81 FR 11624 - Charles Schwab Investment Management, Inc., et al.; Notice of Application
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 43 (March 4, 2016)
Federal Register Volume 81, Issue 43 (March 4, 2016)
| Page Range | 11624-11634 | |
| FR Document | 2016-04794 |
[Federal Register Volume 81, Number 43 (Friday, March 4, 2016)] [Notices] [Pages 11624-11634] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-04794] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 32014; File No. 812-14481] Charles Schwab Investment Management, Inc., et al.; Notice of Application February 29, 2016. AGENCY: Securities and Exchange Commission (``Commission''). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ``Act'') for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act. ----------------------------------------------------------------------- SUMMARY: Summary of Application: Applicants request an order that would permit (a) series of certain open-end management investment companies that track the performance of an index provided by an affiliated person to issue shares (``Shares'') redeemable in large aggregations only (``Creation Units''); (b) secondary market transactions in Shares to occur at negotiated market prices rather than at net asset value (``NAV''); (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Shares for redemption; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Units; (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares; and (f) certain series to perform creations and redemptions of Creation Units in-kind in a master-feeder structure. Applicants: Charles Schwab Investment Management, Inc. (``CSIM'' or ``Current Adviser''), Schwab Strategic Trust (``Trust''), and SEI Investments Distribution Co. (``SEI'' or ``Distributor''). DATES: Filing Dates: The application was filed on June 5, 2015 and amended on September 4, 2015 and December 24, 2015. 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 writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on March 24, 2016, and should be accompanied by proof of service on applicants, in the form of an affidavit, or for lawyers, a certificate of service. Pursuant to rule 0-5 under the 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 writing to the Commission's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: CSIM and Trust, 211Main Street, SF211-05-491, San Francisco, CA 94105; SEI, 1 Freedom Valley Drive, Oaks, PA 19456. FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at (202) 551-6817, or Daniele Marchesani, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office). [[Page 11625]] SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or for an applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090. Applicants' Representations 1. The Trust, a Delaware statutory trust, is registered under the Act as an open-end management investment company with multiple series. 2. The Current Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (the ``Advisers Act'') and will be the investment adviser to the Self-Indexing Funds (defined below). Any other Adviser (defined below) will also be registered as an investment adviser under the Advisers Act. The Adviser may enter into sub-advisory agreements with one or more investment advisers to act as sub-advisers to particular Self-Indexing Funds (each, a ``Sub-Adviser''). Any Sub- Adviser will either be registered under the Advisers Act or will not be subject to registration thereunder. 3. The Trust will enter into a distribution agreement with one or more distributors, each a broker-dealer (``Broker'') registered under the Securities Exchange Act of 1934 (the ``Exchange Act''), who will act as distributor and principal underwriter of one or more of the Self-Indexing Funds (each, a ``Distributor''). The Distributor of any Self-Indexing Fund may be an affiliated person, as defined in section 2(a)(3) of the Act (``Affiliated Person''), or an affiliated person of an Affiliated Person (``Second-Tier Affiliate''), of that Self-Indexing Fund's Adviser and/or Sub-Advisers. No Distributor will be affiliated with any Exchange (defined below). 4. Applicants request that the order apply to the initial series of the Trust described in the application (``Initial Self-Indexing Fund''), as well as any additional series of the Trust and other open- end management investment companies, or series thereof, that may be created in the future (``Future Self-Indexing Funds''), each of which will operate as an exchange-traded fund (``ETF'') and will track a specified equity and/or a specified fixed income securities index (each, an ``Underlying Index''). Any Future Self-Indexing Fund will (a) be advised by the Current Adviser or an entity controlling, controlled by, or under common control with the Current Adviser (each, an ``Adviser'') and (b) comply with the terms and conditions of the application. The Initial Self-Indexing Fund and Future Self-Indexing Funds, together, are the ``Self-Indexing Funds.'' \1\ --------------------------------------------------------------------------- \1\ All existing entities that intend to rely on the requested order have been named as applicants. Any other existing or future entity that subsequently relies on the order will comply with the terms and conditions of the order. A Fund of Funds (as defined below) may rely on the order only to invest in Self-Indexing Funds and not in any other registered investment company. --------------------------------------------------------------------------- 5. Applicants state that a Fund may operate as a feeder fund in a master-feeder structure (``Feeder Fund''). Applicants request that the order permit a Feeder Fund to acquire shares of another registered investment company in the same group of investment companies having substantially the same investment objectives as the Feeder Fund (``Master Fund'') beyond the limitations in section 12(d)(1)(A) of the Act and permit the Master Fund, and any principal underwriter for the Master Fund, to sell shares of the Master Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B) of the Act (``Master- Feeder Relief''). Applicants may structure certain Feeder Funds to generate economies of scale and incur lower overhead costs.\2\ There would be no ability by Fund shareholders to exchange Shares of Feeder Funds for shares of another feeder series of the Master Fund. --------------------------------------------------------------------------- \2\ Operating in a master-feeder structure could also impose costs on a Feeder Fund and reduce its tax efficiency. The Feeder Fund's Board will consider any such potential disadvantages against the benefits of economies of scale and other benefits of operating within a master-feeder structure. In a master-feeder structure, the Master Fund--rather than the Feeder Fund--would generally invest its portfolio in compliance with the requested order. --------------------------------------------------------------------------- 6. Each Self-Indexing Fund, or its respective Master Fund, will hold certain securities (``Portfolio Securities'') selected to correspond generally to the performance of its Underlying Index. Each Underlying Index will be comprised solely of domestic and/or foreign equity and/or fixed income securities. Each Self-Indexing Fund will track one of the following types of Underlying Indexes: (i) An index made up of domestic equity securities and/or domestic fixed income securities, (ii) an index made up of foreign equity securities and/or foreign fixed income securities (such Funds, ``International Funds''), or (iii) an index made up of foreign and domestic equity securities and/or foreign and domestic fixed income securities (such Funds, ``Global Funds''). 7. Applicants represent that each Self-Indexing Fund, or its respective Master Fund, will invest at least 80% of its assets (excluding securities lending collateral) in the component securities of its respective Underlying Index (``Component Securities'') and TBA Transactions,\3\ and in the case of International and Global Funds, Component Securities and Depositary Receipts \4\ representing Component Securities. Each Self-Indexing Fund, or its respective Master Fund, may also invest up to 20% of its assets in securities and other instruments not included in its Underlying Index but which the Adviser and/or Sub- Adviser believes will help the Self-Indexing Fund, or its respective Master Fund, track its Underlying Index, including but not limited to certain index futures, options, options on futures, options on index futures, swap contracts or other derivatives, cash and cash equivalents, and other investment companies. A Self-Indexing Fund may also engage in short sales in accordance with its investment objective. --------------------------------------------------------------------------- \3\ A ``to-be-announced transaction'' or ``TBA Transaction'' is a method of trading mortgage-backed securities. In a TBA Transaction, the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to settlement date. \4\ Depositary receipts representing foreign securities (``Depositary Receipts'') include American Depositary Receipts and Global Depositary Receipts. The Self-Indexing Funds may invest in Depositary Receipts representing foreign securities in which they seek to invest. Depositary Receipts are typically issued by a financial institution (a ``depositary bank'') and evidence ownership interests in a security or a pool of securities that have been deposited with the depositary bank. A Self-Indexing Fund will not invest in any Depositary Receipts that the Adviser or any Sub- Adviser deems to be illiquid or for which pricing information is not readily available. No affiliated person of a Self-Indexing Fund, the Adviser or any Sub-Adviser will serve as the depositary bank for any Depositary Receipts held by a Self-Indexing Fund. --------------------------------------------------------------------------- 8. The Trust may offer Self-Indexing Funds that seek to track Underlying Indexes constructed using 130/30 investment strategies (``130/30 Funds'') or other long/short investment strategies (``Long/ Short Funds''). Each 130/30 Fund will include strategies that: (i) Establish long positions in securities so that total long exposure represents approximately 130% of the Self-Indexing Fund's net assets; and (ii) simultaneously establish short positions in other securities so that total short exposure represents approximately 30% of such Self- Indexing Fund's net assets. Each Long/Short Fund will obtain exposures equal to the long and short positions specified by the Long/Short Index.\5\ --------------------------------------------------------------------------- \5\ Underlying Indexes that include both long and short positions in securities are referred to as ``Long/Short Indexes.'' --------------------------------------------------------------------------- 9. A Self-Indexing Fund, or its respective Master Fund, will utilize either a replication or representative [[Page 11626]] sampling strategy to track its Underlying Index. A Self-Indexing Fund, or its respective Master Fund, using a replication strategy will invest in the Component Securities of its Underlying Index in the same approximate proportions as in such Underlying Index. A Self-Indexing Fund, or its respective Master Fund, using a representative sampling strategy will hold some, but not necessarily all of the Component Securities of its Underlying Index. Applicants state that a Self- Indexing Fund, or its respective Master Fund, using a representative sampling strategy will not be expected to track the performance of its Underlying Index with the same degree of accuracy as would an investment vehicle that invested in every Component Security of the Underlying Index with the same weighting as the Underlying Index. Applicants expect that each Self-Indexing Fund, or its respective Master Fund, will have an annual tracking error relative to the performance of its Underlying Index of less than 5%. 10. An Affiliated Person, or a Second-Tier Affiliate, of the Trust or a Self-Indexing Fund, of the Adviser, of any Sub-Adviser to or promoter of a Self-Indexing Fund, or of the Distributor (each, an ``Affiliated Index Provider'') \6\ will create a proprietary, rules- based methodology to create Underlying Indexes.\7\ The Affiliated Index Provider will create, compile, sponsor or maintain the Underlying Indexes. Each Self-Indexing Fund will be entitled to use its Underlying Index pursuant to a licensing agreement with the Affiliated Index Provider.\8\ --------------------------------------------------------------------------- \6\ The applicants currently expect that the Adviser will serve as the Affiliated Index Provider for the Self-Indexing Funds. In the event that the Adviser serves as the Affiliated Index Provider for a Self-Indexing Fund, the term ``Affiliated Index Provider,'' with respect to that Self-Indexing Fund, will refer to the employees of the Adviser that are responsible for creating, compiling and maintaining the relevant Underlying Index. \7\ The Underlying Indexes may be made available to registered investment companies, as well as separately managed accounts of institutional investors and privately offered funds that are not deemed to be ``investment companies'' in reliance on section 3(c)(1) or 3(c)(7) of the Act for which the Adviser acts as adviser or sub- adviser (``Affiliated Accounts'') as well as other such registered investment companies, separately managed accounts and privately offered funds for which it does not act either as adviser or sub- adviser (``Unaffiliated Accounts''). The Affiliated Accounts and the Unaffiliated Accounts, like the Self-Indexing Funds, would seek to track the performance of one or more Underlying Index(es) by investing in the constituents of such Underlying Indexes or a representative sample of such constituents of the Underlying Index. Consistent with the relief requested from section 17(a), the Affiliated Accounts will not engage in Creation Unit transactions with a Self-Indexing Fund. \8\ The licenses for the Self-Indexing Funds will specifically state that the Affiliated Index Provider must provide the use of the Underlying Indexes and related intellectual property at no cost to the Trust and the Self-Indexing Funds. --------------------------------------------------------------------------- 11. Applicants recognize that Self-Indexing Funds could raise concerns regarding the ability of the Affiliated Index Provider to manipulate the Underlying Index to the benefit or detriment of the Self-Indexing Fund. Applicants further recognize the potential for conflicts that may arise with respect to the personal trading activity of personnel of the Affiliated Index Provider who have knowledge of changes to an Underlying Index prior to the time that information is publicly disseminated. Prior orders granted to self-indexing ETFs (``Prior Self-Indexing Orders'') addressed these concerns by creating a framework that required: (i) Transparency of the Underlying Indexes; (ii) the adoption of policies and procedures not otherwise required by the Act designed to mitigate such conflicts of interest; (iii) limitations on the ability to change the rules for index compilation and the component securities of the index; (iv) that the index provider enter into an agreement with an unaffiliated third party to act as ``Calculation Agent''; and (v) certain limitations designed to separate employees of the index provider, adviser and Calculation Agent (clauses (ii) through (v) are hereinafter referred to as ``Policies and Procedures'').\9\ --------------------------------------------------------------------------- \9\ See, e.g., In the Matter of WisdomTree Investments Inc., et al., Investment Company Act Release Nos. 27324 (May 18, 2006) (notice) and 27391 (June 12, 2006) (order); In the Matter of IndexIQ ETF Trust, et al., Investment Company Act Release Nos. 28638 (Feb. 27, 2009) (notice) and 28653 (March 20, 2009) (order); and Van Eck Associates Corporation, et al., Investment Company Act Release Nos. 29455 (Oct. 1, 2010) (notice) and 29490 (Oct. 26, 2010) (order). --------------------------------------------------------------------------- 12. Instead of adopting the same or similar Policies and Procedures, applicants propose that each day that a Self-Indexing Fund, the NYSE and the national securities exchange (as defined in section 2(a)(26) of the Act) (an ``Exchange'')) on which the Self-Indexing Fund's Shares are primarily listed (``Listing Exchange'') are open for business, including any day that a Self-Indexing Fund is required to be open under section 22(e) of the Act (a ``Business Day''), each Self- Indexing Fund will post on its publicly available Web site (``Web site''),\10\ before commencement of trading of Shares on the Listing Exchange, the identities and quantities of the portfolio securities, assets, and other positions held by the Self-Indexing Fund (``Portfolio Holdings'') that will form the basis for the Self-Indexing Fund's calculation of its NAV at the end of the Business Day.\11\ Applicants believe that requiring Self-Indexing Funds, or their respective Master Funds, to maintain full portfolio transparency will provide an effective alternative mechanism for addressing any such potential conflicts of interest. --------------------------------------------------------------------------- \10\ The information provided on the Web site will be formatted to be reader-friendly. \11\ Under accounting procedures followed by each Self-Indexing Fund, trades made on the prior Business Day (``T'') will be booked and reflected in NAV on the current Business Day (``T+1''). Accordingly, the Self-Indexing Funds will be able to disclose at the beginning of each Business Day the portfolio that will form the basis for the NAV calculation at the end of that Business Day. --------------------------------------------------------------------------- 13. Applicants represent that each Self-Indexing Fund's Portfolio Holdings will be as transparent as the portfolio holdings of existing actively managed ETFs. Applicants observe that the framework set forth in the Prior Self-Indexing Orders was established before the Commission began issuing exemptive relief to allow the offering of actively- managed ETFs.\12\ Unlike passively-managed ETFs, actively-managed ETFs do not seek to replicate the performance of a specified index but rather seek to achieve their investment objectives by using an ``active'' management strategy. Applicants contend that the structure of actively managed ETFs presents potential conflicts of interest that are the same as those presented by Self-Indexing Funds because the portfolio managers of an actively managed ETF by definition have advance knowledge of pending portfolio changes. However, rather than requiring Policies and Procedures similar to those required under the Prior Self-Indexing Orders, applicants believe that actively managed ETFs address these potential conflicts of interest appropriately through full portfolio transparency, as the conditions to their relevant exemptive relief require. --------------------------------------------------------------------------- \12\ See, e.g., In the Matter of Huntington Asset Advisors, Inc., et al., Investment Company Act Release Nos. 30032 (April 10, 2012) (notice) and 30061 (May 8, 2012) (order); In the Matter of Russell Investment Management Co., et al., Investment Company Act Release Nos. 29655 (April 20, 2011) (notice) and 29671 (May 16, 2011) (order); In the Matter of Eaton Vance Management, et al., Investment Company Act Release Nos. 29591 (March 11, 2011) (notice) and 29620 (March 30, 2011) (order) and; In the Matter of iShares Trust, et al., Investment Company Act Release Nos. 29543 (Dec. 27, 2010) (notice) and 29571 (Jan. 24, 2011) (order). --------------------------------------------------------------------------- 14. In addition, applicants do not believe the potential for conflicts of interest raised by the Adviser's use of the Underlying Indexes in connection with the management of the Self-Indexing Funds, their respective Master Funds, and the Affiliated Accounts will be substantially different from the potential conflicts presented by an adviser managing two or more registered funds. Both the Act and the Advisers [[Page 11627]] Act contain various protections to address conflicts of interest where an adviser is managing two or more registered funds and these protections will also help address these conflicts with respect to the Self-Indexing Funds.\13\ --------------------------------------------------------------------------- \13\ See, e.g., rule 17j-1 under the Act and section 204A under the Advisers Act and rules 204A-1 and 206(4)-7 under the Advisers Act. --------------------------------------------------------------------------- 15. The Adviser and any Sub-Adviser has adopted or will adopt, pursuant to Rule 206(4)-7 under the Advisers Act, written policies and procedures designed to prevent violations of the Advisers Act and the rules thereunder. These include policies and procedures designed to minimize potential conflicts of interest among the Self-Indexing Funds, their respective Master Funds, and the Affiliated Accounts, such as cross trading policies, as well as those designed to ensure the equitable allocation of portfolio transactions and brokerage commissions. In addition, the Adviser has adopted policies and procedures as required under section 204A of the Advisers Act, which are reasonably designed in light of the nature of its business to prevent the misuse, in violation of the Advisers Act or the Exchange Act or the rules thereunder, of material non-public information by the Adviser or an associated person (``Inside Information Policy''). Any Sub-Adviser will be required to adopt and maintain a similar Inside Information Policy and Code of Ethics.\14\ In accordance with the Code of Ethics and Inside Information Policy of the Adviser and Sub- Advisers, personnel of those entities with knowledge about the composition of the Portfolio Deposit \15\ will be prohibited from disclosing such information to any other person, except as authorized in the course of their employment, until such information is made public. In addition, no Affiliated Index Provider will provide any information relating to changes to an Underlying Index's methodology for the inclusion or exclusion of component securities, or methodology for the calculation or the return of component securities, in advance of a public announcement of such changes by such Affiliated Index Provider. The Adviser will also include under Item 10.C. of Part 2 of its Form ADV a discussion of its relationship to any Affiliated Index Provider and any material conflicts of interest resulting therefrom, regardless of whether the Affiliated Index Provider is a type of affiliate specified in Item 10. --------------------------------------------------------------------------- \14\ The Adviser has also adopted or will adopt a code of ethics pursuant to rule 17j-1 under the Act and rule 204A-1 under the Advisers Act, which contains provisions reasonably necessary to prevent Access Persons (as defined in rule 17j-1) from engaging in any conduct prohibited in rule 17j-1 (``Code of Ethics''). \15\ The instruments and cash that the purchaser is required to deliver in exchange for the Creation Units it is purchasing is referred to as the ``Portfolio Deposit.'' --------------------------------------------------------------------------- 16. To the extent the Self-Indexing Funds or their respective Master Funds transact with an Affiliated Person of the Adviser or Sub- Adviser, such transactions will comply with the Act, the rules thereunder and the terms and conditions of the requested order. In this regard, each Self-Indexing Fund's board of directors or trustees (``Board'') will periodically review the Self-Indexing Fund's use of an Affiliated Index Provider. Subject to the approval of the Self-Indexing Fund's Board, the Adviser, Affiliated Persons of the Adviser (``Adviser Affiliates'') and Affiliated Persons of any Sub-Adviser (``Sub-Adviser Affiliates'') may be authorized to provide custody, fund accounting and administration and transfer agency services to the Self-Indexing Funds. Any services provided by the Adviser, Adviser Affiliates, Sub-Adviser and Sub-Adviser Affiliates will be performed in accordance with the provisions of the Act, the rules under the Act and any relevant guidelines from the staff of the Commission. 17. In light of the foregoing, applicants believe it is appropriate to allow the Self-Indexing Funds to be fully transparent in lieu of Policies and Procedures from the Prior Self-Indexing Orders discussed above. 18. The Shares of each Self-Indexing Fund will be purchased and redeemed in Creation Units and generally on an in-kind basis. Except where the purchase or redemption will include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (``Deposit Instruments''), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (``Redemption Instruments'').\16\ On any given Business Day, the names and quantities of the instruments that constitute the Deposit Instruments and the names and quantities of the instruments that constitute the Redemption Instruments will be identical, unless the Self-Indexing Fund is Rebalancing (as defined below). In addition, the Deposit Instruments and the Redemption Instruments will each correspond pro rata to the positions in the Self-Indexing Fund's portfolio (including cash positions) \17\ except: (a) In the case of bonds, for minor differences when it is impossible to break up bonds beyond certain minimum sizes needed for transfer and settlement; (b) for minor differences when rounding is necessary to eliminate fractional shares or lots that are not tradeable round lots; \18\ (c) TBA Transactions, short positions, derivatives and other positions that cannot be transferred in kind \19\ will be excluded from the Deposit Instruments and the Redemption Instruments; \20\(d) to the extent the Self-Indexing Fund determines, on a given Business Day, to use a representative sampling of the Self- Indexing Fund's portfolio; \21\ or (e) for temporary periods, to effect changes in the Self-Indexing Fund's portfolio as a result of the rebalancing of its Underlying Index (any such change, a ``Rebalancing''). If there is a difference between the NAV attributable to a Creation Unit and the aggregate market value of the Deposit Instruments or Redemption Instruments exchanged for the Creation Unit, the party conveying instruments with the lower value will also pay to the other an amount in cash equal to that difference (the ``Cash Amount''). --------------------------------------------------------------------------- \16\ The Self-Indexing Funds must comply with the federal securities laws in accepting Deposit Instruments and satisfying redemptions with Redemption Instruments, including that the Deposit Instruments and Redemption Instruments are sold in transactions that would be exempt from registration under the Securities Act of 1933 (``Securities Act''). In accepting Deposit Instruments and satisfying redemptions with Redemption Instruments that are restricted securities eligible for resale pursuant to rule 144A under the Securities Act, the Self-Indexing Funds will comply with the conditions of rule 144A. \17\ The portfolio used for this purpose will be the same portfolio used to calculate the Self-Indexing Fund's NAV for the Business Day. \18\ A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. \19\ This includes instruments that can be transferred in kind only with the consent of the original counterparty to the extent the Self-Indexing Fund does not intend to seek such consents. \20\ Because these instruments will be excluded from the Deposit Instruments and the Redemption Instruments, their value will be reflected in the determination of the Cash Amount (defined below). \21\ A Self-Indexing Fund may only use sampling for this purpose if the sample: (i) Is designed to generate performance that is highly correlated to the performance of the Self-Indexing Fund's portfolio; (ii) consists entirely of instruments that are already included in the Self-Indexing Fund's portfolio; and (iii) is the same for all Authorized Participants (defined below) on a given Business Day. --------------------------------------------------------------------------- 19. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in kind, solely under the following circumstances: (a) To the extent there is a Cash Amount; (b) if, on a given Business Day, the Self-Indexing Fund announces before the open of trading that all purchases, all redemptions or all purchases and redemptions on that day will be made entirely in cash; (c) if, [[Page 11628]] upon receiving a purchase or redemption order from an Authorized Participant, the Self-Indexing Fund determines to require the purchase or redemption, as applicable, to be made entirely in cash; \22\ (d) if, on a given Business Day, the Self-Indexing Fund requires all Authorized Participants purchasing or redeeming Shares on that day to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are not eligible for transfer through either the NSCC or DTC (defined below); or (ii) in the case of International and Global Funds holding non-U.S. investments, such instruments are not eligible for trading due to local trading restrictions, local restrictions on securities transfers or other similar circumstances; or (e) if the Self-Indexing Fund permits an Authorized Participant to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are, in the case of the purchase of a Creation Unit, not available in sufficient quantity; (ii) such instruments are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting; or (iii) a holder of Shares of an International Fund or Global Fund holding non-U.S. investments would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind.\23\ --------------------------------------------------------------------------- \22\ In determining whether a particular Self-Indexing Fund will sell or redeem Creation Units entirely on a cash or in-kind basis (whether for a given day or a given order), the key consideration will be the benefit that would accrue to the Self-Indexing Fund and its investors. For instance, in bond transactions, the Adviser may be able to obtain better execution than Share purchasers because of the Adviser's size, experience and potentially stronger relationships in the fixed income markets. Purchases of Creation Units either on an all cash basis or in-kind are expected to be neutral to the Self-Indexing Funds from a tax perspective. In contrast, cash redemptions typically require selling portfolio holdings, which may result in adverse tax consequences for the remaining Self-Indexing Fund shareholders that would not occur with an in-kind redemption. As a result, tax consideration may warrant in-kind redemptions. \23\ A ``custom order'' is any purchase or redemption of Shares made in whole or in part on a cash basis in reliance on clause (e)(i) or (e)(ii). --------------------------------------------------------------------------- 20. Creation Units will consist of specified large aggregations of Shares, e.g., at least 25,000 Shares, and it is expected that the initial price of a Creation Unit will range from $1 million to $15 million. All orders to purchase Creation Units must be placed with the Distributor by or through an ``Authorized Participant'' which is either (1) a ``Participating Party,'' i.e., a broker-dealer or other participant in the Continuous Net Settlement System of the NSCC, a clearing agency registered with the Commission, or (2) a participant in The Depository Trust Company (``DTC'') (``DTC Participant''), which, in either case, has signed a participant agreement with the Distributor. The Distributor will be responsible for transmitting the orders to the Self-Indexing Funds and will furnish to those placing such orders confirmation that the orders have been accepted, but applicants state that the Distributor may reject any order which is not submitted in proper form. 21. Each Business Day, before the open of trading on the Listing Exchange, each Self-Indexing Fund will cause to be published through the NSCC the names and quantities of the instruments comprising the Deposit Instruments and the Redemption Instruments, as well as the estimated Cash Amount (if any), for that day. The list of Deposit Instruments and Redemption Instruments will apply until a new list is announced on the following Business Day, and there will be no intra-day changes to the list except to correct errors in the published list. Each Listing Exchange will disseminate, every 15 seconds during regular Exchange trading hours, through the facilities of the Consolidated Tape Association, an amount for each Self-Indexing Fund stated on a per individual Share basis representing the sum of (i) the estimated Cash Amount and (ii) the current value of the Portfolio Securities and other assets of the Self-Indexing Fund. 22. Transaction expenses, including operational processing and brokerage costs, will be incurred by a Self-Indexing Fund when investors purchase or redeem Creation Units in-kind and such costs have the potential to dilute the interests of the Self-Indexing Fund's existing shareholders. Each Self-Indexing Fund may (but is not required to) impose purchase or redemption transaction fees (``Transaction Fees'') in connection with effecting such purchases or redemptions of Creation Units. With respect to Feeder Funds, the Transaction Fee would be paid indirectly to the Master Fund.\24\ In all cases, such Transaction Fees will be limited in accordance with requirements of the Commission applicable to management investment companies offering redeemable securities. Since the Transaction Fees are intended to defray the transaction expenses as well as to prevent possible shareholder dilution resulting from the purchase or redemption of Creation Units, the Transaction Fees will be borne only by such purchasers or redeemers.\25\ The Distributor will be responsible for delivering the Self-Indexing Fund's prospectus to those persons acquiring Shares in Creation Units and for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. In addition, the Distributor will maintain a record of the instructions given to the applicable Fund to implement the delivery of its Shares. --------------------------------------------------------------------------- \24\ Applicants are not requesting relief from section 18 of the Act. Accordingly, a Master Fund may require a Transaction Fee payment to cover expenses related to purchases or redemptions of the Master Fund's shares by a Feeder Fund only if it requires the same payment for equivalent purchases or redemptions by any other feeder fund. Thus, for example, a Master Fund may require payment of a Transaction Fee by a Feeder Fund for transactions for 20,000 or more shares so long as it requires payment of the same Transaction Fee by all feeder funds for transactions involving 20,000 or more shares. \25\ Where a Self-Indexing Fund permits an in-kind purchaser (or redeeming investor) to substitute (or receive) cash-in-lieu of depositing one or more of the requisite Deposit Instruments (or receiving one or more Portfolio Securities), the purchaser (or redeeming investor) may be assessed a higher Transaction Fee to cover the cost of purchasing such Deposit Instruments (or selling such Portfolio Securities). --------------------------------------------------------------------------- 23. Shares of each Self-Indexing Fund will be listed and traded individually on an Exchange. It is expected that one or more member firms of an Exchange will be designated to act as a market maker (each, a ``Market Maker'') and maintain a market for Shares trading on the Exchange. Prices of Shares trading on an Exchange will be based on the current bid/offer market. Transactions involving the sale of Shares on an Exchange will be subject to customary brokerage commissions and charges. 24. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Market Makers, acting in their roles to provide a fair and orderly secondary market for the Shares, may from time to time find it appropriate to purchase or redeem Creation Units. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.\26\ The price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. --------------------------------------------------------------------------- \26\ Shares will be registered in book-entry form only. DTC or its nominee will be the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or the DTC Participants. --------------------------------------------------------------------------- [[Page 11629]] 25. Shares will not be individually redeemable, and owners of Shares may acquire those Shares from the Self-Indexing Fund, or tender such Shares for redemption to the Self-Indexing Fund, in Creation Units only. To redeem, an investor must accumulate enough Shares to constitute a Creation Unit. Redemption requests must be placed through an Authorized Participant. A redeeming investor may pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with purchases of Creation Units. 26. Neither the Trust nor any Self-Indexing Fund will be advertised or marketed or otherwise held out as a traditional open-end investment company or a ``mutual fund.'' Instead, each such Self-Indexing Fund will be marketed as an ``ETF.'' All marketing materials that describe the features or method of obtaining, buying or selling Creation Units, or Shares traded on an Exchange, or refer to redeemability, will prominently disclose that Shares are not individually redeemable and will disclose that the owners of Shares may acquire those Shares from the Self-Indexing Fund or tender such Shares for redemption to the Self-Indexing Fund in Creation Units only. The Self-Indexing Funds will provide copies of their annual and semi-annual shareholder reports to DTC Participants for distribution to beneficial owners of Shares. Applicants' Legal Analysis 1. Applicants request an order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and (B) of 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. 2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the proposed transaction is consistent with the policies of the registered investment company and the general provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provisions of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Sections 5(a)(1) and 2(a)(32) of the Act 3. Section 5(a)(1) of the Act defines an ``open-end company'' as a management investment company that is offering for sale or has outstanding any redeemable security of which it is the issuer. Section 2(a)(32) of the Act defines a redeemable security as any security, other than short-term paper, under the terms of which the owner, upon its presentation to the issuer, is entitled to receive approximately a proportionate share of the issuer's current net assets, or the cash equivalent. Because Shares will not be individually redeemable, applicants request an order that would permit the Self-Indexing Funds to register as open-end management investment companies and issue Shares that are redeemable in Creation Units only.\27\ Applicants state that investors may purchase Shares in Creation Units and redeem Creation Units from each Self-Indexing Fund. Applicants further state that because Creation Units may always be purchased and redeemed at NAV, the price of Shares on the secondary market should not vary materially from NAV. --------------------------------------------------------------------------- \27\ The Master Funds will not require relief from sections 2(a)(32) and 5(a)(1) because the Master Funds will issue individually redeemable securities. --------------------------------------------------------------------------- Section 22(d) of the Act and Rule 22c-1 Under the Act 4. Section 22(d) of the Act, among other things, prohibits a dealer from selling a redeemable security that is currently being offered to the public by or through an underwriter, except at a current public offering price described in the prospectus. Rule 22c-1 under the Act generally requires that a dealer selling, redeeming or repurchasing a redeemable security do so only at a price based on its NAV. Applicants state that secondary market trading in Shares will take place at negotiated prices, not at a current offering price described in a Self- Indexing Fund's prospectus, and not at a price based on NAV. Thus, purchases and sales of Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c-1 under the Act. Applicants request an exemption under section 6(c) from these provisions. 5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c-1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing Shares. Applicants maintain that while there is little legislative history regarding section 22(d), its provisions, as well as those of rule 22c- 1, appear to have been designed to (a) prevent dilution caused by certain riskless-trading schemes by principal underwriters and contract dealers, (b) prevent unjust discrimination or preferential treatment among buyers, and (c) ensure an orderly distribution of investment company shares by eliminating price competition from dealers offering shares at less than the published sales price and repurchasing shares at more than the published redemption price. 6. Applicants believe that none of these purposes will be thwarted by permitting Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Shares does not involve a Self-Indexing Fund as a party and will not result in dilution of an investment in Shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in Shares will not lead to discrimination or preferential treatment among purchasers. Finally, applicants contend that the price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. Section 22(e) 7. Section 22(e) of the Act generally prohibits a registered investment company from suspending the right of redemption or postponing the date of payment of redemption proceeds for more than seven days after the tender of a security for redemption. Applicants state that settlement of redemptions for International and Global Funds will be contingent not only on the settlement cycle of the United States market, but also on current delivery cycles in local markets for underlying foreign Portfolio Securities held by an International Fund or Global Fund. Applicants state that the delivery cycles currently practicable [[Page 11630]] for transferring Redemption Instruments to redeeming investors, coupled with local market holiday schedules, may require a delivery process of up to fifteen (15) calendar days.\28\ Accordingly, with respect to International and Global Funds only, applicants hereby request relief under section 6(c) from the requirement imposed by section 22(e) to allow International and Global Funds to pay redemption proceeds within fifteen calendar days following the tender of Creation Units for redemption.\29\ --------------------------------------------------------------------------- \28\ Certain countries in which a Self-Indexing Fund may invest have historically had settlement periods of up to fifteen (15) calendar days. \29\ Applicants acknowledge that no relief obtained from the requirements of section 22(e) will affect any obligations applicants may otherwise have under rule 15c6-1 under the Exchange Act requiring that most securities transactions be settled within three business days of the trade date. --------------------------------------------------------------------------- 8. Applicants believe that Congress adopted section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. Applicants propose that allowing redemption payments for Creation Units of an International Fund or Global Fund to be made within fifteen calendar days would not be inconsistent with the spirit and intent of section 22(e). Applicants suggest that a redemption payment occurring within fifteen calendar days following a redemption request would adequately afford investor protection. 9. Applicants are not seeking relief from section 22(e) with respect to International and Global Funds that do not effect creations and redemptions of Creation Units in-kind.\30\ --------------------------------------------------------------------------- \30\ In addition, the requested exemption from section 22(e) would only apply to in-kind redemptions by the Feeder Funds and would not apply to in-kind redemptions by other feeder funds. --------------------------------------------------------------------------- Section 12(d)(1) 10. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring securities of an investment company if such securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter and any other broker-dealer from knowingly selling the investment company's shares to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company's voting stock, or if the sale will cause more than 10% of the acquired company's voting stock to be owned by investment companies generally. 11. Applicants request an exemption to permit registered management investment companies and unit investment trusts (``UITs'') that are not advised or sponsored by the Adviser, and not part of the same ``group of investment companies,'' as defined in section 12(d)(1)(G)(ii) of the Act as the Self-Indexing Funds (such management investment companies are referred to as ``Investing Management Companies,'' such UITs are referred to as ``Investing Trusts,'' and Investing Management Companies and Investing Trusts are collectively referred to as ``Funds of Funds''), to acquire Shares beyond the limits of section 12(d)(1)(A) of the Act; and the Self-Indexing Funds, and any principal underwriter for the Self-Indexing Funds, and/or any Broker registered under the Exchange Act, to sell Shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 12. Each Investing Management Company will be advised by an investment adviser within the meaning of section 2(a)(20)(A) of the Act (the ``Fund of Funds Adviser'') and may be sub-advised by investment advisers within the meaning of section 2(a)(20)(B) of the Act (each a ``Fund of Funds Sub-Adviser''). Any investment adviser to an Investing Management Company will be registered under the Advisers Act. Each Investing Trust will be sponsored by a sponsor (``Sponsor''). 13. Applicants submit that the proposed conditions to the requested relief adequately address the concerns underlying the limits in sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, excessive layering of fees and overly complex fund structures. Applicants believe that the requested exemption is consistent with the public interest and the protection of investors. 14. Applicants believe that neither a Fund of Funds nor a Fund of Funds Affiliate would be able to exert undue influence over a Self- Indexing Fund.\31\ To limit the control that a Fund of Funds may have over a Self-Indexing Fund, applicants propose a condition prohibiting a Fund of Funds Adviser or Sponsor, any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor, and any investment company and any issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds Adviser or Sponsor, or any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor (``Fund of Funds Advisory Group'') from controlling (individually or in the aggregate) a Self-Indexing Fund within the meaning of section 2(a)(9) of the Act. The same prohibition would apply to any Fund of Funds Sub-Adviser, any person controlling, controlled by or under common control with the Fund of Funds Sub- Adviser, and any investment company or issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Fund of Funds Sub-Adviser or any person controlling, controlled by or under common control with the Fund of Funds Sub-Adviser (``Fund of Funds Sub-Advisory Group''). --------------------------------------------------------------------------- \31\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, Fund of Funds Sub-Adviser, Sponsor, promoter, and principal underwriter of a Fund of Funds, and any person controlling, controlled by, or under common control with any of those entities. A ``Self-Indexing Fund Affiliate'' is an investment adviser, promoter, or principal underwriter of a Self-Indexing Fund and any person controlling, controlled by or under common control with any of these entities. --------------------------------------------------------------------------- 15. Applicants propose other conditions to limit the potential for undue influence over the Self-Indexing Funds, including that no Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Self-Indexing Fund) will cause a Self-Indexing Fund to purchase a security in an offering of securities during the existence of an underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate (``Affiliated Underwriting''). An ``Underwriting Affiliate'' is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of Funds, or a person of which any such officer, director, member of an advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, employee or Sponsor is an affiliated person (except that any person whose relationship to the Self-Indexing Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). 16. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. The board of directors or trustees of any Investing Management Company, including a majority of the directors or trustees who are not ``interested persons'' within the meaning of section 2(a)(19) of the Act [[Page 11631]] (``disinterested directors or trustees''), will find that the advisory fees charged under the contract are based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract of any Self-Indexing Fund, or its respective Master Fund, in which the Investing Management Company may invest. In addition, under condition B.5., a Fund of Funds Adviser, or a Fund of Funds' trustee or Sponsor, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Self-Indexing Fund, or its respective Master Fund, under rule 12b-1 under the Act) received from a Self-Indexing Fund by the Fund of Funds Adviser, trustee or Sponsor or an affiliated person of the Fund of Funds Adviser, trustee or Sponsor, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or its affiliated person by a Self-Indexing Fund, in connection with the investment by the Fund of Funds in the Self-Indexing Fund. Applicants state that any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830.\32\ --------------------------------------------------------------------------- \32\ Any references to NASD Conduct Rule 2830 include any successor or replacement FINRA rule to NASD Conduct Rule 2830. --------------------------------------------------------------------------- 17. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that no Self-Indexing Fund, or its respective Master Fund, will acquire securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent permitted by exemptive relief from the Commission permitting the Self-Indexing Fund, or its respective Master Fund, to purchase shares of other investment companies for short-term cash management purposes. To ensure a Fund of Funds is aware of the terms and conditions of the requested order, the Fund of Funds will enter into an agreement with the Self-Indexing Fund (``FOF Participation Agreement''). The FOF Participation Agreement will include an acknowledgement from the Fund of Funds that it may rely on the order only to invest in the Self-Indexing Funds and not in any other investment company. 18. Applicants also note that a Self-Indexing Fund may choose to reject a direct purchase of Shares in Creation Units by a Fund of Funds. To the extent that a Fund of Funds purchases Shares in the secondary market, a Self-Indexing Fund would still retain its ability to reject any initial investment by a Fund of Funds in excess of the limits of section 12(d)(1)(A) by declining to enter into a FOF Participation Agreement with the Fund of Funds. 19. Applicants also are seeking the Master-Feeder Relief to permit the Feeder Funds to perform creations and redemptions of Shares in-kind in a master-feeder structure. Applicants assert that this structure is substantially identical to traditional master-feeder structures permitted pursuant to the exception provided in section 12(d)(1)(E) of the Act. Section 12(d)(1)(E) provides that the percentage limitations of section 12(d)(1)(A) and (B) shall not apply to a security issued by an investment company (in this case, the shares of the applicable Master Fund) if, among other things, that security is the only investment security held by the investing investment company (in this case, the Feeder Fund). Applicants believe the proposed master-feeder structure complies with section 12(d)(1)(E) because each Feeder Fund will hold only investment securities issued by its corresponding Master Fund; however, the Feeder Funds may receive securities other than securities of its corresponding Master Fund if a Feeder Fund accepts an in-kind creation. To the extent that a Feeder Fund may be deemed to be holding both shares of the Master Fund and other securities, applicants request relief from section 12(d)(1)(A) and (B). The Feeder Funds would operate in compliance with all other provisions of section 12(d)(1)(E). Sections 17(a)(1) and (2) of the Act 20. Sections 17(a)(1) and (2) of the Act generally prohibit an affiliated person of a registered investment company, or an affiliated person of such a person, from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines ``affiliated person'' of another person to include (a) any person directly or indirectly owning, controlling or holding with power to vote 5% or more of the outstanding voting securities of the other person, (b) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with the power to vote by the other person, and (c) any person directly or indirectly controlling, controlled by or under common control with the other person. Section 2(a)(9) of the Act defines ``control'' as the power to exercise a controlling influence over the management or policies of a company, and provides that a control relationship will be presumed where one person owns more than 25% of a company's voting securities. The Self-Indexing Funds may be deemed to be controlled by the Adviser or an entity controlling, controlled by or under common control with the Adviser and hence affiliated persons of each other. In addition, the Self-Indexing Funds may be deemed to be under common control with any other registered investment company (or series thereof) advised by an Adviser or an entity controlling, controlled by or under common control with an Adviser (an ``Affiliated Fund''). Any investor, including Market Makers, owning 5% or holding in excess of 25% of the Trust or such Self-Indexing Funds, may be deemed affiliated persons of the Trust or such Self-Indexing Funds. In addition, an investor could own 5% or more, or in excess of 25% of the outstanding shares of one or more Affiliated Funds making that investor a Second- Tier Affiliate of the Self-Indexing Funds. 21. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to permit persons that are Affiliated Persons of the Self-Indexing Funds, or Second-Tier Affiliates of the Self-Indexing Funds, solely by virtue of one or more of the following: (a) Holding 5% or more, or in excess of 25%, of the outstanding Shares of one or more Self-Indexing Funds; (b) an affiliation with a person with an ownership interest described in (a); or (c) holding 5% or more, or more than 25%, of the shares of one or more Affiliated Funds, to effectuate purchases and redemptions ``in-kind.'' 22. Applicants assert that no useful purpose would be served by prohibiting such affiliated persons from making ``in-kind'' purchases or ``in-kind'' redemptions of Shares of a Self-Indexing Fund in Creation Units. Both the deposit procedures for ``in-kind'' purchases of Creation Units and the redemption procedures for ``in-kind'' redemptions of Creation Units will be effected in exactly the same manner for all purchases and redemptions, regardless of size or number. There will be no discrimination between purchasers or redeemers. Deposit Instruments and Redemption Instruments for each Self-Indexing Fund will be valued in the identical manner as those Portfolio Securities currently held by such Self-Indexing Fund and the valuation of the Deposit Instruments and Redemption Instruments will be made in an identical manner regardless of the identity of the purchaser or redeemer. Applicants do not believe [[Page 11632]] that ``in-kind'' purchases and redemptions will result in abusive self- dealing or overreaching, but rather assert that such procedures will be implemented consistently with each Self-Indexing Fund's objectives and with the general purposes of the Act. Applicants believe that ``in- kind'' purchases and redemptions will be made on terms reasonable to applicants and any Affiliated Persons because they will be valued pursuant to verifiable objective standards. The method of valuing Portfolio Securities held by a Self-Indexing Fund is identical to that used for calculating ``in-kind'' purchase or redemption values and therefore creates no opportunity for Affiliated Persons or Second-Tier Affiliates of applicants to effect a transaction detrimental to the other holders of Shares of that Self-Indexing Fund. Similarly, applicants submit that, by using the same standards for valuing Portfolio Securities held by a Self-Indexing Fund as are used for calculating ``in-kind'' redemptions or purchases, the Self-Indexing Fund, or its respective Master Fund, will ensure that its NAV will not be adversely affected by such securities transactions. Applicants also note that the ability to take deposits and make redemptions ``in-kind'' will help each Self-Indexing Fund, or its respective Master fund, to track closely its Underlying Index and therefore aid in achieving the Self-Indexing Fund's objectives. 23. Applicants also seek relief under sections 6(c) and 17(b) from section 17(a) to permit a Self-Indexing Fund that is an Affiliated Person, or a Second-Tier Affiliate, of a Fund of Funds to sell its Shares to and redeem its Shares from a Fund of Funds, and to engage in any accompanying in-kind transactions with the Fund of Funds.\33\ Applicants state that the terms of the transactions are fair and reasonable and do not involve overreaching. Applicants note that any consideration paid by a Fund of Funds for the purchase or redemption of Shares directly from a Self-Indexing Fund will be based on the NAV of the Self-Indexing Fund.\34\ Applicants believe that any proposed transactions directly between the Self-Indexing Funds and Funds of Funds will be consistent with the policies of each Fund of Funds. The purchase of Creation Units by a Fund of Funds directly from a Self- Indexing Fund will be accomplished in accordance with the investment restrictions of any such Fund of Funds and will be consistent with the investment policies set forth in the Fund of Funds' registration statement. Applicants also state that the proposed transactions are consistent with the general purposes of the Act and are appropriate in the public interest. --------------------------------------------------------------------------- \33\ Although applicants believe that most Funds of Funds will purchase Shares in the secondary market and will not purchase Creation Units directly from a Self-Indexing Fund, a Fund of Funds might seek to transact in Creation Units directly with a Self- Indexing Fund that is an affiliated person of a Fund of Funds. To the extent that purchases and sales of Shares occur in the secondary market and not through principal transactions directly between a Fund of Funds and a Self-Indexing Fund, relief from section 17(a) would not be necessary. However, the requested relief would apply to direct sales of Shares in Creation Units by a Self-Indexing Fund to a Fund of Funds and redemptions of those Shares. Applicants are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Self-Indexing Fund could be deemed an affiliated person, or an affiliated person of an affiliated person of a Fund of Funds because an Adviser or an entity controlling, controlled by or under common control with an Adviser provides investment advisory services to that Fund of Funds. \34\ Applicants acknowledge that the receipt of compensation by (a) an affiliated person of a Fund of Funds, or an affiliated person of such person, for the purchase by the Fund of Funds of Shares of a Self-Indexing Fund or (b) an affiliated person of a Self-Indexing Fund, or an affiliated person of such person, for the sale by the Self-Indexing Fund of its Shares to a Fund of Funds, may be prohibited by section 17(e)(1) of the Act. The FOF Participation Agreement also will include this acknowledgment. --------------------------------------------------------------------------- 24. To the extent that a Fund operates in a master-feeder structure, applicants also request relief permitting the Feeder Funds to engage in in-kind creations and redemptions with the applicable Master Fund. Applicants state that the customary section 17(a)(1) and 17(a)(2) relief would not be sufficient to permit such transactions because the Feeder Funds and the applicable Master Fund could also be affiliated by virtue of having the same investment adviser. However, applicants believe that in-kind creations and redemptions between a Feeder Fund and a Master Fund advised by the same investment adviser do not involve ``overreaching'' by an affiliated person. Such transactions will occur only at the Feeder Fund's proportionate share of the Master Fund's net assets, and the distributed securities will be valued in the same manner as they are valued for the purposes of calculating the applicable Master Fund's NAV. Further, all such transactions will be effected with respect to pre-determined securities and on the same terms with respect to all investors. Finally, such transaction would only occur as a result of, and to effectuate, a creation or redemption transaction between the Feeder Fund and a third-party investor. Applicants believe that the terms of the proposed transactions are reasonable and fair and do not involve overreaching on the part of any person concerned, the proposed transactions are consistent with the policy of each Fund and will be consistent with the investment objectives and policies of each Fund of Funds, and the proposed transactions are consistent with the general purposes of the Act. Applicants' Conditions Applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions: A. ETF Relief 1. The requested relief, other than the section 12(d)(1) relief and the Master-Feeder Relief, to permit ETF operations will expire on the effective date of any Commission rule under the Act that provides relief permitting the operation of index-based ETFs. 2. As long as a Self-Indexing Fund operates in reliance on the requested order, the Shares of such Self-Indexing Fund will be listed on an Exchange. 3. Neither the Trust nor any Self-Indexing Fund will be advertised or marketed as an open-end investment company or a mutual fund. Any advertising material that describes the purchase or sale of Creation Units or refers to redeemability will prominently disclose that Shares are not individually redeemable and that owners of Shares may acquire those Shares from the Self-Indexing Fund and tender those Shares for redemption to a Self-Indexing Fund in Creation Units only. 4. The Web site, which is and will be publicly accessible at no charge, will contain, on a per Share basis for each Self-Indexing Fund, the prior Business Day's NAV and the market closing price or the midpoint of the bid/ask spread at the time of the calculation of such NAV (``Bid/Ask Price''), and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV. 5. Each Self-Indexing Fund will post on the Web site on each Business Day, before commencement of trading of Shares on the Exchange, the identities and quantities of the Self-Indexing Fund's, or its respective Master Fund's, Portfolio Holdings. 6. No Adviser or any Sub-Adviser, directly or indirectly, will cause any Authorized Participant (or any investor on whose behalf an Authorized Participant may transact with the Self-Indexing Fund) to acquire any Deposit Instrument for a Self-Indexing Fund, or its respective Master Fund, through a transaction in which the Self- Indexing Fund, or its respective Master Fund, could not engage directly. [[Page 11633]] B. Section 12(d)(1) Relief 1. The members of a Fund of Funds' Advisory Group will not control (individually or in the aggregate) a Self-Indexing Fund, or its respective Master Fund, within the meaning of section 2(a)(9) of the Act. The members of a Fund of Funds' Sub-Advisory Group will not control (individually or in the aggregate) a Self-Indexing Fund, or its respective Master Fund, within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of a Self-Indexing Fund, the Fund of Funds' Advisory Group or the Fund of Funds' Sub-Advisory Group, each in the aggregate, becomes a holder of more than 25 percent of the outstanding voting securities of a Self- Indexing Fund, it will vote its Shares of the Self-Indexing Fund in the same proportion as the vote of all other holders of the Self-Indexing Fund's Shares. This condition does not apply to the Fund of Funds' Sub- Advisory Group with respect to a Self-Indexing Fund, or its respective Master Fund, for which the Fund of Funds' Sub-Adviser or a person controlling, controlled by or under common control with the Fund of Funds' Sub-Adviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. 2. No Fund of Funds or Fund of Funds Affiliate will cause any existing or potential investment by the Fund of Funds in a Self- Indexing Fund to influence the terms of any services or transactions between the Fund of Funds or Fund of Funds Affiliate and the Self- Indexing Fund, or its respective Master Fund, or a Self-Indexing Fund Affiliate. 3. The board of directors or trustees of an Investing Management Company, including a majority of the disinterested directors or trustees, will adopt procedures reasonably designed to ensure that the Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the investment program of the Investing Management Company without taking into account any consideration received by the Investing Management Company or a Fund of Funds Affiliate from a Self-Indexing Fund, or its respective Master Fund, or Self-Indexing Fund Affiliate in connection with any services or transactions. 4. Once an investment by a Fund of Funds in the securities of a Self-Indexing Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board of the Self-Indexing Fund, or its respective Master Fund, including a majority of the directors or trustees who are not ``interested persons'' within the meaning of section 2(a)(19) of the Act (``non-interested Board members''), will determine that any consideration paid by the Self-Indexing Fund, or its respective Master Fund, to the Fund of Funds or a Fund of Funds Affiliate in connection with any services or transactions: (i) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Self-Indexing Fund, or its respective Master Fund; (ii) is within the range of consideration that the Self-Indexing Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (iii) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between a Self- Indexing Fund, or its respective Master Fund, and its investment adviser(s), or any person controlling, controlled by or under common control with such investment adviser(s). 5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Self- Indexing Fund, or its respective Master Fund, under rule 12b-l under the Act) received from a Self-Indexing Fund, or its respective Master Fund, by the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated person of the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor of an Investing Trust, or its affiliated person by the Self-Indexing Fund, or its respective Master Fund, in connection with the investment by the Fund of Funds in the Self-Indexing Fund. Any Fund of Funds Sub-Adviser will waive fees otherwise payable to the Fund of Funds Sub-Adviser, directly or indirectly, by the Investing Management Company in an amount at least equal to any compensation received from a Self-Indexing Fund, or its respective Master Fund, by the Fund of Funds Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser, other than any advisory fees paid to the Fund of Funds Sub-Adviser or its affiliated person by the Self-Indexing Fund, or its respective Master Fund, in connection with the investment by the Investing Management Company in the Self-Indexing Fund made at the direction of the Fund of Funds Sub-Adviser. In the event that the Fund of Funds Sub-Adviser waives fees, the benefit of the waiver will be passed through to the Investing Management Company. 6. No Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Self- Indexing Fund) will cause a Self-Indexing Fund, or its respective Master Fund, to purchase a security in any Affiliated Underwriting. 7. The Board of a Self-Indexing Fund, or its respective Master Fund, including a majority of the non-interested Board members, will adopt procedures reasonably designed to monitor any purchases of securities by a Self-Indexing Fund, or its respective Master Fund, in an Affiliated Underwriting, once an investment by a Fund of Funds in the securities of the Self-Indexing Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Fund of Funds in the Self-Indexing Fund. The Board will consider, among other things: (i) Whether the purchases were consistent with the investment objectives and policies of the Self-Indexing Fund, or its respective Master Fund; (ii) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (iii) whether the amount of securities purchased by the Self-Indexing Fund, or its respective Master Fund, in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to ensure that purchases of securities in Affiliated Underwritings are in the best interest of shareholders of the Self- Indexing Fund. 8. Each Self-Indexing Fund, or its respective Master Fund, will maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any purchase in an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in Affiliated Underwritings [[Page 11634]] once an investment by a Fund of Funds in the securities of the Self- Indexing Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom the securities were acquired, the identity of the underwriting syndicate's members, the terms of the purchase, and the information or materials upon which the Board's determinations were made. 9. Before investing in a Self-Indexing Fund in excess of the limit in section 12(d)(1)(A), a Fund of Funds and the Trust will execute a FOF Participation Agreement stating without limitation that their respective boards of directors or trustees and their investment advisers, or trustee and Sponsor, as applicable, understand the terms and conditions of the order, and agree to fulfill their responsibilities under the order. At the time of its investment in Shares of a Self-Indexing Fund in excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the Self-Indexing Fund of the investment. At such time, the Fund of Funds will also transmit to the Self-Indexing Fund a list of the names of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will notify the Self-Indexing Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Self-Indexing Fund and the Fund of Funds will maintain and preserve a copy of the order, the FOF Participation Agreement, and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place. 10. Before approving any advisory contract under section 15 of the Act, the board of directors or trustees of each Investing Management Company including a majority of the disinterested directors or trustees, will find that the advisory fees charged under such contract are based on services provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Self-Indexing Fund, or its respective Master Fund, in which the Investing Management Company may invest. These findings and their basis will be fully recorded in the minute books of the appropriate Investing Management Company. 11. Any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830. 12. No Self-Indexing Fund, or its respective Master Fund, will acquire securities of any other investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent (i) the Self-Indexing Fund, or its respective Master Fund, acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Self-Indexing Fund, or its respective Master Fund, to acquire securities of one or more investment companies for short-term cash management purposes or (ii) the Self- Indexing Fund acquires securities of the Master Fund pursuant to the Master-Feeder Relief. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016-04794 Filed 3-3-16; 8:45 am] BILLING CODE 8011-01-P
![11624 Federal Register / Vol. 81, No. 43 / Friday, March 4, 2016 / Notices
purchased by the Fund in Affiliated directors or trustees, will find that the provided by an affiliated person to issue
Underwritings and the amount advisory fees charged under such shares (‘‘Shares’’) redeemable in large
purchased directly from an contract are based on services provided aggregations only (‘‘Creation Units’’); (b)
Underwriting Affiliate have changed that will be in addition to, rather than secondary market transactions in Shares
significantly from prior years. The duplicative of, the services provided to occur at negotiated market prices
Board will take any appropriate actions under the advisory contract(s) of any rather than at net asset value (‘‘NAV’’);
based on its review, including, if Fund in which the Investing (c) certain series to pay redemption
appropriate, the institution of Management Company may invest. proceeds, under certain circumstances,
procedures designed to ensure that These findings and their basis will be more than seven days after the tender of
purchases of securities in Affiliated fully recorded in the minute books of Shares for redemption; (d) certain
Underwritings are in the best interest of the appropriate Investing Management affiliated persons of the series to deposit
shareholders of the Fund. Company. securities into, and receive securities
8. Each Fund will maintain and 11. Any sales charges and/or service from, the series in connection with the
preserve permanently in an easily fees charged with respect to shares of a purchase and redemption of Creation
accessible place a written copy of the Fund of Funds will not exceed the Units; (e) certain registered management
procedures described in the preceding limits applicable to a fund of funds as investment companies and unit
condition, and any modifications to set forth in NASD Conduct Rule 2830. investment trusts outside of the same
such procedures, and will maintain and 12. No Fund will acquire securities of group of investment companies as the
preserve for a period of not less than six an investment company or company series to acquire Shares; and (f) certain
years from the end of the fiscal year in relying on section 3(c)(1) or 3(c)(7) of series to perform creations and
which any purchase in an Affiliated the Act in excess of the limits contained redemptions of Creation Units in-kind
Underwriting occurred, the first two in section 12(d)(1)(A) of the Act, except in a master-feeder structure.
years in an easily accessible place, a to the extent the Fund acquires Applicants: Charles Schwab
written record of each purchase of securities of another investment Investment Management, Inc. (‘‘CSIM’’
securities in Affiliated Underwritings company pursuant to exemptive relief or ‘‘Current Adviser’’), Schwab Strategic
once an investment by a Fund of Funds from the Commission permitting the Trust (‘‘Trust’’), and SEI Investments
in the securities of the Fund exceeds the Fund to acquire securities of one or Distribution Co. (‘‘SEI’’ or
limit of section 12(d)(1)(A)(i) of the Act, more investment companies for short- ‘‘Distributor’’).
setting forth from whom the securities term cash management purposes.
were acquired, the identity of the DATES: Filing Dates: The application was
underwriting syndicate’s members, the For the Commission, by the Division of filed on June 5, 2015 and amended on
Investment Management, under delegated September 4, 2015 and December 24,
terms of the purchase, and the
authority.
information or materials upon which 2015.
the Board’s determinations were made. Robert W. Errett,
Hearing or Notification of Hearing: An
9. Before investing in a Fund in Deputy Secretary. order granting the requested relief will
excess of the limit in section [FR Doc. 2016–04722 Filed 3–3–16; 8:45 am] be issued unless the Commission orders
12(d)(1)(A), a Fund of Funds and the BILLING CODE 8011–01–P a hearing. Interested persons may
Trust will execute a FOF Participation request a hearing by writing to the
Agreement stating, without limitation, Commission’s Secretary and serving
that their respective boards of directors SECURITIES AND EXCHANGE applicants with a copy of the request,
or trustees and their investment COMMISSION personally or by mail. Hearing requests
advisers, or trustee and Sponsor, as [Investment Company Act Release No. should be received by the Commission
applicable, understand the terms and 32014; File No. 812–14481] by 5:30 p.m. on March 24, 2016, and
conditions of the order, and agree to should be accompanied by proof of
fulfill their responsibilities under the Charles Schwab Investment service on applicants, in the form of an
order. At the time of its investment in Management, Inc., et al.; Notice of affidavit, or for lawyers, a certificate of
Shares of a Fund in excess of the limit Application service. Pursuant to rule 0–5 under the
in section 12(d)(1)(A)(i), a Fund of Act, hearing requests should state the
Funds will notify the Fund of the February 29, 2016.
nature of the writer’s interest, any facts
investment. At such time, the Fund of AGENCY: Securities and Exchange bearing upon the desirability of a
Funds will also transmit to the Fund a Commission (‘‘Commission’’). hearing on the matter, the reason for the
list of the names of each Fund of Funds ACTION: Notice of an application for an request, and the issues contested.
Affiliate and Underwriting Affiliate. The order under section 6(c) of the Persons who wish to be notified of a
Fund of Funds will notify the Fund of Investment Company Act of 1940 (the hearing may request notification by
any changes to the list of the names as ‘‘Act’’) for an exemption from sections writing to the Commission’s Secretary.
soon as reasonably practicable after a 2(a)(32), 5(a)(1), 22(d), and 22(e) of the
ADDRESSES: Secretary, Securities and
change occurs. The Fund and the Fund Act and rule 22c–1 under the Act, under
of Funds will maintain and preserve a Exchange Commission, 100 F Street NE.,
sections 6(c) and 17(b) of the Act for an
copy of the order, the FOF Participation Washington, DC 20549–1090;
exemption from sections 17(a)(1) and
Agreement, and the list with any Applicants: CSIM and Trust, 211Main
17(a)(2) of the Act, and under section
updated information for the duration of Street, SF211–05–491, San Francisco,
12(d)(1)(J) for an exemption from
CA 94105; SEI, 1 Freedom Valley Drive,
jstallworth on DSK7TPTVN1PROD with NOTICES
the investment and for a period of not sections 12(d)(1)(A) and 12(d)(1)(B) of
less than six years thereafter, the first Oaks, PA 19456.
the Act.
two years in an easily accessible place. FOR FURTHER INFORMATION CONTACT:
10. Before approving any advisory SUMMARY: Summary of Application: Bruce R. MacNeil, Senior Counsel, at
contract under section 15 of the Act, the Applicants request an order that would (202) 551–6817, or Daniele Marchesani,
board of directors or trustees of each permit (a) series of certain open-end Branch Chief, at (202) 551–6821
Investing Management Company management investment companies that (Division of Investment Management,
including a majority of the disinterested track the performance of an index Chief Counsel’s Office).
VerDate Sep<11>2014 15:22 Mar 03, 2016 Jkt 238001 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 E:\FR\FM\04MRN1.SGM 04MRN1](https://thefederalregister.org/doc/81_FR_11667/page/1.svg)
![11634 Federal Register / Vol. 81, No. 43 / Friday, March 4, 2016 / Notices
once an investment by a Fund of Funds 3(c)(1) or 3(c)(7) of the Act in excess of offers for the options to which it is
in the securities of the Self-Indexing the limits contained in section registered, as follows:
Fund exceeds the limit of section 12(d)(1)(A) of the Act, except to the i. No change.
12(d)(1)(A)(i) of the Act, setting forth extent (i) the Self-Indexing Fund, or its ii. Bid/ask Differentials (Quote Spread
from whom the securities were respective Master Fund, acquires Parameters). Options on equities
acquired, the identity of the securities of another investment (including Exchange-Traded Fund
underwriting syndicate’s members, the company pursuant to exemptive relief Shares), and on index options must be
terms of the purchase, and the from the Commission permitting the quoted with a difference not to exceed
information or materials upon which Self-Indexing Fund, or its respective $5 between the bid and offer regardless
the Board’s determinations were made. Master Fund, to acquire securities of of the price of the bid, including before
9. Before investing in a Self-Indexing one or more investment companies for and during the opening. However,
Fund in excess of the limit in section short-term cash management purposes respecting in-the-money series where
12(d)(1)(A), a Fund of Funds and the or (ii) the Self-Indexing Fund acquires the market for the underlying security is
Trust will execute a FOF Participation securities of the Master Fund pursuant wider than $5, the bid/ask differential
Agreement stating without limitation to the Master-Feeder Relief. may be as wide as the quotation for the
that their respective boards of directors
For the Commission, by the Division of underlying security on the primary
or trustees and their investment Investment Management, under delegated market. The Exchange may establish
advisers, or trustee and Sponsor, as authority. differences other than the above for one
applicable, understand the terms and
Robert W. Errett, or more series or classes of options.
conditions of the order, and agree to
Deputy Secretary. iii. No change.
fulfill their responsibilities under the
order. At the time of its investment in [FR Doc. 2016–04794 Filed 3–3–16; 8:45 am] (e)–(f) No change.
Shares of a Self-Indexing Fund in excess BILLING CODE 8011–01–P
II. Self-Regulatory Organization’s
of the limit in section 12(d)(1)(A)(i), a Statement of the Purpose of, and
Fund of Funds will notify the Self- Statutory Basis for, the Proposed Rule
Indexing Fund of the investment. At SECURITIES AND EXCHANGE
COMMISSION Change
such time, the Fund of Funds will also
transmit to the Self-Indexing Fund a list [Release No. 34–77252; File No. SR–BX– In its filing with the Commission, the
of the names of each Fund of Funds 2016–012] Exchange included statements
Affiliate and Underwriting Affiliate. The concerning the purpose of and basis for
Fund of Funds will notify the Self- Self-Regulatory Organizations; the proposed rule change and discussed
Indexing Fund of any changes to the list NASDAQ BX, Inc.; Notice of Filing and any comments it received on the
of the names as soon as reasonably Immediate Effectiveness of Proposed proposed rule change. The text of these
practicable after a change occurs. The Rule Change To Amend BX Options statements may be examined at the
Self-Indexing Fund and the Fund of Chapter VII, Section 6 places specified in Item IV below. The
Funds will maintain and preserve a Exchange has prepared summaries, set
copy of the order, the FOF Participation February 29, 2016. forth in sections A, B, and C below, of
Agreement, and the list with any Pursuant to Section 19(b)(1) of the the most significant aspects of such
updated information for the duration of Securities Exchange Act of 1934 statements.
the investment and for a period of not (‘‘Act’’),1 and Rule 19b–4 thereunder,2
less than six years thereafter, the first notice is hereby given that on February A. Self-Regulatory Organization’s
two years in an easily accessible place. 17, 2016, NASDAQ BX, Inc. Statement of the Purpose of, and
10. Before approving any advisory (‘‘Exchange’’) filed with the Securities Statutory Basis for, the Proposed Rule
contract under section 15 of the Act, the and Exchange Commission (‘‘SEC’’ or Change
board of directors or trustees of each ‘‘Commission’’) the proposed rule 1. Purpose
Investing Management Company change as described in Items I, II, and
including a majority of the disinterested III, below, which Items have been The purpose of the proposal is to
directors or trustees, will find that the prepared by the Exchange. The harmonize BX Options Chapter VII,
advisory fees charged under such Commission is publishing this notice to Section 6(d)(ii) with similar provisions
contract are based on services provided solicit comments on the proposed rule of the Exchange’s affiliated exchanges
that will be in addition to, rather than change from interested persons. regarding bid/ask differentials (also
duplicative of, the services provided known as quote spread parameters).
I. Self-Regulatory Organization’s Quote spread parameters establish the
under the advisory contract(s) of any
Statement of the Terms of Substance of maximum permissible width between
Self-Indexing Fund, or its respective
the Proposed Rule Change the bid and the offer in a particular
Master Fund, in which the Investing
Management Company may invest. The Exchange proposes to amend BX option series. Quote spreads apply to
These findings and their basis will be Options Chapter VII, Section 6. quotes, not orders, and are thus only
fully recorded in the minute books of The text of the proposed rule change applicable to the BX Options Market
the appropriate Investing Management is below; proposed new language is Makers who are required to submit two-
Company. italicized; proposed deletions are in sided quotes.3
11. Any sales charges and/or service brackets. Specifically, the Exchange proposes to
jstallworth on DSK7TPTVN1PROD with NOTICES
fees charged with respect to shares of a add language to its rule regarding bid/
Sec. 6 Market Maker Quotations
Fund of Funds will not exceed the ask differentials to permit the Exchange
limits applicable to a fund of funds as (a)–(c) No change. to establish bid/ask differentials other
set forth in NASD Conduct Rule 2830. (d) Continuous Quotes. A Market than what is specified in the rule. Both
12. No Self-Indexing Fund, or its Maker must enter continuous bids and the NASDAQ Options Market and the
respective Master Fund, will acquire
securities of any other investment 1 15 U.S.C. 78s(b)(1). 3 See Chapter I, Section (a)(9) and Chapter VII,
company or company relying on section 2 17 CFR 240.19b–4. Sections 5 and 6.
VerDate Sep<11>2014 15:22 Mar 03, 2016 Jkt 238001 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 E:\FR\FM\04MRN1.SGM 04MRN1](https://thefederalregister.org/doc/81_FR_11667/page/11.svg)
Document Created: 2018-02-02 15:05:47
Document Modified: 2018-02-02 15:05:47
| 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 | |
| Action | Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ``Act'') for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act. | |
| Dates | Filing Dates: The application was filed on June 5, 2015 and amended on September 4, 2015 and December 24, 2015. | |
| Contact | Bruce R. MacNeil, Senior Counsel, at (202) 551-6817, or Daniele Marchesani, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office). | |
| FR Citation | 81 FR 11624 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR