9788 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 

146See id. 

147This approval order is based on all of the 

Exchange’s representations, including those set 

forth above and in the Notice. 

148 15 U.S.C. 78s(b)(2). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73965 

(December 30, 2014), 80 FR 585 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange amended 

the proposed rule change to note that all of the 

exchange listed investment company securities and 

futures in which the Fund will invest will trade on 

markets that are a member of the Intermarket 

Surveillance Group (‘‘ISG’’) or with which the 

Exchange has in a place a comprehensive 

surveillance sharing agreement. Amendment No. 1 

provided clarification to the proposed rule change, 

and because it does not materially affect the 

substance of the proposed rule change or raise 

novel or unique regulatory issues, Amendment No. 

1 is not subject to notice and comment. 

5See Registration Statement on Form N–1A for 

the Trust, dated April 21, 2014 (File Nos. 333– 

179904 and 811–22649) (‘‘Registration Statement’’). 

In addition, the Exchange states that the Trust has 

obtained certain exemptive relief under the 

Investment Company Act of 1940 (‘‘1940 Act’’). See 

Investment Company Act Release No. 29571 

(January 24, 2011) (File No. 812–13601) 

(‘‘Exemptive Order’’). 

6BlackRock Fund Advisors is an indirect wholly 

owned subsidiary of BlackRock, Inc. 

7BATS Rule 14.11(i)(7) provides that, if the 

investment adviser to the investment company 

issuing Managed Fund Shares is affiliated with a 

broker-dealer, the investment adviser shall erect a 

firewall between the investment adviser and the 

broker-dealer with respect to access to information 

concerning the composition of or changes to the 

investment company portfolio. In addition, Rule 

14.11(i)(7) further requires that personnel who 

make decisions on the investment company’s 

portfolio composition must be subject to procedures 

designed to prevent the misuse and dissemination 

of material nonpublic information regarding the 

applicable investment company portfolio. The 

Exchange states that, in the event that (a) the 

Adviser becomes registered as a broker-dealer or 

newly affiliated with a broker-dealer, or (b) any new 

adviser or sub-adviser is a registered broker-dealer 

or becomes affiliated with a broker-dealer, such 

adviser or sub-adviser will implement a firewall 

with respect to its relevant personnel or such 

broker-dealer affiliate, as applicable, regarding 

access to information concerning the composition 

of or changes to the portfolio, and will be subject 

to procedures designed to prevent the use and 

dissemination of material non-public information 

regarding the portfolio. 

8The Commission notes that additional 

information regarding the Fund, the Trust, and the 

Shares, including investment strategies, risks, 

creation and redemption procedures, fees, portfolio 

holdings disclosure policies, distributions, and 

taxes, among other things, can be found in the 

Notice and the Registration Statement, as 

applicable. See Notice, supra note 3, and 

Registration Statement, supra note 5, respectively. 

notice as may be required by the 

Exchange) 146 of such an event. In each 

instance, the Sponsor will notify the 

Exchange and post a notice of the event 

and its details on the Sponsor’s Web 

site. 

The Commission further notes that 

the prospectus disclosures for the Funds 

state prominently that the Funds are not 

suitable for all investors, and include 

the following disclosures: (1) Stating 

that the funds may not be suitable for 

all investors; (2) describing the effect of 

distributions on an investor’s exposure; 

and (3) stating that ‘‘Investors who do 

not intend to actively manage and 

monitor their Fund investments at least 

as frequently as each distribution date 

should not buy shares of the Fund.’’ 

(Emphasis in original.) 

Based on all of the foregoing, the 

Commission believes that the Exchange 

has adequately responded to the 

opposing commenter’s concerns about 

investor understanding and suitability, 

and that the Exchange’s proposal is 

consistent with the public interest and 

the protection of investors. 

For the foregoing reasons, the 

Commission finds that the Exchange’s 

proposal to adopt NASDAQ Rule 5713 

and to list and trade the Funds pursuant 

to that rule is consistent with the Act 

and the rules and regulations 

thereunder applicable to a national 

securities exchange.147

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,148 that the 

proposed rule change (SR–NASDAQ– 

2014–065), as modified by Amendment 

No. 1 thereto, be, and it hereby is, 

approved. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–03713 Filed 2–23–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74297; File No. SR–BATS– 

2014–056] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Order Granting 

Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1 

Thereto, To List and Trade Shares of 

the iShares U.S. Fixed Income 

Balanced Risk ETF of the iShares U.S. 

ETF Trust Under Rule 14.11(i) 

February 18, 2015. 

I. Introduction 

On December 19, 2014, BATS 

Exchange, Inc. (‘‘BATS’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to list and trade the shares 

(‘‘Shares’’) of the iShares U.S. Fixed 

Income Balanced Risk ETF (‘‘Fund’’) 

under BATS Rule 14.11(i). The 

proposed rule change was published for 

comment in the Federal Register on 

January 6, 2015.3 On February 12, 2015, 

BATS filed Amendment No. 1 to the 

proposal.4 The Commission received no 

comments on the proposal. This order 

grants approval of the proposed rule 

change, as modified by Amendment No. 

1 thereto. 

II. Description of the Proposed Rule 

Change 

A. The Exchange’s Proposal 

The Exchange proposes to list and 

trade Shares of the Fund under BATS 

Rule 14.11(i), which governs the listing 

and trading of Managed Fund Shares on 

the Exchange. The Shares will be 

offered by the iShares U.S. ETF Trust 

(‘‘Trust’’), a Delaware statutory trust, 

which is registered with the 

Commission as an open-end investment 

company.5

BlackRock Fund Advisors will be the 

investment adviser (‘‘BFA’’ or 

‘‘Adviser’’) to the Fund.6 The Exchange 

represents that the (i) Adviser is not a 

registered broker-dealer, but is affiliated 

with multiple broker-dealers and has 

implemented fire walls with respect to 

such broker dealer affiliates regarding 

access to information concerning the 

composition of or changes to the Fund’s 

portfolio, and (ii) Adviser personnel 

who make decisions regarding the 

Fund’s portfolio are subject to 

procedures designed to prevent the use 

and dissemination of material 

nonpublic information regarding the 

Fund’s portfolio.7 BlackRock 

Investments, LLC serves as the 

distributor of the Fund’s Shares, and 

State Street Bank and Trust Company is 

the administrator, custodian, and 

transfer agent for the Trust. 

B. The Exchange’s Description of the 

Fund 

The Exchange has made the following 

additional representations and 

statements in describing the Fund and 

its investment strategy, including 

portfolio holdings and investment 

restrictions.8


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9The term ‘‘under normal circumstances’’ 

includes, but is not limited to, the absence of 

adverse market, economic, political, or other 

conditions, including extreme volatility or trading 

halts in the fixed income markets or the financial 

markets generally; 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. 

10According to the Exchange, the Adviser may 

determine that unrated Fixed Income Securities are 

of ‘‘equivalent quality’’ based on such credit quality 

factors that it deems appropriate, which may 

include among other things, performing an analysis 

similar, to the extent possible, to that performed by 

a nationally recognized statistical ratings 

organization when rating similar securities and 

issuers. In making such a determination, the 

Adviser may consider internal analyses and risk 

ratings, third party research and analysis, and other 

sources of information, as deemed appropriate by 

the Adviser. 

11The Exchange represents that the Fund’s 

portfolio will meet the following requirements of 

Rule 14.11(c)(4)(B)(i), which governs the listing and 

trading of fixed income based Index Fund Shares: 

(1) Components that in the aggregate account for at 

least 75% of the weight of the index or portfolio 

must have a minimum original principal amount 

outstanding of $100 million or more (Rule 

14.11(c)(4)(B)(i)(b)); (2) a component may be a 

convertible security, however, once the convertible 

security component converts to an underlying 

equity security, the component is removed from the 

index or portfolio (Rule 14.11(c)(4)(B)(i)(c)); and (3) 

no component fixed-income security (excluding 

Treasury Securities) will represent more than 30% 

of the weight of the portfolio, and the five highest 

weighted component fixed-income securities do not 

in the aggregate account for more than 65% of the 

weight of the portfolio (Rule 14.11(c)(4)(B)(i)(d)). 

For the purposes of this footnote, the term ‘‘fixed 

income securities’’ includes all holdings of the 

Fund. 

12While the Fund is permitted to invest without 

restriction in corporate bonds, the Exchange states 

that, under normal circumstances, the Fund will 

generally invest in corporate bond issuances that 

have at least $250 million par amount outstanding. 

13The Exchange states that ‘‘agency securities’’ 

for this purpose generally includes securities issued 

by the following entities: Government National 

Mortgage Association (Ginnie Mae), Federal 

National Mortgage Association (Fannie Mae), 

Federal Home Loan Banks (FHLBanks), Federal 

Home Loan Mortgage Corporation (Freddie Mac), 

Farm Credit System (FCS) Farm Credit Banks 

(FCBanks), Student Loan Marketing Association 

(Sallie Mae), Resolution Funding Corporation 

(REFCORP), Financing Corporation (FICO), and the 

Farm Credit System (FCS) Financial Assistance 

Corporation (FAC). Agency securities may include, 

but are not limited to, mortgage-backed securities. 

14The Exchange states that ‘‘instruments of nonU.S. issuers’’ means U.S. dollar-denominated fixed 

income securities issued by non-U.S. corporate or 

sovereign entities. 

15The Exchange states that ‘‘privately-issued 

securities’’ generally includes Rule 144A securities 

and, in this context, may include both mortgagebacked and non-mortgage 144A securities. The 

Exchange represents that, to the extent that the 

Fund’s holding of privately-issued securities 

include non-agency mortgage-backed securities or 

illiquid assets, such holdings will be subject to the 

limitations established in the ‘‘Other Investments’’ 

and ‘‘Investment Restrictions’’ sections set forth 

below, as applicable. 

16The Exchange represents that, under normal 

circumstances, the Fund intends to invest in money 

market securities in a manner consistent with its 

investment objective in order to help manage cash 

flows in and out of the Fund, such as in connection 

with payment of dividends or expenses, and to 

satisfy margin requirements, to provide collateral or 

to otherwise back investments in derivative 

instruments. For these purposes, money market 

securities include: Short-term, high-quality 

obligations issued or guaranteed by the U.S. 

Treasury or the agencies or instrumentalities of the 

U.S. government; short-term, high-quality securities 

issued or guaranteed by non-U.S. governments, 

agencies and instrumentalities; repurchase 

agreements; money market mutual funds; 

commercial paper; and deposits and other 

obligations of U.S. and non-U.S. banks and 

financial institutions. All money market securities 

acquired by the Fund will be rated investment 

grade. The Fund does not intend to invest in any 

unrated money market securities. However, it may 

do so, to a limited extent, such as where a rated 

money market security becomes unrated, if such 

money market security is determined by the 

Adviser to be of comparable quality. See supra note 

10. 

17The Exchange states that the Fund currently 

anticipates investing in only registered open-end 

investment companies, including mutual funds and 

the open-end investment company funds described 

in BATS Rule 14.11, but notes that the Exemptive 

Order allows the Fund to invest in ‘‘shares of other 

ETFs, shares of money market mutual funds, or 

other investment companies.’’ 

18The Exchange represents that derivatives held 

as part of the Fund’s principal investment strategy 

will be exchange traded and/or centrally cleared, 

and they will be collateralized. 

Principal Investments 

According to the Exchange, the Fund 

will seek total return and preservation 

of capital. The Fund is an activelymanaged fund that does not seek to 

replicate the performance of a specified 

index. The Fund intends to achieve its 

investment objective by investing, under 

normal circumstances,9 at least 80% of 

its net assets in a portfolio of U.S. 

dollar-denominated investment-grade 

and high-yield fixed-income securities 

(‘‘Fixed Income Securities’’), futures, 

and swaps, as described below. The 

Fund seeks to provide exposure to a 

portfolio of Fixed Income Securities 

where the expected contribution of 

interest rate risk and credit spread risk 

are approximately equal. 

The Fund may invest, without 

limitation, in high-yield securities rated 

CCC or higher by Moody’s Investors 

Service, Inc. or equivalently rated by 

Standard & Poor’s Financial Services 

LLC and/or Fitch, or, if unrated, 

determined by the Adviser to be of 

equivalent quality.10 Under normal 

circumstances, the Fund will invest 

primarily in fixed-rate Fixed Income 

Securities of varying maturities. 

Fixed Income Securities in which the 

Fund may invest will include only the 

following instruments: 11 fixed and 

floating rate debt securities, such as 

corporate bonds 12 and government 

bonds; agency securities; 13 instruments 

of non-U.S. issuers; 14 privately-issued 

securities; 15 municipal bonds; money 

market securities; 16 and exchange 

traded and non-exchange traded 

investment companies (including 

investment companies advised by the 

Adviser or its affiliates) that invest in 

such Fixed Income Securities.17

The Adviser will utilize a modelbased proprietary investment process to 

assemble an investment portfolio 

comprised of (i) long positions in U.S. 

dollar denominated investment-grade 

corporate bonds selected by BFA based 

on certain criteria determined by BFA to 

be indicators of creditworthiness; (ii) 

long positions in U.S. dollardenominated high-yield corporate 

bonds selected by BFA based on certain 

criteria determined by BFA to be 

indicators of creditworthiness; (iii) long 

positions in U.S. dollar-denominated 

agency mortgage backed securities; (iv) 

long positions in U.S. dollar 

denominated agency mortgage to-beannounced transactions; (v) long 

positions in U.S. Treasury securities; 

(vi) short positions in U.S. Treasury 

futures; and (vii) short positions in U.S. 

Treasury securities through transactions 

in interest rate swaps. The Fund seeks 

to invest in a portfolio of Fixed Income 

Securities that in the aggregate has 

approximately equal exposure to credit 

spread risk and interest rate risk, which 

is measured by the Adviser as the 

volatility of returns of a security 

associated with changes in the security’s 

credit spread or changes in interest 

rates. 

The Fund will adjust the allocation 

among its underlying securities in an 

effort to achieve a target credit spread 

risk and interest rate risk for the Fund’s 

portfolio. When necessary to balance the 

Fund’s exposure to interest rate risk 

against its exposure to credit spread 

risk, the Fund may take short or long 

positions in U.S. Treasury futures and, 

through transactions in interest rate 

swaps, take short positions in U.S. 

Treasury securities. The Adviser will 

determine the aggregate credit spread 

risk and interest rate risk of the Fund’s 

portfolio. The Fund may also invest in 

other interest rate futures contracts, 

including but not limited to, Eurodollar 

and Federal Funds futures.18

In selecting corporate securities for 

the Fund, the Adviser may employ a 

credit screening process centered on 

research and analysis of issuer credit 

quality to reduce exposure to credit 

issuers that have potential for 

experiencing credit deterioration. The 

remaining credit portfolio is then 

constructed to match the key target risk 

characteristics which BFA determines to 

be relevant in prevailing market 

conditions. 


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19 In addition to the uses described above, the 

Exchange states that derivatives might be included 

in the Fund’s investments to serve additional 

investment objectives of the Fund, which uses are 

limited to the following: Using a combination of 

treasury futures, interest rate swaps, and credit 

default swaps to equitize coupon income and cash 

holdings. The Exchange represents that the 

derivatives in which the Fund will invest will be 

exchange traded and/or centrally cleared, and they 

will be collateralized. 

20The Exchange states that asset-backed 

securities are fixed-income securities that are 

backed by a pool of assets, usually loans such as 

installment sale contracts or credit card receivables. 

21The Exchange states that mortgage-backed 

securities are asset-backed securities based on a 

particular type of asset, a mortgage. The Exchange 

states that there are a wide variety of mortgagebacked securities involving commercial or 

residential, fixed-rate or adjustable rate mortgages, 

and mortgages issued by banks or government 

agencies. 

22The Exchange states that ‘‘structured 

securities’’ generally include privately-issued and 

publicly-issued structured securities, including 

certain publicly-issued structured securities that are 

not agency securities, excluding agency mortgage 

backed securities. Examples include, but are not 

limited to: Asset-backed securities backed by assets 

such as consumer receivables, credit cards, student 

loans, and equipment leases; asset-backed 

commercial paper; credit linked notes; and secured 

funding notes. Structured securities do not include 

agency mortgage-backed securities. 

23 In reaching liquidity decisions, the Adviser 

may consider factors including: The frequency of 

trades and quotes for the security; the number of 

dealers wishing to purchase or sell the security and 

the number of other potential purchasers; dealer 

undertakings to make a market in the security; the 

nature of the security and the nature of the 

marketplace in which it trades (e.g., the time 

needed to dispose of the security, the method of 

soliciting offers, and the mechanics of transfer); any 

legal or contractual restrictions on the ability to 

transfer the security or asset; significant 

developments involving the issuer or counterparty 

specifically (e.g., default, bankruptcy, etc.) or the 

securities markets generally; and settlement 

practices, registration procedures, limitations on 

currency conversion or repatriation, and transfer 

limitations (for foreign securities or other assets). 

24 15 U.S.C. 78(f). 

25 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

26 15 U.S.C. 78f(b)(5). 

27 15 U.S.C. 78k–1(a)(1)(C)(iii). 

28See Notice, supra, note 3, 80 FR at 590. 

29See id. 

To adjust the exposure to interest rate 

risks, the Adviser may employ short 

positions primarily in U.S. Treasury 

futures and interest rate swaps. By 

taking these short positions, the Adviser 

seeks to mitigate, but not eliminate, the 

impact of Treasury interest rates on the 

performance of the underlying bonds. 

The short positions are not intended to 

mitigate other factors influencing the 

price of bonds. 

In the absence of normal 

circumstances, the Fund may 

temporarily depart from its normal 

investment process, provided that such 

departure is, in the opinion of the 

Adviser, consistent with the Fund’s 

investment objective and in the best 

interests of the Fund. For example, the 

Fund may hold a higher than normal 

proportion of its assets in cash in 

response to adverse market, economic, 

or political conditions. 

Other Investments 

In addition to the derivatives holdings 

described above as part of the Fund’s 

principal investment strategy, the Fund 

may also, to a limited extent (under 

normal circumstances, less than 20% of 

the Fund’s net assets), engage in 

transactions in the following 

instruments in order to serve additional 

investment objectives of the Fund: 19

treasury futures, interest rate swaps, 

credit default swaps, asset-backed Fixed 

Income Securities,20 non-agency 

mortgage-backed fixed-income 

securities,21 and structured securities.22

Investment Restrictions 

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Rule 144A 

securities deemed illiquid by the 

Adviser 23 under the 1940 Act. 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 Fund’s investments will be 

consistent with the Fund’s investment 

objective and will not be used to 

achieve leveraged or inverse leveraged 

returns (i.e. two times or three times the 

Fund’s benchmark). 

The Fund is a non-diversified fund 

and therefore may invest a greater 

portion of its assets in the securities of 

one or more issuers than a diversified 

fund. The Fund, however, will not 

purchase the securities of issuers 

conducting their principal business 

activity in the same industry if, 

immediately after the purchase and as a 

result thereof, the value of the Fund’s 

investments in that industry would 

equal or exceed 25% of the current 

value of the Fund’s total assets, 

provided that this restriction does not 

limit the Fund’s: (i) Investments in 

securities of other investment 

companies, (ii) investments in securities 

issued or guaranteed by the U.S. 

government, its agencies, or 

instrumentalities, or (iii) investments in 

repurchase agreements collateralized by 

U.S. government securities. 

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

modified by Amendment No. 1 thereto, 

is consistent with the requirements of 

Section 6 of the Act 24 and the rules and 

regulations thereunder applicable to a 

national securities exchange.25 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with the requirements of Section 6(b)(5) 

of the Act,26 which requires, among 

other things, that the Exchange’s rules 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. The Commission also 

finds that the proposal to list and trade 

the Shares on the Exchange is consistent 

with Section 11A(a)(1)(C)(iii) of the 

Act,27 which sets forth Congress’ finding 

that it is in the public interest and 

appropriate for the protection of 

investors and the maintenance of fair 

and orderly markets to assure the 

availability to brokers, dealers, and 

investors of information with respect to 

quotations for, and transactions in, 

securities. The Commission notes that 

the Fund and the Shares must comply 

with the requirements of BATS Rule 

14.11(i) to be listed and traded on the 

Exchange. 

According to the Exchange, quotation 

and last-sale information for the Shares 

will be available on the facilities of the 

Consolidated Tape Association 

(‘‘CTA’’), and the previous day’s closing 

price and trading volume information 

for the Shares will be published daily in 

the financial section of newspapers.28

Additionally, information regarding 

market price and trading volume of the 

Shares will be continually available on 

a real-time basis throughout the day on 

brokers’ computer screens and other 

electronic services.29 Daily trading 

volume information for the Fund will 

also be available in the financial section 

of newspapers, through subscription 

services such as Bloomberg, Thomson 


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30See id. 

31See id. 

32See id. 

33According to the Exchange, the Intraday 

Indicative Value will be based upon the current 

value for the components of the Disclosed Portfolio. 

The quotations of certain of the Fund’s holdings 

may not be updated during U.S. trading hours if 

such holdings do not trade in the United States or 

if updated prices cannot be ascertained. See id. 

34See id. Currently, it is the Exchange’s 

understanding that several major market data 

vendors display and/or make widely available 

Intraday Indicative Values published via the CTA 

or other data feeds. See id. 

35Regular Trading Hours are 9:30 a.m. to 4:00 

p.m. Eastern Time. 

36On a daily basis, the Disclosed Portfolio 

displayed on the Fund’s Web site will include the 

following information regarding each portfolio 

holding, as applicable to the type of holding: Ticker 

symbol, if any; CUSIP number or other identifier, 

if any; a description of the holding (including the 

type of holding, such as the type of swap); the 

identity of the security or other asset or instrument 

underlying the holding, if any; quantity held (as 

measured by, for example, par value, notional value 

or number of shares, contracts, or units); maturity 

date, if any; coupon rate, if any; market value of the 

holding; and the percentage weighting of the 

holding in the Fund’s portfolio. The Web site 

information will be publicly available at no charge. 

See id. 37See id. at 588. The NAV per Share is calculated 

by dividing the Fund’s net assets by the number of 

Fund Shares outstanding. According to the 

Exchange, for purposes of calculating NAV, the 

Fund values non-exchange traded Fixed Income 

Securities using prices provided directly from one 

or more broker-dealers, market makers, 

independent third-party pricing services which may 

use matrix pricing and valuation models to derive 

values, or, for investment companies, NAV. 

Exchange traded instruments, including exchange 

traded Fixed Income Securities and futures, will be 

valued at market closing price or, if no sale has 

occurred, at the last quoted bid price on the primary 

exchange on which they are traded. Price 

information for exchange traded instruments, 

including exchange traded derivatives, will be 

taken from the exchange where the security is 

primarily traded. Over-the-counter derivatives are 

valued based upon quotations from market makers 

or by a pricing service in accordance with valuation 

procedures approved by the Fund’s board of 

directors. Certain short-term debt securities will be 

valued on the basis of amortized cost. Generally, 

trading in certain Fixed Income Securities and 

derivatives is substantially completed each day at 

various times prior to the close of business on the 

Exchange, and the values of such securities and 

derivatives used in computing the NAV of the Fund 

are determined at such times. When market 

quotations are not readily available or are believed 

by the Adviser to be unreliable, the Fund’s 

investments are valued at fair value by the Adviser 

in accordance with policies and procedures 

approved by the Fund’s board of directors and in 

accordance with the 1940 Act. Id. 

38See id. at 589. 

39See id. at 592. 

40See id. at 590. 

41See id. 

42See id. 

43See BATS Rule 14.11(i)(4)(B)(ii)(b). 

44See Notice, supra note 3, 80 FR at 591. 

45See supra note 7 and accompanying text. The 

Exchange states 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. 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. 

Reuters, and International Data 

Corporation, which can be accessed by 

authorized participants and other 

investors, as well as through other 

electronic services, including major 

public Web sites.30 The Exchange states 

that intraday, executable price 

quotations for the underlying Fixed 

Income Securities and non-exchange 

traded derivatives, including nonexchange listed investment companies, 

are available from major broker-dealer 

firms and, for the underlying exchangetraded assets, including investment 

companies and futures, such intraday 

information is available directly from 

the applicable listing exchange.31

Further, the Exchange states that 

intraday price information for all such 

instruments is available through 

subscription services, such as 

Bloomberg, Thomson Reuters and 

International Data Corporation, which 

can be accessed by authorized 

participants and other investors.32

In addition, the Intraday Indicative 

Value of the Fund,33 as defined in BATS 

Rule 14.11(i)(3)(C), that reflects an 

estimated intraday value of the Fund’s 

portfolio, will be updated and widely 

disseminated by one or more major 

market data vendors at least every 15 

seconds during the Exchange’s Regular 

Trading Hours.34 On each business day, 

before commencement of trading in 

Shares during Regular Trading Hours 35

on the Exchange, the Fund will disclose 

on its Web site the identities and 

quantities of the portfolio of securities 

and other assets held by the Fund that 

will form the basis for the Fund’s 

calculation of NAV at the end of the 

business day (‘‘Disclosed Portfolio’’).36

The Net Asset Value (‘‘NAV’’) of the 

Fund’s Shares will generally be 

calculated once daily as of the close of 

regular trading on the Exchange, 

generally 4:00 p.m. Eastern Time on 

each day that the Exchange is open for 

trading.37 The Adviser will make 

available through the National 

Securities Clearing Corporation on each 

business day, prior to the opening of 

business on the Exchange, the list of 

names and the required number or par 

value of each security, as well as the 

amount of the cash, comprising the 

creation basket of the Fund for that 

day.38 The Web site for the Fund will 

include a form of the prospectus for the 

Fund and additional data relating to 

NAV and other applicable quantitative 

information.39

The Commission further believes that 

the proposal to list and trade the Shares 

is reasonably designed to promote fair 

disclosure of information that may be 

necessary to price the Shares 

appropriately and to prevent trading 

when a reasonable degree of 

transparency cannot be assured. The 

Exchange will obtain a representation 

from the issuer of the Shares that the 

NAV will be calculated daily and that 

the NAV and the Disclosed Portfolio 

will be made available to all market 

participants at the same time.40 Further, 

trading in the Shares will be subject to 

BATS Rules 11.18 and 14.11(i)(4)(B)(iv), 

which set forth circumstances under 

which trading in Shares of the Fund 

may be halted.41 Trading may be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) The 

extent to which trading is not occurring 

in the securities and/or the financial 

instruments composing the Disclosed 

Portfolio of the Fund; or (2) whether 

other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present.42 Further, the 

Commission notes that the Reporting 

Authority that provides the Disclosed 

Portfolio must implement and maintain, 

or be subject to, procedures designed to 

prevent the use and dissemination of 

material, non-public information 

regarding the actual components of the 

portfolio.43 The Exchange represents 

that it prohibits the distribution of 

material, non-public information by its 

employees.44 The Exchange also states 

that the Adviser is not a broker-dealer, 

but is affiliated with multiple brokerdealers and has implemented fire walls 

with respect to such broker dealer 

affiliates regarding access to information 

concerning the composition of or 

changes to the portfolio.45 The 

Exchange may obtain information 

regarding trading in the Shares and the 

underlying shares in exchange traded 

investment companies and futures via 


tkelley on DSK3SPTVN1PROD with NOTICES
9792 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 

46See Notice, supra note 3, 80 FR at 591. 

47See id. at 590. 

48 17 CFR 240.10A–3. 

49 15 U.S.C. 78f(b)(5). 

50 15 U.S.C. 78s(b)(2). 

51 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(ii). 

4 17 CFR 240.19b–4(f)(2). 

the ISG, from other exchanges who are 

members or affiliates of the ISG, or with 

which the Exchange has entered into a 

comprehensive surveillance sharing 

agreement. In addition, the Exchange is 

able to access, as needed, trade 

information for certain fixed income 

instruments reported to Financial 

Industry Reporting Authority’s 

(‘‘FINRA’’) Trade Reporting and 

Compliance Engine (‘‘TRACE’’).46

The Exchange represents that the 

Exchange deems the Shares to be equity 

securities, thus rendering trading in the 

Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities.47 In support of this 

proposal, the Exchange has made 

representations, including: 

(1) The Shares will be subject to 

BATS Rule 14.11(i), which sets forth the 

initial and continued listing criteria 

applicable to Managed Fund Shares. 

(2) The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions. 

(3) Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including Managed 

Fund Shares, which are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. 

(4) Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (a) The 

procedures for purchases and 

redemptions of Shares in creation units 

(and that Shares are not individually 

redeemable); (b) BATS Rule 3.7, which 

imposes suitability obligations on 

Exchange members with respect to 

recommending transactions in the 

Shares to customers; (c) how 

information regarding the Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (d) the risks 

involved in trading the Shares during 

the Pre-Opening and After Hours 

Trading Sessions when an updated 

Intraday Indicative Value will not be 

calculated or publicly disseminated; (e) 

the requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (f) trading information. 

(5) For initial and continued listing, 

the Fund must be in compliance with 

Rule 10A–3 under the Exchange Act.48

(6) A minimum of 100,000 Shares will 

be outstanding at the commencement of 

trading on the Exchange. 

(7) The Fund will invest at least 80% 

of its assets, under normal market 

conditions, in U.S. dollar-denominated 

investment-grade and high-yield FixedIncome Securities, futures, and swaps. 

(8) Derivatives investments held by 

the Fund will be exchange traded and/ 

or centrally cleared, and they will be 

collateralized. 

(9) The Fund will generally invest in 

corporate bond issuances that have at 

least $250 million par amount 

outstanding. 

(10) The Fund may hold up to an 

aggregate amount of 15% of its net 

assets in illiquid assets (calculated at 

the time of investment); 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. 

(11) All of the exchange listed 

investment company securities and 

futures that the Fund will invest in will 

trade on markets that are members of 

ISG or with which the Exchange has in 

place a comprehensive surveillance 

sharing agreement. 

(12) The Fund will not invest in nonU.S. equity securities. 

(13) The Fund’s investments will be 

consistent with the Fund’s investment 

objective and will not be used to 

achieve leveraged or inverse leveraged 

returns (i.e. two times or three times the 

Fund’s benchmark). 

This approval order is based on all of 

the Exchange’s representations and 

description of the Fund, including those 

set forth above and in the Notice, and 

the Exchange’s description of the Fund. 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1 thereto, is consistent with Section 

6(b)(5) of the Act 49 and the rules and 

regulations thereunder applicable to a 

national securities exchange. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,50 that the 

proposed rule change (SR–BATS–2014– 

056), as modified by Amendment No. 1 

thereto, be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–03666 Filed 2–23–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74284; File No. SR–BYX– 

2015–09] 

Regulatory Organizations; BATS YExchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Establish Fees for the 

BATS One Feed, and Amend Fees for 

BYX Top and BYX Last Sale 

February 18, 2015. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

3, 2015, BATS Y-Exchange, Inc. (‘‘BYX’’ 

or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange has 

designated the proposed rule change as 

one establishing or changing a member 

due, fee, or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to 

amend its fee schedule to establish fees 

for the BATS One Feed, amend fees for 

BYX Top and BYX Last Sale, add 

definitions for terms that apply to 

market data fees, and make certain 

technical, non-substantive changes. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 


tkelley on DSK3SPTVN1PROD with NOTICES