81_FR_44192 81 FR 44063 - Fidelity Commonwealth Trust, et al.; Notice of Application

81 FR 44063 - Fidelity Commonwealth Trust, et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 129 (July 6, 2016)

Page Range44063-44065
FR Document2016-15919

Federal Register, Volume 81 Issue 129 (Wednesday, July 6, 2016)
[Federal Register Volume 81, Number 129 (Wednesday, July 6, 2016)]
[Notices]
[Pages 44063-44065]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-15919]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32166; 812-14651]


Fidelity Commonwealth Trust, et al.; Notice of Application

June 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. The requested order would permit (a) index-
based series of certain open-end management investment companies 
(``Funds'') to issue shares redeemable in large aggregations only 
(``Creation Units''); (b) secondary market transactions in Fund shares 
to occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of shares for 
redemption; (d) certain affiliated persons of a Fund to deposit 
securities into, and receive securities from, the Fund 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 Funds (``Funds 
of Funds'') to acquire shares of the Funds; and (f) certain Funds 
(``Feeder Funds'') to create and redeem Creation Units in-kind in a 
master-feeder structure.

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    Applicants: Fidelity Commonwealth Trust and Fidelity Covington 
Trust (each, a ``Trust''), each a Massachusetts business trust 
registered under the Act as an open-end management investment company, 
FMR Co., Inc., a Massachusetts corporation registered as an investment 
adviser under the Investment Advisers Act of 1940 (the ``Advisers 
Act'') and Fidelity SelectCo, LLC (together with FMR Co., Inc., the 
``Initial Advisers'' and individually, each an ``Initial Adviser''), a 
Delaware limited liability company registered as an investment adviser 
under the Advisers Act, and Fidelity Distributors Corporation 
(``Distributor''), a Massachusetts corporation and broker-dealer 
registered under the Securities Exchange Act of 1934 (``Exchange 
Act'').

[[Page 44064]]

    Filing Dates: The application was filed on May 20, 2016, and 
amended on June 27, 2016.
    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 July 25, 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: The Trusts and FMR Co., 
Inc., 245 Summer Street, Boston, MA 02210; Fidelity SelectCo, LLC, 1225 
17th Street, Suite 1100, Denver, CO 80202; and the Distributor, 100 
Salem Street, Smithfield, RI 02917.

FOR FURTHER INFORMATION CONTACT: Mark N. Zaruba, Senior Counsel, at 
(202) 551-6878, or Dalia O. Blass, Assistant Chief Counsel, at (202) 
551-6821 (Division of Investment Management, Chief Counsel's Office).

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.

Summary of the Application

    1. Applicants request an order that would allow Funds to operate as 
index exchange traded funds (``ETFs'').\1\ Fund shares will be 
purchased and redeemed at their NAV in Creation Units only. All orders 
to purchase Creation Units and all redemption requests will be placed 
by or through an ``Authorized Participant'', which will have signed a 
participant agreement with the Distributor. Shares will be listed and 
traded individually on a national securities exchange, where share 
prices will be based on the current bid/offer market. Certain Funds may 
operate as Feeder Funds in a master-feeder structure. Any order 
granting the requested relief would be subject to the terms and 
conditions stated in the application.
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    \1\ Applicants request that the order apply to the existing 
series of each Trust that are index ETFs and any additional series 
of each Trust, and any other open-end management investment company 
or series thereof, that may be created in the future (each, included 
in the term ``Fund''), each of which will operate as an ETF and will 
track a specified index comprised of domestic or foreign equity and/
or fixed income securities (each, an ``Underlying Index''). Any Fund 
will (a) be advised by an Initial Adviser or an entity controlling, 
controlled by, or under common control with an Initial Adviser 
(each, an ``Adviser'') and (b) comply with the terms and conditions 
of the application.
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    2. Each Fund will hold investment positions selected to correspond 
generally to the performance of an Underlying Index. In the case of 
Self-Indexing Funds, 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 a Trust or a Fund, 
of the Adviser, of any sub-adviser to or promoter of a Fund, or of the 
Distributor will compile, create, sponsor or maintain the Underlying 
Index.\2\
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    \2\ Each Self-Indexing Fund will post on its Web site the 
identities and quantities of the investment positions that will form 
the basis for the Fund's calculation of its NAV at the end of the 
day. Applicants believe that requiring Self-Indexing Funds to 
maintain full portfolio transparency will help address, together 
with other protections, conflicts of interest with respect to such 
Funds.
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    3. Shares 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 in the 
application, purchasers will be required to purchase Creation Units by 
depositing specified instruments (``Deposit Instruments''), and 
shareholders redeeming their shares will receive specified instruments 
(``Redemption Instruments''). The Deposit Instruments and the 
Redemption Instruments will each correspond pro rata to the positions 
in the Fund's portfolio (including cash positions) except as specified 
in the application.
    4. Because shares will not be individually redeemable, applicants 
request an exemption from section 5(a)(1) and section 2(a)(32) of the 
Act that would permit the Funds to register as open-end management 
investment companies and issue shares that are redeemable in Creation 
Units only.
    5. Applicants also request an exemption from section 22(d) of the 
Act and rule 22c-1 under the Act as secondary market trading in shares 
will take place at negotiated prices, not at a current offering price 
described in a Fund's prospectus, and not at a price based on NAV. 
Applicants state that (a) secondary market trading in shares does not 
involve a 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 represent that share market prices will 
be disciplined by arbitrage opportunities, which should prevent shares 
from trading at a material discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of 
Creation Units in kind and that are based on certain Underlying Indexes 
that include foreign securities, applicants request relief from the 
requirement imposed by section 22(e) in order to allow such Funds to 
pay redemption proceeds within fourteen calendar days following the 
tender of Creation Units for redemption. Applicants assert that the 
requested relief would not be inconsistent with the spirit and intent 
of section 22(e) to prevent unreasonable, undisclosed or unforeseen 
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to 
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the 
Act; and the Funds, and any principal underwriter for the Funds, and/or 
any broker or dealer registered under the Exchange Act, to sell shares 
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 
The application's terms and conditions are designed to, among other 
things, help prevent any potential (i) undue influence over a Fund 
through control or voting power, or in connection with certain 
services, transactions, and underwritings, (ii) excessive layering of 
fees, and (iii) overly complex fund structures, which are the concerns 
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act to permit persons that are Affiliated Persons, or 
Second Tier Affiliates, of the Funds, solely by virtue of certain 
ownership interests, to effectuate purchases and redemptions in-kind. 
The deposit procedures for in-kind purchases of Creation Units and the 
redemption procedures for in-kind redemptions of Creation Units will be 
the same for all purchases and redemptions and Deposit Instruments

[[Page 44065]]

and Redemption Instruments will be valued in the same manner as those 
investment positions currently held by the Funds. Applicants also seek 
relief from the prohibitions on affiliated transactions in section 
17(a) to permit a Fund to sell its shares to and redeem its shares from 
a Fund of Funds, and to engage in the accompanying in-kind transactions 
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of 
Funds directly from a Fund will be accomplished in accordance with the 
policies of the Fund of Funds and will be based on the NAVs of the 
Funds.
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    \3\ The requested relief would apply to direct sales of shares 
in Creation Units by a Fund to a Fund of Funds and redemptions of 
those shares. Applicants, moreover, are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an Affiliated Person, or a 
Second-Tier Affiliate, 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.
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    9. Applicants also request relief to permit a Feeder Fund to 
acquire shares of another registered investment company managed by the 
Adviser having substantially the same investment objectives as the 
Feeder Fund (``Master Fund'') beyond the limitations in section 
12(d)(1)(A) 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).
    10. Section 6(c) of the Act permits the Commission to exempt any 
persons or transactions from any provision of the Act if 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 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 provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors. 
Section 17(b) of the Act authorizes the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15919 Filed 7-5-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                           Federal Register / Vol. 81, No. 129 / Wednesday, July 6, 2016 / Notices                                                44063

                                             and the marketplace. As noted above,                     Electronic Comments                                       SECURITIES AND EXCHANGE
                                             the Exchange has in place surveillance                                                                             COMMISSION
                                             procedures relating to trading in the                      • Use the Commission’s Internet
                                                                                                      comment form (http://www.sec.gov/                         [Investment Company Act Release No.
                                             Shares and may obtain information via                                                                              32166; 812–14651]
                                             ISG from other exchanges that are                        rules/sro.shtml); or
                                             members of ISG or with which the                           • Send an email to rule-comments@                       Fidelity Commonwealth Trust, et al.;
                                             Exchange has entered into a                              sec.gov. Please include File Number SR–                   Notice of Application
                                             comprehensive surveillance sharing                       NYSEArca–2016–87 on the subject line.
                                                                                                                                                                June 29, 2016.
                                             agreement. In addition, as noted above,
                                                                                                      Paper Comments                                            AGENCY:    Securities and Exchange
                                             investors will have ready access to
                                                                                                                                                                Commission (‘‘Commission’’).
                                             information regarding each Fund’s                           • Send paper comments in triplicate                    ACTION: Notice of an application for an
                                             holdings, the PIV, the Disclosed                         to Secretary, Securities and Exchange                     order under section 6(c) of the
                                             Portfolio, and quotation and last sale                   Commission, 100 F Street NE.,                             Investment Company Act of 1940 (the
                                             information for the Shares.                              Washington, DC 20549–1090.                                ‘‘Act’’) for an exemption from sections
                                             B. Self-Regulatory Organization’s                        All submissions should refer to File                      2(a)(32), 5(a)(1), 22(d), and 22(e) of the
                                             Statement on Burden on Competition                       Number SR–NYSEArca–2016–87. This                          Act and rule 22c–1 under the Act, under
                                                                                                      file number should be included on the                     sections 6(c) and 17(b) of the Act for an
                                               The Exchange does not believe that                     subject line if email is used. To help the                exemption from sections 17(a)(1) and
                                             the proposed rule change will impose                     Commission process and review your                        17(a)(2) of the Act, and under section
                                             any burden on competition that is not                    comments more efficiently, please use                     12(d)(1)(J) for an exemption from
                                             necessary or appropriate in furtherance                  only one method. The Commission will                      sections 12(d)(1)(A) and 12(d)(1)(B) of
                                             of the purpose of the Act. The Exchange                  post all comments on the Commission’s                     the Act. The requested order would
                                             notes that the proposed rule change will                                                                           permit (a) index-based series of certain
                                                                                                      Internet Web site (http://www.sec.gov/
                                             facilitate the listing and trading of                                                                              open-end management investment
                                                                                                      rules/sro.shtml). Copies of the                           companies (‘‘Funds’’) to issue shares
                                             additional types of actively-managed                     submission, all subsequent
                                             exchange-traded products that primarily                                                                            redeemable in large aggregations only
                                                                                                      amendments, all written statements                        (‘‘Creation Units’’); (b) secondary market
                                             hold equity securities, which will                       with respect to the proposed rule
                                             enhance competition among market                                                                                   transactions in Fund shares to occur at
                                                                                                      change that are filed with the                            negotiated market prices rather than at
                                             participants, to the benefit of investors
                                                                                                      Commission, and all written                               net asset value (‘‘NAV’’); (c) certain
                                             and the marketplace.
                                                                                                      communications relating to the                            Funds to pay redemption proceeds,
                                             C. Self-Regulatory Organization’s                        proposed rule change between the                          under certain circumstances, more than
                                             Statement on Comments on the                             Commission and any person, other than                     seven days after the tender of shares for
                                             Proposed Rule Change Received From                       those that may be withheld from the                       redemption; (d) certain affiliated
                                             Members, Participants, or Others                         public in accordance with the                             persons of a Fund to deposit securities
                                                                                                      provisions of 5 U.S.C. 552, will be                       into, and receive securities from, the
                                               No written comments were solicited                     available for Web site viewing and                        Fund in connection with the purchase
                                             or received with respect to the proposed                 printing in the Commission’s Public                       and redemption of Creation Units; (e)
                                             rule change.                                             Reference Room, 100 F Street NE.,                         certain registered management
                                                                                                      Washington, DC 20549, on official                         investment companies and unit
                                             III. Date of Effectiveness of the
                                                                                                      business days between the hours of                        investment trusts outside of the same
                                             Proposed Rule Change and Timing for                                                                                group of investment companies as the
                                             Commission Action                                        10:00 a.m. and 3:00 p.m. Copies of the
                                                                                                                                                                Funds (‘‘Funds of Funds’’) to acquire
                                                                                                      filing also will be available for
                                               Within 45 days of the date of                                                                                    shares of the Funds; and (f) certain
                                                                                                      inspection and copying at the principal
                                             publication of this notice in the Federal                                                                          Funds (‘‘Feeder Funds’’) to create and
                                                                                                      office of the Exchange. All comments
                                             Register or up to 90 days (i) as the                                                                               redeem Creation Units in-kind in a
                                                                                                      received will be posted without change;                   master-feeder structure.
                                             Commission may designate if it finds                     the Commission does not edit personal
                                             such longer period to be appropriate                     identifying information from                                 Applicants: Fidelity Commonwealth
                                             and publishes its reasons for so finding                 submissions. You should submit only                       Trust and Fidelity Covington Trust
                                             or (ii) as to which the self-regulatory                  information that you wish to make                         (each, a ‘‘Trust’’), each a Massachusetts
                                             organization consents, the Commission                    available publicly. All submissions                       business trust registered under the Act
                                             will:                                                    should refer to File Number SR–                           as an open-end management investment
                                               (A) by order approve or disapprove                     NYSEArca–2016–87 and should be                            company, FMR Co., Inc., a
                                             the proposed rule change, or                             submitted on or before July 27, 2016.                     Massachusetts corporation registered as
                                                                                                                                                                an investment adviser under the
                                               (B) institute proceedings to determine                   For the Commission, by the Division of                  Investment Advisers Act of 1940 (the
                                             whether the proposed rule change                         Trading and Markets, pursuant to delegated                ‘‘Advisers Act’’) and Fidelity SelectCo,
                                             should be disapproved.                                   authority.28                                              LLC (together with FMR Co., Inc., the
                                             IV. Solicitation of Comments                             Robert W. Errett,                                         ‘‘Initial Advisers’’ and individually,
                                                                                                      Deputy Secretary.                                         each an ‘‘Initial Adviser’’), a Delaware
                                               Interested persons are invited to
ehiers on DSK5VPTVN1PROD with NOTICES




                                                                                                      [FR Doc. 2016–15913 Filed 7–5–16; 8:45 am]                limited liability company registered as
                                             submit written data, views, and                          BILLING CODE 8011–01–P                                    an investment adviser under the
                                             arguments concerning the foregoing,                                                                                Advisers Act, and Fidelity Distributors
                                             including whether the proposed rule                                                                                Corporation (‘‘Distributor’’), a
                                             change is consistent with the Act.                                                                                 Massachusetts corporation and broker-
                                             Comments may be submitted by any of                                                                                dealer registered under the Securities
                                             the following methods:                                        28 17   CFR 200.30–3(a)(12).                         Exchange Act of 1934 (‘‘Exchange Act’’).


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                                             44064                         Federal Register / Vol. 81, No. 129 / Wednesday, July 6, 2016 / Notices

                                                Filing Dates: The application was                     orders to purchase Creation Units and                  Fund’s prospectus, and not at a price
                                             filed on May 20, 2016, and amended on                    all redemption requests will be placed                 based on NAV. Applicants state that (a)
                                             June 27, 2016.                                           by or through an ‘‘Authorized                          secondary market trading in shares does
                                                Hearing or Notification of Hearing: An                Participant’’, which will have signed a                not involve a Fund as a party and will
                                             order granting the requested relief will                 participant agreement with the                         not result in dilution of an investment
                                             be issued unless the Commission orders                   Distributor. Shares will be listed and                 in shares, and (b) to the extent different
                                             a hearing. Interested persons may                        traded individually on a national                      prices exist during a given trading day,
                                             request a hearing by writing to the                      securities exchange, where share prices                or from day to day, such variances occur
                                             Commission’s Secretary and serving                       will be based on the current bid/offer                 as a result of third-party market forces,
                                             applicants with a copy of the request,                   market. Certain Funds may operate as                   such as supply and demand. Therefore,
                                             personally or by mail. Hearing requests                  Feeder Funds in a master-feeder                        applicants assert that secondary market
                                             should be received by the Commission                     structure. Any order granting the                      transactions in shares will not lead to
                                             by 5:30 p.m. on July 25, 2016, and                       requested relief would be subject to the               discrimination or preferential treatment
                                             should be accompanied by proof of                        terms and conditions stated in the                     among purchasers. Finally, applicants
                                             service on applicants, in the form of an                 application.                                           represent that share market prices will
                                             affidavit, or for lawyers, a certificate of                 2. Each Fund will hold investment                   be disciplined by arbitrage
                                             service. Pursuant to rule 0–5 under the                  positions selected to correspond                       opportunities, which should prevent
                                             Act, hearing requests should state the                   generally to the performance of an                     shares from trading at a material
                                             nature of the writer’s interest, any facts               Underlying Index. In the case of Self-                 discount or premium from NAV.
                                             bearing upon the desirability of a                       Indexing Funds, an affiliated person, as                  6. With respect to Funds that effect
                                             hearing on the matter, the reason for the                defined in section 2(a)(3) of the Act                  creations and redemptions of Creation
                                             request, and the issues contested.                       (‘‘Affiliated Person’’), or an affiliated              Units in kind and that are based on
                                             Persons who wish to be notified of a                     person of an Affiliated Person (‘‘Second-              certain Underlying Indexes that include
                                             hearing may request notification by                      Tier Affiliate’’), of a Trust or a Fund, of            foreign securities, applicants request
                                             writing to the Commission’s Secretary.                   the Adviser, of any sub-adviser to or                  relief from the requirement imposed by
                                             ADDRESSES: Secretary, Securities and                     promoter of a Fund, or of the Distributor              section 22(e) in order to allow such
                                             Exchange Commission, 100 F Street NE.,                   will compile, create, sponsor or                       Funds to pay redemption proceeds
                                             Washington, DC 20549–1090;                               maintain the Underlying Index.2                        within fourteen calendar days following
                                             Applicants: The Trusts and FMR Co.,                         3. Shares will be purchased and                     the tender of Creation Units for
                                             Inc., 245 Summer Street, Boston, MA                      redeemed in Creation Units and                         redemption. Applicants assert that the
                                             02210; Fidelity SelectCo, LLC, 1225                      generally on an in-kind basis. Except                  requested relief would not be
                                             17th Street, Suite 1100, Denver, CO                      where the purchase or redemption will                  inconsistent with the spirit and intent of
                                             80202; and the Distributor, 100 Salem                    include cash under the limited                         section 22(e) to prevent unreasonable,
                                             Street, Smithfield, RI 02917.                            circumstances specified in the                         undisclosed or unforeseen delays in the
                                             FOR FURTHER INFORMATION CONTACT:                         application, purchasers will be required               actual payment of redemption proceeds.
                                             Mark N. Zaruba, Senior Counsel, at                       to purchase Creation Units by                             7. Applicants request an exemption to
                                             (202) 551–6878, or Dalia O. Blass,                       depositing specified instruments                       permit Funds of Funds to acquire Fund
                                             Assistant Chief Counsel, at (202) 551–                   (‘‘Deposit Instruments’’), and                         shares beyond the limits of section
                                                                                                      shareholders redeeming their shares                    12(d)(1)(A) of the Act; and the Funds,
                                             6821 (Division of Investment
                                                                                                      will receive specified instruments                     and any principal underwriter for the
                                             Management, Chief Counsel’s Office).
                                                                                                      (‘‘Redemption Instruments’’). The                      Funds, and/or any broker or dealer
                                             SUPPLEMENTARY INFORMATION: The
                                                                                                      Deposit Instruments and the                            registered under the Exchange Act, to
                                             following is a summary of the                                                                                   sell shares to Funds of Funds beyond
                                             application. The complete application                    Redemption Instruments will each
                                                                                                      correspond pro rata to the positions in                the limits of section 12(d)(1)(B) of the
                                             may be obtained via the Commission’s                                                                            Act. The application’s terms and
                                             Web site by searching for the file                       the Fund’s portfolio (including cash
                                                                                                      positions) except as specified in the                  conditions are designed to, among other
                                             number, or for an applicant using the                                                                           things, help prevent any potential (i)
                                             Company name box, at http://                             application.
                                                                                                         4. Because shares will not be                       undue influence over a Fund through
                                             www.sec.gov/search/search.htm or by                                                                             control or voting power, or in
                                             calling (202) 551–8090.                                  individually redeemable, applicants
                                                                                                      request an exemption from section                      connection with certain services,
                                             Summary of the Application                               5(a)(1) and section 2(a)(32) of the Act                transactions, and underwritings, (ii)
                                                                                                      that would permit the Funds to register                excessive layering of fees, and (iii)
                                                1. Applicants request an order that
                                                                                                      as open-end management investment                      overly complex fund structures, which
                                             would allow Funds to operate as index
                                                                                                      companies and issue shares that are                    are the concerns underlying the limits
                                             exchange traded funds (‘‘ETFs’’).1 Fund
                                                                                                      redeemable in Creation Units only.                     in sections 12(d)(1)(A) and (B) of the
                                             shares will be purchased and redeemed
                                                                                                         5. Applicants also request an                       Act.
                                             at their NAV in Creation Units only. All                                                                           8. Applicants request an exemption
                                                                                                      exemption from section 22(d) of the Act
                                               1 Applicants request that the order apply to the       and rule 22c–1 under the Act as                        from sections 17(a)(1) and 17(a)(2) of the
                                             existing series of each Trust that are index ETFs and    secondary market trading in shares will                Act to permit persons that are Affiliated
                                             any additional series of each Trust, and any other                                                              Persons, or Second Tier Affiliates, of the
                                                                                                      take place at negotiated prices, not at a
                                             open-end management investment company or                                                                       Funds, solely by virtue of certain
                                             series thereof, that may be created in the future        current offering price described in a
                                                                                                                                                             ownership interests, to effectuate
                                             (each, included in the term ‘‘Fund’’), each of which
ehiers on DSK5VPTVN1PROD with NOTICES




                                             will operate as an ETF and will track a specified           2 Each Self-Indexing Fund will post on its Web      purchases and redemptions in-kind. The
                                             index comprised of domestic or foreign equity and/       site the identities and quantities of the investment   deposit procedures for in-kind
                                             or fixed income securities (each, an ‘‘Underlying        positions that will form the basis for the Fund’s      purchases of Creation Units and the
                                             Index’’). Any Fund will (a) be advised by an Initial     calculation of its NAV at the end of the day.          redemption procedures for in-kind
                                             Adviser or an entity controlling, controlled by, or      Applicants believe that requiring Self-Indexing
                                             under common control with an Initial Adviser             Funds to maintain full portfolio transparency will
                                                                                                                                                             redemptions of Creation Units will be
                                             (each, an ‘‘Adviser’’) and (b) comply with the terms     help address, together with other protections,         the same for all purchases and
                                             and conditions of the application.                       conflicts of interest with respect to such Funds.      redemptions and Deposit Instruments


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                                                                           Federal Register / Vol. 81, No. 129 / Wednesday, July 6, 2016 / Notices                                                            44065

                                             and Redemption Instruments will be                         For the Commission, by the Division of                   II. Self-Regulatory Organization’s
                                             valued in the same manner as those                       Investment Management, under delegated                     Statement of the Purpose of, and
                                             investment positions currently held by                   authority.                                                 Statutory Basis for, the Proposed Rule
                                             the Funds. Applicants also seek relief                   Robert W. Errett,                                          Change
                                             from the prohibitions on affiliated                      Deputy Secretary.
                                                                                                                                                                    In its filing with the Commission,
                                             transactions in section 17(a) to permit a                [FR Doc. 2016–15919 Filed 7–5–16; 8:45 am]                 FINRA included statements concerning
                                             Fund to sell its shares to and redeem its                BILLING CODE 8011–01–P                                     the purpose of and basis for the
                                             shares from a Fund of Funds, and to                                                                                 proposed rule change and discussed any
                                             engage in the accompanying in-kind                                                                                  comments it received on the proposed
                                             transactions with the Fund of Funds.3                    SECURITIES AND EXCHANGE                                    rule change. The text of these statements
                                             The purchase of Creation Units by a                      COMMISSION                                                 may be examined at the places specified
                                             Fund of Funds directly from a Fund will                                                                             in Item IV below. FINRA has prepared
                                             be accomplished in accordance with the                   [Release No. 34–78196; File No. SR–FINRA–                  summaries, set forth in sections A, B,
                                             policies of the Fund of Funds and will                   2016–023]                                                  and C below, of the most significant
                                             be based on the NAVs of the Funds.                                                                                  aspects of such statements.
                                                                                                      Self-Regulatory Organizations;
                                                9. Applicants also request relief to                  Financial Industry Regulatory                              A. Self-Regulatory Organization’s
                                             permit a Feeder Fund to acquire shares                   Authority, Inc.; Notice of Filing of a                     Statement of the Purpose of, and the
                                             of another registered investment                         Proposed Rule Change To Increase                           Statutory Basis for, the Proposed Rule
                                             company managed by the Adviser                           Transparency for CMO Transactions                          Change
                                             having substantially the same
                                             investment objectives as the Feeder                      June 29, 2016.                                             1. Purpose
                                             Fund (‘‘Master Fund’’) beyond the                           Pursuant to Section 19(b)(1) of the                        FINRA proposes to amend the Rule
                                             limitations in section 12(d)(1)(A) and                   Securities Exchange Act of 1934                            6700 Series and the TRACE
                                             permit the Master Fund, and any                          (‘‘Act’’) 1 and Rule 19b–4 thereunder,2                    dissemination protocols to: (1) Provide
                                             principal underwriter for the Master                     notice is hereby given that on June 27,                    for the dissemination of transactions in
                                             Fund, to sell shares of the Master Fund                  2016, Financial Industry Regulatory                        CMOs,3 an additional group of
                                             to the Feeder Fund beyond the                            Authority, Inc. (‘‘FINRA’’) filed with the                 Securitized Products 4 not yet subject to
                                             limitations in section 12(d)(1)(B).                      Securities and Exchange Commission                         dissemination; (2) reduce the reporting
                                                10. Section 6(c) of the Act permits the               (‘‘Commission’’) the proposed rule                         timeframe for CMOs from end-of-day to
                                             Commission to exempt any persons or                      change as described in Items I, II, and                    60 minutes; and (3) simplify the
                                             transactions from any provision of the                   III below, which Items have been                           reporting requirements for pre-issuance
                                             Act if such exemption is necessary or                    prepared by FINRA. The Commission is                       CMO transactions. FINRA also proposes
                                             appropriate in the public interest and                   publishing this notice to solicit                          technical and conforming changes to the
                                             consistent with the protection of                        comments on the proposed rule change                       Rule 6700 Series and Rule 7730.
                                             investors and the purposes fairly                        from interested persons.                                   Background
                                             intended by the policy and provisions of                 I. Self-Regulatory Organization’s                             FINRA requires members to report
                                             the Act. Section 12(d)(1)(J) of the Act                  Statement of the Terms of Substance of                     transactions in any security that meets
                                             provides that the Commission may                         the Proposed Rule Change                                   the definition of ‘‘TRACE-Eligible
                                             exempt any person, security, or
                                                                                                                                                                 Security’’ 5 to TRACE. Most transactions
                                             transaction, or any class or classes of                     FINRA is proposing to to [sic] amend
                                             persons, securities, or transactions, from               the FINRA Rule 6700 Series and the                            3 The term ‘‘Collateralized Mortgage Obligation,’’
                                             any provision of section 12(d)(1) if the                 Trade Reporting and Compliance Engine                      or CMO, is defined in FINRA Rule 6710(dd) to
                                             exemption is consistent with the public                  (‘‘TRACE’’) dissemination protocols to                     mean a type of Securitized Product backed by
                                             interest and the protection of investors.                provide for dissemination of                               Agency Pass-Through Mortgage-Backed Securities
                                                                                                                                                                 as defined in paragraph (v), mortgage loans,
                                             Section 17(b) of the Act authorizes the                  transactions in an additional type of                      certificates backed by project loans or construction
                                             Commission to grant an order                             Securitized Products—specifically,                         loans, other types of mortgage-backed securities or
                                             permitting a transaction otherwise                       collateralized mortgage obligations                        assets derivative of mortgage-backed securities,
                                             prohibited by section 17(a) if it finds                  (‘‘CMOs’’). In addition, FINRA is                          structured in multiple classes or tranches with each
                                                                                                                                                                 class or tranche entitled to receive distributions of
                                             that (a) the terms of the proposed                       proposing a corresponding change to                        principal and/or interest according to the
                                             transaction are fair and reasonable and                  Rule 6730 to reduce the reporting period                   requirements adopted for the specific class or
                                             do not involve overreaching on the part                  for CMOs from end-of-day to 60                             tranche, and includes a real estate mortgage
                                             of any person concerned; (b) the                         minutes, and also to amend Rule 6730                       investment conduit (‘‘REMIC’’).
                                                                                                                                                                    4 The term ‘‘Securitized Product’’ is defined in
                                             proposed transaction is consistent with                  to simplify the reporting requirements
                                                                                                                                                                 Rule 6710(m) to mean a security collateralized by
                                             the policies of each registered                          for transactions in CMOs executed prior                    any type of financial asset, such as a loan, a lease,
                                             investment company involved; and (c)                     to issuance. FINRA further proposes                        a mortgage, or a secured or unsecured receivable,
                                             the proposed transaction is consistent                   technical and conforming changes to the                    and includes but is not limited to an asset-backed
                                                                                                      FINRA Rule 6700 Series and Rule 7730                       security as defined in Section 3(a)(79)(A) of the
                                             with the general purposes of the Act.                                                                               Exchange Act, a synthetic asset-backed security,
                                                                                                      in connection with the changes                             and any residual tranche or interest of any security
                                                3 The requested relief would apply to direct sales    referenced above.                                          specified above, which tranche or interest is a debt
                                             of shares in Creation Units by a Fund to a Fund of          The text of the proposed rule change                    security for purposes of paragraph (a) and the Rule
                                             Funds and redemptions of those shares. Applicants,                                                                  6700 Series.
ehiers on DSK5VPTVN1PROD with NOTICES




                                             moreover, are not seeking relief from section 17(a)
                                                                                                      is available on FINRA’s Web site at                           5 Rule 6710 generally defines a ‘‘TRACE-Eligible

                                             for, and the requested relief will not apply to,         http://www.finra.org, at the principal                     Security’’ as: (1) A debt security that is U.S. dollar-
                                             transactions where a Fund could be deemed an             office of FINRA and at the                                 denominated and issued by a U.S. or foreign private
                                             Affiliated Person, or a Second-Tier Affiliate, of a      Commission’s Public Reference Room.                        issuer (and, if a ‘‘restricted security’’ as defined in
                                             Fund of Funds because an Adviser or an entity                                                                       Securities Act Rule 144(a)(3), sold pursuant to
                                             controlling, controlled by or under common control                                                                  Securities Act Rule 144A); or (2) a debt security that
                                                                                                           1 15   U.S.C. 78s(b)(1).
                                             with an Adviser provides investment advisory                                                                        is U.S. dollar-denominated and issued or
                                             services to that Fund of Funds.                               2 17   CFR 240.19b–4.                                                                              Continued




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Document Created: 2016-07-06 07:56:07
Document Modified: 2016-07-06 07:56:07
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
ActionNotice 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. The requested order would permit (a) index- based series of certain open-end management investment companies (``Funds'') to issue shares redeemable in large aggregations only (``Creation Units''); (b) secondary market transactions in Fund shares to occur at negotiated market prices rather than at net asset value (``NAV''); (c) certain Funds to pay redemption proceeds, under certain circumstances, more than seven days after the tender of shares for redemption; (d) certain affiliated persons of a Fund to deposit securities into, and receive securities from, the Fund 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 Funds (``Funds of Funds'') to acquire shares of the Funds; and (f) certain Funds (``Feeder Funds'') to create and redeem Creation Units in-kind in a master-feeder structure.
DatesThe application was filed on May 20, 2016, and amended on June 27, 2016.
ContactMark N. Zaruba, Senior Counsel, at (202) 551-6878, or Dalia O. Blass, Assistant Chief Counsel, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation81 FR 44063 

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