81_FR_47332 81 FR 47193 - Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to Janus Detroit Street Trust, the Janus Velocity Tail Risk Hedged Large Cap ETF, and the Janus Velocity Volatility Hedged Large Cap ETF

81 FR 47193 - Order Granting Limited Exemptions From Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M to Janus Detroit Street Trust, the Janus Velocity Tail Risk Hedged Large Cap ETF, and the Janus Velocity Volatility Hedged Large Cap ETF

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 139 (July 20, 2016)

Page Range47193-47196
FR Document2016-17107

Federal Register, Volume 81 Issue 139 (Wednesday, July 20, 2016)
[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47193-47196]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17107]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78332; File No. TP 16-10]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to Janus Detroit Street Trust, 
the Janus Velocity Tail Risk Hedged Large Cap ETF, and the Janus 
Velocity Volatility Hedged Large Cap ETF

July 14, 2016.
    By letter dated July 14, 2016 (the ``Letter''), as supplemented by 
conversations with the staff of the Division of Trading and Markets, 
counsel for Janus Detroit Street Trust (the ``Trust'') on behalf of the 
Trust, the Janus Velocity Tail Risk Hedged Large Cap ETF and the Janus 
Velocity

[[Page 47194]]

Volatility Hedged Large Cap ETF (each a ``New Fund'' and, collectively, 
the ``New Funds''), any national securities exchange on or through 
which shares issued by the New Funds (``Shares'') may subsequently 
trade, ALPS Distributors, Inc., 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 Commission under the Investment 
Company Act of 1940, as amended (``1940 Act''), as an open-end 
management investment company. Each New Fund seeks to track the 
performance of a particular underlying index (``Index''), which for 
each New Fund is comprised of shares of exchange-traded products 
(``ETPs''). As a result of the Trust and the ALPS ETF Trust \1\ 
entering into an Agreement and Plan of Reorganization and Termination, 
the Janus Velocity Tail Risk Hedged Large Cap ETF and the Janus 
Velocity Volatility Hedged Large Cap ETF will acquire the 
VelocityShares Tail Risk Hedged Large Cap ETF and the VelocityShares 
Volatility Hedged Large Cap ETF, respectively, in exchange for shares 
of such New Fund (or cash in exchange for any fractional shares of an 
Existing Fund) and the assumption by each New Fund of all of the 
respective corresponding Existing Fund's liabilities, if any, as of the 
closing date. In return, the Existing Funds will distribute the shares 
of the New Funds to the Existing Funds' shareholders, and the Existing 
Funds will terminate. Immediately after the reorganization, each former 
shareholder of each Existing Fund will own shares of the corresponding 
New Fund that will be approximately equal to the value of that 
shareholder's full shares of such Existing Fund as of the closing date. 
Thus, Requestors represent that although the New Funds will effectively 
be the continuation of the Existing Funds, and will be substantially 
identical in all material respects to the Existing Funds, they cannot 
rely on the terms and conditions of the Existing Relief because the 
Trust and the New Funds are legal entities different and distinct from 
the ALPS ETF Trust and the Existing Funds.
---------------------------------------------------------------------------

    \1\ On June 21, 2013, the Division of Trading and Markets 
granted ALPS ETF Trust exemptive relief (the ``Existing Relief'') 
for the VelocityShares Tail Risk Hedged Large Cap ETF and the 
VelocityShares Volatility Hedged Large Cap ETF (each an ``Existing 
Fund'' and, collectively, the ``Existing Funds''). Exchange Act 
Release No. 69831 (June 21, 2013).
---------------------------------------------------------------------------

    The Requestors represent that each New Fund's underlying index will 
reflect the performance of a portfolio consisting of an exposure to a 
large cap equity portfolio, consisting of three underlying ETFs which 
track the S&P 500 index (``Underlying Large-Cap ETFs'') and a 
volatility strategy to hedge ``tail risk'' events (which are market 
events that occur rarely but may have severe consequences when they do 
occur) consisting of two underlying ETFs which reflect leveraged or 
inverse positions on the S&P 500 VIX Short-Term Futures Index 
(``Underlying Volatility ETFs''). The underlying index, at each monthly 
rebalance, consists of an 85% allocation to the Underlying Large-Cap 
ETFs and a 15% allocation to the Underlying Volatility ETFs. The New 
Funds intend to operate as ``ETFs of ETFs'' by seeking to track the 
performance of the respective underlying Index by investing at least 
80% of their assets in the ETPs that comprise each Index. Substantially 
identical in all material respects to the Existing Funds, the 
Requestors represent that they intend to enter into swap agreements for 
each New Fund designed to provide exposure to (a) the Underlying 
Volatility ETFs and/or (b) leveraged and/or inverse positions on the 
S&P 500 VIX Short-Term Futures Index directly. Except for the fact that 
the New Funds will operate as ETFs of ETFs and the Requestors represent 
that they intend to enter into swaps for each New Fund to obtain the 
leveraged and/or inverse exposure to the Underlying Volatility ETFs 
and/or the S&P 500 VIX Short-Term Futures Index, the Requestors 
represent that the New Funds will operate in a manner identical to the 
ETPs that comprise each Index and will effectively be the continuation 
of the Existing Funds.
    The Requestors represent, among other things, the following:
     Shares of the New Funds 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 New Funds 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;
     All ETPs in which the New Funds invest will meet all 
conditions set forth in a relevant class relief letter,\2\ will have 
received individual relief from the Commission, or will be able to rely 
on individual relief even though they are not named parties;
---------------------------------------------------------------------------

    \2\ 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); Letter 
from James A. Brigagliano, Acting Associate Director, Division of 
Market Regulation, to Stuart M. Strauss, Esq., Clifford Chance US 
LLP (October 24, 2006); Letter from James A. Brigagliano, Associate 
Director, Division of Market Regulation, to Benjamin Haskin, Esq., 
Willkie. Farr & Gallagher LLP (April 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).
---------------------------------------------------------------------------

     At least 70% of each New Fund will be comprised of 
component securities that meet the minimum public float and minimum 
average daily trading volume thresholds under the ``actively-traded 
securities'' definition found in Regulation M for excepted securities 
during each of the previous two months of trading prior to formation of 
the relevant New Fund; provided, however, that if the New Fund has 200 
or more component securities, then 50% of the component securities will 
meet the actively-traded securities thresholds;
     All the components of each Index will have publicly 
available last sale trade information;
     The intra-day proxy value of each New 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, the New Funds' custodian, through the National Securities 
Clearing Corporation, will make available the list of the names and the 
numbers of securities and other assets of each New 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 
on a per-share basis, the current value of the securities and cash to 
be deposited as consideration for the purchase of Creation Units;
     The arbitrage mechanism will be facilitated by the 
transparency of the New Funds' portfolio and the

[[Page 47195]]

availability of the intra-day indicative value, the liquidity of 
securities and other assets held by the New Funds, the ability of the 
New Funds and arbitrageurs to acquire such securities, as well as the 
arbitrageurs' ability to create workable hedges;
     The New Funds will invest solely in liquid securities;
     The New Funds 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 each New Fund's market price 
and its NAV; and
     A close alignment between the market price of Shares and 
each New 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\
---------------------------------------------------------------------------

    \3\ 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 
ETFs and their securities do not meet those definitions.
---------------------------------------------------------------------------

Rule 101 of Regulation M

    Generally, Rule 101 of Regulation M is an anti-manipulation rule 
that, subject to certain exceptions, prohibits any ``distribution 
participant'' and its ``affiliated purchasers'' from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase 
any security which is the subject of a distribution until after the 
applicable restricted period, except as specifically permitted in the 
rule. Rule 100 of Regulation M defines ``distribution'' to mean any 
offering of securities that is distinguished from ordinary trading 
transactions by the magnitude of the offering and the presence of 
special selling efforts and selling methods. The provisions of Rule 101 
of Regulation M apply to underwriters, prospective underwriters, 
brokers, dealers, and other persons who have agreed to participate or 
are participating in a distribution of securities. The Shares are in a 
continuous distribution and, as such, the restricted period in which 
distribution participants and their affiliated purchasers are 
prohibited from bidding for, purchasing, or attempting to induce others 
to bid for or purchase extends indefinitely.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will continuously redeem at the NAV Creation 
Units of Shares of the New Funds and that a close alignment between the 
market price of Shares and the New Funds' 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 from Rule 101 of Regulation M, pursuant to paragraph (d) of 
Rule 101 of Regulation M with respect to transactions in the New Funds 
as described in the Letter, thus permitting persons who may be deemed 
to be participating in a distribution of Shares of the New Funds to bid 
for or purchase such Shares during their participation in such 
distribution.\4\
---------------------------------------------------------------------------

    \4\ Additionally, we confirm the interpretation that a 
redemption of Creation Units of Shares of the New Funds and the 
receipt of securities in exchange by a participant in a distribution 
of Shares of the New Funds would not constitute an ``attempt to 
induce any person to bid for or purchase, a covered security during 
the applicable restricted period'' within the meaning of Rule 101 of 
Regulation M and therefore would not violate that rule.
---------------------------------------------------------------------------

Rule 102 of Regulation M

    Rule 102 of Regulation M prohibits issuers, selling security 
holders, and any affiliated purchaser of such person from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase a 
covered security during the applicable restricted period in connection 
with a distribution of securities effected by or on behalf of an issuer 
or selling security holder.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will redeem at the NAV Creation Units of Shares 
of the New Funds and that a close alignment between the market price of 
Shares and the New Funds' 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 from Rule 102 
of Regulation M, pursuant to paragraph (e) of Rule 102 of Regulation M 
with respect to transactions in the New Funds as described in the 
Letter, thus permitting the New Funds to redeem Shares of the New Funds 
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, in particular that the 
concerns that the Commission raised in adopting Rule 10b-17 generally 
will not be implicated if exemptive relief, subject to the conditions 
below, is granted to the Trust because market participants will receive 
timely notification of the existence and timing of a pending 
distribution,\5\ we find that it is appropriate in the public interest, 
and consistent with the protection of investors, to grant the Trust a 
conditional exemption from Rule 10b-17.
---------------------------------------------------------------------------

    \5\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature 
of the New Funds. This is because it is not possible for the New 
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.
---------------------------------------------------------------------------

Conclusion

    It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that 
the Trust is exempt from the requirements of Rules 101 with respect to 
transactions in the Shares of the New Funds as described in the Letter, 
thus permitting persons who may be deemed to be participating in a 
distribution of Shares of the New Funds to bid for or purchase such 
Shares during their participation in such distribution as described in 
the Letter.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust is exempt from the requirements of Rule 102 with respect 
to transaction in the Shares of the New Funds as described in the 
Letter, thus permitting the New Funds to redeem Shares of the New Funds 
during the continuous offering of such Shares as described in the 
Letter.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, subject to the conditions contained in this order, is exempt 
from the requirements of Rule 10b-17 with respect to transactions in 
the Shares of the New Funds as described in the Letter.
    This exemption from Rule 10b-17 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.

[[Page 47196]]

    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. This 
exemption is based on the facts presented and the representations made 
in the Letter. Any different facts or representations may require a 
different response. Persons relying upon this exemption shall 
discontinue transactions involving the Shares of the New 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 as is the case with all 
preceding letters, particularly with respect to the close alignment 
between the market price of Shares and the New Fund's NAV. In addition, 
persons relying on this exemption are directed to the anti-fraud and 
anti-manipulation provisions of the Exchange Act, particularly Sections 
9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for 
compliance with these and any other applicable provisions of the 
federal securities laws must rest with the persons relying on this 
exemption. 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.
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(6) and (9).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17107 Filed 7-19-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                 Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                  47193

                                                  III. Date of Effectiveness of the                          the duration of the Pilot Period.52 These             if email is used. To help the
                                                  Proposed Rule Change and Timing for                        proposals appear designed to permit the               Commission process and review your
                                                  Commission Action                                          Exchange to avoid the costs of                        comments more efficiently, please use
                                                                                                             modifying these order types to comply                 only one method. The Commission will
                                                     Within 45 days of the date of                           with the Plan. The Exchange notes that                post all comments on the Commission’s
                                                  publication of this notice in the Federal                  these order types are infrequently used               Internet Web site (http://www.sec.gov/
                                                  Register or within such longer period (i)                  in Pilot Securities, and takes the                    rules/sro.shtml). Copies of the
                                                  as the Commission may designate up to                      position that ‘‘[t]he limited usage and               submission, all subsequent
                                                  90 days of such date if it finds such                      execution scenarios do not justify the                amendments, all written statements
                                                  longer period to be appropriate and                        additional system complexity which                    with respect to the proposed rule
                                                  publishes its reasons for so finding or                    would be created by modifying the                     change that are filed with the
                                                  (ii) as to which the Exchange consents,                    System to support such order types in                 Commission, and all written
                                                  the Commission will: (a) By order                          order to comply with the Plan.’’ 53 At                communications relating to the
                                                  approve or disapprove such proposed                        the same time, the Exchange also does                 proposed rule change between the
                                                  rule change, or (b) institute proceedings                  not appear prepared to propose to                     Commission and any person, other than
                                                  to determine whether the proposed rule                     eliminate these order types indefinitely.             those that may be withheld from the
                                                  change should be disapproved.                              By contrast, the Exchange proposes to                 public in accordance with the
                                                                                                             modify, in ways not required by the                   provisions of 5 U.S.C. 552, will be
                                                  IV. Solicitation of Comments
                                                                                                             Plan, the operation of Market Pegged                  available for Web site viewing and
                                                     Interested persons are invited to                       Orders and Non-Displayed Orders, and                  printing in the Commission’s Public
                                                  submit written data, views and                             certain orders subject to the Display-                Reference Room, 100 F Street NE.,
                                                  arguments concerning the foregoing,                        Price Sliding process, in some or all                 Washington, DC 20549, on official
                                                  including whether the proposal is                          Test Groups of Pilot Securities, and to               business days between the hours of
                                                  consistent with the Act. In particular,                    incur the associated system change                    10:00 a.m. and 3:00 p.m. Copies of such
                                                  the Commission seeks comment on the                        costs, in order to increase the                       filing will also be available for
                                                  issue described below.                                     ‘‘execution opportunities’’ for these                 inspection and copying at the principal
                                                                                                             order types for the duration of the Pilot             office of the Exchange. All comments
                                                     In the Approval Order, the                              Period.54
                                                  Commission stressed the importance of                                                                            received will be posted without change;
                                                                                                                The Commission is concerned that                   the Commission does not edit personal
                                                  testing the impact of wider tick sizes on                  proposed rule changes, other than those
                                                  the trading and liquidity of the                                                                                 identifying information from
                                                                                                             necessary for compliance with Plan, that              submissions. You should submit only
                                                  securities of small capitalization                         are targeted at Pilot Securities, that have
                                                  companies, and doing so in a way that                                                                            information that you wish to make
                                                                                                             a disparate impact on different Test                  available publicly. All submissions
                                                  produces robust results that inform                        Groups and the Control Group, and that
                                                  future policy decisions.49 The                                                                                   should refer to File No. SR–BatsBZX–
                                                                                                             are to apply temporarily only for the                 2016–29 and should be submitted on or
                                                  Commission acknowledged the                                Pilot Period, could bias the results of the
                                                  complexity of the Pilot and the costs                                                                            before August 10, 2016.
                                                                                                             Pilot and undermine the value of the
                                                  that its implementation would create for                   data generated in informing future                       For the Commission, by the Division of
                                                  market participants, but concluded that                    policy decisions. Accordingly, the                    Trading and Markets, pursuant to delegated
                                                  the benefits of the empirical data that                                                                          authority.55
                                                                                                             Commission is concerned that the
                                                  would be produced by the Pilot                             proposed rule change may not be                       Jill M. Peterson,
                                                  warranted incurring those costs.50 As a                    consistent with Act, including Section                Assistant Secretary.
                                                  result, the Plan requires that each                        6(b)(5) thereof and Rule 608 of                       [FR Doc. 2016–17093 Filed 7–19–16; 8:45 am]
                                                  Participant, including the Exchange,                       Regulation NMS, or with the Plan.                     BILLING CODE 8011–01–P
                                                  adopt rules that are necessary for                            Comments may be submitted by any
                                                  compliance with the provisions of the                      of the following methods:
                                                  Plan.51                                                                                                          SECURITIES AND EXCHANGE
                                                                                                             Electronic Comments                                   COMMISSION
                                                     While the Exchange states that the
                                                                                                               • Use the Commission’s Internet
                                                  proposed rule change describes the                                                                               [Release No. 34–78332; File No. TP 16–10]
                                                                                                             comment form (http://www.sec.gov/
                                                  system changes necessary to implement
                                                                                                             rules/sro.shtml); or                                  Order Granting Limited Exemptions
                                                  the Pilot, the Commission notes that the                     • Send an email to rule-comments@
                                                  scope of the proposed changes extends                                                                            From Exchange Act Rule 10b–17 and
                                                                                                             sec.gov. Please include File No. SR–                  Rules 101 and 102 of Regulation M to
                                                  beyond those required for compliance                       BatsBZX–2016–29 on the subject line.
                                                  with the Plan, and would eliminate                                                                               Janus Detroit Street Trust, the Janus
                                                  certain order types for Pilot Securities                   Paper Comments                                        Velocity Tail Risk Hedged Large Cap
                                                  during the Pilot Period, or modify their                     • Send paper comments in triplicate                 ETF, and the Janus Velocity Volatility
                                                  operation in ways not required by the                      to Secretary, Securities and Exchange                 Hedged Large Cap ETF
                                                  Plan. For example, the Exchange                            Commission, 100 F Street NE.,                         July 14, 2016.
                                                  proposes not to accept Market Pegged                       Washington, DC 20549–1090.
                                                  Orders, Discretionary Orders, and                                                                                   By letter dated July 14, 2016 (the
                                                                                                             All submissions should refer to File No.              ‘‘Letter’’), as supplemented by
                                                  Supplemental Peg Orders, and certain                       SR–BatsBZX–2016–29. This file number                  conversations with the staff of the
mstockstill on DSK3G9T082PROD with NOTICES




                                                  types of Mid-Point Peg Orders, in some                     should be included on the subject line
                                                  or all Test Groups of Pilot Securities for                                                                       Division of Trading and Markets,
                                                                                                                                                                   counsel for Janus Detroit Street Trust
                                                                                                               52 The Exchange also proposes to cancel certain
                                                    49 See
                                                                                                                                                                   (the ‘‘Trust’’) on behalf of the Trust, the
                                                             Approval Order, supra note 4, at 80 FR          orders subject to the Display-Price Sliding process
                                                  27515.                                                     in certain Pilot Securities for the duration of the   Janus Velocity Tail Risk Hedged Large
                                                    50 Id at 27516.                                          Pilot Period.                                         Cap ETF and the Janus Velocity
                                                    51 See Section II(B) of the Plan. See also Section         53 See supra Item II.A.2.

                                                  IV of the Plan.                                              54 See supra Item II.A.1–2.                           55 17   CFR 200.30–3(a)(12).



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                                                  47194                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  Volatility Hedged Large Cap ETF (each                    terms and conditions of the Existing                  effective pursuant to Section 19(b) of the
                                                  a ‘‘New Fund’’ and, collectively, the                    Relief because the Trust and the New                  Exchange Act;
                                                  ‘‘New Funds’’), any national securities                  Funds are legal entities different and                   • All ETPs in which the New Funds
                                                  exchange on or through which shares                      distinct from the ALPS ETF Trust and                  invest will meet all conditions set forth
                                                  issued by the New Funds (‘‘Shares’’)                     the Existing Funds.                                   in a relevant class relief letter,2 will
                                                  may subsequently trade, ALPS                                The Requestors represent that each                 have received individual relief from the
                                                  Distributors, Inc., and persons or                       New Fund’s underlying index will                      Commission, or will be able to rely on
                                                  entities engaging in transactions in                     reflect the performance of a portfolio                individual relief even though they are
                                                  Shares (collectively, the ‘‘Requestors’’)                consisting of an exposure to a large cap              not named parties;
                                                  requested exemptions, or interpretive or                 equity portfolio, consisting of three                    • At least 70% of each New Fund will
                                                  no-action relief, from Rule 10b–17 of the                underlying ETFs which track the S&P                   be comprised of component securities
                                                  Securities Exchange Act of 1934, as                      500 index (‘‘Underlying Large-Cap                     that meet the minimum public float and
                                                  amended (‘‘Exchange Act’’) and Rules                     ETFs’’) and a volatility strategy to hedge            minimum average daily trading volume
                                                  101 and 102 of Regulation M in                           ‘‘tail risk’’ events (which are market                thresholds under the ‘‘actively-traded
                                                  connection with secondary market                         events that occur rarely but may have                 securities’’ definition found in
                                                  transactions in Shares and the creation                  severe consequences when they do                      Regulation M for excepted securities
                                                  or redemption of aggregations of Shares                  occur) consisting of two underlying                   during each of the previous two months
                                                  of at least 50,000 shares (‘‘Creation                    ETFs which reflect leveraged or inverse               of trading prior to formation of the
                                                  Units’’).                                                positions on the S&P 500 VIX Short-                   relevant New Fund; provided, however,
                                                     The Trust is registered with the                      Term Futures Index (‘‘Underlying                      that if the New Fund has 200 or more
                                                  Commission under the Investment                          Volatility ETFs’’). The underlying index,             component securities, then 50% of the
                                                  Company Act of 1940, as amended                          at each monthly rebalance, consists of                component securities will meet the
                                                  (‘‘1940 Act’’), as an open-end                           an 85% allocation to the Underlying                   actively-traded securities thresholds;
                                                  management investment company. Each                      Large-Cap ETFs and a 15% allocation to                   • All the components of each Index
                                                  New Fund seeks to track the                              the Underlying Volatility ETFs. The                   will have publicly available last sale
                                                  performance of a particular underlying                   New Funds intend to operate as ‘‘ETFs                 trade information;
                                                  index (‘‘Index’’), which for each New                    of ETFs’’ by seeking to track the                        • The intra-day proxy value of each
                                                  Fund is comprised of shares of                           performance of the respective                         New Fund per share and the value of
                                                  exchange-traded products (‘‘ETPs’’). As                  underlying Index by investing at least                each Index will be publicly
                                                  a result of the Trust and the ALPS ETF                   80% of their assets in the ETPs that                  disseminated by a major market data
                                                  Trust 1 entering into an Agreement and                   comprise each Index. Substantially                    vendor throughout the trading day;
                                                  Plan of Reorganization and Termination,                  identical in all material respects to the                • On each business day before the
                                                  the Janus Velocity Tail Risk Hedged                      Existing Funds, the Requestors                        opening of business on the Exchange,
                                                  Large Cap ETF and the Janus Velocity                     represent that they intend to enter into              the New Funds’ custodian, through the
                                                  Volatility Hedged Large Cap ETF will                     swap agreements for each New Fund                     National Securities Clearing
                                                  acquire the VelocityShares Tail Risk                     designed to provide exposure to (a) the               Corporation, will make available the list
                                                  Hedged Large Cap ETF and the                             Underlying Volatility ETFs and/or (b)                 of the names and the numbers of
                                                  VelocityShares Volatility Hedged Large                   leveraged and/or inverse positions on                 securities and other assets of each New
                                                  Cap ETF, respectively, in exchange for                   the S&P 500 VIX Short-Term Futures                    Fund’s portfolio that will be applicable
                                                  shares of such New Fund (or cash in                      Index directly. Except for the fact that              that day to creation and redemption
                                                  exchange for any fractional shares of an                 the New Funds will operate as ETFs of                 requests;
                                                  Existing Fund) and the assumption by                     ETFs and the Requestors represent that                   • The Exchange or other market
                                                  each New Fund of all of the respective                   they intend to enter into swaps for each              information provider will disseminate
                                                  corresponding Existing Fund’s                            New Fund to obtain the leveraged and/                 every 15 seconds throughout the trading
                                                  liabilities, if any, as of the closing date.             or inverse exposure to the Underlying                 day through the facilities of the
                                                  In return, the Existing Funds will                       Volatility ETFs and/or the S&P 500 VIX                Consolidated Tape Association an
                                                  distribute the shares of the New Funds                   Short-Term Futures Index, the                         amount representing on a per-share
                                                  to the Existing Funds’ shareholders, and                 Requestors represent that the New                     basis, the current value of the securities
                                                  the Existing Funds will terminate.                       Funds will operate in a manner                        and cash to be deposited as
                                                  Immediately after the reorganization,                    identical to the ETPs that comprise each              consideration for the purchase of
                                                  each former shareholder of each                          Index and will effectively be the                     Creation Units;
                                                  Existing Fund will own shares of the                     continuation of the Existing Funds.                      • The arbitrage mechanism will be
                                                  corresponding New Fund that will be                         The Requestors represent, among                    facilitated by the transparency of the
                                                  approximately equal to the value of that                 other things, the following:                          New Funds’ portfolio and the
                                                  shareholder’s full shares of such                           • Shares of the New Funds will be
                                                  Existing Fund as of the closing date.                    issued by the Trust, an open-end                        2 Letter from Catherine McGuire, Esq., Chief

                                                  Thus, Requestors represent that                          management investment company that                    Counsel, Division of Market Regulation, to the
                                                                                                                                                                 Securities Industry Association Derivative Products
                                                  although the New Funds will effectively                  is registered with the Commission;                    Committee (November 21, 2005); Letter from
                                                  be the continuation of the Existing                         • The Trust will continuously redeem               Racquel L. Russell, Branch Chief, Division of
                                                  Funds, and will be substantially                         Creation Units at net asset value                     Market Regulation, to George T. Simon, Esq., Foley
                                                  identical in all material respects to the                (‘‘NAV’’) and the secondary market                    & Lardner LLP (June 21, 2006); Letter from James
                                                                                                           price of the Shares should not vary                   A. Brigagliano, Acting Associate Director, Division
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                                                  Existing Funds, they cannot rely on the                                                                        of Market Regulation, to Stuart M. Strauss, Esq.,
                                                                                                           substantially from the NAV of such                    Clifford Chance US LLP (October 24, 2006); Letter
                                                     1 On June 21, 2013, the Division of Trading and       Shares;                                               from James A. Brigagliano, Associate Director,
                                                  Markets granted ALPS ETF Trust exemptive relief             • Shares of the New Funds will be                  Division of Market Regulation, to Benjamin Haskin,
                                                  (the ‘‘Existing Relief’’) for the VelocityShares Tail    listed and traded on the NYSE Arca (the               Esq., Willkie. Farr & Gallagher LLP (April 9, 2007);
                                                  Risk Hedged Large Cap ETF and the VelocityShares                                                               or Letter from Josephine Tao, Assistant Director,
                                                  Volatility Hedged Large Cap ETF (each an ‘‘Existing
                                                                                                           ‘‘Exchange’’) or other exchange in                    Division of Trading and Markets, to Domenick
                                                  Fund’’ and, collectively, the ‘‘Existing Funds’’).       accordance with exchange listing                      Pugliese, Esq., Paul, Hastings, Janofsky and Walker
                                                  Exchange Act Release No. 69831 (June 21, 2013).          standards that are, or will become,                   LLP (June 27, 2007).



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                                                                               Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                        47195

                                                  availability of the intra-day indicative                 management investment company that                      in particular that the concerns that the
                                                  value, the liquidity of securities and                   will continuously redeem at the NAV                     Commission raised in adopting Rule
                                                  other assets held by the New Funds, the                  Creation Units of Shares of the New                     10b–17 generally will not be implicated
                                                  ability of the New Funds and                             Funds and that a close alignment                        if exemptive relief, subject to the
                                                  arbitrageurs to acquire such securities,                 between the market price of Shares and                  conditions below, is granted to the Trust
                                                  as well as the arbitrageurs’ ability to                  the New Funds’ NAV is expected, the                     because market participants will receive
                                                  create workable hedges;                                  Commission finds that it is appropriate                 timely notification of the existence and
                                                    • The New Funds will invest solely                     in the public interest, and consistent                  timing of a pending distribution,5 we
                                                  in liquid securities;                                    with the protection of investors, to grant              find that it is appropriate in the public
                                                    • The New Funds will invest in                         the Trust an exemption from Rule 101                    interest, and consistent with the
                                                  securities that will facilitate an effective             of Regulation M, pursuant to paragraph                  protection of investors, to grant the
                                                  and efficient arbitrage mechanism and                    (d) of Rule 101 of Regulation M with                    Trust a conditional exemption from
                                                  the ability to create workable hedges;                   respect to transactions in the New                      Rule 10b–17.
                                                    • The Requestors believe that                          Funds as described in the Letter, thus
                                                  arbitrageurs are expected to take                        permitting persons who may be deemed                    Conclusion
                                                  advantage of price variations between                    to be participating in a distribution of                   It is hereby ordered, pursuant to Rule
                                                  each New Fund’s market price and its                     Shares of the New Funds to bid for or                   101(d) of Regulation M, that the Trust is
                                                  NAV; and                                                 purchase such Shares during their                       exempt from the requirements of Rules
                                                    • A close alignment between the                        participation in such distribution.4                    101 with respect to transactions in the
                                                  market price of Shares and each New                                                                              Shares of the New Funds as described
                                                  Fund’s NAV is expected.                                  Rule 102 of Regulation M
                                                                                                                                                                   in the Letter, thus permitting persons
                                                  Regulation M                                                Rule 102 of Regulation M prohibits                   who may be deemed to be participating
                                                                                                           issuers, selling security holders, and any              in a distribution of Shares of the New
                                                    While redeemable securities issued by                  affiliated purchaser of such person from
                                                  an open-end management investment                                                                                Funds to bid for or purchase such
                                                                                                           bidding for, purchasing, or attempting to               Shares during their participation in
                                                  company are excepted from the                            induce any person to bid for or purchase
                                                  provisions of Rule 101 and 102 of                                                                                such distribution as described in the
                                                                                                           a covered security during the applicable                Letter.
                                                  Regulation M, the Requestors may not                     restricted period in connection with a
                                                  rely upon that exception for the Shares.3                                                                           It is further ordered, pursuant to Rule
                                                                                                           distribution of securities effected by or
                                                                                                                                                                   102(e) of Regulation M, that the Trust is
                                                  Rule 101 of Regulation M                                 on behalf of an issuer or selling security
                                                                                                                                                                   exempt from the requirements of Rule
                                                                                                           holder.
                                                     Generally, Rule 101 of Regulation M                      Based on the representations and facts               102 with respect to transaction in the
                                                  is an anti-manipulation rule that,                       presented in the Letter, particularly that              Shares of the New Funds as described
                                                  subject to certain exceptions, prohibits                 the Trust is a registered open-end                      in the Letter, thus permitting the New
                                                  any ‘‘distribution participant’’ and its                 management investment company that                      Funds to redeem Shares of the New
                                                  ‘‘affiliated purchasers’’ from bidding for,              will redeem at the NAV Creation Units                   Funds during the continuous offering of
                                                  purchasing, or attempting to induce any                  of Shares of the New Funds and that a                   such Shares as described in the Letter.
                                                  person to bid for or purchase any                        close alignment between the market                         It is further ordered, pursuant to Rule
                                                  security which is the subject of a                       price of Shares and the New Funds’                      10b–17(b)(2), that the Trust, subject to
                                                  distribution until after the applicable                  NAV is expected, the Commission finds                   the conditions contained in this order,
                                                  restricted period, except as specifically                that it is appropriate in the public                    is exempt from the requirements of Rule
                                                  permitted in the rule. Rule 100 of                       interest, and consistent with the                       10b–17 with respect to transactions in
                                                  Regulation M defines ‘‘distribution’’ to                 protection of investors, to grant the                   the Shares of the New Funds as
                                                  mean any offering of securities that is                  Trust an exemption from Rule 102 of                     described in the Letter.
                                                  distinguished from ordinary trading                      Regulation M, pursuant to paragraph (e)                    This exemption from Rule 10b–17 is
                                                  transactions by the magnitude of the                     of Rule 102 of Regulation M with                        subject to the following conditions:
                                                  offering and the presence of special                     respect to transactions in the New                         • The Trust will comply with Rule
                                                  selling efforts and selling methods. The                 Funds as described in the Letter, thus                  10b–17 except for Rule 10b–
                                                  provisions of Rule 101 of Regulation M                   permitting the New Funds to redeem                      17(b)(1)(v)(a) and (b); and
                                                  apply to underwriters, prospective                       Shares of the New Funds during the                         • The Trust will provide the
                                                  underwriters, brokers, dealers, and other                continuous offering of such Shares.                     information required by Rule 10b–
                                                  persons who have agreed to participate                                                                           17(b)(1)(v)(a) and (b) to the Exchange as
                                                  or are participating in a distribution of                Rule 10b–17
                                                                                                                                                                   soon as practicable before trading begins
                                                  securities. The Shares are in a                             Rule 10b–17, with certain exceptions,                on the ex-dividend date, but in no event
                                                  continuous distribution and, as such,                    requires an issuer of a class of publicly               later than the time when the Exchange
                                                  the restricted period in which                           traded securities to give notice of certain             last accepts information relating to
                                                  distribution participants and their                      specified actions (for example, a                       distributions on the day before the ex-
                                                  affiliated purchasers are prohibited from                dividend distribution) relating to such                 dividend date.
                                                  bidding for, purchasing, or attempting to                class of securities in accordance with
                                                  induce others to bid for or purchase                     Rule 10b–17(b). Based on the                               5 We also note that timely compliance with Rule

                                                  extends indefinitely.                                    representations and facts in the Letter,                10b–17(b)(1)(v)(a) and (b) would be impractical in
                                                     Based on the representations and facts                                                                        light of the nature of the New Funds. This is
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                                                  presented in the Letter, particularly that                  4 Additionally, we confirm the interpretation that   because it is not possible for the New Funds to
                                                                                                           a redemption of Creation Units of Shares of the New     accurately project ten days in advance what
                                                  the Trust is a registered open-end                       Funds and the receipt of securities in exchange by      dividend, if any, would be paid on a particular
                                                                                                           a participant in a distribution of Shares of the New    record date. Further, the Commission finds, based
                                                    3 ETFs operate under exemptions from the                                                                       upon the representations of the Requestors in the
                                                                                                           Funds would not constitute an ‘‘attempt to induce
                                                  definitions of ‘‘open-end company’’ under Section        any person to bid for or purchase, a covered            Letter, that the provision of the notices as described
                                                  5(a)(1) of the 1940 Act and ‘‘redeemable security’’      security during the applicable restricted period’’      in the Letter would not constitute a manipulative
                                                  under Section 2(a)(32) of the 1940 Act. The ETFs         within the meaning of Rule 101 of Regulation M          or deceptive device or contrivance comprehended
                                                  and their securities do not meet those definitions.      and therefore would not violate that rule.              within the purpose of Rule 10b–17.



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                                                  47196                          Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                     This exemptive relief is subject to                     ‘‘Act’’) 2 and Rule 19b–4 thereunder,3                  for paired orders of any size.5 Two
                                                  modification or revocation at any time                     notice is hereby given that on July 8,                  aspects of the CUBE were approved on
                                                  the Commission determines that such                        2016, NYSE MKT LLC (the ‘‘Exchange’’                    a pilot basis—Rule 971.1NY(b)(1)(B),
                                                  action is necessary or appropriate in                      or ‘‘NYSE MKT’’) filed with the                         which establishes the permissible range
                                                  furtherance of the purposes of the                         Securities and Exchange Commission                      of executions for CUBE Auctions for
                                                  Exchange Act. This exemption is based                      (the ‘‘Commission’’) the proposed rule                  fewer than 50 contracts; and Rule
                                                  on the facts presented and the                             change as described in Items I and II                   971.1NY(b)(8), which establishes that
                                                  representations made in the Letter. Any                    below, which Items have been prepared                   the minimum size for a CUBE Auction
                                                  different facts or representations may                     by the self-regulatory organization. The                is one contract (together, the ‘‘CUBE
                                                  require a different response. Persons                      Commission is publishing this notice to                 Pilot’’).
                                                  relying upon this exemption shall                          solicit comments on the proposed rule                      An ATP Holder may initiate a CUBE
                                                  discontinue transactions involving the                     change from interested persons.                         Auction by electronically submitting for
                                                  Shares of the New Funds, pending                                                                                   execution a limit order it represents as
                                                                                                             I. Self-Regulatory Organization’s                       agent on behalf of a public customer,
                                                  presentation of the facts for the
                                                                                                             Statement of the Terms of the Substance                 broker dealer, or any other entity
                                                  Commission’s consideration, in the
                                                                                                             of the Proposed Rule Change                             (‘‘CUBE Order’’) against principal
                                                  event that any material change occurs
                                                  with respect to any of the facts or                          The Exchange proposes to extend the                   interest or against any other order it
                                                  representations made by the Requestors,                    pilot period applicable to the Customer                 represents as agent, provided the
                                                  and as is the case with all preceding                      Best Execution Auction (‘‘CUBE’’), per                  initiating ATP Holder complies with
                                                  letters, particularly with respect to the                  Rule 971.1NY, until January 18, 2017.                   Rule 971.1NY.6 Rule 971.1NY(b)(1) sets
                                                  close alignment between the market                         The proposed rule change is available                   forth the permissible range of
                                                  price of Shares and the New Fund’s                         on the Exchange’s Web site at                           executions for a CUBE Order.7 Pursuant
                                                  NAV. In addition, persons relying on                       www.nyse.com, at the principal office of                to the CUBE Pilot, a CUBE Order for
                                                  this exemption are directed to the anti-                   the Exchange, and at the Commission’s                   fewer than 50 contracts is subject to
                                                  fraud and anti-manipulation provisions                     Public Reference Room.                                  tighter ranges of execution than larger
                                                  of the Exchange Act, particularly                                                                                  CUBE Orders to maximize price
                                                                                                             II. Self-Regulatory Organization’s                      improvement.8 Specifically, if the CUBE
                                                  Sections 9(a) and 10(b), and Rule 10b–
                                                                                                             Statement of the Purpose of, and                        Order is for fewer than 50 contracts, the
                                                  5 thereunder. Responsibility for
                                                                                                             Statutory Basis for, the Proposed Rule                  range of permissible execution will be
                                                  compliance with these and any other
                                                                                                             Change                                                  equal to or better than the National Best
                                                  applicable provisions of the federal
                                                  securities laws must rest with the                           In its filing with the Commission, the                Bid/Offer (‘‘NBBO’’), provided that such
                                                  persons relying on this exemption. This                    self-regulatory organization included                   price must be at least one cent better
                                                  order should not be considered a view                      statements concerning the purpose of,                   than any displayed interest in the
                                                  with respect to any other question that                    and basis for, the proposed rule change                 Exchange’s Consolidated Book.9
                                                                                                                                                                        The CUBE Pilot was initially
                                                  the proposed transactions may raise,                       and discussed any comments it received
                                                                                                                                                                     approved for a one-year pilot, and has
                                                  including, but not limited to the                          on the proposed rule change. The text
                                                                                                                                                                     since been extended for two subsequent
                                                  adequacy of the disclosure concerning,                     of those statements may be examined at
                                                                                                                                                                     years.10 Pursuant to Commentary .01 to
                                                  and the applicability of other federal or                  the places specified in Item IV below.
                                                                                                                                                                     Rule 971.1NY, the CUBE Pilot would, if
                                                  state laws to, the proposed transactions.                  The Exchange has prepared summaries,
                                                                                                                                                                     not amended, end on July 18, 2016. In
                                                     For the Commission, by the Division of                  set forth in sections A, B, and C below,
                                                                                                                                                                     connection with the CUBE Pilot, the
                                                  Trading and Markets, pursuant to delegated                 of the most significant parts of such
                                                                                                                                                                     Exchange agreed to submit certain data
                                                  authority.6                                                statements.                                             to provide supporting evidence that,
                                                  Jill M. Peterson,                                          A. Self-Regulatory Organization’s                       among other things, there is meaningful
                                                  Assistant Secretary.                                       Statement of the Purpose of, and                        competition for all size orders and that
                                                  [FR Doc. 2016–17107 Filed 7–19–16; 8:45 am]                Statutory Basis for, the Proposed Rule
                                                  BILLING CODE 8011–01–P                                     Change                                                     5 See Securities Exchange Act Release No. 72025

                                                                                                                                                                     (April 25, 2014), 79 FR 24779 (May 1, 2014)
                                                                                                             1. Purpose                                              (NYSEMKT–2014–17) (the ‘‘CUBE Approval
                                                                                                                                                                     Order’’).
                                                  SECURITIES AND EXCHANGE                                       The Exchange proposes to extend the                     6 In addition, CUBE provides for the automatic
                                                  COMMISSION                                                 pilot period applicable to certain                      execution, under certain conditions, of a crossing
                                                                                                             aspects of the Customer Best                            transaction where there is a public customer order
                                                                                                                                                                     in the same options series on each side.
                                                  [Release No. 34–78324; File No. SR–                        Execution—or CUBE—Auction, which                           7 Subject to specified exceptions, a CUBE Order
                                                  NYSEMKT–2016–69]                                           is currently set to expire on July 18,                  to buy (sell) may execute at prices equal to or
                                                                                                             2016, until January 18, 2017.                           between the initiating price as the upper (lower)
                                                  Self-Regulatory Organizations; NYSE                                                                                bound and the National Best Bid (‘‘NBB’’) (National
                                                  MKT LLC; Notice of Filing and                              Background                                              Best Offer (‘‘NBO’’)) as the lower (upper) bound.
                                                                                                                                                                     See Rule 971.1NY(b).
                                                  Immediate Effectiveness of Proposed                          Rule 971.1NY sets forth an electronic                    8 See Rule 971.1NY(b)(1)(B). Rule 971.1NY(b)(8),
                                                  Rule Change Extending the Pilot                            crossing mechanism for single-leg                       also subject to the pilot period, provides that the
                                                  Period Applicable to the Customer                          orders with a price improvement                         minimum size for a CUBE Auction is one contract.
                                                  Best Execution Auction per Rule                            auction on the Exchange, referred to as
                                                                                                                                                                        9 See Rule 971.1NY(b)(1)(B).
                                                                                                                                                                        10 See CUBE Approval Order, supra, n. 5. The
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                                                  971.1NY                                                    the CUBE Auction.4 The CUBE Auction,                    CUBE Pilot was subsequently extended, most
                                                  July 14, 2016.                                             which was approved in April 2014, is                    recently until July 18, 2016, in order to align the
                                                                                                             designed to provide price improvement                   expiration of the pilot period with that of other
                                                    Pursuant to Section 19(b)(1) 1 of the                                                                            competing options exchange that offer electronic
                                                  Securities Exchange Act of 1934 (the                                                                               price improvement auctions similar to the CUBE.
                                                                                                                  2 15
                                                                                                                    U.S.C. 78a.                                      See Securities Exchange Act Release Nos. 74695
                                                                                                                  3 17
                                                                                                                    CFR 240.19b–4.                                   (April 9, 2015), 80 FR 20274 (April 15, 2015) (SR–
                                                    6 17   CFR 200.30–3(a)(6) and (9).                         4 See generally Rule 971.1NY (Electronic Cross        NYSEMKT–2015–28); 75460 (July 15, 2015), 80 FR
                                                    1 15   U.S.C. 78s(b)(1).                                 Transactions).                                          43140 (July 21, 2015) (SR–NYSEMKT–2015–48).



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Document Created: 2018-02-08 07:56:59
Document Modified: 2018-02-08 07:56:59
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 47193 

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