Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to Premise Capital Frontier Advantage Diversified Tactical ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M, 75865-75867 [2016-26299]
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Federal Register / Vol. 81, No. 211 / Tuesday, November 1, 2016 / Notices
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2016–141 and should be
submitted on or before November 22,
2016
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Brent J. Fields,
Secretary.
[FR Doc. 2016–26301 Filed 10–31–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79165; File Nos. SR–DTC–
2016–007; SR–FICC–2016–005; SR–NSCC–
2016–003]
Self-Regulatory Organizations; The
Depository Trust Company; Fixed
Income Clearing Corporation; National
Securities Clearing Corporation;
Notice of Designation of a Longer
Period for Commission Action on
Proposed Rule Changes Relating to
Clearing Agency Investment Policy
asabaliauskas on DSK3SPTVN1PROD with NOTICES
October 26, 2016.
On August 25, 2016, The Depository
Trust Company (‘‘DTC’’), Fixed Income
Clearing Corporation (‘‘FICC’’), and
National Securities Clearing Corporation
(‘‘NSCC’’, and together with DTC and
FICC, the ‘‘Clearing Agencies’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule changes SR–DTC–2016–007, SR–
FICC–2016–005, and SR–NSCC–2016–
003 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
to adopt the Clearing Agency
Investment Policy, which governs the
investment of funds of the Clearing
Agencies. The proposed rule changes
were published for comment in the
Federal Register on September 13,
2016.3 To date, the Commission has not
received any comments on the proposed
rule changes.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78778
(September 7, 2016), 81 FR 62963 (September 13,
2016) (SR–DTC–2016–007; SR–FICC–2016–005;
SR–NSCC–2016–003).
4 15 U.S.C. 78s(b)(2).
1 15
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00:01 Nov 01, 2016
Jkt 241001
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for these
proposed rule changes is October 28,
2016. The Commission is extending this
45-day time period.
In order to provide the Commission
with sufficient time to consider the
proposed rule changes, the Commission
finds that it is appropriate to designate
a longer period within which to take
action on the proposed rule changes.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates December 12, 2016 as the
date by which the Commission shall
either approve, disapprove, or institute
proceedings to determine whether to
disapprove the proposed rule changes
(File Nos. SR–DTC–2016–007; SR–
FICC–2016–005; SR–NSCC–2016–003).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Brent J. Fields,
Secretary.
[FR Doc. 2016–26302 Filed 10–31–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79159; File No. TP 16–14]
Order Granting Limited Exemptions
From Exchange Act Rule 10b–17 and
Rules 101 and 102 of Regulation M to
Premise Capital Frontier Advantage
Diversified Tactical ETF Pursuant to
Exchange Act Rule 10b–17(b)(2) and
Rules 101(d) and 102(e) of Regulation
M
October 26, 2016.
By letter dated October 26, 2016 (the
‘‘Letter’’), as supplemented by
conversations with the staff of the
Division of Trading and Markets,
counsel for ETF Series Solutions (the
‘‘Trust’’), on behalf of the Trust, Premise
Capital Frontier Advantage Diversified
Tactical ETF (the ‘‘Fund’’), any national
securities exchange on or through which
shares of the Fund (‘‘Shares’’) are listed
and may subsequently trade, Quasar
Distributors, LLC (the ‘‘Distributor’’),
and persons 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
5 Id.
6 17
PO 00000
CFR 200.30–3(a)(31).
Frm 00061
Fmt 4703
Sfmt 4703
75865
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 Premise
Capital Frontier Advantage Diversified
Tactical Index (the ‘‘Underlying
Index’’). The Underlying Index seeks to
provide exposure to major U.S. and nonU.S. equity and fixed income asset
classes.
The Fund will seek to track the
performance of its Underlying Index by
normally investing at least 80% of its
total assets in the ETFs that comprise
the Underlying Index.1 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
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
• All ETFs in which the Fund is
invested will 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
upon individual relief even though they
are not named parties, or will be able to
1 The remaining 20% of the Fund’s total assets
may be invested in securities (including other
underlying funds) not included in the Underlying
Index and in cash, money market instruments, or
funds that invest exclusively in money market
instruments, subject to applicable limitations under
the 1940 Act.
2 Further, Requestors represent in the Letter 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\01NON1.SGM
01NON1
asabaliauskas on DSK3SPTVN1PROD with NOTICES
75866
Federal Register / Vol. 81, No. 211 / Tuesday, November 1, 2016 / Notices
rely on applicable class relief for
actively-managed ETFs;
• At least 70% of the Fund is
comprised of component securities that
will 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
Fund;
• The Fund seeks to track the
performance of the Underlying Index,
all of the components of which will
have publicly available last sale trade
information;
• The intraday proxy value of the
Fund per share and the value of the
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 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 and other assets of the Fund’s
portfolio that will be applicable that day
to creation and redemption requests;
• 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;
• The Fund will invest in securities
that will facilitate an effective and
efficient arbitrage mechanism and the
ability to create workable hedges;
• 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 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
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00:01 Nov 01, 2016
Jkt 241001
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
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
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.
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
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
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
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.
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
E:\FR\FM\01NON1.SGM
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 211 / Tuesday, November 1, 2016 / Notices
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
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
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.
VerDate Sep<11>2014
00:01 Nov 01, 2016
Jkt 241001
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 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
Brent J. Fields,
Secretary.
[FR Doc. 2016–26299 Filed 10–31–16; 8:45 am]
BILLING CODE 8011–01–P
75867
and the Treasury Regulations
thereunder as they will apply to listed
options transactions. The proposed
amendments to OCC’s By-Laws and
Rules can be found on OCC’s public
Web site.4 All capitalized terms not
defined herein have the same meaning
as set forth in OCC’s By-Laws and
Rules.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79172; File No. SR–OCC–
2016–014]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Related to Compliance With Section
871(m) of the Internal Revenue Code
October 27, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
18, 2016, The Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by OCC. The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The purpose of this proposed rule
change is to amend OCC’s By-Laws and
Rules to address the implementation of
Section 871(m) of the Internal Revenue
Code of 1986, as amended (‘‘I.R.C.’’),3
6 17
CFR 200.30–3(a)(6) and (9).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 26 U.S.C. 871(m).
1 15
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
Background
OCC is proposing to modify its ByLaws and Rules to address the
application of I.R.C. Section 871(m)
(‘‘Section 871(m)’’) 6 to listed options
transactions commencing on January 1,
2017. The proposed modifications are
designed to ensure that OCC will not be
liable for U.S. withholding tax with
respect to certain options transactions
entered into by OCC’s Clearing Members
that are treated as non-U.S. persons for
federal income tax purposes.
Section 871(m), which was enacted in
2010, imposes a 30% withholding tax
on ‘‘dividend equivalent’’ payments that
are made or deemed to be made to nonU.S. persons with respect to certain
derivatives (such as total return swaps)
that reference equity of a U.S. issuer. In
enacting Section 871(m), Congress was
attempting to address the ability of
foreign persons to obtain the economics
of owning dividend-paying stock
through a derivative while avoiding the
withholding tax that would apply to
dividends paid on the stock if the
foreign person owned the stock
directly.7
In September 2015, the Treasury
Department adopted final regulations
(the ‘‘Final Section 871(m)
4 OCC’s By-Laws and Rules can be found on
OCC’s public Web site: https://optionsclearing.com/
about/publications/bylaws.jsp.
5 Id.
6 26 U.S.C. 871(m).
7 See 26 U.S.C. 871(a)(1)(A) (30% tax on
dividends paid to non-resident aliens).
E:\FR\FM\01NON1.SGM
01NON1
]]>Agencies
[Federal Register Volume 81, Number 211 (Tuesday, November 1, 2016)]
[Notices]
[Pages 75865-75867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26299]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79159; File No. TP 16-14]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to Premise Capital Frontier
Advantage Diversified Tactical ETF Pursuant to Exchange Act Rule 10b-
17(b)(2) and Rules 101(d) and 102(e) of Regulation M
October 26, 2016.
By letter dated October 26, 2016 (the ``Letter''), as supplemented
by conversations with the staff of the Division of Trading and Markets,
counsel for ETF Series Solutions (the ``Trust''), on behalf of the
Trust, Premise Capital Frontier Advantage Diversified Tactical ETF (the
``Fund''), any national securities exchange on or through which shares
of the Fund (``Shares'') are listed and may subsequently trade, Quasar
Distributors, LLC (the ``Distributor''), and persons 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 Premise
Capital Frontier Advantage Diversified Tactical Index (the ``Underlying
Index''). The Underlying Index seeks to provide exposure to major U.S.
and non-U.S. equity and fixed income asset classes.
The Fund will seek to track the performance of its Underlying Index
by normally investing at least 80% of its total assets in the ETFs that
comprise the Underlying Index.\1\ 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% of the Fund's total assets may be invested
in securities (including other underlying funds) not included in the
Underlying Index and in cash, money market instruments, or funds
that invest exclusively in money market instruments, subject to
applicable limitations under the 1940 Act.
---------------------------------------------------------------------------
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, Requestors represent in the Letter 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.
---------------------------------------------------------------------------
All ETFs in which the Fund is invested will 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
upon individual relief even though they are not named parties, or will
be able to
[[Page 75866]]
rely on applicable class relief for actively-managed ETFs;
At least 70% of the Fund is comprised of component
securities that will 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 Fund;
The Fund seeks to track the performance of the Underlying
Index, all of the components of which will have publicly available last
sale trade information;
The intraday proxy value of the Fund per share and the
value of the 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
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 and other assets of the Fund's portfolio that
will be applicable that day to creation and redemption requests;
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;
The Fund will invest in securities that will facilitate an
effective and efficient arbitrage mechanism and the ability to create
workable hedges;
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 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.
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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 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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[[Page 75867]]
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 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 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\
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\6\ 17 CFR 200.30-3(a)(6) and (9).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26299 Filed 10-31-16; 8:45 am]
BILLING CODE 8011-01-P
