81 FR 35423 - Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to SPDR Series Trust and SPDR Dorsey Wright Fixed Income Allocation 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 106 (June 2, 2016)

[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35423-35425]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-13041]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77942; File No. TP 16-8]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to SPDR Series Trust and SPDR 
Dorsey Wright Fixed Income Allocation ETF Pursuant to Exchange Act Rule 
10b-17(b)(2) and Rules 101(d) and 102(e) of Regulation M

May 27, 2016.
    By letter dated May 27, 2016 (the ``Letter''), as supplemented by 
conversations with the staff of the Division of Trading and Markets, 
counsel for SPDR Series Trust (the ``Trust''), on behalf of the Trust, 
SPDR Dorsey Wright Fixed Income Allocation ETF (the ``Fund''), any 
national securities exchange on or through which shares issued by the 
Fund (``Shares'') may subsequently trade, State Street Global Markets, 
LLC (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 25,000 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. The SPDR 
Dorsey Wright Fixed Income Allocation ETF will seek results that 
correspond generally to the performance, before fees and expenses, of 
the Dorsey Wright Fixed Income Allocation Index (the ``Index''). In 
doing so, the Fund will, under normal circumstances, invest at least 
80% (but typically substantially all) of its total assets in the four 
ETFs that comprise the Index (the ``Underlying ETFs'').\1\ In light of 
the Index's composition, the Fund intends to operate as an ``ETF of 
ETFs.'' Except for the fact that the Fund will operate as an ETF of 
ETFs, the Fund will operate in a manner substantially identical to the 
Underlying ETFs.
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    \1\ At any given time, the underlying Index will be composed of 
four SPDR ETFs from a universe that currently consists of 21 
eligible SPDR ETFs that each invest in a different sub-asset class 
in the fixed income market. While the Fund typically will invest 
substantially all of its assets in the four Underlying ETFs, the 
Fund may also invest in instruments not included in the Index, such 
as convertible securities, variable rate demand notes, commercial 
paper, structured notes, swaps, options and futures contracts, which 
the Fund may use in seeking performance that corresponds to its 
Index and in managing cash flows.
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    The Requestors represent, among other things, the following:
     Shares of the 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 the Fund will be listed and traded on NASDAQ 
Stock Market LLC or other exchange in accordance with exchange listing 
standards that are, or will become, effective pursuant to Section 19(b) 
of the Exchange Act (the ``Listing Exchange'');
     All Underlying ETFs in which the Fund invests will either 
meet all conditions set forth in one or more of the ETF class relief 
letters,\2\ will have

[[Page 35424]]

received individual relief from the Commission, will be able to rely on 
individual relief even though they are not named parties (for example, 
a no-action letter), or will be able to rely on applicable class relief 
for actively-managed ETFs; \3\
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    \2\ See, e.g., Letter from James A. Brigagliano, Acting 
Associate Director, Division of Market Regulation, to Stuart M. 
Strauss, Esq., Clifford Chance US LLP (October 24, 2006) regarding 
class relief for exchange-traded index funds; Letter from Catherine 
McGuire, Esq., Chief Counsel, Division of Market Regulation, to the 
Securities Industry Association Derivative Products Committee 
(November 21, 2005); Letter from Racquel L. Russell, Branch Chief, 
Division of Market Regulation, to George T. Simon, Esq., Foley & 
Lardner LLP (June 21, 2006) regarding commodity-based investment 
vehicles; Letter from James A. Brigagliano, Associate Director, 
Division of Market Regulation, to Benjamin Haskin, Esq., Willkie. 
Farr & Gallagher LLP (April 9, 2007) regarding class relief for 
fixed income exchange traded funds; 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) regarding class relief for combination exchange-traded funds.
    \3\ See Division of Market Regulation Staff Legal Bulletin No. 
9, as revised on September 10, 2010, with respect to Rules 101 and 
102 of Regulation M, and Securities Exchange Act Rel. No. 67215 
(June 19, 2012), with respect to Rule 10b-17.
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     All of the components of the Index will have publicly 
available last sale trade information;
     The intra-day proxy (or ``indicative'') value of the Fund 
per share and the value of the 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 
Listing Exchange, the Fund's custodian, through the National Securities 
Clearing Corporation, will make publicly available the list of the 
names and the numbers of securities of the Fund's portfolio that will 
be applicable that day to creation and redemption requests;
     The Listing Exchange or other market information provider 
will disseminate (i) continuously every 15 seconds throughout the 
trading day, through the facilities of the consolidated tape, the 
market value of a Share, and (ii) every 15 seconds throughout the 
trading day, a calculation of the intra-day indicative value of a 
Share;
     The Fund will invest in securities that will facilitate an 
effective and efficient arbitrage mechanism and the ability to create 
workable hedges;
     The Requestors believe that arbitrageurs are expected to 
take advantage of price variations between the Fund's market price and 
its NAV;
     The arbitrage mechanism will be facilitated by the 
transparency of the Fund's portfolio and the availability of the intra-
day indicative value, the liquidity of securities held by the 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 
the 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.\4\ However, we find that it is appropriate in the public 
interest and is consistent with the protection of investors to grant a 
conditional 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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    \4\ 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, the 
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 the Fund and that a close 
alignment between the market price of Shares and the 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 the Fund, thus permitting persons participating in a 
distribution of Shares of the Fund to bid for or purchase such Shares 
during their participation in such distribution.\5\
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    \5\ Additionally, we confirm the interpretation that a 
redemption of Creation Unit size aggregations of Shares of the Fund 
and the receipt of securities in exchange by a participant in a 
distribution of Shares of the 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 the Fund and that a close alignment between the market price of 
Shares and the 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 Fund, thus permitting the 
Fund to redeem Shares of the 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

[[Page 35425]]

adopting Rule 10b-17 will not be implicated.\6\
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    \6\ 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 Fund 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 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 the 
Fund, thus permitting persons who may be deemed to be participating in 
a distribution of Shares of the 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 
the Fund, thus permitting the Fund to redeem Shares of the 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 the 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 Listing Exchange as soon as 
practicable before trading begins on the ex-dividend date, but in no 
event later than the time when the Listing 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 the Commission determines that such action is necessary or 
appropriate in furtherance of the purposes of the Exchange Act. Persons 
relying upon this exemptive relief shall discontinue transactions 
involving the Shares of the Fund, pending presentation of the facts for 
the Commission's consideration, in the event that any material change 
occurs with respect to any of the facts or representations made by the 
Requestors and, consistent with all preceding letters, particularly 
with respect to the close alignment between the market price of Shares 
and the Fund's NAV. In addition, persons relying on this exemptive 
relief are directed to the antifraud 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.\7\
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    \7\ 17 CFR 200.30-3(a)(6) and (9).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13041 Filed 6-1-16; 8:45 am]
 BILLING CODE 8011-01-P