Natixis ETF Trust II, et al., 5300-5302 [2021-00961]

Download as PDF 5300 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices All submissions should refer to File Number SR–PEARL–2020–38. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–PEARL–2020–38 and should be submitted on or before February 9, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00949 Filed 1–15–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 34171; 812–15157] Natixis ETF Trust II, et al. January 12, 2021. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application to amend a prior order for exemptive relief. khammond on DSKJM1Z7X2PROD with NOTICES AGENCY: Applicants request an order (‘‘Amended Order’’) SUMMARY OF APPLICATION: 26 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 that would amend a prior order to permit the Funds, as defined below, to use Creation Baskets (as defined below) that include instruments that are not included, or are included with different weightings, in the Fund’s proxy portfolio. APPLICANTS: Natixis Advisors, L.P. (‘‘Natixis’’), Natixis ETF Trust II (the ‘‘Trust’’) and NYSE Group, Inc. (‘‘NYSE’’). FILING DATES: The application was filed on August 31, 2020, and amended on November 16, 2020 and on December 8, 2020. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by emailing the Commission’s Secretary at SecretarysOffice@sec.gov and serving Applicants with a copy of the request by email. Hearing requests should be received by the Commission by 5:30 p.m. on February 8, 2021 and should be accompanied by proof of service on the Applicants, in the form of an affidavit, or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Investment Company Act of 1940 (‘‘Act’’), hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by emailing to the Commission’s Secretary at Secretarys-Office@sec.gov. ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicants: peter.shea@klgates.com. FOR FURTHER INFORMATION CONTACT: Marc Mehrespand, Senior Counsel; Trace Rakestraw, Branch Chief, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. I. Introduction 1. On December 10, 2019, the Commission issued an order (‘‘Prior Order’’) 1 under section 6(c) of the Act 1 See Natixis ETF Trust II, et al., Investment Company Act Release No. 33684 (Nov. 14, 2019) (notice) and Investment Company Act Release No. 33711 (Dec. 10, 2019) (order). Except as specifically noted in the application, all representations and PO 00000 Frm 00171 Fmt 4703 Sfmt 4703 for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.2 The Prior Order permitted Applicants to introduce a novel type of actively-managed exchange-traded fund (‘‘ETF’’) that is not required to disclose its portfolio holdings on a daily basis (each, a ‘‘Fund’’). Rather, pursuant to the Prior Order, each Business Day 3 a Fund publishes a basket of securities and cash that, while different from the Fund’s portfolio, is designed to closely track its daily performance (the ‘‘Proxy Portfolio’’). 2. Pursuant to the Prior Order, a Fund sells and redeems its shares (‘‘Shares’’) only in Creation Units and generally on an in-kind basis. Purchasers are required to purchase Creation Units by making a deposit of Deposit Instruments and shareholders redeeming their Shares receive a transfer of Redemption Instruments.4 Under the Prior Order, the names and quantities of the instruments that constitute the Deposit Instruments and the Redemption Instruments for a Fund (collectively, the ‘‘Creation Basket’’) are the same as the Fund’s Proxy Portfolio, except to the extent purchases and redemptions are made entirely or in part on a cash basis. 3. Applicants now seek to amend the Prior Order to, in effect, give the Funds the same flexibility with respect to Creation Basket composition as afforded to ETFs relying on rule 6c–11.5 More conditions contained in the application previously submitted with the Commission (File No. 812– 14870), as amended and restated, and filed with the Commission on October 21, 2019 (the ‘‘Prior Application’’) remain applicable to the operation of the Funds and will apply to any Funds relying on the Amended Order. 2 The relief granted in the Prior Order under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the 1940 Act (the ‘‘Section 12(d)(1) Relief’’), and relief under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act relating to the Section 12(d)(1) Relief, will expire one year from the effective date of rule 12d1–4. See Fund of Funds Arrangements, Investment Company Act Rel. No. 10871 (Oct. 7, 2020), at III. 3 All capitalized terms not otherwise defined in this notice have the meanings ascribed to them in the Prior Application. 4 Deposit Instruments and Redemption Instruments may include cash and/or securities. 5 The Funds are not be able to operate in reliance on rule 6c–11 because they do not disclose their portfolio holdings on a daily basis as required by the rule. See rule 6c–11(c)(1)(i) (requiring an ETF to disclose prominently on its website, publicly available and free of charge, the portfolio holdings that will form the basis for each calculation of NAV per share). E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices specifically, Applicants have requested that the Funds be allowed to use Creation Baskets that include instruments that are not included, or are included with different weightings, in the Fund’s Proxy Portfolio. II. The Application khammond on DSKJM1Z7X2PROD with NOTICES A. Applicants’ Proposal 4. Upon amending the Prior Order, the names and quantities of the instruments that may constitute a Creation Basket will generally be the same as the Fund’s Proxy Portfolio, but a Fund may accept Creation Baskets that differ from the Proxy Portfolio. Each Business Day, before the open of trading on the Exchange where a Fund is listed, the Fund will publish on its website the composition of any Creation Basket exchanged with an authorized participant on the previous Business Day that differed from such Business Day’s Proxy Portfolio other than with respect to cash. 5. Applicants represent that, for portfolio management or other reasons, the Funds may determine that it is desirable to use Creation Baskets that differ from the Proxy Portfolio (beyond cash substitutions). For example, a Fund may want to use a Creation Basket that contains instruments that are not included in a Fund’s Proxy Portfolio if the Adviser or Sub-Adviser seeks to add an instrument to the Fund’s Actual Portfolio) without incurring transaction costs associated with the purchase of the instrument for cash. Similarly, if the Adviser or Sub-Adviser decides to sell an instrument from a Fund’s Actual Portfolio, the instrument may be included in a Creation Basket with the expectation that the Fund will deliver it in-kind during a redemption transaction. 6. The Funds will use the requested basket flexibility only in circumstances under which Applicants believe there will be no harm to the Funds or their shareholders, and in order to benefit the Funds and their shareholders by reducing costs, increasing efficiency and improving trading. 7. Pursuant to condition 10 herein, each Fund will adopt and implement written policies and procedures regarding the construction of its Creation Baskets in accordance with rule 6c–11 under the Act. For purposes of the requirement to comply with the policies and procedures provision in rule 6c–11, only Creation Baskets that differ from a Fund’s Proxy Portfolio will be treated as a ‘‘custom basket’’ under rule 6c–11(c)(3). 8. Furthermore, pursuant to condition 9 herein, each Fund will comply with VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 the recordkeeping requirements of rule 6c–11.6 For purposes of the requirement to comply with the recordkeeping provision in rule 6c–11, only Creation Baskets different from a Fund’s Proxy Portfolio will be treated as a ‘‘custom basket’’ under rule 6c–11(d)(2)(ii). B. Considerations Relating to the Requested Relief 9. Applicants represent that the ability to utilize a Creation Basket that includes instruments that are not included, or are included with different weightings, in a Fund’s Proxy Portfolio, or are included in different weightings, does not raise any new policy concerns about reverse engineering of a Fund’s portfolio, self-dealing or overreaching, or selective disclosure beyond those concerns addressed in connection with the Prior Order. 10. Reverse Engineering. Applicants acknowledge that, by using a Creation Basket that includes instruments that are not included in a Fund’s Proxy Portfolio, or are included in different percentages, and by publishing such Creation Basket on its website, the Fund would provide market participants with additional information about which instruments it adds or removes from the Fund’s Actual Portfolio. However, Applicants represent that they will operate the Funds in a manner designed to minimize the risk of reverse engineering and, for the reasons set forth in the application, believe successful front-running or free-riding is highly unlikely. 11. Self-Dealing or Overreaching. Applicants state that authorized participants and other market participants will not have the ability to disadvantage the Funds by manipulating or influencing the composition of Creation Baskets, including those that differ from the Proxy Portfolio. Like the basket and custom basket policies and procedures required of ETFs by rule 6c–11, the Funds will adopt and implement written policies and procedures that govern the construction of Creation Baskets and the process that will be used for the acceptance of Creation Baskets to safeguard the best interests of the Funds and their shareholders.7 6 Pursuant to condition 9, each Fund will also maintain and preserve a copy of the Proxy Portfolio published on the Fund’s website for each Business Day and a copy of each Creation Basket made available. 7 See Exchange-Traded Funds, Investment Company Act Release No. 33646 (Sept. 25, 2019) (‘‘ETF Adopting Release’’), at 80–94 (discussion of rule 6c–11 requirement for ETF policies and procedures concerning basket construction and acceptance and heightened policies and procedures for custom baskets). PO 00000 Frm 00172 Fmt 4703 Sfmt 4703 5301 12. Selective Disclosure. The Funds and each person acting on behalf of the Funds will continue to be required to comply with Regulation Fair Disclosure as if it applied to them (except that the exemptions provided in rule 100(b)(2)(iii) therein shall not apply). Applicants believe that the new Creation Basket flexibility being sought by the Applicants does not raise any new concerns about selective disclosure of non-public material information. First, a Fund’s use of, or conversations with authorized participants about, Creation Baskets that would result in such disclosure would effectively be limited by the Funds’ obligation to comply with Regulation Fair Disclosure. Second, as noted above, each Business Day, before the open of trading on the Exchange where a Fund is listed, the Fund will publish on its website the composition of any basket accepted by the Fund on the previous Business Day that differed from such Business Day’s Proxy Portfolio other than with respect to cash. III. Requested Exemptive Relief For the reasons stated above, Applicants believe that the Prior Order, as amended, continues to meet the relevant standards for relief pursuant to section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.8 IV. Applicants’ Conditions Applicants agree that the Amended Order granting the requested relief will be subject to all of the conditions in the Prior Order, except that condition 9 of the Prior Order is deleted in its entirety and replaced with the conditions 9–10 as follows: 9. Each Fund will comply with the recordkeeping requirements of rule 6c– 11 under the Act, as amended, except that for purposes of this condition, only Creation Baskets different from the Fund’s Proxy Portfolio will be treated as a ‘‘custom basket’’ under rule 6c– 11(d)(2)(ii). In addition, each Fund will maintain and preserve, for a period of not less than five years, in an easily accessible place, (i) a copy of the Proxy Portfolio published on the Fund’s website for each Business Day; and (ii) a copy of each Creation Basket made available. 8 See E:\FR\FM\19JAN1.SGM supra note 2. 19JAN1 5302 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices 10. Each Fund will adopt and implement written policies and procedures that govern the construction of Creation Baskets, as required under rule 6c–11(c)(3) under the Act, as amended, except that for purposes of this condition, only Creation Baskets different from the Fund’s Proxy Portfolio will be treated as a ‘‘Custom Basket’’. The Fund’s basket policies and procedures will be covered by the Fund’s compliance program and other requirements under rule 38a–1 under the Act, as amended. For the Commission, by the Division of Investment Management, pursuant to delegated authority. J. Matthew DeLesDernier, Assistant Secretary. ADDRESSES: The Commission: Secretarys-Office@ sec.gov. Applicants: anna.paglia@ invesco.com, paulita.pike@ ropesgray.com and edward.baer@ ropesgray.com. [FR Doc. 2021–00961 Filed 1–15–21; 8:45 am] FOR FURTHER INFORMATION CONTACT: BILLING CODE 8011–01–P Marc Mehrespand, Senior Counsel; Trace Rakestraw, Branch Chief, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SECURITIES AND EXCHANGE COMMISSION The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. SUPPLEMENTARY INFORMATION: [Investment Company Act Release No. 34170; 812–15182] Invesco Capital Management LLC, et al. January 12, 2021. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application to amend a prior order for exemptive relief. AGENCY: I. Introduction Applicants request an order (‘‘Amended Order’’) that would amend a prior order to permit the Funds, as defined below, to use Creation Baskets (as defined below) that include instruments that are not included, or are included with different weightings, in the Fund’s Substitute Basket (as defined below). APPLICANTS: Invesco Capital Management LLC, Invesco Actively Managed Exchange-Traded Fund Trust and Invesco Distributors, Inc. FILING DATES: The application was filed on December 1, 2020, and amended on December 7, 2020. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by emailing the Commission’s Secretary at SecretarysOffice@sec.gov and serving Applicants with a copy of the request by email. Hearing requests should be received by the Commission by 5:30 p.m. on February 8, 2021 and should be accompanied by proof of service on the Applicants, in the form of an affidavit, or, for lawyers, a certificate of service. SUMMARY OF APPLICATION: khammond on DSKJM1Z7X2PROD with NOTICES Pursuant to rule 0–5 under the Investment Company Act of 1940 (‘‘Act’’), hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by emailing to the Commission’s Secretary at Secretarys-Office@sec.gov. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 1. On December 2, 2020, the Commission issued an order (‘‘Prior Order’’) 1 under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act. The Prior Order permitted Applicants to introduce a novel type of actively-managed exchange-traded fund (‘‘ETF’’) that is not required to disclose its portfolio holdings on a daily basis (each, a ‘‘Fund’’). Rather, pursuant to the Prior Order, each Business Day 2 a Fund publishes a basket of securities and cash that, while different from the Fund’s portfolio, is designed to closely track its 1 See Invesco Capital Management LLC, et al., Investment Company Act Release No. 34087 (Nov. 6, 2020) (notice) and Investment Company Act Release No. 34127 (Dec. 2, 2020) (order). Except as specifically noted in the application, all representations and conditions contained in the application previously submitted with the Commission (File No. 812–15070), as amended and restated, and filed with the Commission on November 6, 2020 (the ‘‘Prior Application’’) remain applicable to the operation of the Funds and will apply to any Funds relying on the Amended Order. 2 All capitalized terms not otherwise defined in this notice have the meanings ascribed to them in the Prior Application. PO 00000 Frm 00173 Fmt 4703 Sfmt 4703 daily performance (the ‘‘Substitute Basket’’). 2. Pursuant to the Prior Order, a Fund sells and redeems its shares (‘‘Shares’’) only in Creation Units and generally on an in-kind basis. Purchasers are required to purchase Creation Units by making a deposit of Deposit Instruments and shareholders redeeming their Shares receive a transfer of Redemption Instruments.3 Under the Prior Order, the names and quantities of the instruments that constitute the Deposit Instruments and the Redemption Instruments for a Fund (collectively, the ‘‘Creation Basket’’) are the same as the Fund’s Substitute Basket, except to the extent purchases and redemptions are made entirely or in part on a cash basis. 3. Applicants now seek to amend the Prior Order to, in effect, give the Funds the same flexibility with respect to Creation Basket composition as afforded to ETFs relying on rule 6c–11.4 More specifically, Applicants have requested that the Funds be allowed to use Creation Baskets that include instruments that are not included, or are included with different weightings, in the Fund’s Substitute Basket. II. The Application A. Applicants’ Proposal 4. Upon amending the Prior Order, the names and quantities of the instruments that may constitute a Creation Basket will generally be the same as the Fund’s Substitute Basket, but a Fund may accept Creation Baskets that differ from the Substitute Basket. Each Business Day, before the open of trading on the Exchange where a Fund is listed, the Fund will publish on its website the composition of any Creation Basket exchanged with an authorized participant on the previous Business Day that differed from such Business Day’s Substitute Basket other than with respect to cash. 5. Applicants represent that, for portfolio management or other reasons, the Funds may determine that it is desirable to use Creation Baskets that differ from the Substitute Basket (beyond cash substitutions). For example, a Fund may want to use a Creation Basket that contains instruments that are not included in a Fund’s Substitute Basket if the Adviser 3 Deposit Instruments and Redemption Instruments may include cash and/or securities. 4 The Funds are not be able to operate in reliance on rule 6c–11 because they do not disclose their portfolio holdings on a daily basis as required by the rule. See rule 6c–11(c)(1)(i) (requiring an ETF to disclose prominently on its website, publicly available and free of charge, the portfolio holdings that will form the basis for each calculation of NAV per share). E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Notices]
[Pages 5300-5302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00961]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34171; 812-15157]


Natixis ETF Trust II, et al.

January 12, 2021.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application to amend a prior order for exemptive 
relief.

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Summary of Application:  Applicants request an order (``Amended 
Order'') that would amend a prior order to permit the Funds, as defined 
below, to use Creation Baskets (as defined below) that include 
instruments that are not included, or are included with different 
weightings, in the Fund's proxy portfolio.

Applicants:  Natixis Advisors, L.P. (``Natixis''), Natixis ETF Trust II 
(the ``Trust'') and NYSE Group, Inc. (``NYSE'').

Filing Dates:  The application was filed on August 31, 2020, and 
amended on November 16, 2020 and on December 8, 2020.

Hearing or Notification of Hearing:  An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by emailing the Commission's 
Secretary at [email protected] and serving Applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on February 8, 2021 and should be 
accompanied by proof of service on the Applicants, in the form of an 
affidavit, or, for lawyers, a certificate of service. Pursuant to rule 
0-5 under the Investment Company Act of 1940 (``Act''), hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by emailing to the 
Commission's Secretary at [email protected].

ADDRESSES: The Commission: [email protected]. Applicants: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Marc Mehrespand, Senior Counsel; Trace 
Rakestraw, Branch Chief, at (202) 551-6825 (Division of Investment 
Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or for an 
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.

I. Introduction

    1. On December 10, 2019, the Commission issued an order (``Prior 
Order'') \1\ under section 6(c) of the Act for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act.\2\ The Prior Order permitted 
Applicants to introduce a novel type of actively-managed exchange-
traded fund (``ETF'') that is not required to disclose its portfolio 
holdings on a daily basis (each, a ``Fund''). Rather, pursuant to the 
Prior Order, each Business Day \3\ a Fund publishes a basket of 
securities and cash that, while different from the Fund's portfolio, is 
designed to closely track its daily performance (the ``Proxy 
Portfolio'').
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    \1\ See Natixis ETF Trust II, et al., Investment Company Act 
Release No. 33684 (Nov. 14, 2019) (notice) and Investment Company 
Act Release No. 33711 (Dec. 10, 2019) (order). Except as 
specifically noted in the application, all representations and 
conditions contained in the application previously submitted with 
the Commission (File No. 812-14870), as amended and restated, and 
filed with the Commission on October 21, 2019 (the ``Prior 
Application'') remain applicable to the operation of the Funds and 
will apply to any Funds relying on the Amended Order.
    \2\ The relief granted in the Prior Order under section 
12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) 
and 12(d)(1)(B) of the 1940 Act (the ``Section 12(d)(1) Relief''), 
and relief under sections 6(c) and 17(b) of the Act for an exemption 
from sections 17(a)(1) and 17(a)(2) of the Act relating to the 
Section 12(d)(1) Relief, will expire one year from the effective 
date of rule 12d1-4. See Fund of Funds Arrangements, Investment 
Company Act Rel. No. 10871 (Oct. 7, 2020), at III.
    \3\ All capitalized terms not otherwise defined in this notice 
have the meanings ascribed to them in the Prior Application.
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    2. Pursuant to the Prior Order, a Fund sells and redeems its shares 
(``Shares'') only in Creation Units and generally on an in-kind basis. 
Purchasers are required to purchase Creation Units by making a deposit 
of Deposit Instruments and shareholders redeeming their Shares receive 
a transfer of Redemption Instruments.\4\ Under the Prior Order, the 
names and quantities of the instruments that constitute the Deposit 
Instruments and the Redemption Instruments for a Fund (collectively, 
the ``Creation Basket'') are the same as the Fund's Proxy Portfolio, 
except to the extent purchases and redemptions are made entirely or in 
part on a cash basis.
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    \4\ Deposit Instruments and Redemption Instruments may include 
cash and/or securities.
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    3. Applicants now seek to amend the Prior Order to, in effect, give 
the Funds the same flexibility with respect to Creation Basket 
composition as afforded to ETFs relying on rule 6c-11.\5\ More

[[Page 5301]]

specifically, Applicants have requested that the Funds be allowed to 
use Creation Baskets that include instruments that are not included, or 
are included with different weightings, in the Fund's Proxy Portfolio.
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    \5\ The Funds are not be able to operate in reliance on rule 6c-
11 because they do not disclose their portfolio holdings on a daily 
basis as required by the rule. See rule 6c-11(c)(1)(i) (requiring an 
ETF to disclose prominently on its website, publicly available and 
free of charge, the portfolio holdings that will form the basis for 
each calculation of NAV per share).
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II. The Application

A. Applicants' Proposal

    4. Upon amending the Prior Order, the names and quantities of the 
instruments that may constitute a Creation Basket will generally be the 
same as the Fund's Proxy Portfolio, but a Fund may accept Creation 
Baskets that differ from the Proxy Portfolio. Each Business Day, before 
the open of trading on the Exchange where a Fund is listed, the Fund 
will publish on its website the composition of any Creation Basket 
exchanged with an authorized participant on the previous Business Day 
that differed from such Business Day's Proxy Portfolio other than with 
respect to cash.
    5. Applicants represent that, for portfolio management or other 
reasons, the Funds may determine that it is desirable to use Creation 
Baskets that differ from the Proxy Portfolio (beyond cash 
substitutions). For example, a Fund may want to use a Creation Basket 
that contains instruments that are not included in a Fund's Proxy 
Portfolio if the Adviser or Sub-Adviser seeks to add an instrument to 
the Fund's Actual Portfolio) without incurring transaction costs 
associated with the purchase of the instrument for cash. Similarly, if 
the Adviser or Sub-Adviser decides to sell an instrument from a Fund's 
Actual Portfolio, the instrument may be included in a Creation Basket 
with the expectation that the Fund will deliver it in-kind during a 
redemption transaction.
    6. The Funds will use the requested basket flexibility only in 
circumstances under which Applicants believe there will be no harm to 
the Funds or their shareholders, and in order to benefit the Funds and 
their shareholders by reducing costs, increasing efficiency and 
improving trading.
    7. Pursuant to condition 10 herein, each Fund will adopt and 
implement written policies and procedures regarding the construction of 
its Creation Baskets in accordance with rule 6c-11 under the Act. For 
purposes of the requirement to comply with the policies and procedures 
provision in rule 6c-11, only Creation Baskets that differ from a 
Fund's Proxy Portfolio will be treated as a ``custom basket'' under 
rule 6c-11(c)(3).
    8. Furthermore, pursuant to condition 9 herein, each Fund will 
comply with the recordkeeping requirements of rule 6c-11.\6\ For 
purposes of the requirement to comply with the recordkeeping provision 
in rule 6c-11, only Creation Baskets different from a Fund's Proxy 
Portfolio will be treated as a ``custom basket'' under rule 6c-
11(d)(2)(ii).
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    \6\ Pursuant to condition 9, each Fund will also maintain and 
preserve a copy of the Proxy Portfolio published on the Fund's 
website for each Business Day and a copy of each Creation Basket 
made available.
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B. Considerations Relating to the Requested Relief

    9. Applicants represent that the ability to utilize a Creation 
Basket that includes instruments that are not included, or are included 
with different weightings, in a Fund's Proxy Portfolio, or are included 
in different weightings, does not raise any new policy concerns about 
reverse engineering of a Fund's portfolio, self-dealing or 
overreaching, or selective disclosure beyond those concerns addressed 
in connection with the Prior Order.
    10. Reverse Engineering. Applicants acknowledge that, by using a 
Creation Basket that includes instruments that are not included in a 
Fund's Proxy Portfolio, or are included in different percentages, and 
by publishing such Creation Basket on its website, the Fund would 
provide market participants with additional information about which 
instruments it adds or removes from the Fund's Actual Portfolio. 
However, Applicants represent that they will operate the Funds in a 
manner designed to minimize the risk of reverse engineering and, for 
the reasons set forth in the application, believe successful front-
running or free-riding is highly unlikely.
    11. Self-Dealing or Overreaching. Applicants state that authorized 
participants and other market participants will not have the ability to 
disadvantage the Funds by manipulating or influencing the composition 
of Creation Baskets, including those that differ from the Proxy 
Portfolio. Like the basket and custom basket policies and procedures 
required of ETFs by rule 6c-11, the Funds will adopt and implement 
written policies and procedures that govern the construction of 
Creation Baskets and the process that will be used for the acceptance 
of Creation Baskets to safeguard the best interests of the Funds and 
their shareholders.\7\
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    \7\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33646 (Sept. 25, 2019) (``ETF Adopting Release''), at 80-94 
(discussion of rule 6c-11 requirement for ETF policies and 
procedures concerning basket construction and acceptance and 
heightened policies and procedures for custom baskets).
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    12. Selective Disclosure. The Funds and each person acting on 
behalf of the Funds will continue to be required to comply with 
Regulation Fair Disclosure as if it applied to them (except that the 
exemptions provided in rule 100(b)(2)(iii) therein shall not apply). 
Applicants believe that the new Creation Basket flexibility being 
sought by the Applicants does not raise any new concerns about 
selective disclosure of non-public material information. First, a 
Fund's use of, or conversations with authorized participants about, 
Creation Baskets that would result in such disclosure would effectively 
be limited by the Funds' obligation to comply with Regulation Fair 
Disclosure. Second, as noted above, each Business Day, before the open 
of trading on the Exchange where a Fund is listed, the Fund will 
publish on its website the composition of any basket accepted by the 
Fund on the previous Business Day that differed from such Business 
Day's Proxy Portfolio other than with respect to cash.

III. Requested Exemptive Relief

    For the reasons stated above, Applicants believe that the Prior 
Order, as amended, continues to meet the relevant standards for relief 
pursuant to section 6(c) of the Act for an exemption from sections 
2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the 
Act, and under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and 17(a)(2) of the Act, and under section 
12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act.\8\
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    \8\ See supra note 2.
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IV. Applicants' Conditions

    Applicants agree that the Amended Order granting the requested 
relief will be subject to all of the conditions in the Prior Order, 
except that condition 9 of the Prior Order is deleted in its entirety 
and replaced with the conditions 9-10 as follows:
    9. Each Fund will comply with the recordkeeping requirements of 
rule 6c-11 under the Act, as amended, except that for purposes of this 
condition, only Creation Baskets different from the Fund's Proxy 
Portfolio will be treated as a ``custom basket'' under rule 6c-
11(d)(2)(ii). In addition, each Fund will maintain and preserve, for a 
period of not less than five years, in an easily accessible place, (i) 
a copy of the Proxy Portfolio published on the Fund's website for each 
Business Day; and (ii) a copy of each Creation Basket made available.

[[Page 5302]]

    10. Each Fund will adopt and implement written policies and 
procedures that govern the construction of Creation Baskets, as 
required under rule 6c-11(c)(3) under the Act, as amended, except that 
for purposes of this condition, only Creation Baskets different from 
the Fund's Proxy Portfolio will be treated as a ``Custom Basket''. The 
Fund's basket policies and procedures will be covered by the Fund's 
compliance program and other requirements under rule 38a-1 under the 
Act, as amended.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00961 Filed 1-15-21; 8:45 am]
BILLING CODE 8011-01-P
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