[Federal Register Volume 86, Number 80 (Wednesday, April 28, 2021)]
[Notices]
[Pages 22508-22510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08845]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34248; 812-15197]


T. Rowe Price Associates, Inc., et al.

April 22, 2021.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION:  Notice of an application to amend a prior order for exemptive 
relief.

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Summary of Application: Applicants request an order (``Amended Order'') 
that would amend a prior order to permit the Funds, as defined below, 
to use Creation Baskets (as defined below) that include instruments 
that are not included, or are included with different weightings, in 
the Fund's proxy portfolio.

Applicants: T. Rowe Price Associates, Inc. (``T. Rowe''), T. Rowe Price 
Equity Series, Inc. (``Corporation'') and T. Rowe Price Exchange-Traded 
Funds, Inc. (``New Applicant'' and, collectively with T. Rowe and the 
Corporation, ``Applicants'').

Filing Dates: The application was filed on February 4, 2021, and 
amended on March 30, 2021.

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 emailing the Commission's 
Secretary at [email protected] and serving Applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on May 17, 2021 and should be accompanied 
by proof of service on the Applicants, in the form of an affidavit, or, 
for lawyers, a certificate of service. Pursuant to rule 0-5 under the 
Investment Company Act of 1940 (``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 emailing to the Commission's Secretary at 
[email protected].

ADDRESSES: The Commission: [email protected]. Applicants: 
[email protected] and [email protected] (with 
copies to [email protected] and [email protected]).

FOR FURTHER INFORMATION CONTACT:  Marc Mehrespand, Senior Counsel; 
Trace Rakestraw, Branch Chief, at (202) 551-6825 (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.

I. Introduction

    1. On December 10, 2019, the Commission issued an order (``Prior 
Order'') \1\ under section 6(c) of 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) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act.\2\ The Prior Order permitted T. 
Rowe and the Corporation to introduce a novel type of actively-managed 
exchange-traded fund (``ETF'') that is not required to disclose its 
portfolio holdings on a daily basis (each, a ``Fund''). Rather, 
pursuant to the Prior Order, each Business Day \3\ a Fund publishes a 
basket of securities and cash that, while different from the Fund's 
portfolio, is designed to closely track its daily performance (the 
``Proxy Portfolio'').
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    \1\ See T. Rowe Price Associates, Inc. and T. Rowe Price Equity 
Series, Inc., Investment Company Act Release No. 33685 (Nov. 14, 
2019) (notice) and Investment Company Act Release No. 33713 (Dec. 
10, 2019) (order). Except as specifically noted in the application, 
all representations and conditions contained in the application 
previously submitted with the Commission (File No. 812-14214), as 
amended and restated, and filed with the Commission on October 17, 
2019 (the ``Prior Application'') remain applicable to the operation 
of the Funds and will apply to any Funds relying on the Amended 
Order.
    \2\ The relief granted in the Prior Order under section 
12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) 
and 12(d)(1)(B) of the 1940 Act (the ``Section 12(d)(1) Relief''), 
and relief 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 relating to the 
Section 12(d)(1) Relief, will expire one year from the effective 
date of rule 12d1-4. See Fund of Funds Arrangements, Investment 
Company Act Rel. No. 10871 (Oct. 7, 2020), at III.
    \3\ All capitalized terms not otherwise defined in this notice 
have the meanings ascribed to them in the Prior Application.
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    2. Pursuant to the Prior Order, a Fund sells and redeems its shares 
(``Shares'') only in Creation Units and generally on an in-kind basis. 
Purchasers are required to purchase Creation Units by making a deposit 
of Deposit Instruments and shareholders redeeming their Shares receive 
a transfer of Redemption Instruments.\4\ Under the Prior Order, the 
names and quantities of the instruments that constitute the Deposit 
Instruments and the Redemption Instruments for a Fund (collectively, 
the ``Creation Basket'') are the same as the Fund's Proxy Portfolio, 
except to the extent purchases and redemptions are made entirely or in 
part on a cash basis.
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    \4\ Deposit Instruments and Redemption Instruments may include 
cash and/or securities.
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    3. The New Applicant is a corporation organized under the laws of 
the State of Maryland, which may be comprised of multiple separate 
series, and is registered with the Commission as an open-end management 
investment company. The New Applicant consents to, and will comply 
with, the terms and

[[Page 22509]]

conditions of the Prior Order, as amended by the Amended Order, to the 
same extent as T. Rowe and the Corporation.
    4. Applicants now seek to amend the Prior Order to, in effect, give 
the Funds the same flexibility with respect to Creation Basket 
composition as afforded to ETFs relying on rule 6c-11.\5\ More 
specifically, Applicants have requested that the Funds be allowed to 
use Creation Baskets that include instruments that are not included, or 
are included with different weightings, in the Fund's Proxy Portfolio.
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    \5\ The Funds are not be able to operate in reliance on rule 6c-
11 because they do not disclose their portfolio holdings on a daily 
basis as required by the rule. See rule 6c-11(c)(1)(i) (requiring an 
ETF to disclose prominently on its website, publicly available and 
free of charge, the portfolio holdings that will form the basis for 
each calculation of NAV per share).
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II. The Application

A. Applicants' Proposal

    5. Upon amending the Prior Order, the names and quantities of the 
instruments that may constitute a Creation Basket will generally be the 
same as the Fund's Proxy Portfolio, but a Fund may accept Creation 
Baskets that differ from the Proxy Portfolio. Each Business Day, before 
the open of trading on the Exchange where a Fund is listed, the Fund 
will publish on its website the composition of any Creation Basket 
exchanged with an Authorized Participant on the previous Business Day 
that differed from such Business Day's Proxy Portfolio other than with 
respect to cash.
    6. Applicants represent that, for portfolio management or other 
reasons, the Funds may determine that it is desirable to use Creation 
Baskets that differ from the Proxy Portfolio (beyond cash 
substitutions). For example, a Fund may want to use a Creation Basket 
that contains instruments that are not included in a Fund's Proxy 
Portfolio if the Adviser or Sub-Adviser seeks to add an instrument to 
the Fund's actual portfolio) without incurring transaction costs 
associated with the purchase of the instrument for cash. Similarly, if 
the Adviser or Sub-Adviser decides to sell an instrument from a Fund's 
actual portfolio, the instrument may be included in a Creation Basket 
with the expectation that the Fund will deliver it in-kind during a 
redemption transaction.
    7. The Funds will use the requested basket flexibility only in 
circumstances under which Applicants believe there will be no harm to 
the Funds or their shareholders, and in order to benefit the Funds and 
their shareholders by reducing costs, increasing efficiency and 
improving trading.
    8. Pursuant to condition A.10 herein, each Fund will adopt and 
implement written policies and procedures regarding the construction of 
its Creation Baskets in accordance with rule 6c-11 under the Act. For 
purposes of the requirement to comply with the policies and procedures 
provision in rule 6c-11, only Creation Baskets that differ from a 
Fund's Proxy Portfolio will be treated as a ``custom basket'' under 
rule 6c-11(c)(3).
    9. Furthermore, pursuant to condition A.9 herein, each Fund will 
comply with the recordkeeping requirements of rule 6c-11.\6\ For 
purposes of the requirement to comply with the recordkeeping provision 
in rule 6c-11, only Creation Baskets different from a Fund's Proxy 
Portfolio will be treated as a ``custom basket'' under rule 6c-
11(d)(2)(ii).
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    \6\ Pursuant to condition A.9, each Fund will also maintain and 
preserve a copy of the Proxy Portfolio published on the Fund's 
website for each Business Day and a copy of each Creation Basket 
made available.
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    10. In addition, the Prior Application describes that each Fund's 
Proxy Portfolio will be determined such that at least 80% of its total 
assets will overlap with the portfolio weightings of the Fund.\7\ 
Applicants note that the Portfolio Overlap may also be less than 80%. 
In addition, Applicants note that footnotes 29 and 30 to the Prior 
Application each refer to the disclosure of specified information 
``since inception,'' but in fact those disclosures will only commence 
once each Fund has three months of operations.\8\
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    \7\ See Prior Application, footnote 26 and accompanying text.
    \8\ Applicants also wish to clarify that footnote 30 to the 
Prior Application refers to the calculation and disclosure of each 
Fund's Tracking Error ``over the preceding rolling one-year period'' 
when such calculation and disclosure will in fact occur over the 
past three months (consistent with the text of Section III.B.4 of 
the Prior Application).
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B. Considerations Relating to the Requested Relief

    11. Applicants represent that the ability to utilize a Creation 
Basket that includes instruments that are not included, or are included 
with different weightings, in a Fund's Proxy Portfolio, or are included 
in different weightings, does not raise any new policy concerns about 
reverse engineering of a Fund's portfolio, self-dealing or 
overreaching, or selective disclosure beyond those concerns addressed 
in connection with the Prior Order.
    12. Reverse Engineering. Applicants acknowledge that, by using a 
Creation Basket that includes instruments that are not included in a 
Fund's Proxy Portfolio, or are included in different percentages, and 
by publishing such Creation Basket on its website, the Fund would 
provide market participants with additional information about which 
instruments it adds or removes from the Fund's actual portfolio. 
However, Applicants represent that they will operate the Funds in a 
manner designed to minimize the risk of reverse engineering and, for 
the reasons set forth in the application, believe successful front-
running or free-riding is highly unlikely.
    13. Self-Dealing or Overreaching. Applicants state that Authorized 
Participants and other market participants will not have the ability to 
disadvantage the Funds by manipulating or influencing the composition 
of Creation Baskets, including those that differ from the Proxy 
Portfolio. Like the basket and custom basket policies and procedures 
required of ETFs by rule 6c-11, the Funds will adopt and implement 
written policies and procedures that govern the construction of 
Creation Baskets and the process that will be used for the acceptance 
of Creation Baskets to safeguard the best interests of the Funds and 
their shareholders.\9\
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    \9\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33646 (Sept. 25, 2019) (``ETF Adopting Release''), at 80-94 
(discussion of rule 6c-11 requirement for ETF policies and 
procedures concerning basket construction and acceptance and 
heightened policies and procedures for custom baskets).
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    14. Selective Disclosure. The Funds and each person acting on 
behalf of the Funds will continue to be required to comply with 
Regulation Fair Disclosure as if it applied to them (except that the 
exemptions provided in rule 100(b)(2)(iii) therein shall not apply). 
Applicants believe that the new Creation Basket flexibility being 
sought by the Applicants does not raise any new concerns about 
selective disclosure of nonpublic material information. First, a Fund's 
use of, or conversations with Authorized Participants about, Creation 
Baskets that would result in such disclosure would effectively be 
limited by the Funds' obligation to comply with Regulation Fair 
Disclosure. Second, as noted above, each Business Day, before the open 
of trading on the Exchange where a Fund is listed, the Fund will 
publish on its website the composition of any basket accepted by the 
Fund on the previous Business Day that differed from such Business 
Day's Proxy Portfolio other than with respect to cash.

[[Page 22510]]

III. Requested Exemptive Relief

    For the reasons stated above, Applicants believe that the Prior 
Order, as amended, continues to meet the relevant standards for relief 
pursuant to section 6(c) of 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, and 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) of the Act for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act.\10\
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    \10\ See supra note 2.
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IV. Applicants' Conditions

    Applicants agree that the Amended Order granting the requested 
relief will be subject to all of the conditions in the Prior Order, 
except that condition A.9 of the Prior Order is deleted in its entirety 
and replaced with the conditions A.9-A.10 as follows:
    9. Each Fund will comply with the recordkeeping requirements of 
rule 6c-11 under the Act, as amended, except that for purposes of this 
condition, only Creation Baskets different from the Fund's Proxy 
Portfolio will be treated as a ``custom basket'' under rule 6c-
11(d)(2)(ii). In addition, each Fund will maintain and preserve, for a 
period of not less than five years, in an easily accessible place, (i) 
a copy of the Proxy Portfolio published on the Fund's website for each 
Business Day; and (ii) a copy of each Creation Basket made available.
    10. Each Fund will adopt and implement written policies and 
procedures that govern the construction of Creation Baskets, as 
required under rule 6c-11(c)(3) under the Act, as amended, except that 
for purposes of this condition, only Creation Baskets different from 
the Fund's Proxy Portfolio will be treated as a ``Custom Basket''. The 
Fund's basket policies and procedures will be covered by the Fund's 
compliance program and other requirements under rule 38a-1 under the 
Act, as amended.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-08845 Filed 4-27-21; 8:45 am]
BILLING CODE 8011-01-P