81_FR_29680 81 FR 29588 - Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to IndexIQ ETF Trust, IQ Enhanced Core Bond U.S. ETF, IQ Enhanced Core Plus Bond U.S. ETF, IQ Leaders Bond Allocation Tracker ETF, and IQ Leaders GTAA Tracker ETF, Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M

81 FR 29588 - Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to IndexIQ ETF Trust, IQ Enhanced Core Bond U.S. ETF, IQ Enhanced Core Plus Bond U.S. ETF, IQ Leaders Bond Allocation Tracker ETF, and IQ Leaders GTAA Tracker ETF, Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 92 (May 12, 2016)

Page Range29588-29590
FR Document2016-11154

Federal Register, Volume 81 Issue 92 (Thursday, May 12, 2016)
[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29588-29590]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-11154]



[[Page 29588]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77779; File No. TP 16-06]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to IndexIQ ETF Trust, IQ Enhanced 
Core Bond U.S. ETF, IQ Enhanced Core Plus Bond U.S. ETF, IQ Leaders 
Bond Allocation Tracker ETF, and IQ Leaders GTAA Tracker ETF, Pursuant 
to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of 
Regulation M

May 6, 2016.
    By letter dated May 6, 2016 (the ``Letter''), as supplemented by 
conversations with the staff of the Division of Trading and Markets, 
counsel for IndexIQ ETF Trust (the ``Trust''), on behalf of the Trust, 
the IQ Enhanced Core Bond U.S. ETF, IQ Enhanced Core Plus Bond U.S. 
ETF, IQ Leaders Bond Allocation Tracker ETF, and IQ Leaders GTAA 
Tracker ETF (each, a ``Fund'' and collectively the ``Funds''), NYSE 
Arca or any national securities exchange on or through which shares 
issued by the Funds (``Shares'') may subsequently trade, ALPS 
Distributors, Inc. (the ``Distributor''), and persons or entities 
engaging in transactions in Shares (collectively, the ``Requestors''), 
requested exemptions, or interpretive or no-action relief, from Rule 
10b-17 of the Securities Exchange Act of 1934, as amended (``Exchange 
Act''), and Rules 101 and 102 of Regulation M, in connection with 
secondary market transactions in Shares and the creation or redemption 
of aggregations of Shares of at least 50,000 shares (``Creation 
Units'').
    The Trust is registered with the Securities and Exchange Commission 
(``Commission'') under the Investment Company Act of 1940, as amended 
(``1940 Act''), as an open-end management investment company. Each Fund 
is an index fund that seeks to track, as closely as possible, before 
fees and expenses, the performance of its stated index by holding a 
portfolio of investments selected to correspond generally to the price 
and yield performance of such index.
    The IQ Enhanced Core Bond U.S. ETF and the IQ Enhanced Core Plus 
Bond U.S. ETF seek investment results that correspond (before fees and 
expenses) generally to the price and yield performance of their 
indices, the IQ Enhanced Core Bond U.S. Index and IQ Enhanced Core Plus 
Bond U.S. Index, respectively. These indices were designed to weight 
each of the various sectors of the investment grade fixed income market 
(and, in the case of the IQ Enhanced Core Plus Bond U.S. Index, the 
high yield fixed income securities market) based on each index's 
overall level of risk as measured by volatility and the total return 
momentum of each fixed income sector, so that each index will 
overweight fixed income sectors with high momentum and underweight 
fixed income sectors with low momentum, with constraints to maintain 
sector diversification.
    The IQ Leaders Bond Allocation Tracker ETF and the IQ Leaders GTAA 
Tracker ETF seek investment results that correspond (before fees and 
expenses) generally to the price and yield performance of their 
indices, the IQ Leaders Bond Allocation Index and IQ Leaders GTAA 
Index, respectively. The IQ Leaders Bond Allocation Index seeks to 
track the ``beta'' portion of the returns of the ten leading bond 
mutual funds pursuing a global bond strategy and the IQ Leaders GTAA 
Index seeks to track the beta portion of the returns of the ten leading 
global allocation mutual funds based on fund performance and fund asset 
size.\1\
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    \1\ The global allocation mutual funds invest in a combination 
of equity, fixed-income, and money market securities of U.S. and 
foreign issuers, and may also invest in other asset classes such as 
commodities.
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    At least 80% of each Fund's portfolio holdings are, and will be, 
shares of some or all of the exchange-traded products (``ETPs'') that 
are the index constituents of its stated index. Some or all of the 
remaining 20% may be invested in securities that are not index 
constituents which the advisor believes will help the Fund track its 
index, as well as cash, cash equivalents and various types of financial 
instruments including, but not limited to, futures contracts, swap 
agreements, forward contracts, reverse repurchase agreements, and 
options on securities, indices, and futures contracts. In no case will 
a Fund hold any non-ETP equity security issued by a single issuer in 
excess of 20% of such Fund's portfolio holdings.
    Accordingly, each Fund intends to operate primarily as an ``ETF of 
ETFs.'' Except for the fact that each Fund intends to operate primarily 
as an ETF of ETFs, each Fund will operate in a manner very similar to 
that of the ETPs held in its portfolio.
    The Requestors represent, among other things, the following:
     Shares of each Fund will be issued by the Trust, an open-
end management investment company that is registered with the 
Commission;
     The Trust will continuously redeem Creation Units at net 
asset value (``NAV''), and the secondary market price of the Shares 
should not vary substantially from the NAV of such Shares;
     Shares of each Fund will be listed and traded on the NYSE 
Arca (the ``Exchange'') or other exchange in accordance with exchange 
listing standards that are, or will become, effective pursuant to 
Section 19(b) of the Exchange Act;
     Each ETP in which each Fund is invested will meet all 
conditions set forth in a relevant class relief letter,\2\ or will have 
received individual relief from the Commission;
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    \2\ Letter from Catherine McGuire, Esq., Chief Counsel, Division 
of Market Regulation, to the Securities Industry Association 
Derivative Products Committee (Nov. 21, 2005); Letter from Racquel 
L. Russell, Branch Chief, Division of Market Regulation, to George 
T. Simon, Esq., Foley & Lardner LLP (June 21, 2006); Letter from 
James A. Brigagliano, Acting Associate Director, Division of Market 
Regulation, to Stuart M. Strauss, Esq., Clifford Chance US LLP (Oct. 
24, 2006); Letter from James A. Brigagliano, Associate Director, 
Division of Market Regulation, to Benjamin Haskin, Esq., Willkie. 
Farr & Gallagher LLP (Apr. 9, 2007); or Letter from Josephine Tao, 
Assistant Director, Division of Trading and Markets, to Domenick 
Pugliese, Esq., Paul, Hastings, Janofsky and Walker LLP (June 27, 
2007). See also Staff Legal Bulletin No. 9, ``Frequently Asked 
Questions About Regulation M'' (Apr. 12, 2002) (regarding actively-
managed ETFs).
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     All of the components of each Fund's underlying index will 
have publicly available last sale trade information;
     The intra-day proxy value of each Fund per share and the 
value of each Index will be publicly disseminated by a major market 
data vendor throughout the trading day;
     On each business day before the opening of business on the 
Exchange, each Fund's custodian, through the National Securities 
Clearing Corporation, will make available the list of the names and the 
numbers of securities and other assets of the Fund's portfolio that 
will be applicable that day to creation and redemption requests;
     The Exchange or other market information provider will 
disseminate every 15 seconds throughout the trading day through the 
facilities of the Consolidated Tape Association an amount representing 
the current value of the cash and securities held in the portfolio of a 
Fund but does not reflect corporate actions, expenses, and other 
adjustments made to such portfolio throughout the day (``Estimated 
NAV'');
     At least 80% of each Fund's portfolio holdings are, and 
will be, shares of some or all of the ETPs that are the index 
constituents of its stated index;
     Each Fund will invest in securities that will facilitate 
an effective and

[[Page 29589]]

efficient arbitrage mechanism and the ability to create workable 
hedges;
     The Requestors believe that arbitrageurs can be expected 
to take advantage of price variations between each Fund's market price 
and its NAV;
     The arbitrage mechanism will be facilitated by the 
transparency of each Fund's portfolio and the availability of the 
Estimated NAV, the liquidity of securities and other assets held by 
each Fund, and the ability to acquire such securities, as well as 
arbitrageurs' ability to create workable hedges; and
     A close alignment between the market price of Shares and 
each Fund's NAV is expected.

Regulation M

    While redeemable securities issued by an open-end management 
investment company are excepted from the provisions of Rule 101 and 102 
of Regulation M, the Requestors may not rely upon that exception for 
the Shares.\3\ However, we find that it is appropriate in the public 
interest, and is consistent with the protection of investors, to grant 
a limited exemption from Rules 101 and 102 to persons who may be deemed 
to be participating in a distribution of Shares and the Fund as 
described in more detail below.
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    \3\ While ETFs operate under exemptions from the definitions of 
``open-end company'' under Section 5(a)(1) of the 1940 Act and 
``redeemable security'' under Section 2(a)(32) of the 1940 Act, each 
Fund and its securities do not meet those definitions.
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Rule 101 of Regulation M

    Generally, Rule 101 of Regulation M is an anti-manipulation rule 
that, subject to certain exceptions, prohibits any ``distribution 
participant'' and its ``affiliated purchasers'' from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase, 
any security which is the subject of a distribution until after the 
applicable restricted period, except as specifically permitted in the 
rule. Rule 100 of Regulation M defines ``distribution'' to mean any 
offering of securities that is distinguished from ordinary trading 
transactions by the magnitude of the offering and the presence of 
special selling efforts and selling methods. The provisions of Rule 101 
of Regulation M apply to underwriters, prospective underwriters, 
brokers, dealers, or other persons who have agreed to participate or 
are participating in a distribution of securities. The Shares are in a 
continuous distribution and, as such, the restricted period in which 
distribution participants and their affiliated purchasers are 
prohibited from bidding for, purchasing, or attempting to induce others 
to bid for or purchase, extends indefinitely.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will continuously redeem at the NAV Creation 
Unit size aggregations of the Shares of each Fund and that a close 
alignment between the market price of Shares and each Fund's NAV is 
expected, the Commission finds that it is appropriate in the public 
interest, and consistent with the protection of investors, to grant the 
Trust an exemption under paragraph (d) of Rule 101 of Regulation M with 
respect to each Fund, thus permitting persons participating in a 
distribution of Shares of each Fund to bid for or purchase such Shares 
during their participation in such distribution.\4\
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    \4\ Additionally, we confirm the interpretation that a 
redemption of Creation Unit size aggregations of Shares of each Fund 
and the receipt of securities in exchange by a participant in a 
distribution of Shares of each Fund would not constitute an 
``attempt to induce any person to bid for or purchase, a covered 
security during the applicable restricted period'' within the 
meaning of Rule 101 of Regulation M and, therefore, would not 
violate that rule.
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Rule 102 of Regulation M

    Rule 102 of Regulation M prohibits issuers, selling security 
holders, or any affiliated purchaser of such person from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase a 
covered security during the applicable restricted period in connection 
with a distribution of securities effected by or on behalf of an issuer 
or selling security holder.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will redeem at the NAV Creation Units of Shares 
of each Fund and that a close alignment between the market price of 
Shares and each Fund's NAV is expected, the Commission finds that it is 
appropriate in the public interest, and consistent with the protection 
of investors, to grant the Trust an exemption under paragraph (e) of 
Rule 102 of Regulation M with respect to the Funds, thus permitting 
each Fund to redeem Shares of each Fund during the continuous offering 
of such Shares.

Rule 10b-17

    Rule 10b-17, with certain exceptions, requires an issuer of a class 
of publicly traded securities to give notice of certain specified 
actions (for example, a dividend distribution) relating to such class 
of securities in accordance with Rule 10b-17(b). Based on the 
representations and facts in the Letter, and subject to the conditions 
below, we find that it is appropriate in the public interest, and 
consistent with the protection of investors, to grant the Trust a 
conditional exemption from Rule 10b-17 because market participants will 
receive timely notification of the existence and timing of a pending 
distribution, and thus the concerns that the Commission raised in 
adopting Rule 10b-17 will not be implicated.\5\
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    \5\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical because it is not 
possible for the Funds to accurately project ten days in advance 
what dividend, if any, would be paid on a particular record date. 
Further, the Commission finds, based upon the representations of the 
Requestors in the Letter, that the provision of the notices as 
described in the Letter would not constitute a manipulative or 
deceptive device or contrivance comprehended within the purpose of 
Rule 10b-17.
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Conclusion

    It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that 
the Trust, based on the representations and the facts presented in the 
Letter, is exempt from the requirements of Rule 101 with respect to 
each Fund, thus permitting persons who may be deemed to be 
participating in a distribution of Shares of each Fund to bid for or 
purchase such Shares during their participation in such distribution.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust, based on the representations and the facts presented in 
the Letter, is exempt from the requirements of Rule 102 with respect to 
each Fund, thus permitting each Fund to redeem Shares of each Fund 
during the continuous offering of such Shares.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, based on the representations and the facts presented in the 
Letter, and subject to the conditions below, is exempt from the 
requirements of Rule 10b-17 with respect to transactions in the Shares 
of each Fund.
    This exemptive relief is subject to the following conditions:
     The Trust will comply with Rule 10b-17 except for Rule 
10b-17(b)(1)(v)(a) and (b); and
     The Trust will provide the information required by Rule 
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable 
before trading begins on the ex-dividend date, but in no event later 
than the time when the Exchange last accepts information relating to 
distributions on the day before the ex-dividend date.
    This exemptive relief is subject to modification or revocation at 
any time

[[Page 29590]]

the Commission determines that such action is necessary or appropriate 
in furtherance of the purposes of the Exchange Act. Persons relying 
upon this exemptive relief shall discontinue transactions involving the 
Shares of the Funds, pending presentation of the facts for the 
Commission's consideration, in the event that any material change 
occurs with respect to any of the facts or representations made by the 
Requestors and, consistent with all preceding letters, particularly 
with respect to the close alignment between the market price of Shares 
and each Fund's NAV. In addition, persons relying on this exemptive 
relief are directed to the anti-fraud and anti-manipulation provisions 
of the Exchange Act, particularly Sections 9(a) and 10(b), and Rule 
10b-5 thereunder. Responsibility for compliance with these and any 
other applicable provisions of the federal securities laws must rest 
with the persons relying on this exemptive relief.
    This order should not be considered a view with respect to any 
other question that the proposed transactions may raise, including, but 
not limited to the adequacy of the disclosure concerning, and the 
applicability of other federal or state laws to, the proposed 
transactions.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(6) and (9).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11154 Filed 5-11-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                    29588                          Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices

                                                    SECURITIES AND EXCHANGE                                 sectors of the investment grade fixed                 (‘‘NAV’’), and the secondary market
                                                    COMMISSION                                              income market (and, in the case of the                price of the Shares should not vary
                                                                                                            IQ Enhanced Core Plus Bond U.S.                       substantially from the NAV of such
                                                    [Release No. 34–77779; File No. TP 16–06]               Index, the high yield fixed income                    Shares;
                                                                                                            securities market) based on each index’s                 • Shares of each Fund will be listed
                                                    Order Granting Limited Exemptions                       overall level of risk as measured by                  and traded on the NYSE Arca (the
                                                    From Exchange Act Rule 10b–17 and                       volatility and the total return                       ‘‘Exchange’’) or other exchange in
                                                    Rules 101 and 102 of Regulation M to                    momentum of each fixed income sector,                 accordance with exchange listing
                                                    IndexIQ ETF Trust, IQ Enhanced Core                     so that each index will overweight fixed              standards that are, or will become,
                                                    Bond U.S. ETF, IQ Enhanced Core Plus                    income sectors with high momentum                     effective pursuant to Section 19(b) of the
                                                    Bond U.S. ETF, IQ Leaders Bond                          and underweight fixed income sectors                  Exchange Act;
                                                    Allocation Tracker ETF, and IQ Leaders                  with low momentum, with constraints                      • Each ETP in which each Fund is
                                                    GTAA Tracker ETF, Pursuant to                           to maintain sector diversification.                   invested will meet all conditions set
                                                    Exchange Act Rule 10b–17(b)(2) and                         The IQ Leaders Bond Allocation                     forth in a relevant class relief letter,2 or
                                                    Rules 101(d) and 102(e) of Regulation                   Tracker ETF and the IQ Leaders GTAA                   will have received individual relief from
                                                    M                                                       Tracker ETF seek investment results                   the Commission;
                                                                                                            that correspond (before fees and                         • All of the components of each
                                                    May 6, 2016.
                                                                                                            expenses) generally to the price and                  Fund’s underlying index will have
                                                       By letter dated May 6, 2016 (the                                                                           publicly available last sale trade
                                                                                                            yield performance of their indices, the
                                                    ‘‘Letter’’), as supplemented by                                                                               information;
                                                                                                            IQ Leaders Bond Allocation Index and
                                                    conversations with the staff of the                                                                              • The intra-day proxy value of each
                                                                                                            IQ Leaders GTAA Index, respectively.
                                                    Division of Trading and Markets,                                                                              Fund per share and the value of each
                                                                                                            The IQ Leaders Bond Allocation Index
                                                    counsel for IndexIQ ETF Trust (the                                                                            Index will be publicly disseminated by
                                                                                                            seeks to track the ‘‘beta’’ portion of the
                                                    ‘‘Trust’’), on behalf of the Trust, the IQ                                                                    a major market data vendor throughout
                                                                                                            returns of the ten leading bond mutual
                                                    Enhanced Core Bond U.S. ETF, IQ                                                                               the trading day;
                                                                                                            funds pursuing a global bond strategy
                                                    Enhanced Core Plus Bond U.S. ETF, IQ
                                                                                                            and the IQ Leaders GTAA Index seeks                      • On each business day before the
                                                    Leaders Bond Allocation Tracker ETF,                                                                          opening of business on the Exchange,
                                                                                                            to track the beta portion of the returns
                                                    and IQ Leaders GTAA Tracker ETF                                                                               each Fund’s custodian, through the
                                                                                                            of the ten leading global allocation
                                                    (each, a ‘‘Fund’’ and collectively the                  mutual funds based on fund                            National Securities Clearing
                                                    ‘‘Funds’’), NYSE Arca or any national                   performance and fund asset size.1                     Corporation, will make available the list
                                                    securities exchange on or through which                    At least 80% of each Fund’s portfolio              of the names and the numbers of
                                                    shares issued by the Funds (‘‘Shares’’)                 holdings are, and will be, shares of some             securities and other assets of the Fund’s
                                                    may subsequently trade, ALPS                            or all of the exchange-traded products                portfolio that will be applicable that day
                                                    Distributors, Inc. (the ‘‘Distributor’’),               (‘‘ETPs’’) that are the index constituents            to creation and redemption requests;
                                                    and persons or entities engaging in                     of its stated index. Some or all of the                  • The Exchange or other market
                                                    transactions in Shares (collectively, the               remaining 20% may be invested in                      information provider will disseminate
                                                    ‘‘Requestors’’), requested exemptions, or               securities that are not index constituents            every 15 seconds throughout the trading
                                                    interpretive or no-action relief, from                  which the advisor believes will help the              day through the facilities of the
                                                    Rule 10b–17 of the Securities Exchange                  Fund track its index, as well as cash,                Consolidated Tape Association an
                                                    Act of 1934, as amended (‘‘Exchange                     cash equivalents and various types of                 amount representing the current value
                                                    Act’’), and Rules 101 and 102 of                        financial instruments including, but not              of the cash and securities held in the
                                                    Regulation M, in connection with                        limited to, futures contracts, swap                   portfolio of a Fund but does not reflect
                                                    secondary market transactions in Shares                 agreements, forward contracts, reverse                corporate actions, expenses, and other
                                                    and the creation or redemption of                       repurchase agreements, and options on                 adjustments made to such portfolio
                                                    aggregations of Shares of at least 50,000               securities, indices, and futures                      throughout the day (‘‘Estimated NAV’’);
                                                    shares (‘‘Creation Units’’).                            contracts. In no case will a Fund hold                   • At least 80% of each Fund’s
                                                       The Trust is registered with the                     any non-ETP equity security issued by                 portfolio holdings are, and will be,
                                                    Securities and Exchange Commission                      a single issuer in excess of 20% of such              shares of some or all of the ETPs that are
                                                    (‘‘Commission’’) under the Investment                   Fund’s portfolio holdings.                            the index constituents of its stated
                                                    Company Act of 1940, as amended                            Accordingly, each Fund intends to                  index;
                                                    (‘‘1940 Act’’), as an open-end                          operate primarily as an ‘‘ETF of ETFs.’’                 • Each Fund will invest in securities
                                                    management investment company. Each                     Except for the fact that each Fund                    that will facilitate an effective and
                                                    Fund is an index fund that seeks to                     intends to operate primarily as an ETF
                                                                                                                                                                    2 Letter from Catherine McGuire, Esq., Chief
                                                    track, as closely as possible, before fees              of ETFs, each Fund will operate in a
                                                                                                                                                                  Counsel, Division of Market Regulation, to the
                                                    and expenses, the performance of its                    manner very similar to that of the ETPs               Securities Industry Association Derivative Products
                                                    stated index by holding a portfolio of                  held in its portfolio.                                Committee (Nov. 21, 2005); Letter from Racquel L.
                                                    investments selected to correspond                         The Requestors represent, among                    Russell, Branch Chief, Division of Market
                                                    generally to the price and yield                        other things, the following:                          Regulation, to George T. Simon, Esq., Foley &
                                                    performance of such index.                                 • Shares of each Fund will be issued               Lardner LLP (June 21, 2006); Letter from James A.
                                                                                                                                                                  Brigagliano, Acting Associate Director, Division of
                                                       The IQ Enhanced Core Bond U.S. ETF                   by the Trust, an open-end management                  Market Regulation, to Stuart M. Strauss, Esq.,
                                                    and the IQ Enhanced Core Plus Bond                      investment company that is registered
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                                                                                  Clifford Chance US LLP (Oct. 24, 2006); Letter from
                                                    U.S. ETF seek investment results that                   with the Commission;                                  James A. Brigagliano, Associate Director, Division
                                                    correspond (before fees and expenses)                      • The Trust will continuously redeem               of Market Regulation, to Benjamin Haskin, Esq.,
                                                                                                                                                                  Willkie. Farr & Gallagher LLP (Apr. 9, 2007); or
                                                    generally to the price and yield                        Creation Units at net asset value                     Letter from Josephine Tao, Assistant Director,
                                                    performance of their indices, the IQ                                                                          Division of Trading and Markets, to Domenick
                                                                                                              1 The global allocation mutual funds invest in a    Pugliese, Esq., Paul, Hastings, Janofsky and Walker
                                                    Enhanced Core Bond U.S. Index and IQ
                                                                                                            combination of equity, fixed-income, and money        LLP (June 27, 2007). See also Staff Legal Bulletin
                                                    Enhanced Core Plus Bond U.S. Index,                     market securities of U.S. and foreign issuers, and    No. 9, ‘‘Frequently Asked Questions About
                                                    respectively. These indices were                        may also invest in other asset classes such as        Regulation M’’ (Apr. 12, 2002) (regarding actively-
                                                    designed to weight each of the various                  commodities.                                          managed ETFs).



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                                                                                   Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices                                                        29589

                                                    efficient arbitrage mechanism and the                   induce others to bid for or purchase,                   representations and facts in the Letter,
                                                    ability to create workable hedges;                      extends indefinitely.                                   and subject to the conditions below, we
                                                       • The Requestors believe that                           Based on the representations and facts               find that it is appropriate in the public
                                                    arbitrageurs can be expected to take                    presented in the Letter, particularly that              interest, and consistent with the
                                                    advantage of price variations between                   the Trust is a registered open-end                      protection of investors, to grant the
                                                    each Fund’s market price and its NAV;                   management investment company that                      Trust a conditional exemption from
                                                       • The arbitrage mechanism will be                    will continuously redeem at the NAV                     Rule 10b–17 because market
                                                    facilitated by the transparency of each                 Creation Unit size aggregations of the                  participants will receive timely
                                                    Fund’s portfolio and the availability of                Shares of each Fund and that a close                    notification of the existence and timing
                                                    the Estimated NAV, the liquidity of                     alignment between the market price of                   of a pending distribution, and thus the
                                                    securities and other assets held by each                Shares and each Fund’s NAV is                           concerns that the Commission raised in
                                                    Fund, and the ability to acquire such                   expected, the Commission finds that it                  adopting Rule 10b–17 will not be
                                                    securities, as well as arbitrageurs’ ability            is appropriate in the public interest, and              implicated.5
                                                    to create workable hedges; and                          consistent with the protection of
                                                                                                            investors, to grant the Trust an                        Conclusion
                                                       • A close alignment between the
                                                    market price of Shares and each Fund’s                  exemption under paragraph (d) of Rule                      It is hereby ordered, pursuant to Rule
                                                    NAV is expected.                                        101 of Regulation M with respect to                     101(d) of Regulation M, that the Trust,
                                                                                                            each Fund, thus permitting persons                      based on the representations and the
                                                    Regulation M                                            participating in a distribution of Shares               facts presented in the Letter, is exempt
                                                       While redeemable securities issued by                of each Fund to bid for or purchase such                from the requirements of Rule 101 with
                                                    an open-end management investment                       Shares during their participation in                    respect to each Fund, thus permitting
                                                    company are excepted from the                           such distribution.4                                     persons who may be deemed to be
                                                    provisions of Rule 101 and 102 of                                                                               participating in a distribution of Shares
                                                                                                            Rule 102 of Regulation M
                                                    Regulation M, the Requestors may not                                                                            of each Fund to bid for or purchase such
                                                                                                               Rule 102 of Regulation M prohibits                   Shares during their participation in
                                                    rely upon that exception for the Shares.3
                                                                                                            issuers, selling security holders, or any               such distribution.
                                                    However, we find that it is appropriate
                                                                                                            affiliated purchaser of such person from                   It is further ordered, pursuant to Rule
                                                    in the public interest, and is consistent
                                                                                                            bidding for, purchasing, or attempting to               102(e) of Regulation M, that the Trust,
                                                    with the protection of investors, to grant
                                                                                                            induce any person to bid for or purchase                based on the representations and the
                                                    a limited exemption from Rules 101 and
                                                                                                            a covered security during the applicable                facts presented in the Letter, is exempt
                                                    102 to persons who may be deemed to
                                                                                                            restricted period in connection with a                  from the requirements of Rule 102 with
                                                    be participating in a distribution of
                                                                                                            distribution of securities effected by or               respect to each Fund, thus permitting
                                                    Shares and the Fund as described in
                                                                                                            on behalf of an issuer or selling security              each Fund to redeem Shares of each
                                                    more detail below.
                                                                                                            holder.                                                 Fund during the continuous offering of
                                                    Rule 101 of Regulation M                                   Based on the representations and facts               such Shares.
                                                                                                            presented in the Letter, particularly that                 It is further ordered, pursuant to Rule
                                                       Generally, Rule 101 of Regulation M                  the Trust is a registered open-end
                                                    is an anti-manipulation rule that,                                                                              10b–17(b)(2), that the Trust, based on
                                                                                                            management investment company that                      the representations and the facts
                                                    subject to certain exceptions, prohibits                will redeem at the NAV Creation Units
                                                    any ‘‘distribution participant’’ and its                                                                        presented in the Letter, and subject to
                                                                                                            of Shares of each Fund and that a close                 the conditions below, is exempt from
                                                    ‘‘affiliated purchasers’’ from bidding for,             alignment between the market price of
                                                    purchasing, or attempting to induce any                                                                         the requirements of Rule 10b–17 with
                                                                                                            Shares and each Fund’s NAV is                           respect to transactions in the Shares of
                                                    person to bid for or purchase, any                      expected, the Commission finds that it
                                                    security which is the subject of a                                                                              each Fund.
                                                                                                            is appropriate in the public interest, and                 This exemptive relief is subject to the
                                                    distribution until after the applicable                 consistent with the protection of
                                                    restricted period, except as specifically                                                                       following conditions:
                                                                                                            investors, to grant the Trust an                           • The Trust will comply with Rule
                                                    permitted in the rule. Rule 100 of                      exemption under paragraph (e) of Rule                   10b–17 except for Rule 10b–
                                                    Regulation M defines ‘‘distribution’’ to                102 of Regulation M with respect to the                 17(b)(1)(v)(a) and (b); and
                                                    mean any offering of securities that is                 Funds, thus permitting each Fund to                        • The Trust will provide the
                                                    distinguished from ordinary trading                     redeem Shares of each Fund during the                   information required by Rule 10b–
                                                    transactions by the magnitude of the                    continuous offering of such Shares.                     17(b)(1)(v)(a) and (b) to the Exchange as
                                                    offering and the presence of special                                                                            soon as practicable before trading begins
                                                    selling efforts and selling methods. The                Rule 10b–17
                                                                                                                                                                    on the ex-dividend date, but in no event
                                                    provisions of Rule 101 of Regulation M                     Rule 10b–17, with certain exceptions,                later than the time when the Exchange
                                                    apply to underwriters, prospective                      requires an issuer of a class of publicly               last accepts information relating to
                                                    underwriters, brokers, dealers, or other                traded securities to give notice of certain             distributions on the day before the ex-
                                                    persons who have agreed to participate                  specified actions (for example, a                       dividend date.
                                                    or are participating in a distribution of               dividend distribution) relating to such                    This exemptive relief is subject to
                                                    securities. The Shares are in a                         class of securities in accordance with                  modification or revocation at any time
                                                    continuous distribution and, as such,                   Rule 10b–17(b). Based on the
                                                    the restricted period in which
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                                                                                                                                                                      5 We also note that timely compliance with Rule
                                                    distribution participants and their                       4 Additionally,  we confirm the interpretation that   10b–17(b)(1)(v)(a) and (b) would be impractical
                                                    affiliated purchasers are prohibited from               a redemption of Creation Unit size aggregations of      because it is not possible for the Funds to
                                                    bidding for, purchasing, or attempting to               Shares of each Fund and the receipt of securities       accurately project ten days in advance what
                                                                                                            in exchange by a participant in a distribution of       dividend, if any, would be paid on a particular
                                                                                                            Shares of each Fund would not constitute an             record date. Further, the Commission finds, based
                                                      3 While ETFs operate under exemptions from the        ‘‘attempt to induce any person to bid for or            upon the representations of the Requestors in the
                                                    definitions of ‘‘open-end company’’ under Section       purchase, a covered security during the applicable      Letter, that the provision of the notices as described
                                                    5(a)(1) of the 1940 Act and ‘‘redeemable security’’     restricted period’’ within the meaning of Rule 101      in the Letter would not constitute a manipulative
                                                    under Section 2(a)(32) of the 1940 Act, each Fund       of Regulation M and, therefore, would not violate       or deceptive device or contrivance comprehended
                                                    and its securities do not meet those definitions.       that rule.                                              within the purpose of Rule 10b–17.



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                                                    29590                          Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices

                                                    the Commission determines that such                     proposed rule change as described in in                be an actively-managed exchange-traded
                                                    action is necessary or appropriate in                   Items I and II below, which Items have                 fund (‘‘ETF’’). The Shares will be
                                                    furtherance of the purposes of the                      been prepared by Nasdaq. The                           offered by the Trust, which was
                                                    Exchange Act. Persons relying upon this                 Commission is publishing this notice to                established as a Massachusetts business
                                                    exemptive relief shall discontinue                      solicit comments on the proposed rule                  trust on February 22, 2016.5 The Trust
                                                    transactions involving the Shares of the                change from interested persons.                        is registered with the Commission as an
                                                    Funds, pending presentation of the facts                                                                       investment company and has filed a
                                                                                                            I. Self-Regulatory Organization’s
                                                    for the Commission’s consideration, in                                                                         registration statement on Form N–1A
                                                                                                            Statement of the Terms of Substance of
                                                    the event that any material change                                                                             (‘‘Registration Statement’’) with the
                                                                                                            the Proposed Rule Change
                                                    occurs with respect to any of the facts                                                                        Commission.6 The Fund will be a series
                                                    or representations made by the                             Nasdaq proposes to list and trade the               of the Trust.
                                                    Requestors and, consistent with all                     shares of the First Trust Strategic                       First Trust Advisors L.P. will be the
                                                    preceding letters, particularly with                    Mortgage REIT ETF (the ‘‘Fund’’) of                    investment adviser (‘‘Adviser’’) to the
                                                    respect to the close alignment between                  First Trust Exchange-Traded Fund VIII                  Fund. First Trust Portfolios L.P. (the
                                                    the market price of Shares and each                     (the ‘‘Trust’’) under Nasdaq Rule 5735                 ‘‘Distributor’’) will be the principal
                                                    Fund’s NAV. In addition, persons                        (‘‘Managed Fund Shares’’).3 The shares                 underwriter and distributor of the
                                                    relying on this exemptive relief are                    of the Fund are collectively referred to               Fund’s Shares. The Bank of New York
                                                    directed to the anti-fraud and anti-                    herein as the ‘‘Shares.’’                              Mellon Corporation (‘‘BNY’’) will act as
                                                    manipulation provisions of the                          II. Self-Regulatory Organization’s                     the administrator, accounting agent,
                                                    Exchange Act, particularly Sections 9(a)                Statement of the Purpose of, and                       custodian and transfer agent to the
                                                    and 10(b), and Rule 10b–5 thereunder.                   Statutory Basis for, the Proposed Rule                 Fund.
                                                    Responsibility for compliance with                                                                                Paragraph (g) of Rule 5735 provides
                                                                                                            Change
                                                    these and any other applicable                                                                                 that if the investment adviser to the
                                                    provisions of the federal securities laws                  In its filing with the Commission,                  investment company issuing Managed
                                                    must rest with the persons relying on                   Nasdaq included statements concerning                  Fund Shares is affiliated with a broker-
                                                    this exemptive relief.                                  the purpose of and basis for the                       dealer, such investment adviser shall
                                                       This order should not be considered                  proposed rule change and discussed any                 erect a ‘‘fire wall’’ between the
                                                    a view with respect to any other                        comments it received on the proposed                   investment adviser and the broker-
                                                    question that the proposed transactions                 rule change. The text of these statements              dealer with respect to access to
                                                    may raise, including, but not limited to                may be examined at the places specified                information concerning the composition
                                                    the adequacy of the disclosure                          in Item IV below. Nasdaq has prepared                  and/or changes to such investment
                                                    concerning, and the applicability of                    summaries, set forth in sections A, B,                 company portfolio.7 In addition,
                                                    other federal or state laws to, the                     and C below, of the most significant
                                                    proposed transactions.                                  aspects of such statements.                            Fund Shares, listed and traded on the Exchange
                                                                                                                                                                   under Nasdaq Rule 5705, seeks to provide
                                                      For the Commission, by the Division of                A. Self-Regulatory Organization’s                      investment results that correspond generally to the
                                                    Trading and Markets, pursuant to delegated              Statement of the Purpose of, and the                   price and yield performance of a specific foreign or
                                                    authority.6                                             Statutory Basis for, the Proposed Rule                 domestic stock index, fixed income securities index
                                                    Robert W. Errett,                                       Change                                                 or combination thereof.
                                                                                                                                                                      5 The Commission has issued an order, upon
                                                    Deputy Secretary.
                                                                                                            1. Purpose                                             which the Trust may rely, granting certain
                                                    [FR Doc. 2016–11154 Filed 5–11–16; 8:45 am]                                                                    exemptive relief under the 1940 Act. See
                                                    BILLING CODE 8011–01–P
                                                                                                               The Exchange proposes to list and                   Investment Company Act Release No. 28468
                                                                                                            trade the Shares of the Fund under                     (October 27, 2008) (File No. 812–13477) (the
                                                                                                            Nasdaq Rule 5735, which governs the                    ‘‘Exemptive Relief’’).
                                                                                                                                                                      6 See Registration Statement on Form N–1A for
                                                    SECURITIES AND EXCHANGE                                 listing and trading of Managed Fund
                                                                                                                                                                   the Trust, dated March 14, 2016 (File Nos. 333–
                                                    COMMISSION                                              Shares 4 on the Exchange. The Fund will                210186 and 811–23147). The descriptions of the
                                                                                                                                                                   Fund and the Shares contained herein are based, in
                                                    [Release No. 34–77781; File No. SR–                        3 The Commission approved Nasdaq Rule 5735 in       part, on information in the Registration Statement.
                                                    NASDAQ–2016–064]                                        Securities Exchange Act Release No. 57962 (June           7 An investment adviser to an open-end fund is
                                                                                                            13, 2008), 73 FR 35175 (June 20, 2008) (SR–            required to be registered under the Investment
                                                    Self-Regulatory Organizations; The                      NASDAQ–2008–039). There are already multiple           Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
                                                    NASDAQ Stock Market LLC; Notice of                      actively-managed funds listed on the Exchange; see,    result, the Adviser and its related personnel are
                                                                                                            e.g., Securities Exchange Act Release Nos. 72506       subject to the provisions of Rule 204A–1 under the
                                                    Filing of Proposed Rule Change                          (July 1, 2014), 79 FR 38631 (July 8, 2014) (SR–        Advisers Act relating to codes of ethics. This Rule
                                                    Relating to the Listing and Trading of                  NASDAQ–2014–050) (order approving listing and          requires investment advisers to adopt a code of
                                                    the Shares of the First Trust Strategic                 trading of First Trust Strategic Income ETF); 69464    ethics that reflects the fiduciary nature of the
                                                    Mortgage REIT ETF of First Trust                        (April 26, 2013), 78 FR 25774 (May 2, 2013) (SR–       relationship to clients as well as compliance with
                                                                                                            NASDAQ–2013–036) (order approving listing and          other applicable securities laws. Accordingly,
                                                    Exchange-Traded Fund VIII                               trading of First Trust Senior Loan Fund); and 66489    procedures designed to prevent the communication
                                                    May 6, 2016.                                            (February 29, 2012), 77 FR 13379 (March 6, 2012)       and misuse of non-public information by an
                                                                                                            (SR–NASDAQ–2012–004) (order approving listing          investment adviser must be consistent with Rule
                                                       Pursuant to Section 19(b)(1) of the                  and trading of WisdomTree Emerging Markets             204A–1 under the Advisers Act. In addition, Rule
                                                    Securities Exchange Act of 1934                         Corporate Bond Fund). The Exchange believes the        206(4)–7 under the Advisers Act makes it unlawful
                                                    (‘‘Act’’),1 and Rule 19b–4 thereunder,2                 proposed rule change raises no significant issues      for an investment adviser to provide investment
                                                                                                            not previously addressed in those prior
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                                                    notice is hereby given that on May 3,                                                                          advice to clients unless such investment adviser has
                                                                                                            Commission orders.                                     (i) adopted and implemented written policies and
                                                    2016, The NASDAQ Stock Market LLC                          4 A Managed Fund Share is a security that           procedures reasonably designed to prevent
                                                    (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with             represents an interest in an investment company        violation, by the investment adviser and its
                                                    the Securities and Exchange                             registered under the Investment Company Act of         supervised persons, of the Advisers Act and the
                                                    Commission (‘‘Commission’’) the                         1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized    Commission rules adopted thereunder; (ii)
                                                                                                            as an open-end investment company or similar           implemented, at a minimum, an annual review
                                                                                                            entity that invests in a portfolio of securities       regarding the adequacy of the policies and
                                                      6 17 CFR 200.30–3(a)(6) and (9).                      selected by its investment adviser consistent with     procedures established pursuant to subparagraph (i)
                                                      1 15 U.S.C. 78s(b)(1).                                its investment objectives and policies. In contrast,   above and the effectiveness of their
                                                      2 17 CFR 240.19b–4.                                   an open-end investment company that issues Index       implementation; and (iii) designated an individual



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Document Created: 2016-05-12 01:07:22
Document Modified: 2016-05-12 01:07:22
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 29588 

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