81 FR 10939 - Order Granting Limited Exemptions From Exchange Act Section 11(d), Exchange Act Rules 10b-10, 10b-17, and 11d1-2, and Rules 101 and 102 of Regulation M to Eaton Vance ETMF Trust, Eaton Vance NextShares Trust II, Eaton Vance Balanced NextShares, and Other Exchange-Traded Managed Funds Pursuant to Exchange Act Section 36, Exchange Act Rules 10b-10(f) and 10b-17(b)(2), and Rules 101(d) and 102(e) of Regulation M
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 41 (March 2, 2016)
Federal Register Volume 81, Issue 41 (March 2, 2016)
| Page Range | 10939-10943 | |
| FR Document | 2016-04527 |
[Federal Register Volume 81, Number 41 (Wednesday, March 2, 2016)] [Notices] [Pages 10939-10943] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-04527] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77240; File No. TP 15-06] Order Granting Limited Exemptions From Exchange Act Section 11(d), Exchange Act Rules 10b-10, 10b-17, and 11d1-2, and Rules 101 and 102 of Regulation M to Eaton Vance ETMF Trust, Eaton Vance NextShares Trust II, Eaton Vance Balanced NextShares, and Other Exchange-Traded Managed Funds Pursuant to Exchange Act Section 36, Exchange Act Rules 10b-10(f) and 10b-17(b)(2), and Rules 101(d) and 102(e) of Regulation M February 25, 2016. By letter dated February 25, 2016 (the ``Letter''), as supplemented by conversations with the staff of the Division of Trading and Markets, counsel for Eaton Vance ETMF Trust and Eaton Vance NextShares Trust II (each a ``Trust''), on behalf of each Trust, Eaton Vance Balanced NextShares, Eaton Vance Global Dividend Income NextShares, Eaton Vance Growth NextShares, Eaton Vance Large-Cap Value NextShares, Eaton Vance Richard Bernstein All Asset Strategy NextShares, Eaton Vance Richard Bernstein Equity Strategy NextShares, Eaton Vance Small-Cap NextShares, Eaton Vance Stock NextShares, Parametric Emerging Markets NextShares, Parametric International Equity NextShares, Eaton Vance Bond NextShares, Eaton Vance 5-to-15 Year Laddered Municipal Income NextShares, Eaton Vance Floating-Rate & High Income NextShares, Eaton Vance Global Macro Absolute Return NextShares, Eaton Vance Government Obligations NextShares, Eaton Vance High Income Opportunities NextShares, Eaton Vance High Yield Municipal Income NextShares, Eaton Vance National Municipal Income NextShares, and any future exchange- traded managed funds operating under the same representations and adhering to the same conditions as set forth in this Order (each a ``Fund'' and, collectively, the ``Funds''), any national securities exchange or national securities association on or through which shares issued by the Funds (``Shares'') may subsequently trade (``Exchange''), and persons or entities engaging in transactions in Shares (collectively, the ``Requestors'') requested exemptions, or interpretive or no-action relief, from Section 11(d)(1) of the Securities Exchange Act of 1934, as amended (``Exchange Act''), Rules 10b-10, 10b-17, and 11d1-2 thereunder, 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. Shares of each Fund will be issued by a Trust, and each Trust will be registered with the Commission under the Investment Company Act of 1940, as amended (``1940 Act''), as an open-end management investment company. The Funds will be listed on an Exchange and will also be actively managed by an investment adviser registered under the Investment Advisers Act of 1940, but may be sub-advised by other investment advisers. The Funds are not actively managed exchange traded funds (``ETFs'') but will be structured similarly to actively managed ETFs. Specifically, the Funds will be investment companies that issue shares that trade individually on an Exchange but can be purchased from and redeemed with the issuing investment company through authorized participants only in large aggregations. The principal difference between the Funds and ETFs is that, unlike with the trading in ETF shares, the trading price of Shares will be directly linked to the relevant Fund's end-of-day net asset value (``NAV''). In connection with this ``NAV-Based Trading,'' all bids, offers, and execution prices will be expressed as a market-determined premium or discount (e.g., +$0.01, -$0.02) to that day's NAV. For each trade, the premium or discount to NAV (which may be zero) is locked in at trade execution and the final transaction price (i.e., NAV plus or minus the market- determined premium/discount to NAV) is determined at the end of the day when the relevant Fund's NAV is computed. Because all transaction prices are based on an end-of-day NAV, the Funds will not need to disclose portfolio holdings on a daily basis in order to maintain a close relationship between Share trading prices and NAV, as is currently the case with actively managed ETFs. In the present exemptive request, the Requestors are seeking relief for 18 ``Initial ETMFs,'' the named Funds above, with a variety of investment objectives. The Requestors are also seeking relief for future, unidentified Funds that will be structured in the same way, operating under the same representations and adhering to the same conditions as described in this Order but may have other investment objectives. The Requestors represent, among other things, the following:Shares of the Funds will be issued by the Trusts which are open-end management investment companies that are registered with the Commission; \1\ --------------------------------------------------------------------------- \1\ See Investment Company Act Rel. No. 31361 (Dec. 2, 2014). --------------------------------------------------------------------------- The Trusts will continuously redeem aggregations of Shares at net asset value (``NAV'') and the Shares should routinely trade at tight bid-ask spreads and narrow premiums and discounts to NAV; Shares of the Funds will be listed and traded on an Exchange; The Exchange or other market information provider will disseminate every 15 minutes throughout the trading day through the NASDAQ OMX Global Index Data Service the intraday indicative value (``IIV'') of Shares; \2\ --------------------------------------------------------------------------- \2\ As explained in the Letter, unlike for ETFs, which arrange for IIVs to be disseminated every 15 seconds, IIVs for the Funds will not provide pricing signals for market intermediaries or other buyers and sellers of Shares seeking to estimate the difference between the value of the Funds' portfolios and the price at which Shares are currently trading. In NAV-Based Trading, the secondary market premium/discount that applies to an ETMF is always fully transparent and does not depend on dissemination of IIVs. --------------------------------------------------------------------------- The methodology for calculating the NAV will be fully disclosed in the prospectus and any modifications to the methodology used to calculate NAV will be fully disclosed to current and prospective investors prior to implementation; The trading price of Shares will be directly linked to the relevant Fund's end-of-day NAV in that all bids, offers, and execution prices will be expressed as a market-determined premium or discount (e.g., +$0.01, -$0.02) to that day's NAV; For each trade, the premium or discount to NAV is locked in at trade execution and the final transaction price is determined at the end of the day when the relevant Fund's NAV is computed; Because all transaction prices are based on an end-of-day NAV, the Funds will not need to disclose portfolio holdings on a daily basis in order to maintain a close relationship between Share trading prices and NAV; Competition among market makers seeking to earn reliable, low-risk profits should enable the Shares to routinely trade at tight bid-ask spreads and narrow premiums/discounts to NAV; [[Page 10940]] The Consolidated Tape will report intraday execution prices and quotes for Funds using a ``proxy'' price format, however, the listing Exchange will separately report real-time execution prices and quotes to member firms and providers of market data services in the ``NAV-$0.01/NAV+$0.01'' (or similar) display format, and otherwise seek to ensure that representations of intraday bids, offers and execution prices for Funds that are made available to the investing public follow the same display format; At the start of each trading day, the price will re-set to the ``proxy'' price to the NAV; On any business day, any market maker in the Funds can earn profits by entering into transactions with the relevant Fund to purchase (or redeem) the number of Creation Units corresponding to the net amount of Shares the market maker has sold (or purchased) that day in the secondary market, buying (or selling) the equivalent quantities of basket instruments and selling any sub-Creation Unit Share inventory in market transactions prior to the market close; A market maker's profit will equal the aggregate net premium (or discount) versus NAV at which the Shares are sold (or bought) plus the aggregate net discount (or premium) versus market- closing prices at which basket instruments are bought (or sold), less the transaction fee that applies; and No intraday hedging is necessary to manage the market maker's risk position, and any required overnight hedging can be limited to amounts readily addressable on a macro basis by the Funds maintaining relatively small Creation Unit sizes. Regulation M While redeemable securities issued by an open-end management investment company are excepted from the provisions of Rule 101 and 102 of Regulation M, the Requestors may not rely upon that exception for the Shares.\3\ --------------------------------------------------------------------------- \3\ The Funds 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 Funds and their securities do not meet those definitions. --------------------------------------------------------------------------- Rule 101 of Regulation M Generally, Rule 101 of Regulation M is an anti-manipulation rule that, subject to certain exceptions, prohibits any ``distribution participant'' and its ``affiliated purchasers'' from bidding for, purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of a distribution until after the applicable restricted period, except as specifically permitted in the rule. Rule 100 of Regulation M defines ``distribution'' to mean any offering of securities that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods. The provisions of Rule 101 of Regulation M apply to underwriters, prospective underwriters, brokers, dealers, and other persons who have agreed to participate or are participating in a distribution of securities. The Shares are in a continuous distribution and, as such, the restricted period in which distribution participants and their affiliated purchasers are prohibited from bidding for, purchasing, or attempting to induce others to bid for or purchase extends indefinitely. Based on the representations and facts presented in the Letter, particularly that the Trusts are registered open-end management investment companies that will continuously redeem at the NAV Creation Units of Shares of the Funds, and that, for each trade, the premium or discount to NAV is locked in at trade execution and the final transaction price is determined at the end of the day when the relevant Fund's NAV is computed, and that the Shares should routinely trade at tight bid/ask spreads and narrow premiums and discounts to NAV, the Commission finds that it is appropriate in the public interest, and consistent with the protection of investors, to grant the Trusts an exemption from Rule 101 of Regulation M, pursuant to paragraph (d) of Rule 101 of Regulation M with respect to transactions in the Funds as described in the Letter, thus permitting persons who may be deemed to be participating in a distribution of Shares of the Funds to bid for or purchase such Shares during their participation in such distribution.\4\ --------------------------------------------------------------------------- \4\ Additionally, we confirm the interpretation that a redemption of Creation Units of Shares of the Funds and the receipt of securities in exchange by a participant in a distribution of Shares of the Funds would not constitute an ``attempt to induce any person to bid for or purchase, a covered security during the applicable restricted period'' within the meaning of Rule 101 of Regulation M and therefore would not violate that rule. --------------------------------------------------------------------------- Rule 102 of Regulation M Rule 102 of Regulation M prohibits issuers, selling security holders, and any affiliated purchaser of such person from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security during the applicable restricted period in connection with a distribution of securities effected by or on behalf of an issuer or selling security holder. Based on the representations and facts presented in the Letter, particularly that the Trusts are registered open-end management investment companies that will redeem at the NAV Creation Units of Shares of the Funds, and that for each trade, the premium or discount to NAV is locked in at trade execution and the final transaction price is determined at the end of the day when the relevant Fund's NAV is computed, and that the Shares should routinely trade at tight bid/ask spreads and narrow premiums and discounts to NAV the Commission finds that it is appropriate in the public interest, and consistent with the protection of investors, to grant the Trusts an exemption from Rule 102 of Regulation M, pursuant to paragraph (e) of Rule 102 of Regulation M with respect to transactions in the Funds as described in the Letter, thus permitting the Funds to redeem Shares of the Funds during the continuous offering of such Shares. Rule 10b-17 Rule10b-17, with certain exceptions, requires an issuer of a class of publicly traded securities to give notice of certain specified actions (for example, a dividend distribution) relating to such class of securities in accordance with Rule 10b-17(b). Based on the representations and facts in the Letter, in particular that the concerns that the Commission raised in adopting Rule 10b-17 generally will not be implicated if exemptive relief, subject to the conditions below, is granted to the Trusts because market participants will receive timely notification of the existence and timing of a pending distribution,\5\ we find that it is appropriate in the public interest, and consistent with the protection of investors, to grant the Trusts a conditional exemption from Rule 10b-17. --------------------------------------------------------------------------- \5\ We also note that timely compliance with Rule 10b- 17(b)(1)(v)(a) and (b) would be impractical in light of the nature of the Funds. This is because it is not possible for the Funds to accurately project ten days in advance what dividend, if any, would be paid on a particular record date. --------------------------------------------------------------------------- Exchange Act Section 11(d)(1) and Rule 11d1-2 Thereunder Section 11(d)(1) of the Exchange Act prohibits a broker-dealer from effecting any transactions in connection with which he directly or indirectly extends or maintains credit or arranges for the extension or maintenance of credit to or for a customer on any security, other than an exempted security, which was part of a new issue in the distribution [[Page 10941]] of which the broker-dealer participated as a member of a selling syndicate or group within thirty days prior to such transaction. Fund shares are distributed in a continuous manner, and broker-dealers selling such securities are therefore participating in the ``distribution'' of a new issue for purposes of Section 11(d)(1).\6\ --------------------------------------------------------------------------- \6\ See, e.g., Extension of Credit by Broker-Dealers on Investment Company Shares, Exchange Act Release No. 21,577 (Dec. 18, 1984), 49 FR 50172 (Dec. 27, 1984). --------------------------------------------------------------------------- You requested relief from Section 11(d)(1) and Rule 11d1-2 thereunder with respect to certain transactions in Fund shares effected by broker-dealers. You note that each Trust is an open-end management investment company under the Investment Company Act of 1940, which intends to introduce 18 series, each of which would operate as an exchange-traded managed fund (``ETMF''). Furthermore, each Trust will issue and redeem Shares in specified aggregations of Shares, called Creation Units. Each Trust has filed a registration statement on Form N-1A and their Shares will be listed on an Exchange. Each Trust will be overseen by a board of trustees which will maintain the composition requirements of Section 10 of the 1940 Act. Each ETMF will adopt fundamental policies consistent with the 1940 Act and be classified as ``diversified'' or ``non-diversified'' under the 1940 Act. Each ETMF intends to maintain the required level of diversification, and otherwise conduct its operations, so as to meet the regulated investment company (``RIC'') diversification requirements of the Internal Revenue Code of 1986, as amended.\7\ --------------------------------------------------------------------------- \7\ Section 851(b)(3) of the Internal Revenue Code, of 1986, 26 U.S.C. 851(b)(3), as amended, states in relevant part that a corporation is a regulated investment company only if: At the close of each quarter of the taxable year-- (A) at least 50 percent of the value of its total assets is represented by-- (i) cash and cash items (including receivables), Government securities and securities of other regulated investment companies, and (ii) other securities for purposes of this calculation limited, except and to the extent provided in subsection (e) [Investment companies furnishing capital to development corporations], in respect of any one issuer to an amount not greater in value than 5 percent of the value of the total assets of the taxpayer and to not more than 10 percent of the outstanding voting securities of such issuer, and (B) not more than 25 percent of the value of its total assets is invested in-- (i) the securities (other than Government securities or the securities of other regulated investment companies) of any one issuer, (ii) the securities (other than the securities of other regulated investment companies) of two or more issuers which the taxpayer controls and which are determined, under regulations prescribed by the Secretary, to be engaged in the same or similar trades or businesses or related trades or businesses, or (iii) the securities of one or more qualified publicly traded partnerships. . . . --------------------------------------------------------------------------- You also note that each Trust will issue and redeem Shares of ETMFs in Creation Units through a broker-dealer registered under the Exchange Act acting on an agency basis and serving as each ETMF's ``principal underwriter'' as defined in Section 2(a)(29) of the 1940 Act. The number of Shares constituting a Creation Unit will be set by the Adviser. The Trust expects a Creation Unit to consist of a specified number of Shares between 5,000 and 50,000 Shares. On the basis of your representations and the facts presented in your request, the Commission finds that it is appropriate and in the public interest and consistent with the protection of investors to grant to broker-dealers (other than the Fund's distributor) that do not create or redeem Shares but engage in transactions in Shares exclusively in the secondary market a conditional exemption under Section 11(d)(1) of the Exchange Act permitting them to extend or maintain or arrange for the extension or maintenance of credit on Shares in connection with such secondary market transactions. In this regard, we note in particular your representation, and we require as a conditions of this exemption, that no broker-dealer, directly or indirectly, (1) receives from the Sponsor, any Fund, or any affiliate of such entities, any payment, compensation or other economic incentive to promote or sell Shares (other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B) or (C) (including any successor or replacement FINRA rule to NASD Conduct Rule 2830), or (2) receives from the fund complex \8\ any payment, compensation or other economic incentive to promote or sell Shares to persons outside of the fund complex, other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C).\9\ Additionally, we note your representation, and require as a condition of this exemption, that such broker-dealers do not extend, maintain or arrange for the extension or maintenance of credit to or for a customer on the Shares before thirty days have elapsed from the date that the Shares initially commenced trading (except to the extent that such extension, maintenance or arranging of credit is otherwise permitted pursuant to Rule 11d1-1). Furthermore, we note that you request relief from Section 11(d)(1) on behalf of ETMFs that will hold twenty or more Portfolio Positions, with no one Portfolio Position constituting 25% or more of the total value of the ETMF, and we require this as a condition of this exemption and the exemption that follows. --------------------------------------------------------------------------- \8\ For purposes of this order, the term ``fund complex'' means the issuer of Fund shares, any other issuer of exchange-traded fund shares that holds itself out to investors as a related company for purposes of investment or investor services, any investment adviser, distributor, sponsor, depositor, or trustee (in the case of a unit investment trust) of any such issuer or any ``affiliated person'' (as defined in the Investment Company Act) of any such issuer or any such investment adviser, distributor, sponsor, depositor or trustee. \9\ We note that a broker-dealer other than an Authorized Participant that receives some or all of the upfront selling commission from an Authorized Participant would not satisfy this condition and could not, accordingly, rely on the relief granted above. --------------------------------------------------------------------------- In addition, on the basis of your representations and the facts presented, the Commission finds that it is appropriate and in the public interest and consistent with the protection of investors to grant an exemption under Section 11(d)(1) of the Exchange Act to broker-dealers (other than the Fund's distributor) permitting them to treat Shares, for the purposes of Rule 11d1-2 under the Exchange Act,\10\ as ``securities issued by a registered . . . unit investment trust as defined in the Investment Company Act of 1940'' and thereby extend or maintain or arrange for the extension or maintenance of credit on Shares that have been owned by the persons to whom credit is provided for more than 30 days, in reliance on the exemption contained in the rule. --------------------------------------------------------------------------- \10\ 17 CFR 240.11d1-2. --------------------------------------------------------------------------- Moreover, in view of the substantial similarities between the Funds and exchange traded funds and the nature of the assets held in the Funds, the Commission finds that it is appropriate and in the public interest and consistent with the protection of investors to grant an exemption under Section 11(d)(1) of the Exchange Act to an Authorized Participant that extends credit or maintains or arranges for the extension or maintenance of credit on Shares in reliance on the class exemption granted in the Letter re: Derivative Products Committee of the Securities Industry Association (November 21, 2005) (``Class Relief Letter''), provided that the Authorized Participant satisfies conditions 1 and 2 set forth in the Class Relief Letter.\11\ --------------------------------------------------------------------------- \11\ For purposes of this order, the Shares would be shares of a Qualifying ETF, as defined in the Class Relief Letter, and the fund complex would be a ``fund complex,'' as defined in the Class Relief Letter. Conditions 1 and 2 of the Class Relief Letter are that: (1) Neither the Authorized Participant, nor any natural person associated with such Authorized Participant, directly or indirectly (including through any affiliate of such Authority Participant), receives from the fund complex any payment, compensation or other economic incentive to promote or sell the shares of the exchange- traded fund to persons outside the fund complex, other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C); and (2) the Authorized Participant does not extend, maintain or arrange for the extension or maintenance of credit to or for a customer on shares of the exchange-traded fund before thirty days have passed from the date that the ETF's shares initially commence trading (except to the extent that such extension, maintenance or arranging of credit is otherwise permitted pursuant to Exchange Act Rule 11d1-1). ``Authorized Participant'' has the same meaning in this order as in the Class Relief Letter. --------------------------------------------------------------------------- [[Page 10942]] Exchange Act Rule 10b-10 You request relief from Rule 10b-10 on behalf of ETMFs that will hold twenty or more Portfolio Positions, with no one Portfolio Position constituting 25% or more of the total value of the ETMF. These ETMFs will disclose their holdings in full at least once quarterly, with a lag of not more than 60 days, in compliance with the relevant Fund's requirements applicable to open-end investment companies. Rule 10b-10 requires a broker or dealer effecting a transaction in a security for a customer to give or send written notification to such customer disclosing the information specified in paragraph (a) of Rule 10b-10, including the identity, price and number of shares or units (or principal amount) of the security purchased or sold. Each Trust has requested exemptive relief from application of Rule 10b-10 with respect to the creation (i.e., issuance) or redemption of Shares (all of which are in Creation Unit size aggregations). Neither Trust requested exemptive or interpretive relief from Rule 10b-10 in connection with purchases and sales of Shares in the secondary market. The ETMF proposes that broker-dealers acting for their customers in either depositing Deposit Instruments \12\ in exchange for Creation Units or redeeming Shares in Creation Unit size aggregations for Redemption Instruments \13\ be permitted to provide such customers with a statement of the number of Creation Units created or redeemed without providing a statement of the identity, number and price of shares of individual Deposit Instruments included in the Basket tendered to the Trust for purposes of creation of Creation Units, or the identity, number and price of shares of Redemption Instruments to be delivered by the Trust to the redeeming holder. Your request notes that you expect a Creation Unit will consist of at least 5,000 Shares. The composition of the Deposit Instruments required to be tendered to the Trust for creation purposes and of the Redemption Instruments to be delivered on redemption will be disseminated on each business day and will be applicable to requests for creations or redemption, as the case may be, on that day. This information will be made available to requesting broker-dealers or other persons through the NSCC. Each Trust anticipates that any institution or broker-dealer engaging in creation or redemption transactions would have done so only with knowledge of the composition of the applicable Deposit Instruments or the Redemption Instruments to be received on redemption, so that specific information on the Deposit Instruments or the Redemption Instruments to be received on redemption in the Rule 10b-10 notification would be redundant. --------------------------------------------------------------------------- \12\ ``Deposit Instruments'' means the instruments specified by the ETMF for making a purchase of Creation Units of the ETMF. \13\ ``Redemption Instruments'' means the instruments that shareholders redeeming Creation Units will receive as specified by the ETMF for meeting a redemption. --------------------------------------------------------------------------- One the basis of your representations and the facts presented, the Commission finds that it is appropriate and in the public interest and consistent with the protection of investors to grant a limited exemption from Rule 10b-10 to broker-dealers with respect to their confirmation of creation and redemption transactions such that broker- dealers may omit from the confirmation the identity, price, and number of shares of each of the Deposit Instruments or Redemption Instruments tendered or received by the customer in the transaction subject to the following conditions: (1) Confirmation statements of creation and redemption transactions in Shares will contain all of the information specified in paragraph (a) of Rule 10b-10 other than identity, price, and number of shares of each of the Deposit Instruments or Redemption Instruments tendered or received by the customer in the transaction; (2) Any confirmation statement of a creation or redemption transaction in Shares that omits the identity, price, or number of shares of component securities will contain a statement that such omitted information will be provided to the customer upon request; and (3) All such requests will be fulfilled in a timely manner in accordance with paragraph (c) of Rule 10b-10. Conclusion It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that the Trusts are exempt from the requirements of Rules 101 with respect to transactions in the Shares of the Funds as described in the Letter, thus permitting persons who may be deemed to be participating in a distribution of Shares of the Funds to bid for or purchase such Shares during their participation in such distribution as described in the Letter. It is further ordered, pursuant to Rule 102(e) of Regulation M, that the Trusts are exempt from the requirements of Rule 102 with respect to transaction in the Shares of the Funds as described in the Letter, thus permitting the Funds to redeem Shares of the Funds during the continuous offering of such Shares as described in the Letter. It is further ordered, pursuant to Rule 10b-17(b)(2), that the Trusts, subject to the conditions contained in this order, are exempt from the requirements of Rule 10b-17 with respect to transactions in the Shares of the Funds as described in the Letter. This exemption from Rule 10b-17 is subject to the following conditions: The Trusts will comply with Rule 10b-17 except for Rule 10b-17(b)(1)(v)(a) and (b); and The Trusts will provide the information required by Rule 10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable before trading begins on the ex-dividend date, but in no event later than the time when the Exchange last accepts information relating to distributions on the day before the ex-dividend date. It is further ordered, pursuant to Section 11(d)(1) of the Exchange Act and Rule 11d1-2 thereunder, based on the representations and facts presented in the Letter and subject to the conditions discussed above and below, that broker-dealers (other than the a Fund's distributor) may extend or maintain or arrange for the extension or maintenance of credit on Shares in connection with secondary market transactions; that broker-dealers (other than the Fund's distributor) may treat Shares, for the purposes of Rule 11d1-2 under the Exchange Act, as ``securities issued by a registered . . . unit investment trust as defined in the Investment Company Act of 1940'' and thereby extend or maintain or arrange for the extension or maintenance of credit on Shares that have been owned by the persons to whom credit is provided for more than 30 days, in reliance on the exemption contained in the rule; and that an Authorized Participant that extends credit or maintains or arranges for the extension or maintenance of credit on Shares may rely on the class exemption granted in the Class Relief Letter, provided that the Authorized Participant satisfies [[Page 10943]] conditions 1 and 2 set forth in the Class Relief Letter. It is further ordered, pursuant to Rule 10b-10(f) of the Exchange Act, based on the representations and facts presented in the Letter and subject to the conditions discussed above and below, that broker- dealers may omit from the confirmation of statements of creation and redemption transactions the identity, price, and number of shares of each of the Deposit Instruments or Redemption Instruments tendered or received by the customer. 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. 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. In addition, persons relying on this exemption are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the persons relying on these exemptions. 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.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(6), (9), (32), and (62). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-04527 Filed 3-1-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Notices 10939
should refer to File Number SR–ISE the ‘‘Funds’’), any national securities seeking relief for future, unidentified
Gemini–2016–01 and should be exchange or national securities Funds that will be structured in the
submitted by March 23, 2016. association on or through which shares same way, operating under the same
For the Commission, by the Division of issued by the Funds (‘‘Shares’’) may representations and adhering to the
Trading and Markets, pursuant to delegated subsequently trade (‘‘Exchange’’), and same conditions as described in this
authority.8 persons or entities engaging in Order but may have other investment
Robert W. Errett, transactions in Shares (collectively, the objectives.
Deputy Secretary. ‘‘Requestors’’) requested exemptions, or The Requestors represent, among
interpretive or no-action relief, from other things, the following:
[FR Doc. 2016–04501 Filed 3–1–16; 8:45 am]
Section 11(d)(1) of the Securities • Shares of the Funds will be issued
BILLING CODE 8011–01–P by the Trusts which are open-end
Exchange Act of 1934, as amended
(‘‘Exchange Act’’), Rules 10b–10, 10b– management investment companies that
17, and 11d1–2 thereunder, and Rules are registered with the Commission; 1
SECURITIES AND EXCHANGE • The Trusts will continuously
101 and 102 of Regulation M, in
COMMISSION redeem aggregations of Shares at net
connection with secondary market
[Release No. 34–77240; File No. TP 15–06] transactions in Shares and the creation asset value (‘‘NAV’’) and the Shares
or redemption of aggregations of Shares. should routinely trade at tight bid-ask
Order Granting Limited Exemptions Shares of each Fund will be issued by spreads and narrow premiums and
From Exchange Act Section 11(d), a Trust, and each Trust will be discounts to NAV;
Exchange Act Rules 10b–10, 10b–17, registered with the Commission under • Shares of the Funds will be listed
and 11d1–2, and Rules 101 and 102 of the Investment Company Act of 1940, as and traded on an Exchange;
Regulation M to Eaton Vance ETMF amended (‘‘1940 Act’’), as an open-end • The Exchange or other market
Trust, Eaton Vance NextShares Trust management investment company. The information provider will disseminate
II, Eaton Vance Balanced NextShares, Funds will be listed on an Exchange and every 15 minutes throughout the trading
and Other Exchange-Traded Managed will also be actively managed by an day through the NASDAQ OMX Global
Funds Pursuant to Exchange Act investment adviser registered under the Index Data Service the intraday
Section 36, Exchange Act Rules 10b– Investment Advisers Act of 1940, but indicative value (‘‘IIV’’) of Shares; 2
10(f) and 10b–17(b)(2), and Rules may be sub-advised by other investment • The methodology for calculating the
101(d) and 102(e) of Regulation M advisers. The Funds are not actively NAV will be fully disclosed in the
managed exchange traded funds prospectus and any modifications to the
February 25, 2016. methodology used to calculate NAV will
(‘‘ETFs’’) but will be structured
By letter dated February 25, 2016 (the similarly to actively managed ETFs. be fully disclosed to current and
‘‘Letter’’), as supplemented by Specifically, the Funds will be prospective investors prior to
conversations with the staff of the investment companies that issue shares implementation;
Division of Trading and Markets, that trade individually on an Exchange • The trading price of Shares will be
counsel for Eaton Vance ETMF Trust but can be purchased from and directly linked to the relevant Fund’s
and Eaton Vance NextShares Trust II redeemed with the issuing investment end-of-day NAV in that all bids, offers,
(each a ‘‘Trust’’), on behalf of each company through authorized and execution prices will be expressed
Trust, Eaton Vance Balanced participants only in large aggregations. as a market-determined premium or
NextShares, Eaton Vance Global The principal difference between the discount (e.g., +$0.01, ¥$0.02) to that
Dividend Income NextShares, Eaton Funds and ETFs is that, unlike with the day’s NAV;
Vance Growth NextShares, Eaton Vance • For each trade, the premium or
trading in ETF shares, the trading price
Large-Cap Value NextShares, Eaton discount to NAV is locked in at trade
of Shares will be directly linked to the
Vance Richard Bernstein All Asset execution and the final transaction price
relevant Fund’s end-of-day net asset
Strategy NextShares, Eaton Vance is determined at the end of the day
value (‘‘NAV’’). In connection with this
Richard Bernstein Equity Strategy when the relevant Fund’s NAV is
‘‘NAV-Based Trading,’’ all bids, offers,
NextShares, Eaton Vance Small-Cap computed;
and execution prices will be expressed • Because all transaction prices are
NextShares, Eaton Vance Stock as a market-determined premium or
NextShares, Parametric Emerging based on an end-of-day NAV, the Funds
discount (e.g., +$0.01, ¥$0.02) to that will not need to disclose portfolio
Markets NextShares, Parametric day’s NAV. For each trade, the premium
International Equity NextShares, Eaton holdings on a daily basis in order to
or discount to NAV (which may be zero) maintain a close relationship between
Vance Bond NextShares, Eaton Vance 5- is locked in at trade execution and the
to-15 Year Laddered Municipal Income Share trading prices and NAV;
final transaction price (i.e., NAV plus or • Competition among market makers
NextShares, Eaton Vance Floating-Rate minus the market-determined premium/ seeking to earn reliable, low-risk profits
& High Income NextShares, Eaton Vance discount to NAV) is determined at the should enable the Shares to routinely
Global Macro Absolute Return end of the day when the relevant Fund’s trade at tight bid-ask spreads and
NextShares, Eaton Vance Government NAV is computed. Because all narrow premiums/discounts to NAV;
Obligations NextShares, Eaton Vance transaction prices are based on an end-
High Income Opportunities NextShares, of-day NAV, the Funds will not need to 1 See Investment Company Act Rel. No. 31361
Eaton Vance High Yield Municipal disclose portfolio holdings on a daily (Dec. 2, 2014).
Income NextShares, Eaton Vance basis in order to maintain a close 2 As explained in the Letter, unlike for ETFs,
mstockstill on DSK4VPTVN1PROD with NOTICES
National Municipal Income NextShares, relationship between Share trading which arrange for IIVs to be disseminated every 15
seconds, IIVs for the Funds will not provide pricing
and any future exchange-traded prices and NAV, as is currently the case signals for market intermediaries or other buyers
managed funds operating under the with actively managed ETFs. and sellers of Shares seeking to estimate the
same representations and adhering to In the present exemptive request, the difference between the value of the Funds’
the same conditions as set forth in this Requestors are seeking relief for 18 portfolios and the price at which Shares are
currently trading. In NAV-Based Trading, the
Order (each a ‘‘Fund’’ and, collectively, ‘‘Initial ETMFs,’’ the named Funds secondary market premium/discount that applies to
above, with a variety of investment an ETMF is always fully transparent and does not
8 17 CFR 200.30–3(a)(12). objectives. The Requestors are also depend on dissemination of IIVs.
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![Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Notices 10941
of which the broker-dealer participated You also note that each Trust will representation, and require as a
as a member of a selling syndicate or issue and redeem Shares of ETMFs in condition of this exemption, that such
group within thirty days prior to such Creation Units through a broker-dealer broker-dealers do not extend, maintain
transaction. Fund shares are distributed registered under the Exchange Act or arrange for the extension or
in a continuous manner, and broker- acting on an agency basis and serving as maintenance of credit to or for a
dealers selling such securities are each ETMF’s ‘‘principal underwriter’’ as customer on the Shares before thirty
therefore participating in the defined in Section 2(a)(29) of the 1940 days have elapsed from the date that the
‘‘distribution’’ of a new issue for Act. The number of Shares constituting Shares initially commenced trading
purposes of Section 11(d)(1).6 a Creation Unit will be set by the (except to the extent that such
You requested relief from Section Adviser. The Trust expects a Creation extension, maintenance or arranging of
11(d)(1) and Rule 11d1–2 thereunder Unit to consist of a specified number of credit is otherwise permitted pursuant
with respect to certain transactions in Shares between 5,000 and 50,000 to Rule 11d1–1). Furthermore, we note
Fund shares effected by broker-dealers. Shares. that you request relief from Section
You note that each Trust is an open-end On the basis of your representations 11(d)(1) on behalf of ETMFs that will
management investment company and the facts presented in your request, hold twenty or more Portfolio Positions,
under the Investment Company Act of the Commission finds that it is with no one Portfolio Position
1940, which intends to introduce 18 appropriate and in the public interest constituting 25% or more of the total
series, each of which would operate as and consistent with the protection of value of the ETMF, and we require this
an exchange-traded managed fund investors to grant to broker-dealers as a condition of this exemption and the
(‘‘ETMF’’). Furthermore, each Trust will (other than the Fund’s distributor) that exemption that follows.
issue and redeem Shares in specified do not create or redeem Shares but In addition, on the basis of your
aggregations of Shares, called Creation engage in transactions in Shares representations and the facts presented,
Units. Each Trust has filed a registration exclusively in the secondary market a the Commission finds that it is
statement on Form N–1A and their conditional exemption under Section appropriate and in the public interest
Shares will be listed on an Exchange. 11(d)(1) of the Exchange Act permitting and consistent with the protection of
Each Trust will be overseen by a board them to extend or maintain or arrange investors to grant an exemption under
of trustees which will maintain the for the extension or maintenance of Section 11(d)(1) of the Exchange Act to
composition requirements of Section 10 credit on Shares in connection with broker-dealers (other than the Fund’s
of the 1940 Act. Each ETMF will adopt such secondary market transactions. In distributor) permitting them to treat
fundamental policies consistent with this regard, we note in particular your Shares, for the purposes of Rule 11d1–
the 1940 Act and be classified as representation, and we require as a 2 under the Exchange Act,10 as
‘‘diversified’’ or ‘‘non-diversified’’ conditions of this exemption, that no ‘‘securities issued by a registered . . .
under the 1940 Act. Each ETMF intends broker-dealer, directly or indirectly, (1) unit investment trust as defined in the
to maintain the required level of receives from the Sponsor, any Fund, or Investment Company Act of 1940’’ and
diversification, and otherwise conduct any affiliate of such entities, any thereby extend or maintain or arrange
its operations, so as to meet the payment, compensation or other for the extension or maintenance of
regulated investment company (‘‘RIC’’) economic incentive to promote or sell credit on Shares that have been owned
diversification requirements of the Shares (other than non-cash by the persons to whom credit is
Internal Revenue Code of 1986, as compensation permitted under NASD provided for more than 30 days, in
amended.7 Rule 2830(l)(5)(A), (B) or (C) (including reliance on the exemption contained in
any successor or replacement FINRA the rule.
6 See, e.g., Extension of Credit by Broker-Dealers
rule to NASD Conduct Rule 2830), or (2) Moreover, in view of the substantial
on Investment Company Shares, Exchange Act
receives from the fund complex 8 any similarities between the Funds and
Release No. 21,577 (Dec. 18, 1984), 49 FR 50172 exchange traded funds and the nature of
(Dec. 27, 1984). payment, compensation or other
7 Section 851(b)(3) of the Internal Revenue Code, economic incentive to promote or sell the assets held in the Funds, the
of 1986, 26 U.S.C. 851(b)(3), as amended, states in Shares to persons outside of the fund Commission finds that it is appropriate
relevant part that a corporation is a regulated complex, other than non-cash and in the public interest and consistent
investment company only if:
compensation permitted under NASD with the protection of investors to grant
At the close of each quarter of the taxable year— an exemption under Section 11(d)(1) of
(A) at least 50 percent of the value of its total Rule 2830(l)(5)(A), (B), or (C).9
Additionally, we note your the Exchange Act to an Authorized
assets is represented by—
(i) cash and cash items (including receivables),
Participant that extends credit or
Government securities and securities of other similar trades or businesses or related trades or maintains or arranges for the extension
regulated investment companies, and businesses, or or maintenance of credit on Shares in
(ii) other securities for purposes of this (iii) the securities of one or more qualified reliance on the class exemption granted
calculation limited, except and to the extent publicly traded partnerships. . . . in the Letter re: Derivative Products
provided in subsection (e) [Investment companies 8 For purposes of this order, the term ‘‘fund
furnishing capital to development corporations], in Committee of the Securities Industry
complex’’ means the issuer of Fund shares, any
respect of any one issuer to an amount not greater other issuer of exchange-traded fund shares that Association (November 21, 2005)
in value than 5 percent of the value of the total holds itself out to investors as a related company (‘‘Class Relief Letter’’), provided that the
assets of the taxpayer and to not more than 10 for purposes of investment or investor services, any Authorized Participant satisfies
percent of the outstanding voting securities of such investment adviser, distributor, sponsor, depositor,
issuer, and conditions 1 and 2 set forth in the Class
or trustee (in the case of a unit investment trust) of
(B) not more than 25 percent of the value of its any such issuer or any ‘‘affiliated person’’ (as Relief Letter.11
mstockstill on DSK4VPTVN1PROD with NOTICES
total assets is invested in— defined in the Investment Company Act) of any
(i) the securities (other than Government such issuer or any such investment adviser, 10 17 CFR 240.11d1–2.
securities or the securities of other regulated distributor, sponsor, depositor or trustee. 11 For purposes of this order, the Shares would be
investment companies) of any one issuer, 9 We note that a broker-dealer other than an shares of a Qualifying ETF, as defined in the Class
(ii) the securities (other than the securities of Authorized Participant that receives some or all of Relief Letter, and the fund complex would be a
other regulated investment companies) of two or the upfront selling commission from an Authorized ‘‘fund complex,’’ as defined in the Class Relief
more issuers which the taxpayer controls and Participant would not satisfy this condition and Letter. Conditions 1 and 2 of the Class Relief Letter
which are determined, under regulations prescribed could not, accordingly, rely on the relief granted are that: (1) Neither the Authorized Participant, nor
by the Secretary, to be engaged in the same or above. Continued
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![Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Notices 10943
conditions 1 and 2 set forth in the Class (‘‘Act’’),1 and Rule 19b–4 thereunder,2 was not yet approved.4 The Exchange
Relief Letter. notice is hereby given that on February proposes a non-substantive, technical
It is further ordered, pursuant to Rule 11, 2016, NYSE Arca, Inc. (‘‘Exchange’’ amendment to Rule 7.44P(m) to update
10b–10(f) of the Exchange Act, based on or ‘‘NYSE Arca’’) filed with the the date when the pilot period for the
the representations and facts presented Securities and Exchange Commission Program expires from September 30,
in the Letter and subject to the (‘‘Commission’’) the proposed rule 2015, which was the prior pilot
conditions discussed above and below, change as described in Items I and II expiration date, to March 31, 2016,
that broker-dealers may omit from the below, which Items have been prepared which is the current pilot expiration
confirmation of statements of creation by the Exchange. The Commission is date.
and redemption transactions the publishing this notice to solicit The Exchange also proposes to amend
identity, price, and number of shares of comments on the proposed rule change Rule 7.44P(k) to clarify that Retail
each of the Deposit Instruments or from interested persons. Orders may not be designated with an
Redemption Instruments tendered or MTS. Both current Rule 7.44(k) and
received by the customer. I. Self-Regulatory Organization’s
Rule 7.44P(k), which will be operative
This exemptive relief is subject to Statement of the Terms of Substance of
once symbols begin migrating to the
modification or revocation at any time the Proposed Rule Change
Pillar trading platform, provide for
the Commission determines that such The Exchange proposes to amend Retail Orders that may be designated
action is necessary or appropriate in Rule 7.44P (Retail Liquidity Program). with a time-in-force condition of
furtherance of the purposes of the The proposed rule change is available immediate or cancel (‘‘IOC’’).5 The
Exchange Act. Persons relying upon this on the Exchange’s Web site at Exchange does not currently provide for
exemptive relief shall discontinue www.nyse.com, at the principal office of an optional MTS for Limit Orders
transactions involving the Shares of the the Exchange, and at the Commission’s designated IOC. Accordingly, currently,
Fund, pending presentation of the facts Public Reference Room. under Rule 7.44, Retail Orders
for the Commission’s consideration, in designated IOC are also not eligible for
the event that any material change II. Self-Regulatory Organization’s
Statement of the Purpose of, and an MTS.
occurs with respect to any of the facts In Pillar, the Exchange will be
or representations made by the Statutory Basis for, the Proposed Rule
Change implementing a substantive difference
Requestors. In addition, persons relying under Rule 7.31P (Orders and
on this exemption are directed to the In its filing with the Commission, the Modifiers) to allow for an optional MTS
anti-fraud and anti-manipulation self-regulatory organization included for Limit Orders designated IOC.6
provisions of the Exchange Act, statements concerning the purpose of, However, the Exchange does not
particularly Sections 9(a) and 10(b), and and basis for, the proposed rule change propose a substantive difference to the
Rule 10b–5 thereunder. Responsibility and discussed any comments it received Program in Pillar to allow Retail Orders
for compliance with these and any other on the proposed rule change. The text that are designated IOC to be designated
applicable provisions of the federal of those statements may be examined at with an MTS. Accordingly, the
securities laws must rest with the the places specified in Item IV below. Exchange proposes to clarify Rule
persons relying on these exemptions. The Exchange has prepared summaries, 7.44P(k) to specify that Retail Orders
This order should not be considered a set forth in sections A, B, and C below, may not be designated with an MTS.
view with respect to any other question of the most significant parts of such This proposed clarification does not
that the proposed transactions may statements. represent a substantive change to the
raise, including, but not limited to the
A. Self-Regulatory Organization’s Program because Retail Orders are not
adequacy of the disclosure concerning,
and the applicability of other federal or Statement of the Purpose of, and the currently permitted to be designated
state laws to, the proposed transactions. Statutory Basis for, the Proposed Rule with an MTS. The Exchange proposes
Change this rule change to provide greater
For the Commission, by the Division of specificity that the new MTS
Trading and Markets, pursuant to delegated 1. Purpose functionality available for Limit IOC
authority.14
The Exchange proposes to amend Orders as described in Rule
Brent J. Fields,
Rule 7.44P, which governs the 7.31P(b)(2)(A) would not be available
Secretary. for Retail Orders in the Program, which
Exchange’s Retail Liquidity Program
[FR Doc. 2016–04527 Filed 3–1–16; 8:45 am] (‘‘Program’’), to update the expiration is current functionality.
BILLING CODE 8011–01–P date of the pilot period for the Program 2. Statutory Basis
and to clarify that Retail Orders may not
be designated with a minimum trade The proposed rule change is
SECURITIES AND EXCHANGE consistent with Section 6(b) of the
size (‘‘MTS’’).
COMMISSION The pilot period for the Program, Securities Exchange Act of 1934 (the
[Release No. 34–77236; File No. SR– which is currently governed by Rule ‘‘Act’’),7 in general, and furthers the
NYSEArca–2016–30] 7.44, is scheduled to expire on March objectives of Section 6(b)(5),8 in
31, 2016.3 When the Exchange filed for particular, because it is designed to
Self-Regulatory Organizations; NYSE the extension of the Program in
Arca, Inc.; Notice of Filing and September 2015, Rule 7.44P, which will 4 See Securities Exchange Act Release No. 76267
Immediate Effectiveness of Proposed govern the Program when the Exchange
(Oct. 26, 2015), 80 FR 66951 (Oct. 30, 2015) (SR–
mstockstill on DSK4VPTVN1PROD with NOTICES
Rule Change Amending Rule 7.44P NYSEArca–2015–56) (‘‘Pillar Approval Order’’).
implements its Pillar trading platform, 5 See NYSE Arca Equities Rules 7.44(k)(1),
Retail Liquidity Program 7.44(k)(2)(A), 7.44P(k)(1) and 7.44P(k)(2)(A).
1 15 U.S.C. 78s(b)(1). 6 See Pillar Approval Order, supra note 4 at
February 25, 2016.
2 17 CFR 240.19b–4. 66952. See also NYSE Arca Equities Rule
Pursuant to Section 19(b)(1) of the 3 See NYSE Arca Equities Rule 7.44(m); see also 7.31P(b)(2)(A) (defining ‘‘Limit IOC Order’’ as being
Securities Exchange Act of 1934 Securities Exchange Act Release No. 75994 (Sept. eligible for an optional MTS).
7 15 U.S.C. 78f(b).
28, 2015), 80 FR 59834 (Oct. 2, 2015) (SR–
14 17 CFR 200.30–3(a)(6), (9), (32), and (62). NYSEArca–2015–84) (Notice of Filing). 8 15 U.S.C. 78f(b)(5).
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Document Created: 2018-02-02 15:04:23
Document Modified: 2018-02-02 15:04:23
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 10939 |
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