Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 11813 

30 17 CFR 200.30–3(a)(12). 

deemed acceptable to mitigate one-sided 

order flow driven by index option 

expiration. Nasdaq now has an 

automated closing cross that that 

facilitates orderly closings by 

aggregating a large pool of liquidity, 

across a variety of order types, in a 

single venue. The Exchange believes 

that Nasdaq’s closing procedures are 

well-equipped to mitigate imbalance 

pressure at the close. Furthermore, the 

Exchange believes that the proposal is 

designed to mitigate any potential 

concerns regarding P.M. settlement. 

Specifically, the Exchange believes that 

the proposal will provide additional 

trading and hedging opportunities for 

investors. 

XND options will be subject to the 

same rules that presently govern the 

trading of index options based on the 

Nasdaq-100 Index, including sales 

practice rules, margin requirements, 

trading rules, and position and exercise 

limits. The Exchange therefore believes 

that the rules applicable to trading in 

XND options are consistent with the 

protection of investors and the public 

interest. Furthermore, the Exchange 

represents that it has sufficient systems 

capacity and adequate surveillance 

procedures to handle trading in XND 

options. 

With respect to the Exchange’s 

proposal to adopt new Supplementary 

Material .03 to Options 3, Section 3 to 

provide that minimum increments for 

bids and offers for XND options be the 

same as those for QQQ, regardless of the 

value at which the option series is 

quoted, may promote competition and 

benefit investors. This proposal aligns 

the minimum increments for XND 

options with those for QQQ options in 

order to allow market participants to 

quote in minimum increments of $0.01 

is consistent with the Act because 

allowing participants to quote in smaller 

increments may provide the opportunity 

for reduced spreads, thereby lowering 

costs to investors. In addition, because 

both XND and QQQ are based on 

Nasdaq-100 Index it would be 

reasonable for the minimum increments 

of bids and offers to be the same for both 

types of options. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. XND options 

would be available for trading to all 

market participants. The proposed rule 

change will facilitate the listing and 

trading of a new option product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. The listing of XND 

will enhance competition by providing 

investors with an additional investment 

vehicle, in a fully-electronic trading 

environment, through which investors 

can gain and hedge exposure to the 

Nasdaq-100 Index. Furthermore, this 

product could offer a competitive 

alternative to other existing investment 

products that seek to allow investors to 

gain broad market exposure. Finally, it 

is possible for other exchanges to 

develop or license the use of a new or 

different index to compete with the 

Nasdaq-100 Index and seek Commission 

approval to list and trade options on 

such an index. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

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 rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2021–07 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–Phlx–2021–07. 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 website (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 

provisions of 5 U.S.C. 552, will be 

available for website 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–Phlx–2021–07, and should 

be submitted on or before March 19, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–03949 Filed 2–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–34199] 

Commission Statement on Insurance 

Product Fund Substitution 

Applications 

February 23, 2021. 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Commission statement. 

The Commission is issuing a 

statement regarding applications for 

orders approving the substitution of 

certain securities pursuant to section 

26(c) of the Investment Company Act of 

1940, as amended, (the ‘‘Act’’) (and 


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11814 Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 

1 In addition to registering with the Commission 

as an investment company under the Act, each 

separate account registers its securities under the 

Securities Act of 1933. In doing so, each separate 

account files a registration statement with the 

Commission that includes a prospectus describing 

the Contracts offered by the separate account and 

a copy of the form of such contracts. 

2Section 26(c) states: ‘‘It shall be unlawful for any 

depositor or trustee of a registered unit investment 

trust holding the security of a single issuer to 

substitute another security for such security unless 

the Commission shall have approved such 

substitution. The Commission shall issue an order 

approving such substitution if the evidence 

establishes that it is consistent with the protection 

of investors and the purposes fairly intended by the 

policy and provisions of this title.’’ 15 U.S.C. 80a– 

26(c). 

3 In amending section 26 to require Commission 

approval of substitutions, Congress stated: ‘‘The 

proposed amendment recognizes that in the case of 

the unit investment trust holding the securities of 

a single issuer notification to shareholders does not 

provide adequate protection since the only relief 

available to shareholders, if dissatisfied, would be 

to redeem their shares. A shareholder who redeems 

and reinvests the proceeds in another unit 

investment trust or in an open-end company would 

under most circumstances be subject to a new sales 

load. The proposed amendment would close this 

gap in shareholder protection by providing for 

[Commission] approval of the substitution. The 

[Commission] would be required to issue an order 

approving the substitution if it finds the 

substitution consistent with the protection of 

investors and the purposes fairly intended by the 

policy and provisions of the Act.’’ S. Rep. No. 184, 

91st Cong., 1st Sess. 41 (1969), reprinted in 1970 

U.S.C.C.A.N. 4897, 4936 (‘‘Senate Report’’). 

4 In 1966, the Commission recommended 

requiring Commission approval for any proposed 

substitution, regardless of the number of underlying 

issuers. See Report of the Securities and Exchange 

Commission on the Public Policy Implications of 

Investment Company Growth, H.R. Rep. No. 2337, 

89th Cong. 2d Sess. 337 (1966) (stating ‘‘the 

Commission recommends that section 26 be 

amended to require that proposed substitutions may 

not occur without Commission approval’’). 

Congress, however, amended section 26 with 

reference to single-security UITs only. At the time 

Congress enacted section 26(c), most UITs invested 

all of their assets in a single security and issued 

‘‘periodic payment plan certificates,’’ which in 

return for fixed monthly payments over a period of 

years provided the purchaser with an interest in, 

but not direct ownership of, an underlying 

investment company’s shares. These single-security 

UITs ‘‘serve[d] merely as a mechanism for buying 

investment company shares on an installment 

payment basis.’’ Id. at 38. Although UITs holding 

a variety of securities were popular in the early 

1930s, by the time section 26(c) was enacted, their 

importance had dwindled. Both types of UITs 

seldom made changes to their underlying securities 

and were viewed as fixed portfolios. See id. at 38. 

In 1982, in response to a commenter, the 

Commission stated in a release that it had 

determined not to reexamine at that time its 

position that section 26(c) of the Act requires 

Commission approval for a substitution of securities 

in any subaccount of a registered separate account. 

See Inv. Co. Act Rel. No. 12678 (Sep. 21, 1982) at 

5. 

5A number of such orders also included relief 

pursuant to section 17(b) of the Act from section 

17(a)(1) and (2) of the Act to the extent necessary 

to permit the substitutions to be carried out by 

redeeming shares issued by each target fund in-kind 

and using the securities distributed as redemption 

proceeds to purchase shares issued by the 

applicable destination funds, at the respective net 

asset values of the funds. Section 17(a)(1) of the 

Act, in relevant part, prohibits any affiliated person 

of a registered investment company, or an affiliated 

person of such person, acting as principal, 

knowingly from selling any security or other 

property to such registered investment company. 

Section 17(a)(2) of the Act, in relevant part, 

prohibits any affiliated person of a registered 

investment company, or an affiliated person of such 

person, acting as principal, knowingly from 

purchasing any security or other property from such 

registered investment company. ‘‘Affiliated person’’ 

is defined in section 2(a)(3) of the Act. 

6Pursuant to the Congressional Review Act, the 

Office of Information and Regulatory Affairs has 

related orders of exemption pursuant to 

section 17(b) of the Act from section 

17(a) of the Act). The statement sets 

forth the Commission’s position that the 

substitution by an insurance company 

of registered open-end investment 

companies used as investment options 

for variable life insurance policies or 

variable annuity contracts will not 

provide a basis for enforcement action 

under section 26(c) of the Act (and 

section 17(a) of the Act for in-kind 

substitutions) if the insurance company 

does not obtain an order under section 

26(c) (and section 17(b)) so long as the 

terms and conditions of the proposed 

substitution are substantially similar to 

those approved by a prior order for a 

substitution under section 26(c) (and 

section 17(b)) obtained by the insurance 

company since January 1, 2004. 

DATES: The Commission’s statement is 

effective upon publication in the 

Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Jennifer O. Palmer, Senior Counsel, 

David J. Marcinkus, Branch Chief, 

Nadya B. Roytblat, Assistant Chief 

Counsel, or Daniele Marchesani, 

Assistant Chief Counsel, at (202) 551– 

6825 (Chief Counsel’s Office, Division of 

Investment Management). 

SUPPLEMENTARY INFORMATION: Variable 

insurance contracts (variable annuities 

and variable life insurance policies) are 

issued by insurance companies and 

typically have a two-tier structure. The 

top tier is a separate account of the 

insurance company, registered under 

the Act as a unit investment trust 

(‘‘UIT’’). The separate account, in turn, 

has subaccounts that invest in 

numerous (sometimes hundreds of) 

underlying mutual funds (open-end 

investment companies registered under 

the Act) and exchange-traded funds 

(collectively, ‘‘Investment Options’’). 

Contract holders typically allocate their 

assets across these various Investment 

Options available through the separate 

account. Under the contracts, the 

insurance company typically reserves 

the right, subject to compliance with 

applicable laws, to substitute 

Investment Options with other 

Investment Options after appropriate 

notice. The contracts also typically 

permit the insurance company to limit 

the manner in which a contract owner 

may allocate purchase payments to the 

subaccounts that invest in an 

Investment Option.1 Insurance 

companies have offered separate 

account UITs with numerous 

Investment Options with the 

expectation and understanding that they 

would have the ability to make changes 

among the Investment Options in 

appropriate circumstances. 

Section 26(c) of the Act prohibits a 

depositor or trustee of a UIT that invests 

in the securities of a single issuer from 

substituting the securities of another 

issuer without the approval of the 

Commission.2 Section 26(c) provides 

that such approval shall be granted by 

order of the Commission if the evidence 

establishes that the substitution is 

consistent with the protection of 

investors and the purposes fairly 

intended by the policy and provisions of 

the Act. Congress’ concern underlying 

section 26(c) related to the lack of 

recourse and potentially additional fees 

experienced by investors in a singlesecurity UIT in the case of a 

substitution.3 Legislative history 

suggests that when Congress enacted the 

substitution order requirement in 

section 26(c) in 1970, it intended to 

limit the requirement to those UITs 

whose investors’ economic exposure 

was limited to the single underlying 

security being substituted.4

In the past four decades, nearly 200 

substitution applications under section 

26(c) by insurance companies 

sponsoring variable annuity and 

variable life insurance products that 

offer multiple Investment Options have 

been approved by the Commission.5 In 

so doing, the Commission has come to 

require terms and conditions that focus 

on key investor protections designed to 

address the concerns expressed in the 

legislative history of Section 26(c). 

These conditions include, among others, 

disclosure notifying affected contract 

owners at least 30 days in advance of 

the substitution; a requirement that each 

substitute fund have substantially 

similar investment objectives, principal 

investment strategies, and principal 

risks to the fund it is replacing; and a 

cap on total operating expenses of the 

substitute fund, such that they will not 

exceed those of the fund it is replacing 

for at least two years. The terms and 

conditions of substitution applications 

approved by the Commission under 

section 26(c) have been substantially 

similar to one another for at least the 

past 17 years.6


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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 11815 

designated this policy statement as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). See 5 U.S.C. 

801 et seq. 

7Our position also extends to any related relief 

under section 17(b) of the Act from section 17(a) 

that the insurance company might have received to 

conduct the substitutions in-kind. 

8An insurance company that has not obtained 

such an order since January 1, 2004, but may have 

acquired another insurance company that did, may 

not rely on the acquiree’s order under the 

Commission’s position; an insurance company that 

had obtained such an order and also may have 

acquired another insurance company that also had 

obtained such an order, must look exclusively to 

the terms and conditions of the acquiror’s order for 

purposes of the Commission’s position. 

Commission Statement 

Based on the Commission’s 

administrative experience with 

substitution orders, we are stating our 

position that the substitution by an 

insurance company of registered openend investment companies used as 

Investment Options for variable life 

insurance policies or variable annuity 

contracts will not provide a basis for an 

enforcement action if the insurance 

company does not obtain an order from 

the Commission under section 26(c) 

(and section 17(b) for certain 

substitutions) so long as the terms and 

conditions of the proposed substitution 

are substantially similar to those 

approved by a prior order for a 

substitution pursuant to section 26(c) 

obtained by the insurance company 

since January 1, 2004.7

When making the sort of substitution 

discussed in this Commission 

statement, the insurance company 

should submit correspondence 

accompanying its disclosure of the 

upcoming substitution made via a 

prospectus supplement filed with the 

Commission pursuant to Rule 497 under 

the 1933 Act. Such correspondence 

should: (1) Indicate that the substitution 

is of the type discussed in this 

Commission statement; (2) identify the 

prior order with terms and conditions 

substantially similar to those in the 

substitution; (3) confirm that the 

substitution is consistent with the terms 

and conditions of the identified prior 

order; and (4) explain why each existing 

fund and corresponding replacement 

fund are substantially similar, including 

a comparison of the investment 

objectives, strategies and risks of each 

existing fund and its corresponding 

replacement fund. 

Any insurance company that has not 

obtained an order under section 26(c) 

for a substitution since January 1, 2004 

will need to apply for one, and any 

insurance company that prefers to 

receive such an order is able to continue 

to apply for one.8 We believe that this 

approach would continue to preserve 

the investor protections that have been 

afforded as part of the review of 

substitutions under section 26(c), while 

allowing for a more efficient process of 

substitutions in the variable insurance 

products context. We also believe that 

this approach would lessen the 

regulatory burden associated with 

insurance company substitutions, while 

remaining consistent with previous 

Substitution Orders that were designed 

to address the concerns reflected in the 

legislative history of section 26(c) of the 

Act. 

By the Commission. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–03989 Filed 2–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

34198; 812–15205] 

Infinity Q Diversified Alpha Fund, a 

Series of Trust for Advised Portfolios, 

and Infinity Q Capital Management, 

LLC; Notice of Application and 

Temporary Order 

February 22, 2021. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of application and a 

temporary order under Section 22(e)(3) 

of the Investment Company Act of 1940 

(the ‘‘Act’’). 

SUMMARY OF APPLICATION: Applicants 

request a temporary order to permit 

Infinity Q Diversified Alpha Fund (the 

‘‘Fund’’), a series of Trust for Advised 

Portfolios (the ‘‘Trust’’), to suspend the 

right of redemption of its outstanding 

redeemable securities. 

APPLICANTS: The Trust, on behalf of the 

Fund, and Infinity Q Capital 

Management LLC, the Fund’s 

investment adviser (‘‘Infinity Q’’ and 

together with the Trust, the 

‘‘Applicants’’). 

FILING DATE: The application was filed 

on February 22, 2021. 

HEARING OR NOTIFICATION OF HEARING: 

Interested persons may request a 

hearing by writing to the Commission’s 

Secretary at Secretarys-Office@sec.gov 

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 

19, 2021, 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, U.S. Securities 

and Exchange Commission, SecretarysOffice@sec.gov. Applicants: Trust, on 

behalf of the Fund, c/o U.S. Bank Global 

Fund Services, P.O. Box 701, 

Milwaukee, Wisconsin 53201–0701, 

with copies to Christopher D. Menconi, 

Esq., Ivan P. Harris, Esq., Morgan, Lewis 

& Bockius LLP, 1111 Pennsylvania 

Avenue NW, Washington, DC 20004; 

Infinity Q, 888 Seventh Avenue, Suite 

3700, New York, NY 10106, with copies 

to Alexander J. Willscher, Esq., 

Frederick Wertheim, Esq., Sullivan & 

Cromwell LLP, 125 Broad Street, New 

York, NY 10004. 

FOR FURTHER INFORMATION CONTACT: 

Daniel T. Gallagher, Attorney-Adviser, 

Jennifer L. Sawin, Senior Counsel, or 

Janet M. Grossnickle, Assistant Director, 

at (202) 551–6821 (Division of 

Investment Management, Chief 

Counsel’s Office). 

SUPPLEMENTARY INFORMATION: 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. 

Background 

1. The Trust is registered under the 

Act as an open-end series management 

investment company. Infinity Q is the 

investment adviser to the Fund, a series 

of the Trust. Infinity Q is registered as 

an investment adviser under the 

Investment Advisers Act of 1940. 

Infinity Q valued its assets under 

management as of January 31, 2021, at 

approximately $3.0 billion, of which 

approximately $1.8 billion was 

attributable to the Fund. The Fund is a 

‘‘commodity pool’’ under the U.S. 

Commodity Exchange Act, and Infinity 

Q is a ‘‘commodity pool operator’’ 

registered with and regulated by the 

Commodity Futures Trading 

Commission. 

2. Applicants state that the request for 

relief arises from Infinity Q’s inability, 

as required under the Fund’s valuation 

procedures, to value certain Fund 

holdings and the Fund’s resulting 

inability to calculate net asset value 

(‘‘NAV’’). According to Applicants, the 

Fund’s current portfolio includes swap 

instruments (the ‘‘Swaps’’) for which 


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