[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47193-47196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17107]


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SECURITIES AND EXCHANGE COMMISSION

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


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

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

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Volatility Hedged Large Cap ETF (each a ``New Fund'' and, collectively, 
the ``New Funds''), any national securities exchange on or through 
which shares issued by the New Funds (``Shares'') may subsequently 
trade, ALPS Distributors, Inc., and persons or entities engaging in 
transactions in Shares (collectively, the ``Requestors'') requested 
exemptions, or interpretive or no-action relief, from Rule 10b-17 of 
the Securities Exchange Act of 1934, as amended (``Exchange Act'') and 
Rules 101 and 102 of Regulation M in connection with secondary market 
transactions in Shares and the creation or redemption of aggregations 
of Shares of at least 50,000 shares (``Creation Units'').
    The Trust is registered with the Commission under the Investment 
Company Act of 1940, as amended (``1940 Act''), as an open-end 
management investment company. Each New Fund seeks to track the 
performance of a particular underlying index (``Index''), which for 
each New Fund is comprised of shares of exchange-traded products 
(``ETPs''). As a result of the Trust and the ALPS ETF Trust \1\ 
entering into an Agreement and Plan of Reorganization and Termination, 
the Janus Velocity Tail Risk Hedged Large Cap ETF and the Janus 
Velocity Volatility Hedged Large Cap ETF will acquire the 
VelocityShares Tail Risk Hedged Large Cap ETF and the VelocityShares 
Volatility Hedged Large Cap ETF, respectively, in exchange for shares 
of such New Fund (or cash in exchange for any fractional shares of an 
Existing Fund) and the assumption by each New Fund of all of the 
respective corresponding Existing Fund's liabilities, if any, as of the 
closing date. In return, the Existing Funds will distribute the shares 
of the New Funds to the Existing Funds' shareholders, and the Existing 
Funds will terminate. Immediately after the reorganization, each former 
shareholder of each Existing Fund will own shares of the corresponding 
New Fund that will be approximately equal to the value of that 
shareholder's full shares of such Existing Fund as of the closing date. 
Thus, Requestors represent that although the New Funds will effectively 
be the continuation of the Existing Funds, and will be substantially 
identical in all material respects to the Existing Funds, they cannot 
rely on the terms and conditions of the Existing Relief because the 
Trust and the New Funds are legal entities different and distinct from 
the ALPS ETF Trust and the Existing Funds.
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    \1\ On June 21, 2013, the Division of Trading and Markets 
granted ALPS ETF Trust exemptive relief (the ``Existing Relief'') 
for the VelocityShares Tail Risk Hedged Large Cap ETF and the 
VelocityShares Volatility Hedged Large Cap ETF (each an ``Existing 
Fund'' and, collectively, the ``Existing Funds''). Exchange Act 
Release No. 69831 (June 21, 2013).
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    The Requestors represent that each New Fund's underlying index will 
reflect the performance of a portfolio consisting of an exposure to a 
large cap equity portfolio, consisting of three underlying ETFs which 
track the S&P 500 index (``Underlying Large-Cap ETFs'') and a 
volatility strategy to hedge ``tail risk'' events (which are market 
events that occur rarely but may have severe consequences when they do 
occur) consisting of two underlying ETFs which reflect leveraged or 
inverse positions on the S&P 500 VIX Short-Term Futures Index 
(``Underlying Volatility ETFs''). The underlying index, at each monthly 
rebalance, consists of an 85% allocation to the Underlying Large-Cap 
ETFs and a 15% allocation to the Underlying Volatility ETFs. The New 
Funds intend to operate as ``ETFs of ETFs'' by seeking to track the 
performance of the respective underlying Index by investing at least 
80% of their assets in the ETPs that comprise each Index. Substantially 
identical in all material respects to the Existing Funds, the 
Requestors represent that they intend to enter into swap agreements for 
each New Fund designed to provide exposure to (a) the Underlying 
Volatility ETFs and/or (b) leveraged and/or inverse positions on the 
S&P 500 VIX Short-Term Futures Index directly. Except for the fact that 
the New Funds will operate as ETFs of ETFs and the Requestors represent 
that they intend to enter into swaps for each New Fund to obtain the 
leveraged and/or inverse exposure to the Underlying Volatility ETFs 
and/or the S&P 500 VIX Short-Term Futures Index, the Requestors 
represent that the New Funds will operate in a manner identical to the 
ETPs that comprise each Index and will effectively be the continuation 
of the Existing Funds.
    The Requestors represent, among other things, the following:
     Shares of the New Funds will be issued by the Trust, an 
open-end management investment company that is registered with the 
Commission;
     The Trust will continuously redeem Creation Units at net 
asset value (``NAV'') and the secondary market price of the Shares 
should not vary substantially from the NAV of such Shares;
     Shares of the New Funds will be listed and traded on the 
NYSE Arca (the ``Exchange'') or other exchange in accordance with 
exchange listing standards that are, or will become, effective pursuant 
to Section 19(b) of the Exchange Act;
     All ETPs in which the New Funds invest will meet all 
conditions set forth in a relevant class relief letter,\2\ will have 
received individual relief from the Commission, or will be able to rely 
on individual relief even though they are not named parties;
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    \2\ Letter from Catherine McGuire, Esq., Chief Counsel, Division 
of Market Regulation, to the Securities Industry Association 
Derivative Products Committee (November 21, 2005); Letter from 
Racquel L. Russell, Branch Chief, Division of Market Regulation, to 
George T. Simon, Esq., Foley & Lardner LLP (June 21, 2006); Letter 
from James A. Brigagliano, Acting Associate Director, Division of 
Market Regulation, to Stuart M. Strauss, Esq., Clifford Chance US 
LLP (October 24, 2006); Letter from James A. Brigagliano, Associate 
Director, Division of Market Regulation, to Benjamin Haskin, Esq., 
Willkie. Farr & Gallagher LLP (April 9, 2007); or Letter from 
Josephine Tao, Assistant Director, Division of Trading and Markets, 
to Domenick Pugliese, Esq., Paul, Hastings, Janofsky and Walker LLP 
(June 27, 2007).
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     At least 70% of each New Fund will be comprised of 
component securities that meet the minimum public float and minimum 
average daily trading volume thresholds under the ``actively-traded 
securities'' definition found in Regulation M for excepted securities 
during each of the previous two months of trading prior to formation of 
the relevant New Fund; provided, however, that if the New Fund has 200 
or more component securities, then 50% of the component securities will 
meet the actively-traded securities thresholds;
     All the components of each Index will have publicly 
available last sale trade information;
     The intra-day proxy value of each New Fund per share and 
the value of each Index will be publicly disseminated by a major market 
data vendor throughout the trading day;
     On each business day before the opening of business on the 
Exchange, the New Funds' custodian, through the National Securities 
Clearing Corporation, will make available the list of the names and the 
numbers of securities and other assets of each New Fund's portfolio 
that will be applicable that day to creation and redemption requests;
     The Exchange or other market information provider will 
disseminate every 15 seconds throughout the trading day through the 
facilities of the Consolidated Tape Association an amount representing 
on a per-share basis, the current value of the securities and cash to 
be deposited as consideration for the purchase of Creation Units;
     The arbitrage mechanism will be facilitated by the 
transparency of the New Funds' portfolio and the

[[Page 47195]]

availability of the intra-day indicative value, the liquidity of 
securities and other assets held by the New Funds, the ability of the 
New Funds and arbitrageurs to acquire such securities, as well as the 
arbitrageurs' ability to create workable hedges;
     The New Funds will invest solely in liquid securities;
     The New Funds will invest in securities that will 
facilitate an effective and efficient arbitrage mechanism and the 
ability to create workable hedges;
     The Requestors believe that arbitrageurs are expected to 
take advantage of price variations between each New Fund's market price 
and its NAV; and
     A close alignment between the market price of Shares and 
each New Fund's NAV is expected.

Regulation M

    While redeemable securities issued by an open-end management 
investment company are excepted from the provisions of Rule 101 and 102 
of Regulation M, the Requestors may not rely upon that exception for 
the Shares.\3\
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    \3\ ETFs operate under exemptions from the definitions of 
``open-end company'' under Section 5(a)(1) of the 1940 Act and 
``redeemable security'' under Section 2(a)(32) of the 1940 Act. The 
ETFs and their securities do not meet those definitions.
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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 
Units of Shares of the New Funds and that a close alignment between the 
market price of Shares and the New Funds' NAV is expected, the 
Commission finds that it is appropriate in the public interest, and 
consistent with the protection of investors, to grant the Trust an 
exemption from Rule 101 of Regulation M, pursuant to paragraph (d) of 
Rule 101 of Regulation M with respect to transactions in the New Funds 
as described in the Letter, thus permitting persons who may be deemed 
to be participating in a distribution of Shares of the New Funds to bid 
for or purchase such Shares during their participation in such 
distribution.\4\
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    \4\ Additionally, we confirm the interpretation that a 
redemption of Creation Units of Shares of the New Funds and the 
receipt of securities in exchange by a participant in a distribution 
of Shares of the New Funds would not constitute an ``attempt to 
induce any person to bid for or purchase, a covered security during 
the applicable restricted period'' within the meaning of Rule 101 of 
Regulation M and therefore would not violate that rule.
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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 New Funds and that a close alignment between the market price of 
Shares and the New Funds' NAV is expected, the Commission finds that it 
is appropriate in the public interest, and consistent with the 
protection of investors, to grant the Trust an exemption from Rule 102 
of Regulation M, pursuant to paragraph (e) of Rule 102 of Regulation M 
with respect to transactions in the New Funds as described in the 
Letter, thus permitting the New Funds to redeem Shares of the New Funds 
during the continuous offering of such Shares.

Rule 10b-17

    Rule 10b-17, with certain exceptions, requires an issuer of a class 
of publicly traded securities to give notice of certain specified 
actions (for example, a dividend distribution) relating to such class 
of securities in accordance with Rule 10b-17(b). Based on the 
representations and facts in the Letter, in particular that the 
concerns that the Commission raised in adopting Rule 10b-17 generally 
will not be implicated if exemptive relief, subject to the conditions 
below, is granted to the Trust because market participants will receive 
timely notification of the existence and timing of a pending 
distribution,\5\ we find that it is appropriate in the public interest, 
and consistent with the protection of investors, to grant the Trust a 
conditional exemption from Rule 10b-17.
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    \5\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature 
of the New Funds. This is because it is not possible for the New 
Funds to accurately project ten days in advance what dividend, if 
any, would be paid on a particular record date. Further, the 
Commission finds, based upon the representations of the Requestors 
in the Letter, that the provision of the notices as described in the 
Letter would not constitute a manipulative or deceptive device or 
contrivance comprehended within the purpose of Rule 10b-17.
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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 
transactions in the Shares of the New Funds as described in the Letter, 
thus permitting persons who may be deemed to be participating in a 
distribution of Shares of the New Funds to bid for or purchase such 
Shares during their participation in such distribution as described in 
the Letter.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust is exempt from the requirements of Rule 102 with respect 
to transaction in the Shares of the New Funds as described in the 
Letter, thus permitting the New Funds to redeem Shares of the New Funds 
during the continuous offering of such Shares as described in the 
Letter.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, subject to the conditions contained in this order, is exempt 
from the requirements of Rule 10b-17 with respect to transactions in 
the Shares of the New Funds as described in the Letter.
    This exemption from Rule 10b-17 is subject to the following 
conditions:
     The Trust will comply with Rule 10b-17 except for Rule 
10b-17(b)(1)(v)(a) and (b); and
     The Trust will provide the information required by Rule 
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable 
before trading begins on the ex-dividend date, but in no event later 
than the time when the Exchange last accepts information relating to 
distributions on the day before the ex-dividend date.

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    This exemptive relief is subject to modification or revocation at 
any time the Commission determines that such action is necessary or 
appropriate in furtherance of the purposes of the Exchange Act. This 
exemption is based on the facts presented and the representations made 
in the Letter. Any different facts or representations may require a 
different response. Persons relying upon this exemption shall 
discontinue transactions involving the Shares of the New Funds, pending 
presentation of the facts for the Commission's consideration, in the 
event that any material change occurs with respect to any of the facts 
or representations made by the Requestors, and as is the case with all 
preceding letters, particularly with respect to the close alignment 
between the market price of Shares and the New Fund's NAV. In addition, 
persons relying on this exemption are directed to the anti-fraud and 
anti-manipulation provisions of the Exchange Act, particularly Sections 
9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for 
compliance with these and any other applicable provisions of the 
federal securities laws must rest with the persons relying on this 
exemption. This order should not be considered a view with respect to 
any other question that the proposed transactions may raise, including, 
but not limited to the adequacy of the disclosure concerning, and the 
applicability of other federal or state laws to, the proposed 
transactions.
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    \6\ 17 CFR 200.30-3(a)(6) and (9).

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