[Federal Register Volume 81, Number 172 (Tuesday, September 6, 2016)]
[Notices]
[Pages 61260-61263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21252]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78728; File No. SR-NYSEArca-2016-63]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to the Listing and Trading of Shares of BlackRock 
Government Collateral Pledge Unit Under NYSE Arca Equities Rule 8.600

August 30, 2016.

I. Introduction

    On May 19, 2016, NYSE Arca, Inc. (``Exchange'') 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 
shares of the BlackRock Government Collateral Pledge Unit. The proposed 
rule change was published for comment in the Federal Register on June 
2, 2016.\3\ On July 14, 2016, pursuant to section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ The Commission has received no comments on the 
proposed rule change. This order institutes proceedings under section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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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. 77941 (May 27, 
2016), 81 FR 35425 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78328, 81 FR 47222 
(July 20, 2016). The Commission designated August 31, 2016 as the 
date by which the Commission shall either approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade shares (``Shares'') of the 
BlackRock Government Collateral Pledge Unit (``Fund'') under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares. The Fund is a series of the BlackRock Collateral Trust 
(``Trust''), a Delaware statutory trust.\7\ BlackRock Fund Advisors is 
the investment advisor for the Fund (``Adviser''). State Street Bank 
and Trust Company is the administrator, custodian, and transfer agent 
for the Fund. BlackRock Investments, LLC will be the Fund's 
distributor. The Exchange represents that the Adviser is not registered 
as a broker-dealer, but is affiliated with two broker-dealers. 
According to the Exchange, the Adviser has implemented and will 
maintain a fire wall with respect to its affiliated

[[Page 61261]]

broker-dealers regarding access to information concerning the 
composition of, and changes to, the Fund's portfolio.\8\ In the event 
(a) the Adviser becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate regarding access to 
information concerning the composition of, and changes to, the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
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    \7\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). According to the 
Exchange, on April 7, 2016, the Trust filed with the Commission its 
registration statement on Form N-1A under the Securities Act of 1933 
(``Securities Act'') and the 1940 Act relating to the Fund (File 
Nos. 333-210648 and 811-23154) (``Registration Statement''). The 
Exchange also states that the Trust and the Adviser (as defined 
herein) have obtained certain exemptive relief under the 1940 Act. 
See Investment Company Act Release No. 29571 (January 24, 2011) 
(File No. 812-13601) (``Exemptive Order''). The Exchange represents 
that the Fund will be offered in reliance upon the Exemptive Order.
    \8\ The Exchange further represents that an investment adviser 
to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and its related personnel are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients as well 
as compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. The Exchange represents that the 
Adviser and its related personnel are subject to Advisers Act Rule 
204A-1. In addition, Rule 206(4)-7 under the Advisers Act makes it 
unlawful for an investment adviser to provide investment advice to 
clients unless such investment adviser has (i) adopted and 
implemented written policies and procedures reasonably designed to 
prevent violation, by the investment adviser and its supervised 
persons, of the Advisers Act and the Commission rules adopted 
thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designated an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\9\
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    \9\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. See Notice 
and Registration Statement, supra notes 3 and 7, respectively.
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A. Exchange's Description of the Fund's Principal Investments

    According to the Exchange, the Fund's investment objective will be 
to seek to provide as high a level of current income as is consistent 
with liquidity and minimum volatility of principal. The Fund will seek 
to achieve its investment objective by investing, under normal 
circumstances,\10\ at least 80% of its net assets in a portfolio of 
U.S. dollar-denominated short-term government securities and other 
money market securities eligible for investment by U.S. government 
money market funds that seek to maintain a stable net asset value 
(including indirect investments through the ``Underlying Funds,'' as 
defined below).
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    \10\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the fixed income securities markets or the financial markets 
generally; circumstances under which the Fund's investments are made 
for temporary defensive purposes; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
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    Under normal circumstances, the Fund intends to invest a 
substantial portion of its assets in the following government money 
market funds (individually, ``Underlying Fund,'' and together, 
collectively, ``Underlying Funds''), which principally invest in short-
term U.S. Treasury bills, notes, and other obligations issued or 
guaranteed as to principal and interest by the U.S. government or its 
agencies or instrumentalities, and repurchase agreements secured by 
such obligations or cash: \11\ (1) FedFund and T-Fund (each, a series 
of BlackRock Liquidity Funds); and (2) BlackRock Premier Government 
Institutional Fund and BlackRock Select Treasury Strategies 
Institutional Fund (each, a series of Funds For Institutions 
Series).\12\ The Adviser may add, eliminate, or replace any or all 
Underlying Funds at any time. Any additions to, or replacements for, 
the Underlying Funds will also be government money market funds with 
substantially similar investment characteristics as those applicable to 
the Underlying Funds. The Adviser or its affiliates may advise the 
Underlying Funds. The Fund generally will allocate and reallocate its 
assets among the Underlying Funds on a monthly basis on an approximate 
pro rata basis based on the amount of net assets of each Underlying 
Fund, subject to minimum investment amounts or other constraints on the 
Underlying Funds.
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    \11\ Each Underlying Fund is a ``government money market fund,'' 
as defined in Rule 2a-7 under the 1940 Act and seeks to maintain a 
stable NAV of $1.00. The Fund, however, will not be a money market 
fund and will not seek to maintain a stable NAV of $1.00.
    \12\ According to the Exchange, the Underlying Funds invest in 
securities maturing in 397 days (13 months) or less (with certain 
exceptions) and their portfolios will have a dollar-weighted average 
maturity of 60 days or less and a dollar-weighted average life of 
120 days or less.
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    The Fund and certain Underlying Funds may invest in various types 
of U.S. government obligations. The Fund and the Underlying Funds may 
invest in variable and floating rate instruments. The Fund and the 
Underlying Funds may transact in securities on a when-issued, delayed 
delivery, or forward commitment basis. The Fund and the Underlying 
Funds may invest in repurchase agreements that are secured by either 
obligations issued or guaranteed as to principal and interest by the 
U.S. government or agencies or instrumentalities, or by cash.
    The securities purchased by the Fund will comply with the quality 
and eligibility requirements of Rule 2a-7 under the 1940 Act. The 
securities purchased by the Underlying Funds will comply with all 
requirements of Rule 2a-7 and other rules of the Commission applicable 
to money market funds that seek to maintain a stable NAV per share. The 
Fund itself will invest only in money market securities eligible for 
investment for funds that comply with Rule 2a-7, but will not be 
subject to other requirements of Rule 2a-7 applicable to money market 
funds that seek to maintain a stable NAV.

B. Exchange's Description of the Fund's Other Investments

    While the Fund, under normal circumstances, will invest at least 
80% of its net assets in the securities and financial instruments 
described above, the Fund may invest its remaining assets in other 
assets and financial instruments, as described below.
    The Fund and the Underlying Funds may invest in certain U.S. 
government obligations other than those referenced in the Principal 
Investments section above, namely Treasury receipts where the principal 
and interest components are traded separately under the Separate 
Trading of Registered Interest and Principal of Securities (STRIPS) 
program. The Fund and certain Underlying Funds also may invest in 
reverse repurchase agreements. In addition, the Fund may invest in the 
securities of other investment companies (including money market funds) 
to the extent permitted by law, regulation, exemptive order, or 
Commission staff guidance.

C. Exchange's Description of the Fund's Investment Restrictions

    According to the Exchange, the Fund will be classified as 
``diversified'' pursuant to the diversification standard set forth in 
section 5(b)(1) of the 1940 Act.
    The Fund intends to maintain the required level of diversification 
and

[[Page 61262]]

otherwise conduct its operations so as to qualify as a regulated 
investment company for purposes of the U.S. Internal Revenue Code of 
1986, as amended.
    The Fund may invest up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment). Each 
Underlying Fund may invest up to an aggregate amount of 5% of its net 
assets in illiquid securities. The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
    The Exchange represents that the Fund will not invest in futures, 
options, swaps, or forward contracts. The Exchange further represents 
that the Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (e.g., 2x and 3x) of the Fund's 
primary broad-based securities benchmark index (as defined in Form N-
1A).

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-63 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section 
19(b)(2)(B) of the Act \13\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \13\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to section 19(b)(2)(B) of the Act,\14\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \15\
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    \14\ Id.
    \15\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, the NAV for the Fund's Shares would generally 
be calculated as of 12:00 p.m., Eastern Time, on each day the New York 
Stock Exchange is open for trading. The cutoff time for the submission 
of creation and redemption orders for the Shares would also generally 
be 12:00 p.m., Eastern Time. The Commission notes the proposal does not 
provide any explanation for the early NAV calculation time and creation 
and redemption cutoff time. The proposal also does not explain whether 
the early NAV calculation time and creation and redemption cutoff time 
would have any impact on the trading of the Shares, including any 
impact on arbitrage. Accordingly, the Commission seeks commenters' 
views on the 12:00 p.m. NAV calculation time and creation and 
redemption cutoff time, and on whether the Exchange's statements 
relating to the NAV calculation and the creation and redemption process 
support a determination that the listing and trading of the Shares 
would be consistent with section 6(b)(5) of the Act, which, among other 
things, requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and to protect investors and the public 
interest.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\16\
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    \16\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by September 27, 2016. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 11, 2016. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in the Notice,\17\ in addition to any other 
comments they may wish to submit about the proposed rule change.
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    \17\ See supra note 3.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2016-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-63. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the

[[Page 61263]]

provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-63 and should 
be submitted on or before September 27, 2016. Rebuttal comments should 
be submitted by October 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(57).
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[FR Doc. 2016-21252 Filed 9-2-16; 8:45 am]
 BILLING CODE 8011-01-P