83 FR 28016 - Aptus Capital Advisors, LLC and ETF Series Solutions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 116 (June 15, 2018)

Page Range		28016-28018
FR Document		2018-12902
Federal Register, Volume 83 Issue 116 (Friday, June 15, 2018)
[Federal Register Volume 83, Number 116 (Friday, June 15, 2018)]
[Notices]
[Pages 28016-28018]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-12902]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33120; 812-14880]


Aptus Capital Advisors, LLC and ETF Series Solutions

June 12, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    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) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act. The requested order would 
permit (a) actively-managed 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,

[[Page 28017]]

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.
    Applicants: Aptus Capital Advisors, LLC (the ``Initial Adviser''), 
an Alabama limited liability company registered as an investment 
adviser under the Investment Advisers Act of 1940, and ETF Series 
Solutions (the ``Trust''), a Delaware statutory trust registered under 
the Act as an open-end management investment company with multiple 
series.
    Filing Dates: The application was filed on February 26, 2018.
    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 9, 2018, 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: Aptus Capital Advisors, LLC, 
407 Johnson Ave., Fairhope, Alabama 36532 and ETF Series Solutions, 615 
East Michigan Street, 4th Floor, Milwaukee, Wisconsin 53202.

FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 
551-6819, or Andrea Ottomanelli Magovern, Branch Chief, 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 website 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 
actively-managed 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 new series of 
the Trust as well as to additional series of the Trust and any other 
open-end management investment company or series thereof that 
currently exist or that may be created in the future (each, included 
in the term ``Fund''), each of which will operate as an actively-
managed ETF. Any Fund will (a) be advised by the Initial Adviser or 
an entity controlling, controlled by, or under common control with 
the Initial Adviser (each such entity and any successor thereto is 
included in the term ``Adviser'') and (b) comply with the terms and 
conditions of the application. For purposes of the requested order, 
the term ``successor'' is limited to an entity that results from a 
reorganization into another jurisdiction or a change in the type of 
business organization.
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    2. Each Fund will consist of a portfolio of securities and other 
assets and investment positions (``Portfolio Instruments''). Each Fund 
will disclose on its website the identities and quantities of the 
Portfolio Instruments that will form the basis for the Fund's 
calculation of NAV at the end of the day.
    3. Shares will be purchased and redeemed in Creation Units only 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 hold non-U.S. Portfolio Instruments 
and that effect creations and redemptions of Creation Units in kind, 
applicants request relief from the requirement imposed by section 22(e) 
in order to allow such Funds to pay redemption proceeds within fifteen 
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

[[Page 28018]]

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 and 
Redemption Instruments will be valued in the same manner as those 
Portfolio Instruments 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.\2\ 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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    \2\ 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.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12902 Filed 6-14-18; 8:45 am]
 BILLING CODE 8011-01-P
28018 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Notices

in sections 12(d)(1)(A) and (B) of the Section 17(b) of the Act authorizes the testing methodology (‘‘Methodology
Act. Commission to grant an order Description’’). The proposed changes
8. Applicants request an exemption permitting a transaction otherwise are primarily designed to enhance
from sections 17(a)(1) and 17(a)(2) of the prohibited by section 17(a) if it finds OCC’s overall resiliency, particularly
Act to permit persons that are affiliated that (a) the terms of the proposed with respect to the level of OCC’s pre-
persons, or second-tier affiliates, of the transaction are fair and reasonable and funded financial resources. Specifically,
Funds, solely by virtue of certain do not involve overreaching on the part the proposed changes would:
ownership interests, to effectuate of any person concerned; (b) the (1) Reorganize, restate, and
purchases and redemptions in-kind. The proposed transaction is consistent with consolidate the provisions of OCC’s By-
deposit procedures for in-kind the policies of each registered Laws and Rules relating to the Clearing
purchases of Creation Units and the investment company involved; and (c) Fund into a newly revised Chapter X of
redemption procedures for in-kind the proposed transaction is consistent OCC’s Rules;
redemptions of Creation Units will be with the general purposes of the Act. (2) modify the coverage level of OCC’s
the same for all purchases and Clearing Fund sizing requirement to
For the Commission, by the Division of
redemptions and Deposit Instruments Investment Management, under delegated protect OCC against losses stemming
and Redemption Instruments will be authority. from the default of the two Clearing
valued in the same manner as those Eduardo A. Aleman, Member Groups that would potentially
Portfolio Instruments currently held by cause the largest aggregate credit
Assistant Secretary.
the Funds. Applicants also seek relief exposure for OCC in extreme but
[FR Doc. 2018–12902 Filed 6–14–18; 8:45 am]
from the prohibitions on affiliated plausible market conditions (i.e., adopt
transactions in section 17(a) to permit a BILLING CODE 8011–01–P
a ‘‘Cover 2 Standard’’ for sizing the
Fund to sell its shares to and redeem its Clearing Fund);
shares from a Fund of Funds, and to (3) adopt a new risk tolerance for OCC
engage in the accompanying in-kind SECURITIES AND EXCHANGE
to cover a 1-in-50 year hypothetical
transactions with the Fund of Funds.2 COMMISSION
market event at a 99.5% confidence
The purchase of Creation Units by a [Release No. 34–83406; File No. SR–OCC– level over a two-year look-back period;
Fund of Funds directly from a Fund will 2018–008] (4) adopt a new Clearing Fund and
be accomplished in accordance with the stress testing methodology, which
policies of the Fund of Funds and will Self-Regulatory Organizations; The would be underpinned by a new
be based on the NAVs of the Funds. Options Clearing Corporation; Notice scenario-based one-factor risk model
9. Applicants also request relief to of Filing of Proposed Rule Change, as stress testing approach, as detailed in
permit a Feeder Fund to acquire shares Modified by Amendment No. 1, Related the newly proposed Policy and
of another registered investment to The Options Clearing Corporation’s Methodology Description;
company managed by the Adviser Stress Testing and Clearing Fund (5) document governance, monitoring,
having substantially the same Methodology and review processes related to Clearing
investment objectives as the Feeder Fund and stress testing;
June 11, 2018.
Fund (‘‘Master Fund’’) beyond the (6) provide for certain anti-procyclical
Pursuant to Section 19(b)(1) of the
limitations in section 12(d)(1)(A) and limitations on the reduction in Clearing
permit the Master Fund, and any Securities Exchange Act of 1934
Fund size from month to month;
principal underwriter for the Master (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule (7) increase the minimum Clearing
Fund, to sell shares of the Master Fund 19b–4 thereunder,2 notice is hereby Fund contribution requirement for
to the Feeder Fund beyond the given that on May 30, 2018, The Clearing Members to $500,000;
limitations in section 12(d)(1)(B). Options Clearing Corporation (‘‘OCC’’) (8) modify OCC’s allocation weighting
10. Section 6(c) of the Act permits the filed with the Securities and Exchange methodology for Clearing Fund
Commission to exempt any persons or Commission (‘‘Commission’’) the contributions;
transactions from any provision of the proposed rule change as described in (9) reduce from five to two business
Act if such exemption is necessary or Items I, II, and III below, which Items days the timeframe within which
appropriate in the public interest and have been prepared by OCC. On June 7, Clearing Members are required to fund
consistent with the protection of 2018, OCC filed Amendment No. 1 to Clearing Fund deficits due to monthly
investors and the purposes fairly the proposed rule change.3 The or intra-month resizing or due to Rule
intended by the policy and provisions of Commission is publishing this notice to amendments;
the Act. Section 12(d)(1)(J) of the Act solicit comments on the proposed rule (10) provide additional clarity in
provides that the Commission may change from interested persons. OCC’s Rules regarding certain anti-
exempt any person, security, or I. Clearing Agency’s Statement of the procyclicality measures in OCC’s
transaction, or any class or classes of Terms of Substance of the Proposed margin model; and
persons, securities, or transactions, from Rule Change (11) make a number of other non-
any provision of section 12(d)(1) if the substantive clarifying, conforming, and
exemption is consistent with the public The proposed rule change by OCC organizational changes to OCC’s By-
interest and the protection of investors. concerns proposed changes to OCC’s Laws, Rules, Collateral Risk
By-Laws and Rules, the formalization of Management Policy, Default
2 The requested relief would apply to direct sales a substantially new Clearing Fund Management Policy, and filed
of shares in Creation Units by a Fund to a Fund of Methodology Policy (‘‘Policy’’), and the procedures, including retiring OCC’s
sradovich on DSK3GMQ082PROD with NOTICES

Funds and redemptions of those shares. Applicants, adoption of a document describing existing Clearing Fund Intra-Month Re-
moreover, are not seeking relief from section 17(a) OCC’s new Clearing Fund and stress
for, and the requested relief will not apply to, sizing Procedure, Financial Resources
transactions where a Fund could be deemed an
1 15
Monitoring and Call Procedure (‘‘FRMC
Affiliated Person, or a Second-Tier Affiliate, of a U.S.C. 78s(b)(1).
2 17
Procedure’’), and Monthly Clearing
Fund of Funds because an Adviser or an entity CFR 240.19b–4.
controlling, controlled by or under common control 3 In Amendment No. 1, OCC corrected formatting Fund Sizing Procedure, as these
with an Adviser provides investment advisory errors in Exhibits 5A and 5B without changing the procedures would no longer be relevant
services to that Fund of Funds. substance of the proposed rule change. to OCC’s proposed Clearing Fund and

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Document Created: 2018-11-02 12:00:43
Document Modified: 2018-11-02 12:00:43
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		The application was filed on February 26, 2018.
Contact		Jill Ehrlich, Senior Counsel, at (202) 551-6819, or Andrea Ottomanelli Magovern, Branch Chief, at (202) 551- 6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		83 FR 28016