[Federal Register Volume 78, Number 43 (Tuesday, March 5, 2013)]
[Notices]
[Pages 14376-14377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04990]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68995; File No. TP 13-04]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to ALPS ETF Trust and U.S. Equity 
High Volatility Put Write Index Fund Pursuant to Exchange Act Rule 10b-
17(b)(2) and Rule 101(d) and 102(e) of Regulation M

February 27, 2013.
    By letter dated February 27, 2013 (the ``Letter''), as supplemented 
by conversations with the staff of the Division of Trading and Markets, 
counsel for ALPS ETF Trust (the ``Trust'') on behalf of the Trust, the 
U.S. Equity High Volatility Put Write Index Fund (the ``Fund''), any 
national securities exchange or association 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 at least 100,000 Shares 
(``Creation Units'').
    The Trust was organized on September 13, 2007, as a Delaware 
business trust. 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. The Trust currently consists of 
approximately ten investment series or portfolios. The Requestors 
request relief related to the Fund, a newly created series of the 
Trust. The Fund's investment objective is to seek investment results 
that correspond generally to the performance, before the Fund's fees 
and expenses, of an index called the NYSE Arca U.S. Equity High 
Volatility Put Write Index (the ``Index''). The Index is an index that 
measures the return of a hypothetical portfolio consisting of exchange-
traded put options which have been sold on each of 20 stocks and a cash 
position.\1\ The 20 stocks on which options are sold are those 20 
stocks from a selection of the largest capitalized (over $5 billion in 
market capitalization) stocks which also have listed options and which 
have the highest volatility, as determined by the index provider, the 
NYSE Arca, Inc.
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    \1\ The cash position starts at a base of 1000. The cash 
position is increased by options premiums generated by the options 
positions comprising the Index and interest on the cash position at 
an annual rate equal to the three-month Treasury-bill rate. The cash 
position is decreased by cash settlement on options which finish in-
the-money (i.e., where the closing price of the underlying stock at 
the end of the 60-day period is below the strike price). The cash 
position is also decreased by a deemed cash distribution paid 
following each 60-day period, currently targeted at the rate of 1.5% 
of the value of the Index. However, if the options premiums 
generated during the period are less than 1.5%, the deemed 
distribution will be reduced by the amount of the shortfall.
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    The Requestors represent, among other things, the following:
     Shares of the Fund will be issued by the Trust, an open-
end management investment company that is registered with the 
Commission;
     The Trust will continuously redeem Creation Units at net 
asset value (``NAV'') and the secondary market price of the Shares 
should not vary substantially from the NAV of such Shares;
     Shares of the Fund will be listed and traded on a national 
securities exchange or national securities association (each being an 
``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 indicative value of the Fund per share and 
the value of the Index will be publicly disseminated by a major market 
data vendor throughout the trading day;
     On each business day before commencement of trading in 
Shares on the Exchange, the Fund will disclose on its Web site the 
identities and quantities of the Fund's options positions as well as 
the Treasury bills and other cash instruments held by the Fund that 
will form the basis for the calculation of the Fund's 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 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 Funds, the ability to access the options sold by the Fund, 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; and
     The Requestors believe that arbitrageurs are expected to 
take advantage of price variations between the Fund's market price and 
its NAV.

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.\2\
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    \2\ 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, 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 
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

[[Page 14377]]

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 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.\3\
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    \3\ 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, 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 Fund and that a close alignment between the market price of 
Shares and the Fund's NAV is expected, the Commission finds that it is 
appropriate in the public interest, and consistent with the protection 
of investors, to grant the Trust an exemption from Rule 102 of 
Regulation M, pursuant to 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 Trust because market participants will receive 
timely notification of the existence and timing of a pending 
distribution,\4\ 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.
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    \4\ 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 Trust is exempt from the requirements of Rules 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 as described in 
its letter dated February 27, 2013.
    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 the Fund, thus permitting the Fund to redeem Shares of the Fund 
during the continuous offering of such Shares as described in its 
letter dated February 27, 2013.
    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 Fund as described in its letter dated February 27, 
2013.
    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.
    This exemption 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 
in the event that any material change occurs with respect to any of the 
facts presented 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) 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.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(6) and (9).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04990 Filed 3-4-13; 8:45 am]
BILLING CODE 8011-01-P