Precidian ETF Trust II, et al., 91822-91824 [2024-27015]

Download as PDF 91822 Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: [FR Doc. 2024–27016 Filed 11–19–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSE–2024–72 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. khammond on DSK9W7S144PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.44 Vanessa A. Countryman, Secretary. All submissions should refer to file number SR–NYSE–2024–72. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSE–2024–72 and should be submitted on or before December 11, 2024. [Investment Company Act Release No. 35386; 812–15179–01] Precidian ETF Trust II, et al. November 14, 2024. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application to amend a prior order for exemptive relief. AGENCY: Summary of Application: Applicants request an order (‘‘Amended Order’’) that would amend a prior order to permit a Fund to use Creation Baskets (as defined below) that include instruments that are not included, or that are included with different weightings, in the Fund’s Pro Rata Basket (as defined below). Applicants: Precidian ETF Trust II (‘‘Trust’’), Precidian Funds LLC, and Foreside Fund Services, LLC (collectively, the ‘‘Applicants’’). Filing Dates: The application was filed on November 24, 2020, and amended on January 14, 2022, March 28, 2022, September 2, 2022, December 13, 2023, April 15, 2024, and November 8, 2024. 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, if an email address is listed for the relevant Applicant below, or personally or by mail, if a physical address is listed for the relevant Applicant below. Hearing requests should be received by the Commission by 5:30 p.m. on December 9, 2024 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. 44 17 VerDate Sep<11>2014 18:39 Nov 19, 2024 Jkt 265001 PO 00000 CFR 200.30–3(a)(12). Frm 00151 Fmt 4703 Sfmt 4703 Persons who wish to be notified of a hearing may request notification by emailing to the Commission’s Secretary. ADDRESSES: The Commission: Secretarys-Office@ sec.gov. Applicants: john.mcguire@ morganlewis.com. FOR FURTHER INFORMATION CONTACT: Kris Easter Guidroz, Senior Counsel; Trace Rakestraw, Senior Special Counsel, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: For Applicants’ representations, legal analysis, and conditions, please refer to Applicants’ sixth amended and restated application, dated November 8, 2024, which may be obtained via the Commission’s website by searching for the file number at the top of this document, or for an Applicant using the Company name search field on the SEC’s EDGAR system. The SEC’s EDGAR system may be searched at https://www.sec.gov/edgar/searchedgar/ legacy/companysearch.html. You may also call the SEC’s Public Reference Room at (202) 551–8090. I. Introduction 1. On May 20, 2019, the Commission issued an order 1 under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), and 22(d) 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 (the ‘‘Prior Order’’).2 The Prior Order permits Applicants to operate actively-managed exchange-traded funds (‘‘ETFs’’) that are not required to disclose their full portfolio holdings on a daily basis (each, a ‘‘Fund’’). Rather, pursuant to the Prior Order, each Fund disseminates a ‘‘verified intraday indicative value,’’ or 1 See Precidian ETFs Trust, et al., Investment Company Act Release No. 33440 (April 8, 2019) (notice) and Investment Company Act Release No. 33477 (May. 20, 2019) (order). Except as specifically noted in the application for the Amended Order, all representations and conditions contained in the application first submitted with the Commission (File No. 812–14405), as amended and restated, and filed with the Commission on April 4, 2019 (the ‘‘First Application’’), remain applicable to the operation of the Funds and will apply to any Funds relying on the Amended Order. 2 The relief granted 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 (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, expired on January 19, 2022. See Fund of Funds Arrangements, Investment Company Act Rel. No. 10871 (Oct. 7, 2020), at III. E:\FR\FM\20NON1.SGM 20NON1 Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices ‘‘VIIV,’’ reflecting the value of its portfolio holdings, calculated every second throughout the trading day. 2. Shares of each Fund are purchased and redeemed only in Creation Units and generally on an in-kind basis. Purchasers acquire Creation Units by transferring to the Fund Deposit Instruments 3 and shareholders redeeming their Shares receive from the Fund Redemption Instruments (each, a ‘‘Creation Basket’’). Under the Prior Order, the names and quantities of the instruments that constitute a Fund’s Creation Basket must be a pro rata slice of the Fund’s actual portfolio except for certain cash substitutions (‘‘Pro Rata Basket’’). 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–1 under the Act.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 but in different weightings, in the Fund’s Pro Rata Basket. As part of Applicants’ request, the Funds would comply with additional requirements, including disclosing additional information. II. The Application khammond on DSK9W7S144PROD with NOTICES A. Applicants’ Proposal 4. Upon amending the Prior Order, each Fund would continue to offer its Pro Rata Basket every Business Day but could also offer a Creation Basket that differs from the Pro Rata Basket to provide Authorized Participants the option to transact in either basket. Each Business Day, before the open of trading on the Exchange where the 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 Pro Rata Basket other than solely with respect to cash substitutions. 5. Applicants represent that a Fund may determine that it is desirable to use Creation Baskets that differ from a Pro Rata Basket. For example, a Fund may use a Creation Basket that contains one or more instruments that are not 3 All capitalized terms not otherwise defined in this notice have the meanings ascribed to them in the First Application. 4 The Funds are not 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 the Fund’s calculation of per share NAV). VerDate Sep<11>2014 18:39 Nov 19, 2024 Jkt 265001 included in its Pro Rata Basket if the Adviser or Sub-Adviser seeks to add an instrument to the Fund’s 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 portfolio, the Fund may include the instrument 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 in 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. To ensure that there is effective arbitrage on Business Days when the Adviser determines a Fund should use a Creation Basket that differs from its Pro Rata Basket, the Adviser will cause the Fund to disclose on its website that Business Day, before the opening of regular trading on the primary listing Exchange of the Fund’s Shares: (i) that the Fund is accepting Creation Baskets that differ from the Pro Rata Basket, (ii) a basket of securities and cash that is designed to closely track the daily performance of the Fund (an ‘‘Optimized Basket’’),5 and (iii) an Optimized Basket Overlap metric that measures the overlap between the Optimized Basket and the Fund’s actual portfolio. 7. For at least the first three years after a Fund begins using Creation Baskets that differ from its Pro Rata Basket, the Adviser will promptly call a meeting of the Board, and the Board will promptly meet to consider recommendations for appropriate remedial measures presented by the Adviser, if the tracking error of the Optimized Basket exceeds 1% (i.e., the difference, in percentage terms, between the NAV per share of the Optimized Basket and that of the actual portfolio at the end of a trading day). 8. Pursuant to condition 6, each Fund will maintain and preserve a copy of each Optimized Basket published on the Fund’s website and a copy of each Creation Basket made available. 9. In addition, pursuant to conditions 6 and 10, each Fund will comply with the recordkeeping requirements of rule 6c–11 and will adopt and implement written policies and procedures that govern the construction of Creation Baskets as required under rule 6c–11 except that only Creation Baskets 5 A Fund’s Optimized Basket will be comprised of: (i) portfolio holdings; (ii) other securities that the Fund can purchase, including U.S. listed ETFs; and (iii) cash and cash equivalents. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 91823 different from a Fund’s Pro Rata Basket will be treated as a ‘‘custom basket’’ under subsections (d)(2)(ii) and (c)(3) of rule 6c–11. B. Considerations relating to the Requested Relief 10. Applicants represent that the ability to use a Creation Basket that includes instruments that are not included, or are included with different weightings, in a Fund’s Pro Rata Basket, 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. Further, the Fund will disclose additional information, as noted in paragraph 6 above, to ensure that there is effective arbitrage on Business Days when the Adviser determines a Fund should use a Creation Basket that differs from its Pro Rata Basket. 11. Reverse Engineering. Applicants acknowledge that, by using a Creation Basket that includes instruments that are not included in a Fund’s Pro Rata Basket, 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 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 frontrunning or free-riding is highly unlikely. 12. Self-Dealing or Overreaching. Applicants state their belief 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 a Fund’s Pro Rata Basket. 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.6 13. Selective Disclosure. The Funds and each person acting on behalf of the 6 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). E:\FR\FM\20NON1.SGM 20NON1 91824 Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices Funds must continue 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 creation basket flexibility they are seeking does not raise any new concerns about selective disclosure of material nonpublic 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, 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 Pro Rata Basket. khammond on DSK9W7S144PROD with NOTICES II. Requested Exemptive Relief Applicants believe that the Prior Order 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), and 22(d) 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.7 III. Applicants’ Conditions: Applicants agree that any Order of the Commission granting the requested relief will be subject to all of the conditions in the Prior Order, except condition 2 and condition 6 which are replaced with new conditions 2 and 6 below, as well as new condition 10: 2. The website for the Trust, which will be publicly accessible at no charge, will contain, on a per Share basis for each Fund, the prior Business Day’s NAV and market closing price or Bid/ Ask Price of the Shares, a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV, and any other information regarding premiums and discounts as may be required for other ETFs under Rule 6c–11 under the 1940 Act. The website will also disclose the median bid-ask spread for each Fund’s most recent fiscal year based on the National Best Bid and Offer at the time of calculation of NAV (or such other spread measurement as may be required for other ETFs under Rule 6c–11 under the 1940 Act). On each applicable Business Day, when accepting orders involving a Creation Basket that differs from the Fund’s Pro Rata Basket, each Fund will publish on its website before 7 See supra note 2. VerDate Sep<11>2014 18:39 Nov 19, 2024 Jkt 265001 the opening of regular trading on the primary listing Exchange of the Fund’s Shares an Optimized Basket and Optimized Basket Overlap. 6. Each Fund will comply with the recordkeeping requirements of Rule 6c– 11 under the Act, except that for purposes of this condition, only Creation Baskets different from the Fund’s Pro Rata Basket 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 any Optimized Basket published on the Fund’s website for each Business Day; and (ii) a copy of each Creation Basket made available on a given day. In addition, each Fund will maintain and preserve, for a period of not less than five years, in an easily accessible place, all written agreements (or copies thereof) between the Fund and each AP Representative related to the AP Representative’s role as such. 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, except that for purposes of this condition, any Creation Basket different from the Fund’s Pro Rata Basket 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. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Vanessa A. Countryman, Secretary. [FR Doc. 2024–27015 Filed 11–19–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–451, OMB Control No. 3235–0509] Submission for OMB Review; Comment Request; Extension: Rule 301 of Regulation ATS Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget PO 00000 Frm 00153 Fmt 4703 Sfmt 9990 (‘‘OMB’’) a request for approval of extension of the previously approved collection of information provided for in Rule 301 of Regulation ATS (17 CFR 242.301) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (‘‘Exchange Act’’). Regulation ATS provides a regulatory structure for alternative trading systems. Rule 301 of Regulation ATS contains certain record keeping and reporting requirements, as well as additional obligations that apply only to alternative trading systems with significant volume. The Rule requires all alternative trading systems that wish to comply with Regulation ATS to file an initial operation report on Form ATS. Alternative trading systems are also required to supply updates on Form ATS to the Commission describing material changes to the system, file quarterly transaction reports on Form ATS–R, and file cessation of operations reports on Form ATS. An alternative trading system with significant volume is required to comply with requirements for fair access and systems capacity, integrity, and security. The Commission staff estimates that entities subject to the requirements of Rule 301 will spend a total of approximately 2,983 hours a year to comply with the Rule. Regulation ATS requires ATSs to preserve any records, for at least three years, made in the process of complying with the system’s capacity, integrity and security requirements. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Written comments and recommendations for the proposed information collection should be sent by December 20, 2024 to (i) www.reginfo.gov/public/do/PRAMain and (ii) Austin Gerig, Director/Chief Data Officer, Securities and Exchange Commission, c/o Tanya Ruttenberg, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@ sec.gov. Dated: November 15, 2024. Vanessa A. Countryman. Secretary. [FR Doc. 2024–27119 Filed 11–19–24; 8:45 am] BILLING CODE 8011–01–P E:\FR\FM\20NON1.SGM 20NON1

Agencies

[Federal Register Volume 89, Number 224 (Wednesday, November 20, 2024)]
[Notices]
[Pages 91822-91824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27015]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 35386; 812-15179-01]


Precidian ETF Trust II, et al.

November 14, 2024.
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 a Fund to use 
Creation Baskets (as defined below) that include instruments that are 
not included, or that are included with different weightings, in the 
Fund's Pro Rata Basket (as defined below).
    Applicants: Precidian ETF Trust II (``Trust''), Precidian Funds 
LLC, and Foreside Fund Services, LLC (collectively, the 
``Applicants'').
    Filing Dates: The application was filed on November 24, 2020, and 
amended on January 14, 2022, March 28, 2022, September 2, 2022, 
December 13, 2023, April 15, 2024, and November 8, 2024.
    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, if an email address is listed for the 
relevant Applicant below, or personally or by mail, if a physical 
address is listed for the relevant Applicant below. Hearing requests 
should be received by the Commission by 5:30 p.m. on December 9, 2024 
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.

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

FOR FURTHER INFORMATION CONTACT: Kris Easter Guidroz, Senior Counsel; 
Trace Rakestraw, Senior Special Counsel, at (202) 551-6825 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: For Applicants' representations, legal 
analysis, and conditions, please refer to Applicants' sixth amended and 
restated application, dated November 8, 2024, which may be obtained via 
the Commission's website by searching for the file number at the top of 
this document, or for an Applicant using the Company name search field 
on the SEC's EDGAR system. The SEC's EDGAR system may be searched at 
https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html. You 
may also call the SEC's Public Reference Room at (202) 551-8090.

I. Introduction

    1. On May 20, 2019, the Commission issued an order \1\ under 
section 6(c) of the Act for an exemption from sections 2(a)(32), 
5(a)(1), and 22(d) 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 (the ``Prior Order'').\2\ The Prior Order permits Applicants to 
operate actively-managed exchange-traded funds (``ETFs'') that are not 
required to disclose their full portfolio holdings on a daily basis 
(each, a ``Fund''). Rather, pursuant to the Prior Order, each Fund 
disseminates a ``verified intraday indicative value,'' or

[[Page 91823]]

``VIIV,'' reflecting the value of its portfolio holdings, calculated 
every second throughout the trading day.
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    \1\ See Precidian ETFs Trust, et al., Investment Company Act 
Release No. 33440 (April 8, 2019) (notice) and Investment Company 
Act Release No. 33477 (May. 20, 2019) (order). Except as 
specifically noted in the application for the Amended Order, all 
representations and conditions contained in the application first 
submitted with the Commission (File No. 812-14405), as amended and 
restated, and filed with the Commission on April 4, 2019 (the 
``First Application''), remain applicable to the operation of the 
Funds and will apply to any Funds relying on the Amended Order.
    \2\ The relief granted 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 
(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, expired 
on January 19, 2022. See Fund of Funds Arrangements, Investment 
Company Act Rel. No. 10871 (Oct. 7, 2020), at III.
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    2. Shares of each Fund are purchased and redeemed only in Creation 
Units and generally on an in-kind basis. Purchasers acquire Creation 
Units by transferring to the Fund Deposit Instruments \3\ and 
shareholders redeeming their Shares receive from the Fund Redemption 
Instruments (each, a ``Creation Basket''). Under the Prior Order, the 
names and quantities of the instruments that constitute a Fund's 
Creation Basket must be a pro rata slice of the Fund's actual portfolio 
except for certain cash substitutions (``Pro Rata Basket'').
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    \3\ All capitalized terms not otherwise defined in this notice 
have the meanings ascribed to them in the First Application.
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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-1 under the Act.\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 but in different weightings, in the Fund's Pro Rata 
Basket. As part of Applicants' request, the Funds would comply with 
additional requirements, including disclosing additional information.
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    \4\ The Funds are not 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 
the Fund's calculation of per share NAV).
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II. The Application

A. Applicants' Proposal

    4. Upon amending the Prior Order, each Fund would continue to offer 
its Pro Rata Basket every Business Day but could also offer a Creation 
Basket that differs from the Pro Rata Basket to provide Authorized 
Participants the option to transact in either basket. Each Business 
Day, before the open of trading on the Exchange where the 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 Pro Rata 
Basket other than solely with respect to cash substitutions.
    5. Applicants represent that a Fund may determine that it is 
desirable to use Creation Baskets that differ from a Pro Rata Basket. 
For example, a Fund may use a Creation Basket that contains one or more 
instruments that are not included in its Pro Rata Basket if the Adviser 
or Sub-Adviser seeks to add an instrument to the Fund's 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 portfolio, the Fund may include the 
instrument 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 in 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. To ensure that there is effective arbitrage on Business Days 
when the Adviser determines a Fund should use a Creation Basket that 
differs from its Pro Rata Basket, the Adviser will cause the Fund to 
disclose on its website that Business Day, before the opening of 
regular trading on the primary listing Exchange of the Fund's Shares: 
(i) that the Fund is accepting Creation Baskets that differ from the 
Pro Rata Basket, (ii) a basket of securities and cash that is designed 
to closely track the daily performance of the Fund (an ``Optimized 
Basket''),\5\ and (iii) an Optimized Basket Overlap metric that 
measures the overlap between the Optimized Basket and the Fund's actual 
portfolio.
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    \5\ A Fund's Optimized Basket will be comprised of: (i) 
portfolio holdings; (ii) other securities that the Fund can 
purchase, including U.S. listed ETFs; and (iii) cash and cash 
equivalents.
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    7. For at least the first three years after a Fund begins using 
Creation Baskets that differ from its Pro Rata Basket, the Adviser will 
promptly call a meeting of the Board, and the Board will promptly meet 
to consider recommendations for appropriate remedial measures presented 
by the Adviser, if the tracking error of the Optimized Basket exceeds 
1% (i.e., the difference, in percentage terms, between the NAV per 
share of the Optimized Basket and that of the actual portfolio at the 
end of a trading day).
    8. Pursuant to condition 6, each Fund will maintain and preserve a 
copy of each Optimized Basket published on the Fund's website and a 
copy of each Creation Basket made available.
    9. In addition, pursuant to conditions 6 and 10, each Fund will 
comply with the recordkeeping requirements of rule 6c-11 and will adopt 
and implement written policies and procedures that govern the 
construction of Creation Baskets as required under rule 6c-11 except 
that only Creation Baskets different from a Fund's Pro Rata Basket will 
be treated as a ``custom basket'' under subsections (d)(2)(ii) and 
(c)(3) of rule 6c-11.

B. Considerations relating to the Requested Relief

    10. Applicants represent that the ability to use a Creation Basket 
that includes instruments that are not included, or are included with 
different weightings, in a Fund's Pro Rata Basket, 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. Further, the 
Fund will disclose additional information, as noted in paragraph 6 
above, to ensure that there is effective arbitrage on Business Days 
when the Adviser determines a Fund should use a Creation Basket that 
differs from its Pro Rata Basket.
    11. Reverse Engineering. Applicants acknowledge that, by using a 
Creation Basket that includes instruments that are not included in a 
Fund's Pro Rata Basket, 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 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.
    12. Self-Dealing or Overreaching. Applicants state their belief 
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 a Fund's Pro Rata Basket. 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.\6\
---------------------------------------------------------------------------

    \6\ 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).
---------------------------------------------------------------------------

    13. Selective Disclosure. The Funds and each person acting on 
behalf of the

[[Page 91824]]

Funds must continue 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 
creation basket flexibility they are seeking does not raise any new 
concerns about selective disclosure of material non-public 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, 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 Pro Rata Basket.

II. Requested Exemptive Relief

    Applicants believe that the Prior Order 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), and 22(d) 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.\7\
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    \7\ See supra note 2.
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III. Applicants' Conditions:

    Applicants agree that any Order of the Commission granting the 
requested relief will be subject to all of the conditions in the Prior 
Order, except condition 2 and condition 6 which are replaced with new 
conditions 2 and 6 below, as well as new condition 10:
    2. The website for the Trust, which will be publicly accessible at 
no charge, will contain, on a per Share basis for each Fund, the prior 
Business Day's NAV and market closing price or Bid/Ask Price of the 
Shares, a calculation of the premium or discount of the market closing 
price or Bid/Ask Price against such NAV, and any other information 
regarding premiums and discounts as may be required for other ETFs 
under Rule 6c-11 under the 1940 Act. The website will also disclose the 
median bid-ask spread for each Fund's most recent fiscal year based on 
the National Best Bid and Offer at the time of calculation of NAV (or 
such other spread measurement as may be required for other ETFs under 
Rule 6c-11 under the 1940 Act). On each applicable Business Day, when 
accepting orders involving a Creation Basket that differs from the 
Fund's Pro Rata Basket, each Fund will publish on its website before 
the opening of regular trading on the primary listing Exchange of the 
Fund's Shares an Optimized Basket and Optimized Basket Overlap.
    6. Each Fund will comply with the recordkeeping requirements of 
Rule 6c-11 under the Act, except that for purposes of this condition, 
only Creation Baskets different from the Fund's Pro Rata Basket 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 any Optimized 
Basket published on the Fund's website for each Business Day; and (ii) 
a copy of each Creation Basket made available on a given day. In 
addition, each Fund will maintain and preserve, for a period of not 
less than five years, in an easily accessible place, all written 
agreements (or copies thereof) between the Fund and each AP 
Representative related to the AP Representative's role as such.
    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, except that for purposes 
of this condition, any Creation Basket different from the Fund's Pro 
Rata Basket 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-27015 Filed 11-19-24; 8:45 am]
BILLING CODE 8011-01-P
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