[Federal Register Volume 84, Number 38 (Tuesday, February 26, 2019)]
[Notices]
[Pages 6186-6188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03312]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33378; 812-14939]
Toroso Investments, LLC and Tidal ETF Trust
February 21, 2019
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies
(``Funds'') to issue shares redeemable in large aggregations
(``Creation Units''); (b) secondary market transactions in Fund shares
to occur at negotiated market prices rather than at net asset value
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of shares for
redemption; (d) certain affiliated persons of a Fund to deposit
securities into, and receive securities from, the Fund in connection
with the purchase and redemption of Creation Units; (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the Funds (``Funds
of Funds'') to acquire shares of the Funds; and (f) certain Funds to
issue Shares in less than Creation Unit size to investors participating
in a distribution reinvestment program.
Applicants: Tidal ETF Trust (the ``Trust''), a Delaware statutory
trust, which will register with the Commission as a series open-end
management investment company, and Toroso Investments, LLC (the
``Initial Adviser''), a Delaware limited liability company registered
as an investment adviser under the Investment Advisers Act of 1940.
Filing Dates: The application was filed on August 9, 2018 and
amended on December 4, 2018.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on March 18, 2019 and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090; Applicants: The Trust and the Initial
Adviser, 898 N Broadway, Suite 2, Massapequa, New York 11758.
FOR FURTHER INFORMATION CONTACT: Benjamin Kalish, Attorney-Adviser, at
[[Page 6187]]
(202) 551-7361, or Parisa Haghshenas, Branch Chief, at (202) 551-6723
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Summary of the Application
1. Applicants request an order that would allow Funds to operate as
index exchange traded funds (``ETFs'').\1\ Fund shares will be
purchased and redeemed at their NAV in Creation Units (other than
pursuant to a distribution reinvestment program, as described in the
application). All orders to purchase Creation Units and all redemption
requests will be placed by or through an ``Authorized Participant,''
which will have signed a participant agreement with the distributor.
Shares will be listed and traded individually on a national securities
exchange, where share prices will be based on the current bid/offer
market. Any order granting the requested relief would be subject to the
terms and conditions stated in the application.
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\1\ Applicants request that the order apply to the Initial Fund
and any additional series of the Trust, and any other existing or
future open-end management investment company or existing or future
series thereof (each, included in the term ``Fund''), each of which
will operate as an ETF and will track a specified index comprised of
domestic and/or foreign equity securities and/or domestic and/or
foreign fixed income securities (each, an ``Underlying Index''). Any
Fund will (a) be advised by the Initial Adviser or an entity
controlling, controlled by, or under common control with the Initial
Adviser (each of the foregoing and any successor thereto, an
``Adviser'') and (b) comply with the terms and conditions of the
application. For purposes of the requested order, a ``successor'' is
limited to an entity or entities that result from a reorganization
into another jurisdiction or a change in the type of business
organization.
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2. Each Fund will hold investment positions selected to correspond
closely to the performance of an Underlying Index. In the case of Self-
Indexing Funds, an affiliated person, as defined in section 2(a)(3) of
the Act (``Affiliated Person''), or an affiliated person of an
Affiliated Person (``Second-Tier Affiliate''), of the Trust or a Fund,
of the Adviser, of any sub-adviser to or promoter of a Fund, or of the
distributor will compile, create, sponsor or maintain the Underlying
Index.\2\
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\2\ Each Self-Indexing Fund will post on its website the
identities and quantities of the investment positions that will form
the basis for the Fund's calculation of its NAV at the end of the
day. Applicants believe that requiring Self-Indexing Funds to
maintain full portfolio transparency will help address, together
with other protections, conflicts of interest with respect to such
Funds.
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3. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis, or issued in less than Creation Unit
size to investors participating in a distribution reinvestment program.
Except where the purchase or redemption will include cash under the
limited circumstances specified in the application, purchasers will be
required to purchase Creation Units by depositing specified instruments
(``Deposit Instruments''), and shareholders redeeming their shares will
receive specified instruments (``Redemption Instruments''). The Deposit
Instruments and the Redemption Instruments will each correspond pro
rata to the positions in the Fund's portfolio (including cash
positions) except as specified in the application.
4. Because shares will not be individually redeemable, applicants
request an exemption from section 5(a)(1) and section 2(a)(32) of the
Act that would permit the Funds to register as open-end management
investment companies and issue shares that are redeemable in Creation
Units (other than pursuant to a distribution reinvestment program).
5. Applicants also request an exemption from section 22(d) of the
Act and rule 22c-1 under the Act as secondary market trading in shares
will take place at negotiated prices, not at a current offering price
described in a Fund's prospectus, and not at a price based on NAV.
Applicants state that (a) secondary market trading in shares does not
involve a Fund as a party and will not result in dilution of an
investment in shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants represent that share market prices will
be disciplined by arbitrage opportunities, which should prevent shares
from trading at a material discount or premium from NAV.
6. With respect to Funds that effect creations and redemptions of
Creation Units in kind and that are based on certain Underlying Indexes
that include foreign securities, applicants request relief from the
requirement imposed by section 22(e) in order to allow such Funds to
pay redemption proceeds within fifteen calendar days following the
tender of Creation Units for redemption. Applicants assert that the
requested relief would not be inconsistent with the spirit and intent
of section 22(e) to prevent unreasonable, undisclosed or unforeseen
delays in the actual payment of redemption proceeds.
7. Applicants request an exemption to permit Funds of Funds to
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the
Act; and the Funds, and any principal underwriter for the Funds, and/or
any broker or dealer registered under the Exchange Act, to sell shares
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
The application's terms and conditions are designed to, among other
things, help prevent any potential (i) undue influence over a Fund
through control or voting power, or in connection with certain
services, transactions, and underwritings, (ii) excessive layering of
fees, and (iii) overly complex fund structures, which are the concerns
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
8. Applicants request an exemption from sections 17(a)(1) and
17(a)(2) of the Act to permit persons that are Affiliated Persons, or
Second Tier Affiliates, of the Funds, solely by virtue of certain
ownership interests, to effectuate purchases and redemptions in-kind.
The deposit procedures for in-kind purchases of Creation Units and the
redemption procedures for in-kind redemptions of Creation Units will be
the same for all purchases and redemptions, and Deposit Instruments and
Redemption Instruments will be valued in the same manner as those
investment positions currently held by the Funds. Applicants also seek
relief from the prohibitions on affiliated transactions in section
17(a) to permit a Fund to sell its shares to and redeem its shares from
a Fund of Funds, and to engage in the accompanying in-kind transactions
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of
Funds directly from a Fund will be accomplished in accordance with the
policies of the Fund of Funds and will be based on the NAVs of the
Funds.
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\3\ The requested relief would apply to direct sales of shares
in Creation Units by a Fund to a Fund of Funds and redemptions of
those shares. Applicants, moreover, are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an Affiliated Person, or a
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an
entity controlling, controlled by or under common control with an
Adviser provides investment advisory services to that Fund of Funds.
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9. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the
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Act if such exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 12(d)(1)(J) of the Act provides that the Commission may exempt
any person, security, or transaction, or any class or classes of
persons, securities, or transactions, from any provision of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors. Section 17(b) of the Act authorizes the
Commission to grant an order permitting a transaction otherwise
prohibited by section 17(a) if it finds that (a) the terms of the
proposed transaction are fair and reasonable and do not involve
overreaching on the part of any person concerned; (b) the proposed
transaction is consistent with the policies of each registered
investment company involved; and (c) the proposed transaction is
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consistent with the general purposes of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03312 Filed 2-25-19; 8:45 am]
BILLING CODE 8011-01-P