[Federal Register Volume 77, Number 178 (Thursday, September 13, 2012)]
[Notices]
[Pages 56681-56683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67804; File No. TP 12-10]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to iShares, Inc. and iShares MSCI 
Frontier 100 Index Fund Pursuant to Exchange Act Rule 10b-17(b)(2) and 
Rule 101(d) and 102(e) of Regulation M

September 7, 2012.
    By letter dated September 7, 2012 (the ``Letter''), as supplemented 
by conversations with the staff of the Division of Trading and Markets, 
counsel for iShares, Inc. (the ``Company'') on behalf of the Company, 
the iShares MSCI Frontier 100 Index Fund (the ``Fund''), any national 
securities exchange on or through which shares issued by the Fund 
(``Shares'') may subsequently trade, 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 Company was organized on August 31, 1994, as a Maryland 
corporation. The Company is registered with the Commission under the 
Investment Company Act of 1940, as amended (``1940 Act''), as an open-
end management investment company. The Company currently consists of 
approximately 50 investment series or portfolios. The Requestors 
request relief related to the Fund, a newly created series of the 
Company. The Fund will invest in stocks consisting of the component 
securities of the MSCI Frontier Markets 100 Index (the ``Index''), 
consistent with the Fund's investment strategy. The Fund will use a 
``passive'' or indexing approach to try to achieve the Fund's 
investment objectives. The Index is a free float-adjusted market-
capitalization index designed to measure equity market performance of a 
subset of the MSCI Frontier Markets index while putting greater 
emphasis on tradability and liquidity as compared to the larger MSCI 
Frontier Markets index.
    The Requestors represent, among other things, the following:
     Shares of the Fund will be issued by the Company, an open-
end management investment company that is registered with the 
Commission;
     The Company will continuously redeem Creation Units at net 
asset value (``NAV'') and the secondary market price of the Shares 
should not vary substantially from the NAV of such Shares;
     Shares of the Fund will be listed and traded on the NYSE 
Arca (the ``Exchange'');
     The Fund will hold 20 or more portfolio securities with no 
one portfolio security constituting more than 25% of the Fund;
     The Fund will be managed to track a particular index all 
the components of which have publicly available last sale trade 
information;
     The intra-day proxy value of the Fund per share and the 
value of the Index will be publicly disseminated by a major market data 
vendor throughout the trading day;
     On each business day before the opening of business on the 
Exchange (normally 9:30 a.m., Eastern time), BlackRock Fund Advisors 
(an investment advisor registered under the Investment Advisors Act of 
1940 that serves as the Fund's advisor) and Blackrock Investments, LLC 
(a broker-dealer who is registered with the Commission under the 
Exchange Act and acts as the Fund's principal

[[Page 56682]]

underwriter as defined in Section 2(a)(29) of the 1940 Act), through 
the National Securities Clearing Corporation, will make available the 
identities and quantities of the securities and other assets held by 
the Fund which will form the basis for their calculation of NAV at the 
end of the business day;
     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 Fund's portfolio and the availability of the intra-
day indicative value, the liquidity of securities and other assets held 
by the Fund, ability to acquire such securities, as well as the 
arbitrageurs' ability to create workable hedges;
     The Fund will invest solely in liquid securities;
     The Fund will invest in securities that will facilitate an 
effective and efficient arbitrage mechanism and the ability to create 
workable hedges;
     The Requestors believe that arbitrageurs are expected to 
take advantage of price variations between the Fund's market price and 
its NAV; and
     A close alignment between the market price of Shares and 
the Fund's NAV is expected.

Regulation M

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

    Generally, Rule 101 of Regulation M is an anti-manipulation rule 
that, subject to certain exceptions, prohibits any ``distribution 
participant'' and its ``affiliated purchasers'' from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase 
any security, which is the subject of a distribution until after the 
applicable restricted period, except as specifically permitted in the 
rule. Rule 100 of Regulation M defines ``distribution'' to mean any 
offering of securities that is distinguished from ordinary trading 
transactions by the magnitude of the offering and the presence of 
special selling efforts and selling methods. The provisions of Rule 101 
of Regulation M apply to underwriters, prospective underwriters, 
brokers, dealers, or other persons who have agreed to participate or 
are participating in a distribution of securities. The Shares are in a 
continuous distribution and, as such, the restricted period in which 
distribution participants and their affiliated purchasers are 
prohibited from bidding for, purchasing, or attempting to induce others 
to bid for or purchase extends indefinitely.
    Based on the representations and facts presented in the Letter, 
particularly that the Company is a registered open-end management 
investment company that will continuously redeem at the NAV Creation 
Unit size aggregations of the Shares of the Fund and that a close 
alignment between the market price of Shares and the Fund's NAV is 
expected, the Commission finds that it is appropriate in the public 
interest and consistent with the protection of investors to grant the 
Company an exemption under paragraph (d) of Rule 101 of Regulation M 
with respect to the Fund, thus permitting persons who may be deemed to 
be participating in a distribution of Shares of the Fund to bid for or 
purchase such Shares during their participation in such 
distribution.\2\
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    \2\ Additionally, we confirm the interpretation that a 
redemption of Creation Unit size aggregations of Shares of the Fund 
and the receipt of securities in exchange by a participant in a 
distribution of Shares of the Fund would not constitute an ``attempt 
to induce any person to bid for or purchase, a covered security 
during the applicable restricted period'' within the meaning of Rule 
101 of Regulation M and therefore would not violate that rule.
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Rule 102 of Regulation M

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

Rule 10b-17

    Rule 10b-17, with certain exceptions, requires an issuer of a class 
of publicly traded securities to give notice of certain specified 
actions (for example, a dividend distribution) relating to such class 
of securities in accordance with Rule 10b-17(b). Based on the 
representations and facts in the Letter, 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 Company because market participants will 
receive timely notification of the existence and timing of a pending 
distribution,\3\ we find that it is appropriate in the public interest, 
and consistent with the protection of investors to grant the Company a 
conditional exemption from Rule 10b-17.
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    \3\ 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 Fund. This is because it is not possible for the Fund to 
accurately project ten days in advance what dividend, if any, would 
be paid on a particular record date.
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Conclusion

    It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that 
the Company, based on the representations and facts presented in the 
Letter and subject to the condition contained in this order, is exempt 
from the requirements of Rule 101 with respect to the Fund, thus 
permitting persons who may be deemed to be participating in a 
distribution of Shares of the Fund to bid for or purchase such Shares 
during their participation in such distribution.
    This exemptive relief is subject to the condition that such 
transactions in Shares of the Fund or any related securities including 
those deposited with the Fund or received from the Fund as part of the 
creation or redemption process are not made for the purpose of creating 
actual, or apparent, active trading in or raising or otherwise 
affecting the price of such securities.

[[Page 56683]]

    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Company, based on the representations and the facts presented 
in the Letter and subject to the condition contained in this order, is 
exempt from the requirements of Rule 102 with respect to the Fund, thus 
permitting the Fund to redeem Shares of the Fund during the continuous 
offering of such Shares.
    This exemptive relief is subject to the condition that such 
transactions in Shares of the Fund or any related securities including 
those deposited with the Fund or received from the Fund as part of the 
creation or redemption process are not made for the purpose of creating 
actual, or apparent, active trading in or raising or otherwise 
affecting the price of such securities.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Company, based on the representations and the facts presented in the 
Letter and 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 Fund.
    This exemptive relief is subject to the following conditions:
     The Company will comply with Rule 10b-17 except for Rule 
10b-17(b)(1)(v)(a) and (b); and
     The Company will provide the information required by Rule 
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable 
before trading begins on the ex-dividend date, but in no event later 
than the time when the Exchange last accepts information relating to 
distributions on the day before the ex-dividend date.
    This exemptive relief is subject to modification or revocation at 
any time the Commission determines that such action is necessary or 
appropriate in furtherance of the purposes of the Exchange Act. Persons 
relying upon this exemption shall discontinue transactions involving 
the Shares of the Fund under the circumstances described above and in 
the Letter, 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. 
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), 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.
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    \4\ 17 CFR 200.30-3(a)(6) and (9).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\4\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22522 Filed 9-12-12; 8:45 am]
BILLING CODE 8011-01-P