Shares’’) are listed and may
subsequently trade, 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 50,000 shares (‘‘Creation Units’’).
The Trust is registered with the
Securities and Exchange Commission
(‘‘Commission’’) under the Investment
Company Act of 1940, as amended
(‘‘1940 Act’’), as an open-end
management investment company. The
Fund seeks to track the performance of
an underlying index, the Prime 5 US
Dividend ETF Index (‘‘Underlying
Index’’). The Underlying Index seeks to
provide exposure to the five highestranked dividend ETFs based on the
index provider’s scoring and selection
criteria.
The Fund will seek to track the
performance of its Underlying Index by
normally investing at least 80% of its
total assets in the underlying exchangetraded funds that comprise the
Underlying Index.1 In light of the
composition of the Underlying Index,
the Fund intends to operate as an ‘‘ETF
of ETFs.’’ Except for the fact that the
Fund will operate as an ETF of ETFs,
the Fund will operate in a manner
identical to the underlying ETFs.
The Requestors represent, among
other things, the following:
• Shares of the Fund will be issued
by the Trust, an open-end management
1 The remaining 20% may be invested in
securities with maturities of less than one year or
cash equivalents, or the Fund may hold cash.
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
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Fmt 4703
Sfmt 4703
66109
investment company that is registered
with the Commission;
• Creation Units will be continuously
redeemable at the net asset value
(‘‘NAV’’) next determined after receipt
of a request for redemption by the Fund,
and the secondary market price of the
Shares should not vary substantially
from the NAV of such Shares;
• Shares of the Fund will be listed
and traded on BATS Exchange Inc. or
another exchange in accordance with
exchange listing standards that are, or
will become, effective pursuant to
Section 19(b) of the Exchange Act (the
‘‘Listing Exchange’’); 2
• The Fund seeks to track the
performance of the Underlying Index,
all the components of which have
publicly available last sale trade
information;
• The Listing Exchange will
disseminate continuously every 15
seconds throughout the trading day,
through the facilities of the
Consolidated Tape Association, the
market value of a Share;
• The Listing Exchange, market data
vendors or other information providers
will disseminate, every 15 seconds
throughout the trading day, a
calculation of the intraday indicative
value of a Share;
• On each business day before the
opening of business on the Listing
Exchange, the Fund will cause to be
published through the National
Securities Clearing Corporation the list
of the names and the quantities of
securities of the Fund’s portfolio that
will be applicable that day to creation
and redemption requests;
• The arbitrage mechanism will be
facilitated by the transparency of the
Fund’s portfolio and the availability of
the intraday indicative value, the
liquidity of securities held by the Fund,
the ability to acquire such securities, as
well as arbitrageurs’ ability to create
workable hedges;
• The Fund will invest solely in
liquid securities;
• The Fund will invest in securities
that will facilitate an effective and
efficient arbitrage mechanism and the
ability to create workable hedges;
• All ETFs in which the Fund invests
will either meet all conditions set forth
in one or more class relief letters, will
have received individual relief from the
Commission, will be able to rely on
individual relief even though they are
not named parties, or will be able to rely
2 Further, the Letter states that should the Shares
also trade on a market pursuant to unlisted trading
privileges, such trading will be conducted pursuant
to self-regulatory organization rules that are or will
become effective pursuant to Section 19(b) of the
Exchange Act.
E:\FR\FM\26SEN1.SGM
26SEN1
66110
Federal Register / Vol. 81, No. 186 / Monday, September 26, 2016 / Notices
on applicable class relief for activelymanaged ETFs;
• The Trust believes that arbitrageurs
are expected to take advantage of price
variations between the Fund’s market
price and its NAV; and
• A close alignment between the
market price of Shares and the Fund’s
NAV is expected.
mstockstill on DSK3G9T082PROD with NOTICES
Regulation M
While redeemable securities issued by
an open-end management investment
company are excepted from the
provisions of Rules 101 and 102 of
Regulation M, the Requestors may not
rely upon those exceptions for the
Shares.3 However, we find that it is
appropriate in the public interest and is
consistent with the protection of
investors to grant a conditional
exemption from Rules 101 and 102 to
persons who may be deemed to be
participating in a distribution of Shares
of the Fund as described in more detail
below.
Rule 101 of Regulation M
Generally, Rule 101 of Regulation M
is an anti-manipulation rule that,
subject to certain exceptions, prohibits
any ‘‘distribution participant’’ and its
‘‘affiliated purchasers’’ from bidding for,
purchasing, or attempting to induce any
person to bid for or purchase any
security that is the subject of a
distribution until after the applicable
restricted period, except as specifically
permitted in the Rule. Rule 100 of
Regulation M defines ‘‘distribution’’ to
mean any offering of securities that is
distinguished from ordinary trading
transactions by the magnitude of the
offering and the presence of special
selling efforts and selling methods. The
provisions of Rule 101 of Regulation M
apply to underwriters, prospective
underwriters, brokers, dealers, or other
persons who have agreed to participate
or are participating in a distribution of
securities. The Shares are in a
continuous distribution and, as such,
the restricted period in which
distribution participants and their
affiliated purchasers are prohibited from
bidding for, purchasing, or attempting to
induce others to bid for or purchase
extends indefinitely.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
management investment company, that
Creation Unit size aggregations of the
Shares of the Fund will be continuously
3 While ETFs operate under exemptions from the
definitions of ‘‘open-end company’’ under Section
5(a)(1) of the 1940 Act and ‘‘redeemable security’’
under Section 2(a)(32) of the 1940 Act, the Fund
and its securities do not meet those definitions.
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19:40 Sep 23, 2016
Jkt 238001
redeemable at the NAV next determined
after receipt of a request for redemption
by the Fund, and that a close alignment
between the market price of Shares and
the Fund’s NAV is expected, the
Commission finds that it is appropriate
in the public interest and consistent
with the protection of investors to grant
the Trust an exemption under paragraph
(d) of Rule 101 of Regulation M with
respect to the Fund, thus permitting
persons participating in a distribution of
Shares of the Fund to bid for or
purchase such Shares during their
participation in such distribution.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
Creation Unit size aggregations of the
Shares of the Fund will be continuously
redeemable at the NAV next determined
after receipt of a request for redemption
by the Fund, and that a close alignment
between the market price of Shares and
the Fund’s NAV is expected, the
Commission finds that it is appropriate
in the public interest and consistent
with the protection of investors to grant
the Trust an exemption under paragraph
(e) of Rule 102 of Regulation M with
respect to the Fund, thus permitting the
Fund to redeem Shares of the Fund
during the continuous offering of such
Shares.
Rule 10b–17
Rule 10b–17, with certain exceptions,
requires an issuer of a class of publicly
traded securities to give notice of certain
specified actions (for example, a
dividend distribution) relating to such
class of securities in accordance with
Rule 10b–17(b). Based on the
representations and facts in the Letter,
and subject to the conditions below, the
Commission finds that it is appropriate
in the public interest, and consistent
with the protection of investors to grant
4 Additionally, we confirm the interpretation that
a redemption of Creation Unit size aggregations of
Shares of the Fund and the receipt of securities in
exchange by a participant in a distribution of Shares
of the Fund would not constitute an ‘‘attempt to
induce any person to bid for or purchase, a covered
security during the applicable restricted period’’
within the meaning of Rule 101 of Regulation M
and therefore would not violate that rule.
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
the Trust a conditional exemption from
Rule 10b–17 because market
participants will receive timely
notification of the existence and timing
of a pending distribution, and thus the
concerns that the Commission raised in
adopting Rule 10b–17 will not be
implicated.5
Conclusion
It is hereby ordered, pursuant to Rule
101(d) of Regulation M, that the Trust,
based on the representations and facts
presented in the Letter, is exempt from
the requirements of Rule 101 with
respect to the Fund, thus permitting
persons who may be deemed to be
participating in a distribution of Shares
of the Fund to bid for or purchase such
Shares during their participation in
such distribution.
It is further ordered, pursuant to Rule
102(e) of Regulation M, that the Trust,
based on the representations and the
facts presented in the Letter, is exempt
from the requirements of Rule 102 with
respect to the Fund, thus permitting the
Fund to redeem Shares of the Fund
during the continuous offering of such
Shares.
It is further ordered, pursuant to Rule
10b–17(b)(2), that the Trust, based on
the representations and the facts
presented in the Letter and subject to
the conditions below, is exempt from
the requirements of Rule 10b–17 with
respect to transactions in the shares of
the Fund.
This exemptive relief is subject to the
following conditions:
• The Trust will comply with Rule
10b–17 except for Rule 10b–
17(b)(1)(v)(a) and (b); and
• The Trust will provide the
information required by Rule 10b–
17(b)(1)(v)(a) and (b) to the Listing
Exchange as soon as practicable before
trading begins on the ex-dividend date,
but in no event later than the time when
the Listing Exchange last accepts
information relating to distributions on
the day before the ex-dividend date.
This exemptive relief is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. This exemption is based
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 Fund. This is because it
is not possible for the Fund to accurately project ten
days in advance what dividend, if any, would be
paid on a particular record date. 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 and subject
to the conditions of this Order would not constitute
a manipulative or deceptive device or contrivance
comprehended within the purpose of Rule 10b–17.
E:\FR\FM\26SEN1.SGM
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Federal Register / Vol. 81, No. 186 / Monday, September 26, 2016 / Notices
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 exemptive relief shall
discontinue transactions involving the
Shares of the Fund, 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 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),
10(b), and Rule10b–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
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–23043 Filed 9–23–16; 8:45 am]
BILLING CODE 8011–01–P
certain definitions in Rule 17Ad–22
related to clearing agencies pursuant to
Section 17A of the Securities Exchange
Act of 1934 and Title VIII of the DoddFrank Wall Street Reform and Consumer
Protection Act.
• The Commission will consider
whether to propose amendments to Rule
15c6–1 under the Securities Exchange
Act of 1934 to shorten the standard
settlement cycle for most broker-dealer
transactions from three business days
after the trade date to two business days
after the trade date.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted, or postponed, please
contact Brent J. Fields in the Office of
the Secretary at (202) 551–5400.
Dated: September 21, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–23325 Filed 9–22–16; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78888; File Nos. SR–
NYSEARCA–2016–109; SR–NYSEMKT–
2016–73]
Self-Regulatory Organizations; NYSE
Arca, Inc.; NYSE MKT LLC; Order
Approving Proposed Rule Changes To
Provide for the Rejection of Certain
Electronic Complex Orders
September 20, 2016.
SECURITIES AND EXCHANGE
COMMISSION
mstockstill on DSK3G9T082PROD with NOTICES
Sunshine Act Meeting
Notice is hereby given that, pursuant
to the provisions of the Government in
the Sunshine Act, Public Law 99–409,
the Securities and Exchange
Commission will hold an Open Meeting
on Wednesday, September 28, 2016, at
10:00 a.m., in the Auditorium, Room
L–002.
The subject matter of the Open
Meeting will be:
• The Commission will consider
whether to adopt rules to establish
enhanced standards for the operation
and governance of certain clearing
agencies pursuant to Section 17A of the
Securities Exchange Act of 1934 and
Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
• The Commission will consider
whether to propose amendments to
6 17
CFR 200.30–3(a)(6) and (9).
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19:40 Sep 23, 2016
Jkt 238001
I. Introduction
On August 3, 2016, NYSE Arca, Inc.
(‘‘NYSE Arca’’) and NYSE MKT LLC
(‘‘NYSE MKT’’) (each an ‘‘Exchange’’
and, together, the ‘‘Exchanges’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’),
pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
proposed rule changes to amend NYSE
Arca Rule 6.91(b) and NYSE MKT Rule
980(d), respectively, to allow the
Exchanges to reject certain Electronic
Complex Orders.4 The proposed rule
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 NYSE Arca Rule 6.91 defines ‘‘Electronic
Complex Order’’ to mean, for purposes of that rule,
‘‘any Complex Order as defined in Rule 6.62(e) or
any Stock/Option Order or Stock/Complex Order as
defined in Rule 6.62(h) that is entered into the
NYSE Arca System.’’ NYSE MKT Rule 980 defines
‘‘Electronic Complex Order’’ to mean, for purposes
of that rule, ‘‘any Complex Order as defined in Rule
900.3NY(e) that is entered into the System.’’
2 15
PO 00000
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66111
changes were published for comment in
the in the Federal Register on August
17, 2016.5 The Commission received no
comments regarding the proposals. This
order approves the proposed rule
changes.
II. Description of the Proposals
NYSE Arca and NYSE MKT each
require market makers to use risk
limitation mechanisms that
automatically remove a market maker’s
quotes in all series of an options class
when the market maker’s risk settings
are triggered.6 The Exchanges state that
the risk settings are designed to mitigate
the risk of multiple executions against a
market maker’s quotes occurring
simultaneously across multiple series
and multiple options classes.7
According to the Exchanges, the risk
settings allow market makers to provide
liquidity across potentially thousands of
options series without being at risk of
executing the full cumulative size of all
of their quotes before being given
adequate opportunity to adjust their
quotes.8
An Electronic Complex Order may
execute against quotes or individual
orders comprising the Complex Order
(the ‘‘leg markets’’), or against Electronic
Complex Orders resting in the
Consolidated Book.9 An incoming
Electronic Complex Order will execute
against customer interest in the leg
markets before executing against resting
Electronic Complex Orders at the same
price (i.e., at the same total net debit or
credit), provided that the leg market
interest can execute the Electronic
Complex Order in full or in a
permissible ratio.10 When an Electronic
5 See Securities Exchange Act Release Nos. 78546
(August 11, 2016), 81 FR 54867 (‘‘NYSE Arca
Notice’’); and 78544 (August 11, 2016), 81 FR 54893
(‘‘NYSE MKT Notice’’).
6 See NYSE Arca Notice, 81 FR at 54868; and
NYSE MKT Notice, 81 FR at 54893. Pursuant to
NYSE Arca Rule 6.40(b)(3), (c)(3), and (d)(3), and
NYSE MKT Rule 928(b)(3), (c)(3), and (d)(3), the
Exchanges establish a time period during which
their respective Systems calculate: (1) The number
of trades executed by a market maker in a specified
options class; (2) the volume of contracts executed
by a market maker in a specified options class; or
(3) the percentage of a market maker’s quoted size
in specified options class (the ‘‘risk settings’’).
When a market maker has breached its risk settings
(i.e., has traded more than the contract or volume
limit or cumulative percentage limit of a class
during the specified measurement interval), each
Exchange’s System cancels all of the market maker’s
quotes in that class until the market maker notifies
the Exchange that it will resume submitting quotes.
See id. See also NYSE Arca Rule 6.40, Commentary
.02; and NYSE MKT Rule 980NY, Commentary .02.
7 See NYSE Arca Notice, 81 FR at 54868; and
NYSE MKT Notice, 81 FR at 54894.
8 See id.
9 See id. See also NYSE Arca Rule 6.91(a)(2)(ii);
and NYSE MKT Rule 980NY(c)(ii).
10 See id.
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]]>Agencies
[Federal Register Volume 81, Number 186 (Monday, September 26, 2016)]
[Notices]
[Pages 66109-66111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23043]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78882; File No. TP 16-13]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to Amplify YieldShares Prime 5
Dividend ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules
101(d) and 102(e) of Regulation M
September 20, 2016.
By letter dated September 20, 2016 (the ``Letter''), as
supplemented by conversations with the staff of the Division of Trading
and Markets, counsel for Amplify ETF Trust (the ``Trust'') on behalf of
the Trust, Amplify YieldShares Prime 5 Dividend ETF (the ``Fund''), any
national securities exchange on or through which shares of the Fund
(``Shares'') are listed and may subsequently trade, 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 50,000 shares
(``Creation Units'').
The Trust is registered with the Securities and Exchange Commission
(``Commission'') under the Investment Company Act of 1940, as amended
(``1940 Act''), as an open-end management investment company. The Fund
seeks to track the performance of an underlying index, the Prime 5 US
Dividend ETF Index (``Underlying Index''). The Underlying Index seeks
to provide exposure to the five highest-ranked dividend ETFs based on
the index provider's scoring and selection criteria.
The Fund will seek to track the performance of its Underlying Index
by normally investing at least 80% of its total assets in the
underlying exchange-traded funds that comprise the Underlying Index.\1\
In light of the composition of the Underlying Index, the Fund intends
to operate as an ``ETF of ETFs.'' Except for the fact that the Fund
will operate as an ETF of ETFs, the Fund will operate in a manner
identical to the underlying ETFs.
---------------------------------------------------------------------------
\1\ The remaining 20% may be invested in securities with
maturities of less than one year or cash equivalents, or the Fund
may hold cash.
---------------------------------------------------------------------------
The Requestors represent, among other things, the following:
Shares of the Fund will be issued by the Trust, an open-
end management investment company that is registered with the
Commission;
Creation Units will be continuously redeemable at the net
asset value (``NAV'') next determined after receipt of a request for
redemption by the Fund, and the secondary market price of the Shares
should not vary substantially from the NAV of such Shares;
Shares of the Fund will be listed and traded on BATS
Exchange Inc. or another exchange in accordance with exchange listing
standards that are, or will become, effective pursuant to Section 19(b)
of the Exchange Act (the ``Listing Exchange''); \2\
---------------------------------------------------------------------------
\2\ Further, the Letter states that should the Shares also trade
on a market pursuant to unlisted trading privileges, such trading
will be conducted pursuant to self-regulatory organization rules
that are or will become effective pursuant to Section 19(b) of the
Exchange Act.
---------------------------------------------------------------------------
The Fund seeks to track the performance of the Underlying
Index, all the components of which have publicly available last sale
trade information;
The Listing Exchange will disseminate continuously every
15 seconds throughout the trading day, through the facilities of the
Consolidated Tape Association, the market value of a Share;
The Listing Exchange, market data vendors or other
information providers will disseminate, every 15 seconds throughout the
trading day, a calculation of the intraday indicative value of a Share;
On each business day before the opening of business on the
Listing Exchange, the Fund will cause to be published through the
National Securities Clearing Corporation the list of the names and the
quantities of securities of the Fund's portfolio that will be
applicable that day to creation and redemption requests;
The arbitrage mechanism will be facilitated by the
transparency of the Fund's portfolio and the availability of the
intraday indicative value, the liquidity of securities held by the
Fund, the ability to acquire such securities, as well as arbitrageurs'
ability to create workable hedges;
The Fund will invest solely in liquid securities;
The Fund will invest in securities that will facilitate an
effective and efficient arbitrage mechanism and the ability to create
workable hedges;
All ETFs in which the Fund invests will either meet all
conditions set forth in one or more class relief letters, will have
received individual relief from the Commission, will be able to rely on
individual relief even though they are not named parties, or will be
able to rely
[[Page 66110]]
on applicable class relief for actively-managed ETFs;
The Trust believes that arbitrageurs are expected to take
advantage of price variations between the Fund's market price and its
NAV; and
A close alignment between the market price of Shares and
the Fund's NAV is expected.
Regulation M
While redeemable securities issued by an open-end management
investment company are excepted from the provisions of Rules 101 and
102 of Regulation M, the Requestors may not rely upon those exceptions
for the Shares.\3\ However, we find that it is appropriate in the
public interest and is consistent with the protection of investors to
grant a conditional exemption from Rules 101 and 102 to persons who may
be deemed to be participating in a distribution of Shares of the Fund
as described in more detail below.
---------------------------------------------------------------------------
\3\ While ETFs operate under exemptions from the definitions of
``open-end company'' under Section 5(a)(1) of the 1940 Act and
``redeemable security'' under Section 2(a)(32) of the 1940 Act, the
Fund and its securities do not meet those definitions.
---------------------------------------------------------------------------
Rule 101 of Regulation M
Generally, Rule 101 of Regulation M is an anti-manipulation rule
that, subject to certain exceptions, prohibits any ``distribution
participant'' and its ``affiliated purchasers'' from bidding for,
purchasing, or attempting to induce any person to bid for or purchase
any security that is the subject of a distribution until after the
applicable restricted period, except as specifically permitted in the
Rule. Rule 100 of Regulation M defines ``distribution'' to mean any
offering of securities that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of
special selling efforts and selling methods. The provisions of Rule 101
of Regulation M apply to underwriters, prospective underwriters,
brokers, dealers, or other persons who have agreed to participate or
are participating in a distribution of securities. The Shares are in a
continuous distribution and, as such, the restricted period in which
distribution participants and their affiliated purchasers are
prohibited from bidding for, purchasing, or attempting to induce others
to bid for or purchase extends indefinitely.
Based on the representations and facts presented in the Letter,
particularly that the Trust is a registered open-end management
investment company, that Creation Unit size aggregations of the Shares
of the Fund will be continuously redeemable at the NAV next determined
after receipt of a request for redemption by the Fund, and that a close
alignment between the market price of Shares and the Fund's NAV is
expected, the Commission finds that it is appropriate in the public
interest and consistent with the protection of investors to grant the
Trust an exemption under paragraph (d) of Rule 101 of Regulation M with
respect to the Fund, thus permitting persons participating in a
distribution of Shares of the Fund to bid for or purchase such Shares
during their participation in such distribution.\4\
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\4\ Additionally, we confirm the interpretation that a
redemption of Creation Unit size aggregations of Shares of the Fund
and the receipt of securities in exchange by a participant in a
distribution of Shares of the Fund would not constitute an ``attempt
to induce any person to bid for or purchase, a covered security
during the applicable restricted period'' within the meaning of Rule
101 of Regulation M and therefore would not violate that rule.
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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 Creation Unit size aggregations of the Shares
of the Fund will be continuously redeemable at the NAV next determined
after receipt of a request for redemption by the Fund, and that a close
alignment between the market price of Shares and the Fund's NAV is
expected, the Commission finds that it is appropriate in the public
interest and consistent with the protection of investors to grant the
Trust an exemption under paragraph (e) of Rule 102 of Regulation M with
respect to the Fund, thus permitting the Fund to redeem Shares of the
Fund during the continuous offering of such Shares.
Rule 10b-17
Rule 10b-17, with certain exceptions, requires an issuer of a class
of publicly traded securities to give notice of certain specified
actions (for example, a dividend distribution) relating to such class
of securities in accordance with Rule 10b-17(b). Based on the
representations and facts in the Letter, and subject to the conditions
below, the Commission finds that it is appropriate in the public
interest, and consistent with the protection of investors to grant the
Trust a conditional exemption from Rule 10b-17 because market
participants will receive timely notification of the existence and
timing of a pending distribution, and thus the concerns that the
Commission raised in adopting Rule 10b-17 will not be implicated.\5\
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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 Fund. This is because it is not possible for the Fund to
accurately project ten days in advance what dividend, if any, would
be paid on a particular record date. 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 and subject
to the conditions of this Order 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, based on the representations and facts presented in the
Letter, is exempt from the requirements of Rule 101 with respect to the
Fund, thus permitting persons who may be deemed to be participating in
a distribution of Shares of the Fund to bid for or purchase such Shares
during their participation in such distribution.
It is further ordered, pursuant to Rule 102(e) of Regulation M,
that the Trust, based on the representations and the facts presented in
the Letter, is exempt from the requirements of Rule 102 with respect to
the Fund, thus permitting the Fund to redeem Shares of the Fund during
the continuous offering of such Shares.
It is further ordered, pursuant to Rule 10b-17(b)(2), that the
Trust, based on the representations and the facts presented in the
Letter and subject to the conditions below, is exempt from the
requirements of Rule 10b-17 with respect to transactions in the shares
of the Fund.
This exemptive relief is subject to the following conditions:
The Trust will comply with Rule 10b-17 except for Rule
10b-17(b)(1)(v)(a) and (b); and
The Trust will provide the information required by Rule
10b-17(b)(1)(v)(a) and (b) to the Listing Exchange as soon as
practicable before trading begins on the ex-dividend date, but in no
event later than the time when the Listing Exchange last accepts
information relating to distributions on the day before the ex-dividend
date.
This exemptive relief is subject to modification or revocation at
any time the Commission determines that such action is necessary or
appropriate in furtherance of the purposes of the Exchange Act. This
exemption is based
[[Page 66111]]
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 exemptive relief shall discontinue
transactions involving the Shares of the Fund, 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 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), 10(b), and Rule10b-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\
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\6\ 17 CFR 200.30-3(a)(6) and (9).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-23043 Filed 9-23-16; 8:45 am]
BILLING CODE 8011-01-P
