Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 585 

28 15 U.S.C. 78f(b)(5). 

29 15 U.S.C. 78f(b)(5). 

30Section 19(b) (2) of the Act, as amended by the 

Securities Act Amendments of 1975, Pub. L. 94–29 

(June 4, 1975), grants the Commission flexibility to 

determine what type of proceeding—either oral or 

notice and opportunity for written comments—is 

appropriate for consideration of a particular 

proposal by a self-regulatory organization. See 

Securities Act Amendments of 1975, Senate Comm. 

on Banking, Housing & Urban Affairs, S. Rep. No. 

75, 94th Cong., 1st Sess. 30 (1975). 31 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

Pursuant to Section 19(b)(2)(B) of the 

Act, the Commission is providing notice 

of the grounds for disapproval under 

consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of, and input from, 

commenters with regard to the proposed 

rule change’s consistency with Section 

6 of the Act, and in particular Sections 

6(b)(5).28 Section 6(b)(5) requires that 

the rules of an exchange be designed, 

among other things, to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, 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; and are not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers.29

V. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the proposal. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposed rule 

change is inconsistent with Section 6 or 

any other provision, of the Act, or the 

rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b-4, any 

request for an opportunity to make an 

oral presentation.30

Interested persons are invited to 

submit written data, views and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by January 27, 

2015. Any person who wishes to file a 

rebuttal to any other person’s 

submission must file that rebuttal by 

February 10, 2015. 

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– 

ISE–2014–43 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–ISE–2014–43. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

publicly available. All submissions 

should refer to File Number SR–ISE– 

2014–43 and should be submitted on or 

before January 27, 2015. If comments are 

received, any rebuttal comments should 

be submitted by February 10, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30979 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73965; File No. SR–BATS– 

2014–056] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change 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) 

December 30, 2014. 

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 December 

19, 2014, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 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 the Substance 

of the Proposed Rule Change 

The Exchange filed a proposal list and 

trade shares of the iShares U.S. Fixed 

Income Balanced Risk ETF (the ‘‘Fund’’) 

of the iShares U.S. ETF Trust (the 

‘‘Trust’’) under BATS Rule 14.11(i) 

(‘‘Managed Fund Shares’’). The shares of 

the Fund are collectively referred to 

herein as the ‘‘Shares.’’ 

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. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 


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586 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

3The Commission approved BATS Rule 14.11(i) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

4See Registration Statement on Form N–1A for 

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

179904 and 811–22649). The descriptions of the 

Fund and the Shares contained herein are based, in 

part, on information in the Registration Statement. 

The Commission has issued an order granting 

certain exemptive relief to the Company under the 

Investment Company Act of 1940 (15 U.S.C. 80a– 

1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See 

Investment Company Act Release No. 29571 

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

5BlackRock Fund Advisors is an indirect wholly 

owned subsidiary of BlackRock, Inc. 

6An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940 (the ‘‘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. 

7The 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. 

8See Form N–1A, Item 9. The Commission has 

taken the position that a fund is concentrated if it 

invests in more than 25% of the value of its total 

assets in any one industry. See, e.g., Investment 

Company Act Release No. 9011 (October 30, 1975), 

40 FR 54241 (November 21, 1975). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under BATS Rule 

14.11(i), which governs the listing and 

trading of Managed Fund Shares on the 

Exchange.3 The Fund will be an actively 

managed fund. The Shares will be 

offered by the Trust, which was 

established as a Delaware statutory trust 

on June 21, 2011. The Trust is registered 

with the Commission as an open-end 

investment company and has filed a 

registration statement on behalf of the 

Fund on Form N–1A (‘‘Registration 

Statement’’) with the Commission.4

Description of the Shares and the Fund 

BlackRock Fund Advisors is the 

investment adviser (‘‘BFA’’ or 

‘‘Adviser’’) to the Fund.5 State Street 

Bank and Trust Company is the 

administrator, custodian, and transfer 

agent for the Trust. BlackRock 

Investments, LLC (‘‘Distributor’’) serves 

as the distributor for the Trust. 

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

the investment adviser to the 

investment company issuing Managed 

Fund Shares is affiliated with a brokerdealer, such investment adviser shall 

erect a ‘‘fire wall’’ between the 

investment adviser and the brokerdealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.6 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 use 

and dissemination of material 

nonpublic information regarding the 

applicable investment company 

portfolio. Rule 14.11(i)(7) is similar to 

BATS Rule 14.11(b)(5)(A)(i), however, 

Rule 14.11(i)(7) in connection with the 

establishment of a ‘‘fire wall’’ between 

the investment adviser and the brokerdealer reflects the applicable open-end 

fund’s portfolio, not an underlying 

benchmark index, as is the case with 

index-based funds. The Adviser is not a 

registered broker-dealer, but is affiliated 

with multiple broker-dealers and has 

implemented ‘‘fire walls’’ with respect 

to such broker-dealers regarding access 

to information concerning the 

composition and/or changes to the 

Fund’s portfolio. In addition, 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. In the 

event that (a) the Adviser becomes a 

broker-dealer or newly affiliated with a 

broker-dealer, or (b) any new adviser or 

sub-adviser is a broker-dealer or 

becomes affiliated with a broker-dealer, 

it will implement a fire wall with 

respect to its relevant personnel or such 

broker-dealer affiliate, as applicable, 

regarding access to information 

concerning the composition and/or 

changes to the portfolio, and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

iShares U.S. Fixed Income Balanced 

Risk Fund 

According to the Registration 

Statement, the Fund will seek total 

return and preservation of capital. To 

achieve its objective, the Fund will 

invest, under normal circumstances,7 at 

least 80% of its net assets in U.S. dollardenominated investment-grade and 

high-yield fixed-income securities, 

futures, and swaps, as described below. 

The Fund seeks to provide exposure to 

a portfolio of Fixed Income Securities, 

as defined below, where the expected 

contribution of interest rate risk and 

credit spread risk are approximately 

equal. The Fund will attempt to achieve 

an aggregate credit spread risk based on 

the credit spread risk of the underlying 

securities (as determined by BFA) 

primarily by adjusting the allocation 

among underlying securities. To the 

extent necessary, the Fund will attempt 

to balance the aggregate interest rate risk 

against the aggregate credit spread risk 

of the underlying securities (as 

determined by BFA) primarily by taking 

short or long positions in U.S. Treasury 

futures contracts and interest rate 

swaps, as further described below. 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 

BFA, 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. 

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.8


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Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 587 

9 26 U.S.C. 851. 

10According to the Adviser, BFA 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, BFA may 

consider internal analyses and risk ratings, third 

party research and analysis, and other sources of 

information, as deemed appropriate by the Adviser. 

11 Derivatives held as part of the Fund’s principal 

investment strategy will be exchange traded and/or 

centrally cleared, and they will be collateralized. 

12While the Fund is permitted to invest without 

restriction in corporate bonds, the Adviser expects 

that, under normal circumstances, the Fund will 

generally invest in corporate bond issuances that 

have at least $250 million par amount outstanding. 

13 ‘‘Agency securities’’ for these purposes 

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 can include, but are not 

limited to, mortgage-backed securities. 

14 ‘‘Instruments of non-U.S. issuers’’ means U.S. 

dollar-denominated fixed income securities issued 

by non-U.S. corporate or sovereign entities. 

15 ‘‘Privately-issued securities’’ generally includes 

Rule 144A securities and, in this context, may 

include both mortgage-backed and non-mortgage 

144A securities. To the Extent that the Fund’s 

holding of privately-issued securities include nonagency mortgage-backed securities or illiquid assets, 

such holdings will be subject to the limitations 

established in the ‘‘Other Portfolio Holdings’’ and 

‘‘Investment Restrictions’’ sections set forth below, 

as applicable. 

16The Adviser expects that, under normal 

circumstances, the Fund intends to invest in money 

market securities (as described below) 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, highquality 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. BFA may 

determine that unrated securities are of comparable 

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 rating organization rating 

similar securities and issuers. 

17The 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.’’ 

18See BATS Rule 14.11(c)(4)(B)(i) governing fixed 

income based Index Fund Shares. For the purposes 

of this footnote, the term ‘‘fixed income securities’’ 

will include all holdings of the Fund. The Fund’s 

portfolio will meet the following requirements of 

Rule 14.11(c)(4)(B)(i): (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 fixedincome security (excluding Treasury Securities) 

will represent more than 30% of the weight of the 

index or 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 index or portfolio (Rule 14.11(c)(4)(B)(i)(d)). 

The Fund intends to qualify each year 

as a regulated investment company (a 

‘‘RIC’’) under Subchapter M of the 

Internal Revenue Code of 1986, as 

amended.9 The Fund will invest its 

assets, and otherwise conduct its 

operations, in a manner that is intended 

to satisfy the qualifying income, 

diversification and distribution 

requirements necessary to establish and 

maintain RIC qualification under 

Subchapter M. 

Principal Holdings—Fixed Income 

Securities and Derivatives 

The Fund intends to achieve its 

investment objective by investing, under 

normal circumstances, 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 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 BFA 

to be of equivalent quality.10 Under 

normal circumstances, the Fund will 

invest primarily in fixed-rate Fixed 

Income Securities of varying maturities. 

The Fund seeks to balance interest 

rate and credit spread risk by investing 

in a portfolio of Fixed Income Securities 

that in the aggregate has approximately 

equal exposure to credit spread risk and 

interest rate risk, which are measured by 

BFA 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. BFA 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. The Fund’s short 

positions in U.S. Treasury futures and 

similar positions through transaction in 

interest rate swaps are not intended to 

mitigate credit spread risk or other 

factors influencing the price of nongovernment bonds, which may have a 

greater impact than interest rates.11

Fixed Income Securities will include 

only the following instruments: Fixed 

and floating rate debt securities, such as 

corporate 12 and government bonds, 

agency securities,13 instruments of nonU.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 BFA 

or its affiliates) that invest in such Fixed 

Income Securities.17 18

BFA utilizes a model-based 

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 BFA as the volatility of 

returns of a security associated with 

changes in the security’s credit spread 

or changes in interest rates. 

In selecting corporate securities for 

the Fund, BFA may employ a credit 


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588 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

19 ‘‘Structured securities’’ generally includes 

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: Assetbacked 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. 

20 In addition to the uses described above, 

derivatives might be included in the Fund’s 

investments to serve additional investment 

objectives of the Fund. Such 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 

derivatives will be exchange traded and/or centrally 

cleared, and they will be collateralized. 

21 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). 

22The Commission has stated that long-standing 

Commission guidelines have required open-end 

funds to hold no more than 15% of their net assets 

in illiquid securities and other illiquid assets. See 

Investment Company Act Release No. 28193 (March 

11, 2008), 73 FR 14618 (March 18, 2008), footnote 

34. See also, Investment Company Act Release No. 

5847 (October 21, 1969), 35 FR 19989 (December 

31, 1970) (Statement Regarding ‘‘Restricted 

Securities’’); Investment Company Act Release No. 

18612 (March 12, 1992), 57 FR 9828 (March 20, 

1992) (Revisions of Guidelines to Form N–1A). A 

fund’s portfolio security is illiquid if it cannot be 

disposed of in the ordinary course of business 

within seven days at approximately the value 

ascribed to it by the fund. See Investment Company 

Act Release No. 14983 (March 12, 1986), 51 FR 

9773 (March 21, 1986) (adopting amendments to 

Rule 2a–7 under the 1940 Act); Investment 

Company Act Release No. 17452 (April 23, 1990), 

55 FR 17933 (April 30, 1990) (adopting Rule 144A 

under the Securities Act of 1933). 

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. 

To adjust the exposure to interest rate 

risks, BFA may employ short positions 

primarily in U.S. Treasury futures and 

interest rate swaps. By taking these 

short positions, BFA 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. 

The Fund is an actively-managed 

fund that does not seek to replicate the 

performance of a specified index. 

Other Portfolio Holdings 

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: 

Treasury futures, interest rate swaps, 

credit default swaps, asset-backed Fixed 

Income Securities, non-Agency 

mortgage-backed fixed-income 

securities, and structured securities 19 in 

order to serve additional investment 

objectives of the Fund.20 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. 

Mortgage-backed securities are assetbacked securities based on a particular 

type of asset, a mortgage. There are a 

wide variety of mortgage-backed 

securities involving commercial or 

residential, fixed-rate or adjustable rate 

mortgages and mortgages issued by 

banks or government agencies. 

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 21 under the 1940 Act.22 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). 

Net Asset Value 

According to the Registration 

Statement, the net asset value (‘‘NAV’’) 

of the Fund’s Shares generally will be 

calculated once daily Monday through 

Friday as of the close of regular trading 

on the Exchange, generally 4:00 p.m. 

Eastern Time (the ‘‘NAV Calculation 

Time’’) on each day that the Exchange 

is open for trading, based on prices at 

the NAV Calculation Time. NAV per 

Share is calculated by dividing the 

Fund’s net assets by the number of Fund 

Shares outstanding. The Fund’s net 

assets are valued primarily on the basis 

of market quotations. 

According to the Registration 

Statement, the Fund values nonexchange 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 shortterm debt securities will be valued on 

the basis of amortized cost. 

According to the Registration 

Statement, generally, trading in certain 

Fixed Income Securities is substantially 

completed each day at various times 

prior to the close of business on the 

Exchange. Additionally, trading in 

certain derivatives is substantially 

completed each day at various times 

prior to the close of business on the 

Exchange. The values of such securities 

and derivatives used in computing the 

NAV of the Fund are determined at such 

times. 

According to the Registration 

Statement, when market quotations are 

not readily available or are believed by 

BFA to be unreliable, the Fund’s 

investments are valued at fair value. 

Fair value determinations are made by 

BFA in accordance with policies and 

procedures approved by the Fund’s 

board of directors and in accordance 

with the 1940 Act. BFA may conclude 

that a market quotation is not readily 

available or is unreliable if a security or 

other asset or liability is thinly traded, 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 589 

23A ‘‘significant event’’ is an event that, in the 

judgment of BFA, is likely to cause a material 

change to the closing market price of the asset or 

liability held by the Fund. 

24The Adviser represents that, to the extent the 

Trust permits or requires a ‘‘cash in lieu’’ amount, 

such transactions will be effected in the same or 

equitable manner for all authorized participants. 

or where there is a significant event 23

subsequent to the most recent market 

quotation. 

According to the Registration 

Statement, fair value represents a good 

faith approximation of the value of an 

asset or liability. The fair value of an 

asset or liability held by the Fund is the 

amount the Fund might reasonably 

expect to receive from the current sale 

of that asset or the cost to extinguish 

that liability in an arm’s-length 

transaction. Valuing the Fund’s 

investments using fair value pricing will 

result in prices that may differ from 

current valuations and that may not be 

the prices at which those investments 

could have been sold during the period 

in which the particular fair values were 

used. 

The Shares 

The Fund will issue and redeem 

Shares on a continuous basis at the NAV 

per Share only in large blocks of a 

specified number of Shares or multiples 

thereof (‘‘Creation Units’’) in 

transactions with authorized 

participants who have entered into 

agreements with the Distributor. The 

Fund currently anticipates that a 

Creation Unit will consist of 50,000 

Shares, though this number may change 

from time to time, including prior to 

listing of the Fund. The exact number of 

Shares that will constitute a Creation 

Unit will be disclosed in the 

Registration Statement of the Fund. 

Once created, Shares of the Fund trade 

on the secondary market in amounts 

less than a Creation Unit. 

The consideration for purchase of 

Creation Units of the Fund generally 

will consist of the in-kind deposit of a 

designated portfolio of securities 

(including any portion of such securities 

for which cash may be substituted) (i.e., 

the ‘‘Deposit Securities’’), and the ‘‘Cash 

Component’’ computed as described 

below. Together, the Deposit Securities 

and the Cash Component constitute the 

‘‘Fund Deposit,’’ which represents the 

minimum initial and subsequent 

investment amount for a Creation Unit 

of the Fund. 

The portfolio of securities required for 

purchase of a Creation Unit may not be 

identical to the portfolio of securities 

the Fund will deliver upon redemption 

of Fund Shares. The Deposit Securities 

and Fund Securities (as defined below), 

as the case may be, in connection with 

a purchase or redemption of a Creation 

Unit, generally will correspond pro rata 

to the securities held by the Fund. 

The Cash Component will be an 

amount equal to the difference between 

the NAV of the Shares (per Creation 

Unit) and the ‘‘Deposit Amount,’’ which 

will be an amount equal to the market 

value of the Deposit Securities, and 

serve to compensate for any differences 

between the NAV per Creation Unit and 

the Deposit Amount. The Fund 

generally offers Creation Units partially 

for cash. BFA will make available 

through the National Securities Clearing 

Corporation (‘‘NSCC’’) 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 

Deposit Security and the amount of the 

Cash Component to be included in the 

current Fund Deposit (based on 

information as of the end of the 

previous business day) for the Fund. 

The identity and number or par value 

of the Deposit Securities may change 

pursuant to changes in the composition 

of the Fund’s portfolio as rebalancing 

adjustments and corporate action events 

occur from time to time. The 

composition of the Deposit Securities 

may also change in response to 

adjustments to the weighting or 

composition of the holdings of the 

Fund. 

The Fund reserves the right to permit 

or require the substitution of a ‘‘cash in 

lieu’’ amount to be added to the Cash 

Component to replace any Deposit 

Security that may not be available in 

sufficient quantity for delivery or that 

may not be eligible for transfer through 

the Depository Trust Company (‘‘DTC’’) 

or the clearing process through the 

NSCC.24

Except as noted below, all creation 

orders must be placed for one or more 

Creation Units and must be received by 

the Distributor in proper form no later 

than 4:00 p.m., Eastern Time, in each 

case on the date such order is placed in 

order for creation of Creation Units to be 

effected based on the NAV of Shares of 

the Fund as next determined on such 

date after receipt of the order in proper 

form. Orders requesting substitution of 

a ‘‘cash in lieu’’ amount generally must 

be received by the Distributor no later 

than 2:00 p.m., Eastern Time on the 

Settlement Date. The ‘‘Settlement Date’’ 

is generally the third business day after 

the transmittal date. On days when the 

Exchange or the bond markets close 

earlier than normal, the Fund may 

require orders to create or to redeem 

Creation Units to be placed earlier in the 

day. 

Fund Deposits must be delivered 

through the Federal Reserve System (for 

cash and government securities), 

through DTC (for corporate and 

municipal securities), or through a 

central depository account, such as with 

Euroclear or DTC, maintained by State 

Street or a sub-custodian (a ‘‘Central 

Depository Account’’) by an authorized 

participant. Any portion of a Fund 

Deposit that may not be delivered 

through the Federal Reserve System or 

DTC must be delivered through a 

Central Depository Account. The Fund 

Deposit transfer must be ordered by the 

authorized participant in a timely 

fashion so as to ensure the delivery of 

the requisite number of Deposit 

Securities to the account of the Fund by 

no later than 3:00 p.m., Eastern Time, 

on the Settlement Date. 

A standard creation transaction fee 

will be imposed to offset the transfer 

and other transaction costs associated 

with the issuance of Creation Units. 

Shares of the Fund may be redeemed 

only in Creation Units at their NAV next 

determined after receipt of a redemption 

request in proper form by the 

Distributor and only on a business day. 

BFA will make available through the 

NSCC, prior to the opening of business 

on the Exchange on each business day, 

the designated portfolio of securities 

(including any portion of such securities 

for which cash may be substituted) that 

will be applicable (subject to possible 

amendment or correction) to 

redemption requests received in proper 

form on that day (‘‘Fund Securities’’). 

Fund Securities received on redemption 

may not be identical to Deposit 

Securities that are applicable to 

creations of Creation Units. 

Unless cash redemptions are available 

or specified for the Fund, the 

redemption proceeds for a Creation Unit 

generally will consist of a specified 

amount of cash, Fund Securities, plus 

additional cash in an amount equal to 

the difference between the NAV of the 

Shares being redeemed, as next 

determined after the receipt of a request 

in proper form, and the value of the 

specified amount of cash and Fund 

Securities, less a redemption transaction 

fee. The Fund generally redeems 

Creation Units partially for cash. 

A standard redemption transaction fee 

will be imposed to offset transfer and 

other transaction costs that may be 

incurred by the Fund. 

Redemption requests for Creation 

Units of the Fund must be submitted to 

the Distributor by or through an 

authorized participant no later than 4:00 

p.m. Eastern Time on any business day, 

in order to receive that day’s NAV. The 

authorized participant must transmit the 


tkelley on DSK3SPTVN1PROD with NOTICES
590 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

25The Bid/Ask Price of the Fund will be 

determined using the midpoint of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

26Regular Trading Hours are 9:30 a.m. to 4:00 

p.m. Eastern Time. 

27Under accounting procedures to be followed by 

the Fund, trades made on the prior business day 

(‘‘T’’) will be booked and reflected in NAV on the 

current business day (‘‘T + 1’’). Accordingly, the 

Fund will be able to disclose at the beginning of the 

business day the portfolio that will form the basis 

for the NAV calculation at the end of the business 

day. 28 Derivatives that reference or allow delivery of 

more than one asset, such as U.S. Treasury futures, 

will identify the underlying asset generically. 29Currently, it is the Exchange’s understanding 

that several major market data vendors display and/ 

or make widely available Intraday Indicative Values 

published via the Consolidated Tape Association 

(‘‘CTA’’) or other data feeds. 30See 17 CFR 240.10A–3. 

request for redemption in the form 

required by the Fund to the Distributor 

in accordance with procedures set forth 

in the authorized participant agreement. 

Additional information regarding the 

Shares and the Fund, including 

investment strategies, risks, creation and 

redemption procedures, fees and 

expenses, portfolio holdings disclosure 

policies, distributions, taxes and reports 

to be distributed to beneficial owners of 

the Shares can be found in the 

Registration Statement or on the Web 

site for the Fund (www.iShares.com), as 

applicable. 

Availability of Information 

The Fund’s Web site, which will be 

publicly available prior to the public 

offering of Shares, will include a form 

of the prospectus for the Fund that may 

be downloaded. The Web site will 

include additional quantitative 

information updated on a daily basis, 

including, for the Fund: (1) The prior 

business day’s reported NAV, mid-point 

of the bid/ask spread at the time of 

calculation of such NAV (the ‘‘Bid/Ask 

Price’’),25 daily trading volume, and a 

calculation of the premium and 

discount of the Bid/Ask Price against 

the NAV; and (2) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the daily 

Bid/Ask Price against the NAV, within 

appropriate ranges, for each of the four 

previous calendar quarters. Daily 

trading volume information for the 

Fund will also be available in the 

financial section of newspapers, through 

subscription services such as 

Bloomberg, Thomson 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. On 

each business day, before 

commencement of trading in Shares 

during Regular Trading Hours 26 on the 

Exchange, the Fund will disclose on its 

Web site the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘Disclosed Portfolio’’) held 

by the Fund that will form the basis for 

the Fund’s calculation of NAV at the 

end of the business day.27

On 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,28 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. 

In addition, for the Fund, an 

estimated value, defined in BATS Rule 

14.11(i)(3)(C) as the ‘‘Intraday Indicative 

Value,’’ that reflects an estimated 

intraday value of the Fund’s portfolio, 

will be disseminated. Moreover, the 

Intraday Indicative Value will be based 

upon the current value for the 

components of the Disclosed Portfolio 

and 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.29 In addition, 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. 

The dissemination of the Intraday 

Indicative Value, together with the 

Disclosed Portfolio, will allow investors 

to determine the value of the underlying 

portfolio of the Fund on a daily basis 

and provide a close estimate of that 

value throughout the trading day. 

Intraday, executable price quotations 

on Fixed Income Securities and nonexchange traded derivatives, including 

non-exchange listed investment 

companies, are available from major 

broker-dealer firms and for exchangetraded assets, including exchange listed 

investment companies and futures, such 

intraday information is available 

directly from the applicable listing 

exchange. All such intraday price 

information is available through 

subscription services, such as 

Bloomberg, Thomson Reuters and 

International Data Corporation, which 

can be accessed by authorized 

participants and other investors. 

Information regarding market price 

and trading volume will be continually 

available on a real-time basis throughout 

the day on brokers’ computer screens 

and other electronic services. The 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last sale information for the Shares will 

be available on the facilities of the CTA. 

Initial and Continued Listing 

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. The Exchange 

represents that, for initial and/or 

continued listing, the Fund must be in 

compliance with Rule 10A–3 under the 

Act.30 A minimum of 100,000 Shares 

will be outstanding at the 

commencement of trading on the 

Exchange. The Exchange will obtain a 

representation from the issuer of the 

Shares that the NAV per Share will be 

calculated daily and that the NAV and 

the Disclosed Portfolio will be made 

available to all market participants at 

the same time. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund. The Exchange will halt 

trading in the Shares under the 

conditions specified in BATS Rule 

11.18. 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. Trading in the 

Shares also will be subject to Rule 

14.11(i)(4)(B)(iv), which sets forth 

circumstances under which Shares of 

the Fund may be halted. 

Trading Rules 

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. BATS will allow 

trading in the Shares from 8:00 a.m. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 591 

31For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. The 

Exchange notes that not all components of the 

Disclosed Portfolio for the Fund may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. The Exchange also 

notes that all of the investment company securities 

and futures will trade on markets that are a member 

of ISG or with which the Exchange has in place a 

comprehensive surveillance sharing agreement. 

32The Pre-Opening Session is from 8:00 a.m. to 

9:30 a.m. Eastern Time. 

33The After Hours Trading Session is from 4:00 

p.m. to 5:00 p.m. Eastern Time. 

34 15 U.S.C. 78f. 

35 15 U.S.C. 78f(b)(5). 36See supra note 31. 

until 5:00 p.m. Eastern Time. The 

Exchange has appropriate rules to 

facilitate transactions in the Shares 

during all trading sessions. As provided 

in BATS Rule 11.11(a), the minimum 

price variation for quoting and entry of 

orders in Managed Fund Shares traded 

on the Exchange is $0.01, with the 

exception of securities that are priced 

less than $1.00, for which the minimum 

price variation for order entry is 

$0.0001. 

Surveillance 

The Exchange believes that its 

surveillance procedures 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. 

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including Managed 

Fund Shares. The Exchange may obtain 

information regarding trading in the 

Shares and the underlying shares in 

exchange traded investment companies 

and futures via the Intermarket 

Surveillance Group (‘‘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.31 In 

addition, the Exchange is able to access, 

as needed, trade information for certain 

fixed income instruments reported to 

FINRA’s Trade Reporting and 

Compliance Engine (‘‘TRACE’’). The 

Exchange prohibits the distribution of 

material non-public information by its 

employees. 

Information Circular 

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: (1) The 

procedures for purchases and 

redemptions of Shares in Creation Units 

(and that Shares are not individually 

redeemable); (2) BATS Rule 3.7, which 

imposes suitability obligations on 

Exchange members with respect to 

recommending transactions in the 

Shares to customers; (3) how 

information regarding the Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (4) the risks 

involved in trading the Shares during 

the Pre-Opening 32 and After Hours 

Trading Sessions 33 when an updated 

Intraday Indicative Value will not be 

calculated or publicly disseminated; (5) 

the requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (6) trading information. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Fund. Members 

purchasing Shares from the Fund for 

resale to investors will deliver a 

prospectus to such investors. The 

Information Circular will also discuss 

any exemptive, no-action, and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

In addition, the Information Circular 

will reference that the Fund is subject 

to various fees and expenses described 

in the Registration Statement. The 

Information Circular will also disclose 

the trading hours of the Shares of the 

Fund and the applicable NAV 

Calculation Time for the Shares. The 

Information Circular will disclose that 

information about the Shares of the 

Fund will be publicly available on the 

Fund’s Web site. In addition, the 

Information Circular will reference that 

the Trust is subject to various fees and 

expenses described in the Fund’s 

Registration Statement. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act 34 in general and Section 

6(b)(5) of the Act 35 in particular in that 

it is 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 Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed and traded on the Exchange 

pursuant to the initial and continued 

listing criteria in BATS Rule 14.11(i). 

The Exchange believes that its 

surveillance procedures 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. If the 

investment adviser to the investment 

company issuing Managed Fund Shares 

is affiliated with a broker-dealer, such 

investment adviser to the investment 

company shall erect a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio. The Adviser is not a 

registered broker-dealer, but is affiliated 

with multiple broker-dealers and has 

implemented ‘‘fire walls’’ with respect 

to such broker-dealers regarding access 

to information concerning the 

composition and/or changes to the 

Fund’s portfolio. The Exchange may 

obtain information regarding trading in 

the Shares and the underlying shares in 

investment companies and futures via 

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.36

According to the Registration 

Statement, the Fund expects that it will 

have at least 80% of its assets invested 

in U.S. dollar-denominated investment 

grade Fixed Income Securities, futures, 

and swaps. The Fund’s exposure to any 

single industry will generally be limited 

to 25% of the Fund’s assets. 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 also may invest its net assets 

in money market instruments at the 

discretion of the Adviser. While the 

Fund is permitted to invest without 

restriction in corporate bonds, the 

Adviser expects that, under normal 

circumstances, the Fund will generally 

invest in corporate bond issuances that 

have at least $250 million par amount 

outstanding. The Fund will not invest in 

non-U.S. equity securities. 

The Fund may employ short positions 

primarily in U.S. Treasury futures and 

interest rate swaps in order to mitigate 

the impact of Treasury interest rates on 

the performance of the underlying 

bonds. The short positions are not 


tkelley on DSK3SPTVN1PROD with NOTICES
592 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

37See supra note 20. 

intended to mitigate other factors 

influencing the price of bonds. 

Additionally, 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. 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. 

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: 

Treasury futures, interest rate swaps, 

credit default swaps, asset-backed Fixed 

Income Securities, non-Agency 

mortgage-backed fixed-income 

securities, and structured securities in 

order to serve additional investment 

objectives of the Fund, as described 

above.37

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that the Exchange will 

obtain a representation from the issuer 

of the Shares that the NAV per Share 

will be calculated daily and that the 

NAV and the Disclosed Portfolio will be 

made available to all market 

participants at the same time. In 

addition, a large amount of information 

is publicly available regarding the Fund 

and the Shares, thereby promoting 

market transparency. Moreover, the 

Intraday Indicative Value will be 

disseminated by one or more major 

market data vendors at least every 15 

seconds during Regular Trading Hours. 

On each business day, before 

commencement of trading in Shares 

during Regular Trading Hours, the Fund 

will disclose on its Web site the 

Disclosed Portfolio that will form the 

basis for the Fund’s calculation of NAV 

at the end of the business day. Pricing 

information will be available on the 

Fund’s Web site including: (1) The prior 

business day’s reported NAV, the Bid/ 

Ask Price of the Fund, and a calculation 

of the premium and discount of the Bid/ 

Ask Price against the NAV; and (2) data 

in chart format displaying the frequency 

distribution of discounts and premiums 

of the daily Bid/Ask Price against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters. Additionally, information 

regarding market price and trading of 

the Shares will be continually available 

on a real-time basis throughout the day 

on brokers’ computer screens and other 

electronic services, and quotation and 

last sale information for the Shares will 

be available on the facilities of the CTA. 

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. Trading in Shares of the 

Fund will be halted under the 

conditions specified in BATS Rule 

11.18. Trading may also be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. Finally, trading in the 

Shares will be subject to BATS Rule 

14.11(i)(4)(B)(iv), which sets forth 

circumstances under which Shares of 

the Fund may be halted. In addition, the 

Exchange is able to access, as needed, 

trade information for certain fixed 

income instruments reported to FINRA’s 

TRACE. As noted above, investors will 

also have ready access to information 

regarding the Fund’s holdings, the 

Intraday Indicative Value, the Disclosed 

Portfolio, and quotation and last sale 

information for the Shares. 

Intraday, executable price quotations 

on Fixed Income Securities and nonexchange traded derivatives are 

available from major broker-dealer firms 

and for exchange-traded assets, 

including investment companies and 

futures, such intraday information is 

available directly from the applicable 

listing exchange. All such intraday price 

information is available through 

subscription services, such as 

Bloomberg, Thomson Reuters and 

International Data Corporation, which 

can be accessed by authorized 

participants and other investors. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of activelymanaged exchange-traded product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures relating to trading in the 

Shares and may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. In addition, as noted above, 

investors will have ready access to 

information regarding the Fund’s 

holdings, the Intraday Indicative Value, 

the Disclosed Portfolio, and quotation 

and last sale information for the Shares. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

Section 6(b)(5) of the Act. 

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 purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of an 

additional actively-managed exchangetraded product that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

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 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 593 

38 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3There is no limit on the number of Trading 

Permits that may be issued by the Exchange; 

however the Exchange has the authority to limit or 

decrease the number of Trading Permits it has 

determined to issue provided it complies with the 

provisions set forth in Rule 200(a) and Section 

6(c)(4) of the Exchange Act. See 15 U.S.C. 

78(f)(c)(4). For a complete description of MIAX 

Trading Permits, see MIAX Rule 200. 

4The monthly Trading Permit Fee is in addition 

to the one-time application fee for MIAX 

Membership. The Exchange charges a one-time 

application fee based upon the applicant’s status as 

either an Electronic Exchange Member (‘‘EEM’’) or 

as a Market Maker. Applicants for MIAX 

Membership as an EEM are assessed a one-time 

Application Fee of $2,500.00. Applicants for MIAX 

Membership as a Market Maker are assessed a onetime Application Fee of $3,000.00. The difference 

in the fee charged to EEMs and Market Makers 

reflects the additional review and processing effort 

needed for Market Maker applications. 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BATS–2014–056 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–BATS–2014–056. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room at 100 F Street NE., 

Washington, DC 20549–1090 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BATS– 

2014–056, and should be submitted on 

or before January 27, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.38

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30901 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73957; File No. SR–MIAX– 

2014–068] 

Self-Regulatory Organizations; Miami 

International Securities Exchange LLC; 

Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Its Fee Schedule 

December 30, 2014. 

Pursuant to the provisions of Section 

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on December 19, 2014, Miami 

International Securities Exchange LLC 

(‘‘MIAX’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I, II, and III below, 

which Items have been prepared by the 

Exchange. 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 is filing a proposal to 

modify the Trading Permit Fee for 

EEMs. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.miaxoptions.com/filter/

wotitle/rule_filing, at MIAX’s principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to modify its 

Monthly Trading Permit fee to increase 

the monthly Trading Permit fee that 

applies to Electronic Exchange Members 

(‘‘EEMs’’). Specifically, the Exchange 

proposes to increase the monthly 

Trading Permit fee that applies to EEMs 

to $1,500, from the current level of 

$1,000. 

The Exchange issues Trading Permits 

that confer the ability to transact on the 

Exchange.3 The Exchange assesses 

monthly fees for Trading Permits 

depending upon the category of Member 

that is issued a particular trading 

permit.4 EEMs are assessed a monthly 

fee of $1,000 for a Trading Permit. All 

Market Makers, whether they are a 

Registered Market Makers (‘‘RMMs’’), 

Lead Market Makers (‘‘LMMs’’), or 

Primary Lead Market Makers 

(‘‘PLMMs’’), are assessed $4,000.00 per 

month for a Trading Permit for an 

assignment in up to 100 option classes, 

$5,500.00 per month for a Trading 

Permit for an assignment in up to 250 

option classes, or $7,000.00 per month 

for a Trading Permit for an assignment 

in all option classes listed on the 

Exchange. 

The Exchange proposes to increase 

the monthly Trading Permit fee that 

applies to EEMs to $1,500, in order to 

increase the Exchange’s non-transaction 

fee revenues. The Exchange notes that 

the proposed monthly Trading Permit 

fees are generally lower than monthly 

trading permit fees in place at CBOE 

and the NASDAQ OMX PHLX LLC 

(‘‘PHLX’’). The $1,500 monthly Trading 

Permit fee to be assessed to EEMs is 

lower than the CBOE’s monthly 

electronic access trading permit fee 

($1,600) and the PHLX’s monthly permit 

fee for members ($2,150). 

Members receiving Trading Permits 

during the month will be assessed 

Trading Permit Fees according to the 

above schedule, except that the 

calculation of the Trading Permit fee for 

the first month in which the Trading 

Permit is issued will be pro-rated based 

on the number of trading days occurring 


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