[Federal Register Volume 82, Number 192 (Thursday, October 5, 2017)]
[Notices]
[Pages 46546-46548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21400]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81771; File No. TP 17-11]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to VanEck Vectors NDR CMG Long/
Flat Allocation ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and 
Rules 101(d) and 102(e) of Regulation M

September 29, 2017.
    By letter dated September 29, 2017 (the ``Letter''), counsel for 
VanEck Vectors ETF Trust (the ``Trust''), on behalf of the Trust, 
VanEck Vectors NDR CMG Long/Flat Allocation ETF (the ``Fund''), any 
national securities exchange on or through which shares issued by the 
Fund (``Shares'') may subsequently trade, Van Eck Securities 
Corporation (the ``Distributor''), and persons or entities engaging in 
transactions in Shares (collectively, the ``Applicants''), requested 
exemptions, or interpretive or no-action relief, from Rule 10b-17 of 
the Securities Exchange Act of 1934, as amended (the ``Exchange Act''), 
and Rules 101 and 102 of Regulation M, in connection with secondary 
market transactions in Shares and the creation or redemption of 
aggregations of Shares of at least 50,000 shares (``Creation Units'').
    The Trust is registered with the Securities and Exchange Commission 
(``Commission'') under the Investment Company Act of 1940, as amended 
(``1940 Act''), as an open-end management investment company. The Fund 
is an exchange-traded fund (``ETF'') organized as a series of the 
Trust. The Fund will seek to provide investment results that closely 
correspond, before fees and expenses, to the performance of the Ned 
Davis Research CMG US Large Cap Long/Flat Index (the ``Index'').\1\ The 
Fund intends, at least initially, to operate as an ``ETF of ETFs'' by 
seeking to track the performance of its underlying Index by holding 
shares of one or more ETFs (each, an ``Underlying ETF'') whose 
investment objective is to track the performance of the S&P 500.\2\
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    \1\ The Index is a rules-based index that follows a proprietary 
model developed by Ned Davis Research, Inc. in conjunction with 
Capital Management Group, Inc. To help limit loss associated with 
adverse market conditions, the model produces trade signals that 
dictate the Index's equity allocation ranging from 100% fully 
invested (i.e., ``long'') to 100% in cash (i.e., ``flat''). The 
Index 100% replicates the S&P 500 Index (the ``S&P 500'') when the 
Index is long and holds U.S. Treasury Bills when the Index is flat 
(i.e., it will be allocated to the Solactive 13-week U.S. T-bill 
Index). When the Index is not completely long or flat, either 80% or 
40% of it will be allocated to the S&P 500, with the remaining 
portion (20% or 60% respectively) allocated to U.S. Treasury Bills.
    \2\ The Fund will operate as an ETF of ETFs until the Fund 
reaches, in the opinion of the Investment Adviser, an adequate asset 
size. When the Fund reaches an adequate size and the Index has an 
equity allocation, the Fund will then seek to track the Index by 
investing directly in the shares of the 500 companies comprising the 
S&P 500. In the rare event the Fund does not operate as an ETF of 
ETFs for that day, the Fund will operate to meet the conditions of 
the ETF Class Relief, including the Equity ETF Class Letter. 
Applicants do not believe that either option will have an effect on 
the efficacy of the arbitrage process for the Fund.
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    In order to track the Index, the Fund will invest at least 80% of 
its total assets (but typically far more) in component securities of 
the Index (directly or by indirect investments through one or more 
Underlying ETFs). The Fund may invest the remaining 20% of its total 
assets in securities not included in the Index, money market 
instruments, including repurchase agreements or other funds which 
invest exclusively in money market instruments, convertible securities, 
structured notes, and certain derivatives, which the Investment Advisor 
believes will help the Fund track the Index. Depositary receipts not 
included in the Index may also be used by the Fund in seeking 
performance that

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corresponds to the Index.\3\ Except for the fact that the Fund will 
operate as an ETF of ETFs, the Fund will operate in a manner similar to 
the Underlying ETFs.
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    \3\ American depositary receipts not included in the Index may 
be used by the Fund in seeking performance that corresponds to the 
Index, and in managing cash flows, and may count towards compliance 
with the Fund's 80% policy.
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    The Applicants represent, among other things, the following:
    <bullet> Shares of the Fund will be issued by the Trust, an open-
end management investment company that is registered with the 
Commission;
    <bullet> Creation Units will be continuously redeemable at the net 
asset value (the ``NAV'') next determined after receipt of a request 
for redemption by the Fund,\4\ and the secondary market price of the 
Shares should not vary substantially from the NAV of such Shares;
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    \4\ The NAV of the Fund generally is determined each business 
day as of the close of trading (ordinarily 4:00 p.m., Eastern Time) 
on the New York Stock Exchange.
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    <bullet> Shares of the Fund will be listed and traded on NYSE Arca, 
Inc. or another exchange in accordance with exchange listing standards 
that are, or will become, effective pursuant to Section 19(b) of the 
Exchange Act (the ``Listing Exchange'');
    <bullet> All Underlying ETFs in which the Fund invests will either 
meet all conditions set forth in relevant class relief, will have 
received individual relief from the Commission, or will be able to rely 
upon individual relief even though they are not named parties;
    <bullet> All of the components of the Index will have publicly 
available last sale trade information;
    <bullet> The intra-day indicative value of the Fund per share and 
the intra-day value of the Index will be publicly disseminated every 15 
seconds throughout the trading day through the facilities of the 
Consolidated Tape Association;
    <bullet> On each business day before the opening of business on the 
Listing Exchange, the Fund's custodian, through the National Securities 
Clearing Corporation, will make publicly available the list of the 
names and the numbers of securities of the Fund's portfolio that will 
be applicable that day to creation and redemption requests;
    <bullet> The Listing Exchange will disseminate continuously every 
15 seconds throughout the trading day, through the facilities of the 
Consolidated Tape Association, the market value of a Share, and the 
Listing Exchange, market data vendors, or other information providers 
will disseminate, every 15 seconds throughout the trading day, a 
calculation of the intra-day indicative value of a Share;
    <bullet> The arbitrage mechanism will be facilitated by the 
transparency of the Fund's portfolio and the availability of the intra-
day indicative value, the liquidity of securities and other assets held 
by the Fund, the ability to acquire such securities, as well as the 
arbitrageurs' ability to create workable hedges;
    <bullet> The Fund will invest solely in liquid securities and 
financial instruments;
    <bullet> The Fund will invest in securities that will facilitate an 
effective and efficient arbitrage mechanism and the ability to create 
workable hedges;
    <bullet> The Applicants believe that arbitrageurs are expected to 
take advantage of price variations between the Fund's market price and 
its NAV; and
    <bullet> A close alignment between the market price of Shares and 
the Fund's NAV is expected.

Regulation M

    While redeemable securities issued by an open-end management 
investment company are excepted from the provisions of Rule 101 and 102 
of Regulation M, the Applicants may not rely upon that exception for 
the Shares.\5\ However, we find that it is appropriate in the public 
interest and is consistent with the protection of investors to grant a 
conditional exemption from Rules 101 and 102 to persons who may be 
deemed to be participating in a distribution of Shares of the Fund as 
described in more detail below.
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    \5\ While ETFs operate under exemptions from the definitions of 
``open-end company'' under Section 5(a)(1) of the 1940 Act and 
``redeemable security'' under Section 2(a)(32) of the 1940 Act, the 
Fund and its securities do not meet those definitions.
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Rule 101 of Regulation M

    Generally, Rule 101 of Regulation M is an anti-manipulation rule 
that, subject to certain exceptions, prohibits any ``distribution 
participant'' and its ``affiliated purchasers'' from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase 
any security which is the subject of a distribution until after the 
applicable restricted period, except as specifically permitted in the 
rule. Rule 100 of Regulation M defines ``distribution'' to mean any 
offering of securities that is distinguished from ordinary trading 
transactions by the magnitude of the offering and the presence of 
special selling efforts and selling methods. The provisions of Rule 101 
of Regulation M apply to underwriters, prospective underwriters, 
brokers, dealers, or other persons who have agreed to participate or 
are participating in a distribution of securities. The-Shares are in a 
continuous distribution and, as such, the restricted period in which 
distribution participants and their affiliated purchasers are 
prohibited from bidding for, purchasing, or attempting to induce others 
to bid for or purchase extends indefinitely.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company, that Creation Unit size aggregations of the Shares 
of the Fund will be continuously redeemable at the NAV next determined 
after receipt of a request for redemption by the Fund, and that a close 
alignment between the market price of Shares and the Fund's NAV is 
expected, the Commission finds that it is appropriate in the public 
interest and consistent with the protection of investors to grant the 
Trust an exemption under paragraph (d) of Rule 101 of Regulation M with 
respect to the Fund, thus permitting persons participating in a 
distribution of Shares of the Fund to bid for or purchase such Shares 
during their participation in such distribution.\6\
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    \6\ Additionally, we confirm the interpretation that a 
redemption of Creation Unit size aggregations of Shares of the Fund 
and the receipt of securities in exchange by a participant in a 
distribution of Shares of the Fund would not constitute an ``attempt 
to induce any person to bid for or purchase, a covered security 
during the applicable restricted period'' within the meaning of Rule 
101 of Regulation M and, therefore, would not violate that rule.
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Rule 102 of Regulation M

    Rule 102 of Regulation M prohibits issuers, selling security 
holders, and any affiliated purchaser of such person from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase a 
covered security during the applicable restricted period in connection 
with a distribution of securities effected by or on behalf of an issuer 
or selling security holder.
    Based on the representations and facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company, that Creation Unit size aggregations of the Shares 
of the Fund will be continuously redeemable at the NAV next determined 
after receipt of a request for redemption by the Fund, and that a close 
alignment between the market price of Shares and the Fund's NAV is 
expected, the Commission finds that it is appropriate in the public 
interest and consistent with the protection of investors to grant the 
Trust an exemption under paragraph (e) of Rule 102 of Regulation M with 
respect to the Fund, thus permitting the

[[Page 46548]]

Fund to redeem Shares of the Fund during the continuous offering of 
such Shares.

Rule 10b-17

    Rule 10b-17, with certain exceptions, requires an issuer of a class 
of publicly traded securities to give notice of certain specified 
actions (for example, a dividend distribution) relating to such class 
of securities in accordance with Rule 10b-17(b). Based on the 
representations and facts in the Letter, and subject to the conditions 
below, we find that it is appropriate in the public interest, and 
consistent with the protection of investors to grant the Trust a 
conditional exemption from Rule 10b-17 because market participants will 
receive timely notification of the existence and timing of a pending 
distribution, and thus the concerns that the Commission raised in 
adopting Rule 10b-17 will not be implicated.\7\
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    \7\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature 
of the Fund. This is because it is not possible for the Fund to 
accurately project ten days in advance what dividend, if any, would 
be paid on a particular record date. Further, the Commission finds, 
based on the Applicants' representations in the Letter, that the 
provision of notices as described in the Letter would not constitute 
a manipulative or deceptive device or contrivance comprehended 
within the purpose of Rule 10b-17.
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Conclusion

    It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that 
the Trust, based on the representations and facts presented in the 
Letter, is exempt from the requirements of Rule 101 with respect to the 
Fund, thus permitting persons who may be deemed to be participating in 
a distribution of Shares of the Fund to bid for or purchase such Shares 
during their participation in such distribution.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust, based on the representations and the facts presented in 
the Letter, is exempt from the requirements of Rule 102 with respect to 
the Fund, thus permitting the Fund to redeem Shares of the Fund during 
the continuous offering of such Shares.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, based on the representations and the facts presented in the 
Letter and subject to the conditions below, is exempt from the 
requirements of Rule 10b-17 with respect to transactions in the shares 
of the Fund.
    This exemptive relief is subject to the following conditions:
    <bullet> The Trust will comply with Rule 10b-17 except for Rule 
10b-17(b)(1)(v)(a) and (b); and
    <bullet> The Trust will provide the information required by Rule 
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable 
before trading begins on the ex-dividend date, but in no event later 
than the time when the Exchange last accepts information relating to 
distributions on the day before the ex-dividend date.
    This exemptive relief is subject to modification or revocation at 
any time the Commission determines that such action is necessary or 
appropriate in furtherance of the purposes of the Exchange Act. Persons 
relying upon this exemptive relief shall discontinue transactions 
involving the Shares of the Fund, pending presentation of the facts for 
the Commission's consideration, in the event that any material change 
occurs with respect to any of the facts or representations made by the 
Applicants and, consistent with all preceding letters, particularly 
with respect to the close alignment between the market price of Shares 
and the Fund's NAV. In addition, persons relying on this exemption are 
directed to the anti-fraud and anti-manipulation provisions of the 
Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 
thereunder.
    Responsibility for compliance with these and any other applicable 
provisions of the federal securities laws must rest with the persons 
relying on this exemption. This order should not be considered a view 
with respect to any other question that the proposed transactions may 
raise, including, but not limited to the adequacy of the disclosure 
concerning, and the applicability of other federal or state laws to, 
the proposed transactions.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(6) and (9).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21400 Filed 10-4-17; 8:45 am]
 BILLING CODE 8011-01-P