[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47217-47222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17089]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78329; File No. SR-BatsBZX-2016-01]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
8 Thereto, to List and Trade Under BZX Rule 14.11(c)(4) Shares of the
Following Series of VanEck Vectors ETF Trust: VanEck Vectors AMT-Free
6-8 Year Municipal Index ETF; VanEck Vectors AMT-Free 8-12 Year
Municipal Index ETF; and VanEck Vectors AMT-Free 12-17 Year Municipal
Index ETF
July 14, 2016.
I. Introduction
On March 29, 2016, Bats BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade under BZX Rule 14.11(c)(4) the
shares (``Shares'') of the following series of VanEck Vectors ETF Trust
(``Trust''): VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF;
VanEck Vectors AMT-Free 8-12 Year Municipal Index ETF; and VanEck
Vectors AMT-Free 12-17 Year Municipal Index ETF (individually, ``Fund''
and, collectively, ``Funds''). The proposed rule change was published
for comment in the Federal Register on April 18, 2016.\3\ On June 1,
the Exchange filed Amendment No. 1 to the proposed rule change.\4\ On
June 14, 2016, the Exchange filed Amendment No. 2 to the proposed rule
change.\5\ On June 23, 2016, the Exchange filed Amendment No. 3 to the
proposed rule change.\6\ On July 8, 2016, the Exchange filed: (1)
Amendment No. 4 to the proposed rule change; \7\ (2) Amendment No. 5 to
the proposed rule change; \8\ and (3) Amendment No. 6 to the proposed
rule change.\9\ On July 12, 2016, the
[[Page 47218]]
Exchange filed Amendment No. 7 to the proposed rule change.\10\ On July
13, 2016, the Exchange filed Amendment No. 8 to the proposed rule
change.\11\ The Commission received one comment on the proposed rule
change.\12\ This order grants approval of the proposed rule change, as
modified by Amendment No. 8 thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 77596 (April 18,
2016), 81 FR 22681 (``Notice'').
\4\ In Amendment No. 1, the Exchange: (a) Clarified the names of
the exchange-traded funds (``ETFs'') by replacing references to
``Market Vectors'' with ``VanEck Vectors''; (b) added
representations relating to continued listing compliance and
Exchange delisting procedures in the event of non-compliance with
respect to the proposal; (c) clarified certain holdings of the Funds
by (i) replacing references to ``to-be-announced'' or ``TBA''
transactions with ``when-issued'' or ``WI'' transactions, (ii)
deleting references to over-the-counter options on futures
contracts, (iii) deleting statements relating to certain swaps, and
(iv) deleting information relating to municipal bonds that are not
included in the applicable underlying indices; (d) made conforming
and clarifying changes in describing the calculation of net asset
value of the Funds; (e) changed the creation unit size of the Funds
from 100,000 Shares to 50,000 Shares; and (f) clarified that
information with respect to the mid-point of the bid/ask spread
would not be publicly available; and (g) added availability of
information relating to the underlying indices. Because the changes
in Amendment No. 1 to the proposed rule change clarify certain
statements in the proposal and do not materially alter the substance
of the proposed rule change or raise any novel regulatory issues, it
is not subject to notice and comment. Amendment No. 1, which amended
and replaced the Notice in its entirety, is available on the
Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-2.pdf.
\5\ In Amendment No. 2, the Exchange: (a) Clarified the other
portfolio holdings of the Funds with respect to other municipal
bonds; (b) added statements with respect to certain swaps; (c)
corrected a typographical error; and (d) clarified that each Fund
will disclose on its Web site the identities and quantities of the
portfolio of securities and other assets in the daily disclosed
portfolio held by the Funds that formed the basis for each Fund's
calculation of net asset value at the end of the previous business
day. Because the changes in Amendment No. 2 to the proposed rule
change are technical in nature and do not materially alter the
substance of the proposed rule change or raise any novel regulatory
issues, it is not subject to notice and comment. Amendment No. 2,
which amended and replaced the proposed rule change, as modified by
Amendment No. 1 thereto, in its entirety, is available on the
Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-3.pdf.
\6\ In Amendment No. 3, the Exchange: (a) Deleted extraneous
language previously corrected by Amendment No. 2 to the proposed
rule change relating to certain swaps; and (b) corrected a technical
redundancy with respect to a defined term. Because the changes in
Amendment No. 3 to the proposed rule change are technical in nature
and do not materially alter the substance of the proposed rule
change or raise any novel regulatory issues, it is not subject to
notice and comment. Amendment No. 3, which amended and replaced the
proposed rule change, as modified by Amendment No. 2 thereto, in its
entirety, is available on the Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-4.pdf.
\7\ In Amendment No. 4, the Exchange corrected errors made with
respect to the names of the Funds by adding ``AMT-Free'' to certain
references made in the proposal. Because the changes in Amendment
No. 4 to the proposed rule change are technical in nature and do not
materially alter the substance of the proposed rule change or raise
any novel regulatory issues, it is not subject to notice and
comment. Amendment No. 4, which amended and replaced the proposed
rule change, as modified by Amendment No. 3 thereto, in its
entirety, is available on the Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-5.pdf.
\8\ On July 8, 2016, the Exchange withdrew Amendment No. 5 to
the proposed rule change.
\9\ In Amendment No. 6, the Exchange further corrected the names
of the Funds by removing references to ``AMT-Free.'' Because the
changes in Amendment No. 6 to the proposed rule change are technical
in nature and do not materially alter the substance of the proposed
rule change or raise any novel regulatory issues, it is not subject
to notice and comment. Amendment No. 6, which amended and replaced
the proposed rule change, as modified by Amendment No. 4 thereto, in
its entirety, is available on the Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-6.pdf.
\10\ In Amendment No. 7, the Exchange (a) further corrected
errors in the names of the Funds; and (b) clarified that (i) all
statements and representations regarding each Fund's 80% Investment
Policy (as defined herein) constitute continued listing requirements
for listing the Shares on the Exchange, (ii) the issuer has
represented to the Exchange that it will advise the Exchange of any
failure by a Fund to comply with the continued listing requirements
(or any changes made with respect to a Fund's 80% Investment
Policy), and, pursuant to its obligations under Section 19(g)(1) of
the Act, the Exchange will surveil for compliance with the continued
listing requirements, and (iii) if the Fund is not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under Exchange Rule 14.12. See infra note 16
and accompanying text. Because the changes in Amendment No. 7 to the
proposed rule change do not materially alter the substance of the
proposed rule change or raise any novel regulatory issues, it is not
subject to notice and comment. Amendment No. 7, which amended and
replaced the proposed rule change, as modified by Amendment No. 6
thereto, in its entirety, is available on the Commission's Web site
at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-7.pdf.
\11\ In Amendment No. 8, the Exchange corrected an error
identifying the Amendment number. Because the changes in Amendment
No. 8 to the proposed rule change do not materially alter the
substance of the proposed rule change or raise any novel regulatory
issues, it is not subject to notice and comment. Amendment No. 8,
which amended and replaced the proposed rule change, as modified by
Amendment No. 7 thereto, in its entirety, is available on the
Commission's Web site at: https://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-8.pdf.
\12\ See Letter from Anonymous dated May 3, 2016, available at:
http://www.sec.gov/comments/sr-batsbzx-2016-01/batsbzx201601-1.htm
(commenting that the proposed rule change was ``good'').
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II. Exchange's Description of the Proposal
The Exchange proposes to list and trade Shares of the following
series of the Trust under BZX Rule 14.11(c)(4): VanEck Vectors AMT-Free
6-8 Year Municipal Index ETF; VanEck Vectors AMT-Free 8-12 Year
Municipal Index ETF; and VanEck Vectors AMT-Free 12-17 Year Municipal
Index ETF. The Shares will be offered by the Trust, which was
established as a Delaware statutory trust on March 15, 2001. The Trust
is registered with the Commission as an open-end investment company and
has filed a registration statement on behalf of the Funds on Form N-1A
(``Registration Statement'') with the Commission.\13\
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\13\ See Registration Statement on Form N-1A (File Nos. 333-
123257 and 811-10325) dated October 29, 2015. According to the
Exchange, the Trust has obtained certain exemptive relief from the
Commission under the Investment Company Act of 1940 (``1940 Act'').
See Investment Company Act Release No. 28021 (October 24, 2007)
(File No. 812-13426).
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Van Eck Associates Corporation will be the investment adviser
(``Adviser'') to the Funds. The Adviser will serve as the administrator
for the Fund. The Bank of New York Mellon will serve as the custodian
and transfer agent for the Funds. Van Eck Securities Corporation will
be the distributor of the Shares. Barclays Inc. will be the index
provider.
The Exchange has made the following representations and statements
in describing the Funds and their respective investment strategies,
including the Funds' portfolio holdings and investment
restrictions.\14\
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\14\ The Commission notes that additional information regarding
the Funds, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice, as modified by Amendment No. 8 thereto, and
the Registration Statement, as applicable. See Notice and
Registration Statement, supra notes 3 and 13, respectively. See also
Amendment No. 8 to the proposed rule change, supra note 11.
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A. Exchange's Description of the Funds' Principal Investments
According to the Exchange, the Funds and the Shares will seek to
track the performance of a benchmark index that measures the
investment-grade segment of the U.S. municipal bond market, as
described below. Specifically, with respect to each of the VanEck
Vectors AMT-Free 6-8 Year Municipal Index ETF, VanEck Vectors AMT-Free
8-12 Year Municipal Index ETF, and VanEck Vectors AMT-Free 12-17 Year
Municipal Index ETF, the Shares will replicate as closely as possible,
before fees and expense, the price and yield performance of the
Barclays AMT-Free-6-8 Year Intermediate Continuous Municipal Index
(``6-8 Year Index''); the Barclays AMT-Free-8-12 Year Intermediate
Continuous Municipal Index (``8-12 Year Index''); and the Barclays AMT-
Free-12-17 Year Intermediate Continuous Municipal Index (``12-17 Year
Index,'' and together with the 6-8 Year Index and the 8-12 Year Index,
collectively, ``Indices''), respectively.
To be included in each of the Funds, the Exchange states that a
bond must be rated Baa3/BBB- or higher by at least two of the following
ratings agencies if all three agencies rate the security: Moody's, S&P
and Fitch. If only two of the three agencies rate the security, the
lower rating is used to determine index eligibility. If only one of the
three agencies rates a security, the rating must be at least Baa3/BBB-.
Potential constituents must have an outstanding par value of at least
$7 million and be issued as part of a transaction of at least $75
million. The bonds must be fixed rate, have a dated date within the
last five years, and have an effective maturity that tracks each
respective Fund. The following types of bonds are excluded from each of
the Funds: Bonds subject to the alternative minimum tax, taxable
municipal bonds, floating rate bonds, and derivatives. The Funds are
calculated using a market value weighting methodology.
The composition of each of the Funds is rebalanced monthly.
Interest and principal payments earned by the component securities are
held in the Fund without a reinvestment return until month end when
they are removed. Qualifying securities issued, but not necessarily
settled, on or before the month end rebalancing date qualify for
inclusion in each of the Funds in the following month. The Exchange
notes that when-issued transactions (``WIs'') \15\ representing
securities in the 6-8 Year, 8-12 Year, and 12-17 Year Indices may be
used by the Fund in seeking performance that corresponds to the 6-8
Year, 8-12 Year, and 12-17 Year Indices, respectively, and, in such
cases, would count towards the respective Fund's 80% policy.
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\15\ According to the Exchange, when-issued is a transaction
that is made conditionally because a security has been authorized
but not yet issued. Treasury securities, stock splits, and new
issues of stocks and bonds are all traded on a when-issued basis.
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Each of the Funds normally will invest at least 80% of its total
assets in securities that comprise the Fund's corresponding benchmark
index. The Funds will be comprised of publicly traded municipal bonds
that cover the U.S. dollar-denominated intermediate term tax-exempt
bond market with final maturities corresponding to the Index timeframe.
Each Fund's 80% investment policy is non-fundamental and may be changed
without shareholder approval upon 60 days' prior written notice to
shareholders.\16\
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\16\ While each Fund's policy to invest 80% of its total assets
in securities that comprise the Fund's benchmark index (``80%
Investment Policy'') is non-fundamental and may be changed without
shareholder approval upon 60 days' prior written notice to
shareholders, the Exchange represents that, notwithstanding the
foregoing, all statements and representations made in this filing
regarding (a) the description of the portfolios, (b) limitations on
portfolio holdings or reference assets (including, for example, each
Fund's 80% Investment Policy), or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange. As noted
herein, the issuer also has represented to the Exchange that it will
advise the Exchange of any failure by a Fund to comply with the
continued listing requirements (or any changes made with respect to
a Fund's 80% Investment Policy), and, pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under Exchange Rule
14.12.
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[[Page 47219]]
B. Exchange's Description of the Funds' Other Investments
While each of the Funds normally will invest at least 80% of its
total assets in securities that compose the 6-8 Year, 8-12 Year, and
12-17 Year Indices, as described above, the Funds may invest their
remaining assets in other financial instruments, as described below.
The Funds may invest remaining assets in securities not included in
the respective Indices, including only the following instruments:
Municipal bonds (not described above); money market instruments,
including repurchase agreements or other funds which invest exclusively
in money market instruments; convertible securities; structured notes
(notes on which the amount of principal repayment and interest payments
are based on the movement of one or more specified factors, such as the
movement of a particular stock or stock index); \17\ certain derivative
instruments described below; and, to the extent permitted by the 1940
Act, affiliated and unaffiliated funds, such as open-end or closed-end
management investment companies, including other ETFs.\18\ In addition
to the use described above, WIs not included in each of the Indices may
also be used by each of the Funds in managing cash flows.
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\17\ Structured notes are derivative securities for which the
amount of principal repayment and/or interest payments is based on
the movement of one or more factors, including, but not limited to,
currency exchange rates, interest rates (such as the prime lending
rate or LIBOR), referenced bonds, and stock indices.
\18\ For purposes of this proposal, ETFs include: Index Fund
Shares (as described in BZX Rule 14.11(c)); Portfolio Depositary
Receipts (as described in BZX Rule 14.11(b)); and Managed Fund
Shares (as described in BZX Rule 14.11(i)). The ETFs all will be
listed and traded in the U.S. on registered exchanges. The Funds may
invest in the securities of ETFs registered under the 1940 Act
consistent with the requirements of Section 12(d)(1) of the 1940
Act, or any rule, regulation or order of the Commission or
interpretation thereof. While the Funds may invest in inverse ETFs,
the Funds will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X)
ETFs.
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The Funds may invest in repurchase agreements with commercial
banks, brokers or dealers to generate income from its excess cash
balances and to invest securities lending cash collateral.
The Funds may use exchange-traded futures contracts and exchange-
traded options thereon, together with positions in cash and money
market instruments, to simulate full investment.
The Funds may use cleared or non-cleared index, interest rate or
credit default swap agreements. According to the Exchange, interest
rate swaps and credit default swaps on indexes currently may be
cleared; however, credit default swaps on a specific security are
currently uncleared.
The Funds may invest in exchange-traded warrants, which are equity
securities in the form of options issued by a corporation which give
the holder the right to purchase stock, usually at a price that is
higher than the market price at the time the warrant is issued.
The Funds may invest in participation notes, which are issued by
banks or broker-dealers and are designed to offer a return linked to
the performance of a particular underlying equity security or market.
The Funds will only enter into transactions in derivative
instruments with counterparties that the Adviser reasonably believes
are capable of performing under the contract and will post collateral
as required by the counterparty.\19\
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\19\ The Funds will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced; however, the risk of losses resulting from
default is still possible. The Adviser will evaluate the
creditworthiness of counterparties on a regular basis. In addition
to information provided by credit agencies, the Adviser will review
approved counterparties using various factors, which may include the
counterparty's reputation, the Adviser's past experience with the
counterparty and the price/market actions of debt of the
counterparty.
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C. Exchange's Description of the Indices and Bats BZX Rule 14.11(c)(4)
The Exchange is submitting this proposed rule change because the
Indices underlying the corresponding Funds do not meet all of the
``generic'' listing requirements of BZX Rule 14.11(c)(4) applicable to
the listing of Index Fund Shares based on fixed income securities
indexes.
1. 6-8 Year Index. According to the Exchange, the 6-8 Year Index
meets all of the requirements of BZX Rule 14.11(c)(4) except for those
set forth in BZX Rule 14.11(c)(4)(B)(i)(b).\20\ Specifically, as of
December 31, 2015, only 9.8% of the weight of the 6-8 Year Index
components have a minimum original principal amount outstanding of $100
million or more.
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\20\ BZX Rule 14.11(c)(4)(B)(i)(b) provides that components that
in the aggregate account for at least 75% of the weight of the index
or portfolio each shall have a minimum original principal amount
outstanding of $100 million or more.
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According to the Exchange, as of December 31, 2015, 95.1% of the
weight of the 6-8 Year Index components was comprised of individual
maturities that were part of an entire municipal bond offering with a
minimum original principal amount outstanding $100 million or more for
all maturities of the offering. In addition, the total dollar amount
outstanding of issues in the 6-8 Year Index was approximately $57.4
billion, and the average dollar amount outstanding of issues in the 6-8
Year Index was approximately $19.8 million. Further, the most heavily
weighted component represented 1.07% of the weight of the 6-8 Year
Index, and the five most heavily weighted components represented 3.0%
of the weight of the 6-8 Year Index.\21\ In addition, the Exchange
notes that the 6-8 Year Index is comprised of approximately 2,894
issues, and that 63.8% of the 6-8 Year Index weight consisted of issues
with a rating of AA/Aa2 or higher.
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\21\ BZX Rule 14.11(c)(4)(B)(i)(d) provides that no component
fixed-income security (excluding Treasury Securities, as defined
therein) shall represent more than 30% of the weight of the index or
portfolio, and the five most heavily weighted component fixed-income
securities in the index or portfolio shall not in the aggregate
account for more than 65% of the weight of the index or portfolio.
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The 6-8 Year Index value, calculated and disseminated at least once
daily, as well as the components of the 6-8 Year Index and their
percentage weighting, will be available from major market data vendors.
In addition, the portfolio of securities held by the Fund will be
disclosed on the Fund's Web site.
2. 8-12 Year Index. According to the Exchange, the 8-12 Year Index
for the Fund meets all of the requirements of BZX Rule 14.11(c)(4),
except for those set forth in BZX Rule 14.11(c)(4)(B)(i)(b).\22\
Specifically, as of December 31, 2015, only 5.7% of the weight of the
8-12 Year Index components have a minimum original principal amount
outstanding of $100 million or more.
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\22\ See supra note 20.
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According to the Exchange, as of December 31, 2015, 95.1% of the
weight of the 8-12 Year Index components was comprised of individual
maturities that were part of an entire municipal bond offering with a
minimum original principal amount outstanding of $100 million or more
for all maturities of the offering. In addition, the total dollar
amount outstanding of issues in the 8-12 Year Index was approximately
$108.6 billion, and the average dollar amount outstanding of issues in
the 8-12 Year Index was approximately $19.2
[[Page 47220]]
million. Further, the most heavily weighted component represented 0.26%
of the weight of the 8-12 Year Index, and the five most heavily
weighted components represented 1.04% of the weight of the 8-12 Year
Index.\23\ In addition, the Exchange represents that the 8-12 Year
Index is comprised of approximately 5,662 issues, and that 64.7% of the
8-12 Year Index weight consisted of issues with a rating of AA/Aa2 or
higher.
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\23\ See supra note 21.
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The 8-12 Year Index value, calculated and disseminated at least
once daily, as well as the components of the 8-12 Year Index and their
percentage weighting, will be available from major market data vendors.
In addition, the portfolio of securities held by the Fund will be
disclosed on the Fund's Web site.
3. 12-17 Year Index. According to the Exchange, the 12-17 Year
Index meets all of the requirements of BZX Rule 14.11(c)(4), except for
those set forth in BZX Rule 14.11(c)(4)(B)(i)(b).\24\ Specifically, as
of December 31, 2015, only 8.3% of the weight of the 12-17 Year Index
components have a minimum original principal amount outstanding of $100
million or more.
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\24\ See supra note 20.
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According to the Exchange, as of December 31, 2015, 95.3% of the
weight of the 12-17 Year Index components was comprised of individual
maturities that were part of an entire municipal bond offering with a
minimum original principal amount outstanding $100 million or more for
all maturities of the offering. In addition, the total dollar amount
outstanding of issues in the 12-17 Year Index was approximately $123.5
billion, and the average dollar amount outstanding of issues in the 12-
17 Year Index was approximately $20 million. Further, the most heavily
weighted component represented 0.29% of the weight of the 12-17 Year
Index, and the five most heavily weighted components represented 1.11%
of the weight of the 12-17 Year Index.\25\ The Exchange further
represents that the 12-17 Year Index is comprised of approximately
6,171 issues, and that 61.2% of the 12-17 Year Index weight consisted
of issues with a rating of AA/Aa2 or higher.
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\25\ See supra note 21.
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The 12-17 Year Index value, calculated and disseminated at least
once daily, as well as the components of the 12-17 Year Index and their
percentage weighting, will be available from major market data vendors.
In addition, the portfolio of securities held by the Fund will be
disclosed on the Fund's Web site.
D. Additional Exchange Representations
The Exchange represents that: (1) Except for BZX Rule
14.11(c)(4)(B)(i)(b), the 6-8 Year Index, the 8-12 Year Index, and the
12-17 Year Index currently and will continue to satisfy all of the
generic listing standards under BZX Rule 14.11(c)(4); (2) the continued
listing standards under BZX Rule 14.11(c) applicable to Index Fund
Shares will apply to the Shares of each Fund; and (3) the Trust is
required to comply with Rule 10A-3 under the Act \26\ for the initial
and continued listing of the Shares of each Fund. In addition, the
Exchange represents that the Shares of the Funds will comply with all
other requirements applicable to Index Fund Shares including, but not
limited to, requirements relating to the dissemination of key
information such as the value of the Indices and the Intraday
Indicative Value (``IIV''), rules governing the trading of equity
securities, trading hours, trading halts, surveillance, and the
information circular, as set forth in Exchange rules applicable to
Index Fund Shares and the orders approving such rules.
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\26\ 17 CFR 240.10A-3.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \27\
and the rules and regulations thereunder applicable to a national
securities exchange.\28\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\29\ which
requires, among other things, that the Exchange's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\27\ 15 U.S.C. 78f.
\28\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\29\ 17 U.S.C. 78f(b)(5).
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The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Act,\30\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA''). The current value of the Indices will be
widely disseminated by one or more major market data vendors \31\ at
least once per day. In addition, during Regular Trading Hours \32\ an
IIV for the Shares of the Funds will be disseminated by one or more
major market data vendors and updated at least every 15 seconds.\33\ On
each business day, before commencement of trading in Shares during
Regular Trading Hours on the Exchange, each Fund will disclose on its
Web site the identities and quantities of the portfolio of securities
and other assets in the daily disclosed portfolio held by the Funds
that formed the basis for each Fund's calculation of NAV at the end of
the previous business day.\34\
[[Page 47221]]
The daily disclosed portfolio will include, as applicable: the ticker
symbol; CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, index or other asset or instrument underlying
the holding, if any; for options, the option strike price; quantity
held (as measured by, for example, par value, notional value or number
of shares, contracts, or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in each Fund's portfolio. Quotation
information for investment company securities (excluding ETFs) may be
obtained through nationally recognized pricing services through
subscription agreements or from brokers and dealers who make markets in
such securities. Price information regarding municipal bonds,
convertible securities, and non-exchange traded assets, including
investment companies, derivatives, money market instruments, repurchase
agreements, structured notes, participation notes, and WIs is available
from third party pricing services and major market data vendors. For
exchange-traded assets, including investment companies, futures,
warrants, and options, such intraday information is available directly
from the applicable listing exchange. Rules governing the Indices are
available on Barclays' Web site and in each respective Fund's
prospectus. The Web site for the Funds also will include the prospectus
for the Funds and additional data relating to the NAV and other
applicable quantitative information.
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\30\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\31\ The Exchange further states that the components of the
Indices and their percentage weighting will be available from major
market data vendors.
\32\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
\33\ According to the Exchange, several major market data
vendors display and/or make widely available IIVs taken from the CTA
or other data feeds. See Notice, as modified by Amendment No. 8
thereto, supra note 11, at n.29.
\34\ The NAV of each Fund will be determined each business day
as of the close of trading (ordinarily 4:00 p.m. Eastern Time) on
the Exchange. Any assets or liabilities denominated in currencies
other than the U.S. dollar are converted into U.S. dollars at the
current market rates on the date of valuation as quoted by one or
more sources. The values of each Fund's portfolio securities are
based on the securities' closing prices, when available. In the
absence of a last reported sales price, or if no sales were
reported, and for other assets for which market quotes are not
readily available, values may be based on quotes obtained from a
quotation reporting system, established market makers or by an
outside independent pricing service. Fixed income securities,
repurchase agreements, and money market instruments with maturities
of more than 60 days are normally valued on the basis of quotes from
brokers or dealers, established market makers, or an outside
independent pricing service. Prices obtained by an outside
independent pricing service may use information provided by market
makers or estimates of market values obtained from yield data
related to investments or securities with similar characteristics
and may use a computerized grid matrix of securities and its
evaluations in determining what it believes is the fair value of the
portfolio securities. Short-term investments and money market
instruments having a maturity of 60 days or less are valued at
amortized cost. Futures contracts will be valued at the settlement
price established each day by the board or exchange on which they
are traded. Exchange-traded options will be valued at the closing
price in the market where such contracts are principally traded.
Swaps, structured notes, participation notes, convertible
securities, and WIs will be valued based on valuations provided by
independent, third-party pricing agents. Securities of non-exchange-
traded investment companies will be valued at NAV. Exchange-traded
instruments, including investment companies and warrants, will be
valued at the last reported sale price on the primary exchange or
market on which they are traded. If a market quotation for a
security is not readily available or the Adviser believes it does
not otherwise accurately reflect the market value of the security at
the time the Fund calculates its NAV, the security will be fair
valued by the Adviser in accordance with the Trust's valuation
policies and procedures approved by the Board of Trustees and in
accordance with the 1940 Act.
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The Commission believes that the proposal to list and trade the
Shares is reasonably designed to promote fair disclosure of information
that may be necessary to price the Shares appropriately and to prevent
trading when a reasonable degree of transparency cannot be assured.
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. With respect to trading
halts, the Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in the Shares of the Funds. The
Exchange will halt trading in the Shares under the conditions specified
in BZX Rule 11.18. Trading may be halted because of market conditions
or for reasons that, in the view of the Exchange, make trading in the
Shares inadvisable. These may include: (1) the extent to which trading
is not occurring in the securities and/or the financial instruments
composing the daily disclosed portfolio of the Funds; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares also will be subject to BZX Rule 14.11(c)(1)(B)(iv), which sets
forth circumstances under which Shares of a Fund may be halted.
Based on the Exchange's representations, the Commission believes
that the Indices are sufficiently broad-based to deter potential
manipulation. The Exchange represents that, as of December 31, 2015,
the 6-8 Year Index had the following characteristics: there were 2,894
issues; 9.8% of the weight of components had a minimum original
principal amount outstanding of $100 million or more; 95.1% of the
weight of components was comprised of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering; the total dollar amount outstanding of all issues was
approximately $57.4 billion, and the average dollar amount outstanding
per issue was approximately $19.8 million; and the most heavily
weighted component represented 1.07% of the 6-8 Year Index, and the
five most heavily weighted components represented 3.0% of the 6-8 Year
Index. The Exchange also represents that, as of December 31, 2015, the
8-12 Year Index had the following characteristics: there were 5,662
issues; 5.7% of the weight of components had a minimum original
principal amount outstanding of $100 million or more; 95.1% of the
weight of components was comprised of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering; the total dollar amount outstanding of all issues was
approximately $108.6 billion, and the average dollar amount outstanding
per issue was approximately $19.2 million; and the most heavily
weighted component represented 0.26% of the 8-12 Year Index, and the
five most heavily weighted components represented 1.04% of the 8-12
Year Index. Likewise, the Exchange represents that, as of December 31,
2015, the 12-17 Year Index had the following characteristics: there
were 6,171 issues; 8.3% of the weight of components had a minimum
original principal amount outstanding of $100 million or more; 95.3% of
the weight of components was comprised of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering; the total dollar amount outstanding of all issues was
approximately $123.5 billion, and the average dollar amount outstanding
per issue was approximately $20 million; and the most heavily weighted
component represented 0.29% of the 12-17 Year Index, and the five most
heavily weighted components represented 1.11% of the 12-17 Year Index.
In support of this proposal, the Exchange has also made
representations, including:
(1) The Shares of each Fund will conform to the initial and
continued listing criteria under BZX Rule 14.11(c)(4), except for those
set forth in 14.11(c)(4)(B)(i)(b).
(2) Except for BZX Rule 14.11(c)(4)(B)(i)(b), the 6-8 Year Index,
the 8-12 Year Index, and the 12-17 Year Index currently and will
continue to satisfy all of the generic listing standards under BZX Rule
14.11(c)(4)
(3) The continued listing standards under BZX Rule 14.11(c)
applicable to Index Fund Shares will apply to the Shares of each Fund.
(4) The Shares of the Funds will comply with all other requirements
applicable to Index Fund Shares including, but not limited to,
requirements relating to the dissemination of key information such as
the value of the Indices and the Intraday Indicative Value, rules
governing the trading of equity securities, trading hours, trading
halts, surveillance, and the information circular, as set forth in
Exchange rules applicable to Index Fund Shares and the orders approving
such rules.
(5) The Exchange represents that trading in the Shares will be
subject to the existing Exchange trading surveillances procedures. The
Exchange represents that these procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and federal
[[Page 47222]]
securities laws applicable to trading on the Exchange.
(6) The Exchange may obtain information regarding trading in the
Shares and the underlying shares in exchange traded equity securities
via the Intermarket Surveillance Group (``ISG''), from other exchanges
that are members or affiliates of the ISG, or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.\35\ In
addition, the Exchange is able to access, as needed, trade information
for certain fixed income instruments reported to the Financial Industry
Regulatory Authority's Trade Reporting and Compliance Engine. The
Exchange also can access data obtained from the Municipal Securities
Rulemaking Board relating to municipal bond trading activity for
surveillance purposes in connection with trading in the Shares. In
addition, the Exchange may obtain information regarding trading in the
Shares and the underlying shares in exchange-traded investment
companies, futures, options, and warrants from markets or other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Exchange
prohibits the distribution of material, non-public information by its
employees.
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\35\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
portfolio for a Fund may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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(7) For initial and continued listing of the Shares, the Trust is
required to comply with Rule 10A-3 under the Act.\36\
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\36\ See 17 CFR 240.10A-3.
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(8) The Funds generally will invest at least 80% of their
respective assets in the securities of the corresponding Indices. The
Funds may invest up to 20% of their respective assets in other
securities and financial instruments as described above and in the
Notice, as modified by Amendment No. 3 thereto.
(9) If the Exchange becomes aware that the NAV is not being
disseminated to all market participants at the same time, it will halt
trading in the Shares until such time as the NAV is available to all
market participants.
The Exchange represents that all statements and representations
made in this filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets (including, for
example, each Fund's 80% Investment Policy), or (c) the applicability
of Exchange rules and surveillance procedures shall constitute
continued listing requirements for listing the Shares on the Exchange.
In addition, the issuer has represented to the Exchange that it will
advise the Exchange of any failure by the Fund to comply with the
continued listing requirements (or any changes made with respect to a
Fund's 80% Investment Policy), and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will surveil for compliance
with the continued listing requirements. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. This approval
order is based on all of the Exchange's representations, including
those set forth above and in the Notice, as modified by Amendment No. 3
thereto, and the Exchange's description of the Funds.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 8 thereto, is consistent with
Section 6(b)(5) of the Act \37\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\37\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\38\ that the proposed rule change (SR-BatsBZX-2016-01), as
modified by Amendment No. 8 thereto, be, and it hereby is, approved.
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\38\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
Jill M. Peterson,
Assistant Secretary.
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\39\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-17089 Filed 7-19-16; 8:45 am]
BILLING CODE 8011-01-P