Document ID: SEC-2020-2068-0001
Agency: sec
Document Type: Notice
Title: Application: Citadel Enterprise Americas, LLC (Formerly Citadel, LLC) and CEIF, LLC
Posted Date: 2020-12-28T05:00Z

[Federal Register Volume 85, Number 248 (Monday, December 28, 2020)]
[Notices]
[Pages 84397-84403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28492]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34143; File No. 813-00397]

Citadel Enterprise Americas LLC (formerly Citadel LLC) and CEIF 
LLC; Notice of Application

    December 18, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an order under sections 6(b) and 6(e) of 
the Investment Company Act of 1940 (the ``Act'') granting an exemption 
from all provisions of the Act, except section 9 and sections 36 
through 53 and the rules and regulations under those sections. With 
respect to sections 17 and 30 of the Act, and the rules and regulations 
thereunder, and rule 38a-1 under the Act, the exemption is limited as 
set forth in the application.

Summary of Application:  Applicants request a superseding order under 
sections 6(b) and 6(e) of the Act that amends and restates an existing 
order (``Existing Order'') \1\ to exempt certain limited liability 
companies, limited partnerships, companies and other

[[Page 84398]]

investment vehicles formed for the benefit of eligible employees of 
Citadel Enterprise Americas LLC and its affiliates (``ESC Funds'') from 
certain provisions of the Act. Each ESC Fund will be an ``employees' 
securities company,'' as defined in section 2(a)(13) of the Act. The 
requested order would (i) reflect general, clarifying updates to the 
incentive program pursuant to which Eligible Employees (defined below) 
are issued unvested membership interests, (ii) to permit voluntary 
capital contributions by Eligible Employees to certain ESC Funds, and 
(iii) to clarify that Eligible Employees may continue to be issued 
interests and/or make capital contributions to the ESC Fund in which it 
is invested after such Eligible Employee's employment with Citadel has 
terminated. The terms and conditions of the application are materially 
the same as the terms and conditions of the Existing Order.
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    \1\ Citadel LLC and CEIF LLC, Investment Company Act Release 
Nos. 30589 (July 3, 2013) (notice) and 30637 (July 30, 2013) 
(order).

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Applicants:  Citadel Enterprise Americas LLC and CEIF LLC (``CEIF'').

Filing Dates:  The application was filed on December 13, 2019, and 
amended on May 7, 2020, July 10, 2020, and October 15, 2020.

Hearing or Notification of Hearing:  An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by emailing the Commission's 
Secretary at Secretarys-Office@sec.gov and serving applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on January 12, 2021, and should be 
accompanied by proof of service on applicants, in the form of an 
affidavit or, for lawyers, a certificate of service. Pursuant to rule 
0-5 under the Act, hearing requests should state the nature of the 
writer's interest, any facts bearing upon the desirability of a hearing 
on the matter, the reason for the request, and the issues contested. 
Persons who wish to be notified of a hearing may request notification 
by emailing the Commission's Secretary.

ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicants: c/o 
David Form, by email to dform@sidley.com.

FOR FURTHER INFORMATION CONTACT: Joseph Toner, Senior Counsel, at (202) 
551-7595, or David Nicolardi, Branch Chief, at (202) 551-6825 (Division 
of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or an applicant 
using the Company's name box, at http://www.sec.gov/search/search.htm 
or by calling (202) 551-8090.
Applicants' Representations:
    1. Citadel is a global financial institution with a diverse 
business platform which includes two separate and distinct unites: (i) 
A global investment firm and (ii) a global market maker. Citadel 
Enterprise Americas LLC, a Delaware limited liability company, and its 
``Affiliates,'' as defined in rule 12b-2 under the Securities Exchange 
Act of 1934 (``Exchange Act'') other than an ESC Fund are referred to 
collectively as ``Citadel'' or ``Citadel Entities.''
    2. Citadel has established CEIF, a Delaware limited liability 
company, and will establish any other ESC Funds (collectively with 
CEIF, the ``ESC Funds'' and each, an ``ESC Fund'') for the benefit of 
Eligible Employees (defined below) as part of a program to create 
capital building opportunities that are competitive with those at other 
financial services firms and to facilitate the recruitment and 
retention of high caliber professionals. Each of the ESC Funds will be 
a limited liability company, limited partnership, corporation, business 
trust or other entity organized under the laws of the state of Delaware 
or another U.S. jurisdiction. Each ESC Fund will be identical in all 
material respects (other than investment objectives and strategies, 
vesting terms, form of organization and related structural and 
operative provisions contained in the constitutive documents of such 
ESC Funds). Each ESC Fund is or will be an ``employees' security 
company'' as such term is defined in section 2(a)(13) of the Act and 
will operate as a diversified or non-diversified management investment 
company. Citadel will control the ESC Funds within the meaning of 
section 2(a)(9) of the Act.
    3. The Managing Member \2\ of each ESC Fund will be an Affiliate of 
Citadel Enterprise Americas LLC. Any member or partner of, or other 
investor in, an ESC Fund is a ``Member.'' The Managing Member of each 
ESC Fund will manage, operate and control such ESC Fund, however, it 
will be authorized to delegate investment management responsibility 
with respect to the acquisition, management and disposition of 
Portfolio Investments (defined below) to a Citadel Entity. Any Citadel 
Entity that is delegated the responsibility of making investment 
decisions for an ESC Fund will be registered as an investment adviser 
under the Investment Advisers Act of 1940 (the ``Advisers Act''), if 
required under applicable law.
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    \2\ ``Managing Member'' means an Affiliate of Citadel Enterprise 
Americas LLC that is a managing member or manager of an ESC Fund 
(there being no distinction between the obligations of a managing 
member versus a manager of an ESC Fund) or acts in a similar 
capacity and is the functional equivalent of the ESC Funds' board of 
directors.
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    4. The Managing Member, a Member, Citadel or any employees of the 
Managing Member or Citadel will be eligible to receive any 
compensation, or any performance-based fee or profits allocation (such 
as a ``carried interest'' \3\). All ESC Fund investments (which may be 
made directly or through a Citadel Third Party Fund \4\) are referred 
to as ``Portfolio Investments.''
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    \3\ A ``carried interest'' is a fee paid or allocation made to 
the Managing Member, a Member or the Citadel Entity acting as the 
investment adviser to an ESC Fund based on net gains in addition to 
the amount allocable to such entity in proportion to its invested 
capital. A Managing Member, Member or Citadel Entity that is 
registered as an investment adviser under the Advisers Act may be 
paid or allocated carried interest only if permitted by rule 205-3 
under the Advisers Act.
    \4\ ``Citadel Third Party Fund'' means an investment fund or 
separate account, organized in part for the benefit of investors who 
are not Affiliates of Citadel, over which a Citadel Affiliate 
exercises investment discretion.
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    5. Interests in an ESC Fund will be issued without registration in 
transactions under a claim of exemption pursuant to section 4(a)(2) of 
the Securities Act of 1933 (the ``Securities Act''), Regulation D and/
or Regulation S \5\ and may be acquired only by (i) ``Eligible 
Employees'' or (ii) at the request of Eligible Employees and in the 
discretion of the Managing Member of an ESC Fund, by Qualified 
Participants (defined below) of such Eligible Employees. Prior to 
issuing Interests (defined below) to an Eligible Employee or a 
Qualified Investment Vehicle (defined below) or prior to permitting an 
Eligible Employee or a Qualified Investment Vehicle to make an 
additional capital contribution, the Managing Member must reasonably 
believe that each Eligible Employee (or the Eligible Employee relating 
to the Qualified Investment Vehicle) is a sophisticated investor 
capable of understanding and evaluating the risks of participation in 
an ESC Fund (or class thereof) without the benefit of regulatory 
safeguards.
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    \5\ An offer may be made pursuant to Regulation S to Eligible 
Employees who are not U.S. residents.
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    6. An ``Eligible Employee'' is an individual who is (i) a current 
or former employee, officer or partner of Citadel or a director of 
Citadel that is an ``interested person'' (as defined in Section 
2(a)(19) of the Act) of Citadel

[[Page 84399]]

and (ii) meets the standards of an ``accredited investor'' under rule 
501(a)(5) or (6) of Regulation D (``Accredited Investor''). A 
``Qualified Participant'' is an entity that (i) is a Qualified 
Investment Vehicle and (ii) if such entity is purchasing an Interest 
directly from an ESC Fund, comes within one of the categories of an 
``accredited investor'' under rule 501(a) of Regulation D. A 
``Qualified Investment Vehicle'' is (a) a trust of which the trustee, 
grantor and/or beneficiary is an Eligible Employee and over which the 
Eligible Employee or their designee exercises investment discretion, or 
(b) a partnership, corporation or other entity controlled by an 
Eligible Employee. Eligible Employees and/or their Qualified Investment 
Vehicle that are not accredited investors will not be permitted to 
invest in an ESC Fund.
    7. The terms of an ESC Fund will be fully disclosed to each 
Eligible Employee and, if applicable, a Qualified Participant, prior to 
the time such Eligible Employee is admitted to the ESC Fund. Each 
Eligible Employee and Qualified Participant will be furnished with the 
offering documents, including a copy of the operating agreement or 
other organizational documents (``Operating Agreement'') for the 
relevant ESC Fund. The Managing Member of each ESC Fund will send to 
each person who was a Member having an Interest in the ESC Fund at any 
time during the fiscal year then ended (except for the first year of 
operations of an ESC Fund if no investment activities took place in 
such fiscal year), audited financial statements with respect to those 
ESC Funds in which the Member held Interests within 120 days after the 
end of the fiscal year, or as soon as practicable thereafter. For 
purposes of this requirement ``audit'' shall have the meaning defined 
in rule 1-02(d) of Regulation S-X. In addition, as soon as practicable 
after the end of each tax year of an ESC Fund, a report will be 
transmitted to each Member showing such Member's share of income, 
gains, losses, credits, deductions, and other tax items for U.S. 
federal income tax purposes, resulting from such ESC Fund's operations 
during that year.
    8. Interests in each ESC Fund will be non-transferable except (i) 
to the extent cancelled or (ii) with the prior written consent of the 
Managing Member, and, in any event, no person or entity will be 
admitted into an ESC Fund as a Member unless such person or entity is 
(a) an Eligible Employee, (b) a Qualified Participant of an Eligible 
Employee, or (c) a Citadel Entity, including Citadel Enterprise 
Americas LLC. Interests in these ESC Funds will be issued without a 
sales load or similar fee.
    9. Ownership interests (``Interests'') in an ESC Fund may be 
acquired on a voluntary basis or through an incentive program pursuant 
to which incentive awards of cash and/or unvested membership interests 
are issued to Eligible Employees (the ``Program''). Interests in a 
``Program ESC Fund'' may be acquired (i) through the Program or (ii) to 
the extent permitted by the Managing Member, by voluntary capital 
contributions from an Eligible Employee. Pursuant to the Program, 
Eligible Employees may be issued incentive awards on the basis of, 
among other things, personal performance and/or firm-wide or relevant 
team performance results. An Eligible Employee may voluntarily acquire 
an Interest in a non-Program ESC Fund or, to the extent permitted by 
the Managing Member, in a Program ESC Fund. To the extent permitted by 
the Managing Member, an Eligible Employee and/or its Qualified 
Participant may be issued additional Interests (whether vested or 
unvested) and/or may make additional capital contributions to the ESC 
Fund in which it is invested after such Eligible Employee's employment 
with Citadel has terminated.
    10. Both Program ESC Funds and non-Program ESC Funds may be offered 
as part of an investment program that includes vesting and cancellation 
provisions. In such circumstances, some or all of an Eligible 
Employee's Interest at the commencement of the investment program will 
be treated as being ``unvested,'' and ``vesting'' will occur only as 
certain conditions are satisfied under the terms of the investment 
program. The portion of an Eligible Employee's Interest that is 
``unvested'' at the time of termination of such Eligible Employee's 
employment by Citadel may be subject to (a) cancellation and/or (b) the 
imposition of different terms and conditions, which would be described 
in the Operating Agreement and/or offering documents of the relevant 
ESC Fund and/or in other written correspondence issued to such Eligible 
Employee.
    11. With respect to Program ESC Funds, a Member will become vested 
in his/her unvested membership interests if (a) he/she remains employed 
by Citadel through a specified date (the ``Determination Date'') and 
he/she has satisfied, among other things, all of the certain applicable 
conditions (including non-competition, non-solicitation, non-disclosure 
and notice conditions) imposed on him/her throughout his/her employment 
up to the specified date or (b) in the case of certain specified 
Eligible Employees, he/she ceases to be employed by Citadel prior to 
the specified date but he/she has satisfied, among other things, all of 
the conditions, if any, imposed on him/her during his/her employment 
with Citadel and through any applicable post-employment period and 
affirms his/her compliance with the conditions, as applicable. Non-
Program ESC Funds may or may not provide for vesting provisions. An 
Eligible Employee that purchases an Interest in a non-Program ESC Fund 
or makes a voluntary capital contribution to a Program ESC Fund will 
immediately vest in the portion of the Interest in such ESC Fund 
attributable to such purchase or contribution.
    12. With respect to a non-Program ESC Fund that does not provide 
for vesting provisions, an Eligible Employee's entire Interest may be 
subject to repurchase by the Managing Member and/or the imposition of 
different terms and conditions upon termination of such Eligible 
Employee's employment by Citadel, as described in the Operating 
Agreement and/or offering documents related to the relevant ESC Fund 
and/or in other written correspondence issued to such Eligible 
Employee. Upon any repurchase of an Eligible Employee's vested 
membership interest, the Managing Member will at a minimum pay to the 
Eligible Employee the lesser of (a) the amount actually paid by the 
Eligible Employee to acquire the vested membership interest plus 
interest, provided that any prior distributions are subtracted from 
such combined amount, and (b) the fair market value of such vested 
membership interest as determined at the time of repurchase by the 
Managing Member in accordance with the relevant ESC Fund's valuation 
policies and procedures. The terms of any repurchase or cancellation of 
Interests will apply equally to any Eligible Employee and any Qualified 
Participant of such Eligible Employee.
    13. With respect to Program ESC Funds, a Member who remains 
employed by Citadel may make a request to defer redemption of its 
unvested membership interests from the relevant Program ESC Fund beyond 
the relevant Determination Date, subject to approval by Citadel. If a 
Member does not make such a request, or Citadel does not approve such 
request, that portion of a Member's Interest attributable to such 
unvested membership interests will be mandatorily redeemed as soon as 
reasonably practicable following the

[[Page 84400]]

relevant Determination Date.\6\ Citadel will endeavor to treat Members 
consistently in making the determination to approve such requests. A 
vested membership interest in a Program ESC Fund (including a vested 
membership interest received in respect of a voluntary capital 
contribution to such Program ESC Fund by an Eligible Employee) may be 
redeemed as of any calendar quarter-end upon not less than seventy 
days' prior written notice or according to such other terms as may be 
described in such Program ESC Fund's Operating Agreement and/or 
offering documents or election form, subject to the availability of 
liquidity (including suspensions on withdrawals) in respect of the 
Citadel Third Party Funds in which the relevant Participation Points 
ESC Fund is invested.
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    \6\ In the event of such a mandatory redemption, subject to the 
availability of liquidity (including suspensions on withdrawals) in 
respect of the Citadel Third Party Funds in which the relevant 
Program ESC Fund is invested, the balance of such Member's capital 
account in such Program ESC Fund relating to such redeemed Interest, 
as adjusted through the date of such redemption, will be distributed 
to such Member.
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    14. Subject to the terms of the applicable Operating Agreement and/
or offering documents, an ESC Fund will be permitted to enter into 
transactions involving (i) a Citadel Entity, (ii) any Member or person 
or entity affiliated with a Member or (iii) a Citadel Third Party Fund. 
Prior to entering into any of these transactions, the Managing Member 
will make the findings required in Condition 1 below. A Citadel Entity 
(including the Managing Member) also may provide a full range of 
financial, asset management or other services, and may also provide 
financing in the form of debt, equity or other financial instruments, 
and receive fees or other compensation and expense reimbursement in 
connection therewith, from entities in which an ESC Fund (directly or 
indirectly) makes an investment, from competitors of such entities or 
from other unaffiliated persons or entities.
    15. The investment objective of each ESC Fund and whether it will 
operate as a diversified or non-diversified and open-end or closed-end 
registered investment vehicle may vary from ESC Fund to ESC Fund, and 
will be set forth in the offering documents relating to the specific 
ESC Funds. Each ESC Fund (directly or indirectly through its 
investments in Citadel Third Party Funds) may engage in various 
investment strategies implemented by Citadel in markets around the 
world. An ESC Fund may invest directly in securities (including 
exchange-traded funds, mutual funds and index funds) and similar 
investments and/or may invest all or substantially all of its assets in 
Citadel Third Party Funds.\7\ An ESC Fund will not acquire any security 
issued by a registered investment company if immediately after the 
acquisition such ESC Fund will own more than 3% of the outstanding 
voting stock of the registered investment company.
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    \7\ Applicants are not requesting any exemption from any 
provision of the Act or any rule thereunder that may govern the 
eligibility of an ESC Fund to invest in an entity relying on section 
3(c)(1) or 3(c)(7) of the Act or any such entity's status under the 
Act.
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    16. The offering documents will set forth, if applicable, whether 
the Managing Manager or a Citadel Entity will make any capital 
contributions or loans to such ESC Fund, and, if so, the terms 
applicable to the Managing Member's or the Citadel Entity's investment 
in such ESC Fund or its extension of credit to such ESC Fund, provided 
that the interest rate applicable to any such loan made to an ESC Fund 
will be no less favorable to such ESC Fund than the rate obtainable in 
an arm's-length transaction, provided, further, that any indebtedness 
of such ESC Fund will be the debt of such ESC Fund and without recourse 
to the Members. An Eligible Employee will not borrow from any person if 
such borrowing would cause any person not named in section 2(a)(13) of 
the Act to own outstanding securities of an ESC Fund (other than short-
term paper). No ESC Fund will borrow from any person if the borrowing 
would cause any person not named in section 2(a)(13) of the Act to own 
outstanding securities of the ESC Fund (other than short-term paper).

Applicants' Legal Analysis: 1. Section 6(b) of the Act provides, in 
part, that the Commission will exempt employees' securities companies 
from the provisions of the Act to the extent that the exemption is 
consistent with the protection of investors. Section 6(b) provides that 
the Commission will consider, in determining the provisions of the Act 
from which the employees' securities companies should be exempt, the 
company's form of organization and capital structure, the persons 
owning and controlling its securities, the price of the company's 
securities and the amount of any sales load, how the company's funds 
are invested, and the relationship between the company and the issuers 
of the securities in which it invests. Section 2(a)(13) defines an 
employees' securities company, in relevant part, as any investment 
company all of whose securities (other than short-term paper) are 
beneficially owned (a) by current or former employees, or persons on 
retainer, of one or more affiliated employers, (b) by immediate family 
members of such persons, or (c) by such employer or employers together 
with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that the 
Commission may determine as necessary or appropriate in the public 
interest or for the protection of investors that, in connection with 
any order exempting an investment company from section 7 of the Act, 
certain provisions of the Act will be applicable to such investment 
company and to other persons in their transactions and relations with 
such investment company, as though such investment company were a 
registered investment company. Applicants request an order under 
sections 6(b) and 6(e) of the Act that amends and restates the Existing 
Order exempting the Applicants and any ESC Funds from all provisions of 
the Act, except section 9 and sections 36 through 53, and the rules and 
regulations under the Act. With respect to sections 17 and 30 of the 
Act, and the rules and regulations thereunder, and rule 38a-1 under the 
Act, the exemption is limited as set forth in the application.
    3. Section 17(a) of the Act, among other things, generally 
prohibits any affiliated person of a registered investment company, or 
any affiliated person of an affiliated person, acting as principal, 
from knowingly selling or purchasing any security or other property to 
or from the investment company. Applicants request an exemption from 
section 17(a) to the extent necessary to: (a) Permit a Citadel Entity 
or a Citadel Third Party Fund (or any affiliated person of such Citadel 
Entity or Citadel Third Party Fund), or any affiliated person of an ESC 
Fund (or affiliated persons of such persons) acting as principal, to 
engage in any transaction directly or indirectly with any ESC Fund or 
any company controlled by such ESC Fund; and (b) permit any ESC Fund to 
invest in or engage in any transaction with any Citadel Entity or 
Citadel Third Party Fund, acting as principal: (i) in which such ESC 
Fund, any company controlled by such ESC Fund or any Citadel Entity or 
Citadel Third Party Fund has invested or will invest; or (ii) with 
which such ESC Fund, any company controlled by such ESC Fund or any 
Citadel Entity or Citadel Third

[[Page 84401]]

Party Fund is or will otherwise become affiliated.
    4. Applicants submit that an exemption from section 17(a) is 
consistent with the purposes of each ESC Fund and the protection of 
investors, and is necessary to promote the basic purpose of such ESC 
Fund. Applicants state that the Members of each ESC Fund will be fully 
informed of the possible extent of such ESC Fund's dealings with 
Citadel and of the potential conflicts of interest that may exist, and, 
as professionals with experience in investing, financial planning, 
securities brokerage, investment banking, asset management, business 
operations, banking, cash management or trust services or other similar 
areas, or in administrative, financial, tax, legal, accounting or 
operational activities related thereto, will be able to understand and 
evaluate the attendant risks. Applicants assert that the community of 
interest among the Members in each ESC Fund and Citadel is the best 
insurance against any risk of abuse.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, from 
participating in any joint enterprise or joint arrangement with the 
company unless authorized by the Commission. Applicants request relief 
to the extent necessary to permit affiliated persons of each ESC Fund 
(including the Managing Member, Citadel, and/or a Citadel Third Party 
Fund), or affiliated persons of any of these persons to participate in, 
or effect any transaction in connection with, any joint enterprise or 
other joint arrangement or profit-sharing plan in which an ESC Fund or 
a company controlled by such ESC Fund is a participant.
    6. Applicants assert that compliance with section 17(d) would cause 
an ESC Fund to forego investment opportunities simply because a Member 
in an ESC Fund or any other affiliated person of such ESC Fund (or any 
affiliate of such a person) also had, or contemplated making, a similar 
investment. Applicants also submit that co-investment opportunities 
with Citadel are advantageous to Eligible Employees because (a) the 
resources of Citadel enable it to analyze investment opportunities to 
an extent that Eligible Employees would have neither the time nor 
resources to duplicate, (b) investments made by Citadel will not be 
generally available to investors even if the financial status of the 
Eligible Employees would enable them to otherwise participate in such 
opportunities, and (c) Eligible Employees will be able to pool their 
resources in co-investments, thus achieving greater diversification of 
their individual portfolios. Applicants note that each ESC Fund will 
primarily be organized for the benefit of Eligible Employees as an 
incentive for them to remain with Citadel and for the generation and 
maintenance of goodwill through an investment in Citadel Third Party 
Funds. Applicants assert that the flexibility to structure co-
investments and joint investments as described in the application will 
not involve abuses of the type section 17(d) and rule 17d-1 were 
designed to prevent.
    7. All side-by-side investments held by Citadel Entities will be 
subject to the restrictions contained in Condition 3 except for side-
by-side investments held by a Citadel Third Party Fund, or by a Citadel 
Entity in a transaction in which the Citadel investment was made 
pursuant to a contractual obligation to a Citadel Third Party Fund.\8\ 
Applicants note that Citadel is likely to invest a portion of its own 
capital in Citadel Third Party Fund investments or on a side-by-side 
basis (which Citadel investments will be subject to substantially the 
same terms as those applicable to such Citadel Third Party Fund, except 
as otherwise disclosed in the offering documents and/or Operating 
Agreement of the relevant ESC Fund). In addition, applicants assert 
that the relationship of an ESC Fund to a Citadel Third Party Fund is 
fundamentally different from such ESC Fund's relationship to Citadel. 
Applicants contend that the focus of, and the rationale for, the 
protections contained in the requested relief are to protect the ESC 
Funds from any overreaching by Citadel in the employer/employee 
context, whereas the same concerns are not present with respect to the 
ESC Funds vis-[agrave]-vis the investors in a Citadel Third Party Fund.
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    \8\ Such Citadel investment will only be exempt from Condition 3 
to the extent that the investment was necessitated by the 
contractual obligation to the Citadel Third Party Fund.
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    8. Section 17(f) of the Act designates the entities that may act as 
investment company custodians, and rule 17f-1 under the Act imposes 
certain requirements when the custodian is a member of a national 
securities exchange. Applicants request an exemption from section 17(f) 
and rule 17f-1 to the extent necessary to permit a Citadel Entity to 
act as custodian without a written contract because there will be such 
a close association between each ESC Fund and Citadel that requiring a 
detailed written contract would expose the ESC Funds to unnecessary 
burden and expense. Applicants also request an exemption from the rule 
17f-1(b)(4) requirement that an independent accountant periodically 
verify the assets held by the custodian as Applicants do not believe 
the expense of such verifications is warranted given the community of 
interest of all the parties involved and the existing requirement for 
an independent audit, compliance with the rule's requirement would be 
unnecessary. Except as requested, each ESC Fund will otherwise comply 
with the provisions of rule 17f-1.
    9. Applicants also request an exemption from section 17(f) and rule 
17f-2 to permit the following exceptions from the requirements of rule 
17f-2: (a) An ESC Fund's investments may be kept in the locked files of 
the Managing Member (or a Citadel Entity) for purposes of paragraph (b) 
of the rule; (b) for purposes of paragraph (d) of the rule, (i) 
employees of the Managing Member (or a Citadel Entity) will be deemed 
to be employees of the ESC Funds, (ii) officers or managers of the 
Managing Member of an ESC Fund (or a Citadel Entity) will be deemed to 
be officers of the ESC Fund, and (iii) the Managing Member will be 
deemed to be the board of directors of the ESC Fund; and (c) in place 
of the verification procedure under paragraph (f) of the rule, 
verification will be effected quarterly by two high level employees of 
the Managing Member (or another Citadel Entity), each of whom is a 
member of the administrative, legal, and/or compliance function for 
Citadel and has specific knowledge of the custody requirements, 
policies, and procedures of the ESC Funds. Applicants expect that with 
respect to certain ESC Funds, most of their investments may be 
evidenced only by partnership agreements, participation agreements or 
similar documents, rather than by negotiable certificates that could be 
misappropriated. Applicants believe that, for such an ESC Fund, these 
instruments are most suitably kept in the locked files of the Managing 
Member (or a Citadel Entity), where they can be referred to as 
necessary. Applicants will comply with all other provisions of rule 
17f-2, including the recordkeeping requirements of paragraph (e).
    10. Section 17(g) of the Act and rule 17g-1 under the Act generally 
require the bonding of officers and employees of a registered 
investment company who have access to its securities or funds. Rule 
17g-1 requires that a majority of directors who are not interested 
persons

[[Page 84402]]

take certain actions and give certain approvals relating to fidelity 
bonding. Applicants request an exemption to permit the Managing Member, 
regardless of whether it is deemed an interested person of the ESC 
Funds, to take actions and make determinations set forth in the rule. 
Applicants state that the ESC Funds are unable to comply with Rule 17g-
1 because the ESC Funds will not have boards of directors and the 
Managing Member of the ESC Fund will be an interested person of the ESC 
Funds. Applicants also state that the ESC Funds will comply with all 
other requirements of rule 17g-1, except that the Applicants request an 
exemption from the requirements of paragraphs (g) and (h) of rule 17g-1 
(relating to the filing of copies of fidelity bonds and related 
information with the Commission and relating to the provision of 
notices to the board of directors), and an exemption from the 
requirements of paragraph (j)(3) of rule 17g-1 that the ESCs comply 
with the fund governance standards defined in rule 0-1(a)(7).
    11. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act make it unlawful for certain enumerated persons to engage in 
fraudulent or deceptive practices in connection with the purchase or 
sale of a security held or to be acquired by a registered investment 
company. Rule 17j-1 also requires that every registered investment 
company adopt a written code of ethics and that every access person of 
a registered investment company report personal securities 
transactions. Applicants request an exemption from the provisions of 
rule 17j-1, except for the anti-fraud provisions of paragraph (b), 
because they are unnecessary and burdensome as applied to the ESC 
Funds.
    12. Applicants request an exemption from the requirements in 
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those 
sections, that registered investment companies prepare and file with 
the Commission and mail to their shareholders certain periodic reports 
and financial statements. Applicants contend that the forms prescribed 
by the Commission for periodic reports have little relevance to an ESC 
Fund and would entail administrative and legal costs that outweigh any 
benefit to the Members of such ESC Fund. Applicants request exemptive 
relief to the extent necessary to permit each ESC Fund to report 
annually to its Members. Applicants also request an exemption from 
section 30(h) of the Act to the extent necessary to exempt the Managing 
Member of each ESC Fund, directors and officers of the Managing Member 
and any other persons who may be deemed to be members of an advisory 
board or an investment adviser (and affiliated persons thereof) of such 
ESC Fund from filing Forms 3, 4, and 5 under section 16 of the Exchange 
Act with respect to such ESC Fund. Applicants assert that, because 
there will be no trading market and the transfers of Interests will be 
severely restricted, these filings are unnecessary for the protection 
of investors and burdensome to those required to make them.
    13. Rule 38a-1 requires investment companies to adopt, implement 
and periodically review written policies and procedures reasonably 
designed to prevent violation of the federal securities laws and to 
appoint a chief compliance officer. Each ESC Fund will comply will rule 
38a-1(a), (c) and (d), except that (a) because the ESC Funds do not 
have a board of directors, the Managing Member will fulfill the 
responsibilities assigned to a board of directors under the rule, (b) 
because the Managing Member does not have any disinterested members, 
approval by a majority of the disinterested board members required by 
rule 38a-1 will not be obtained, and (c) because the ESC Funds do not 
have any independent directors, the ESC Funds will comply with the 
requirement in rule 38a-1(a)(4)(iv) that the chief compliance officer 
meet with the independent directors by having the chief compliance 
officer meet with the Managing Member. Each ESC Fund has adopted 
written policies and procedures reasonably designed to prevent 
violations of the terms and conditions of the application and appointed 
a chief compliance officer.

Applicants' Conditions: Applicants agree that any order granting the 
requested relief will be subject to the following conditions:
    1. Each proposed Section 17 Transaction \9\ will be effected only 
if the Managing Member determines that:
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    \9\ ``Section 17 Transaction'' means a transaction that is 
otherwise prohibited by section 17(a), section 17(d) and/or rule 
17d-1 under the Act to which an ESC Fund is a party.
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    (a) the terms of the Section 17 Transaction, including the 
consideration to be paid or received, are fair and reasonable to the 
Members of the ESC Fund and do not involve overreaching of the ESC Fund 
or its Members on the part of any person concerned; and
    (b) the Section 17 Transaction is consistent with the interests of 
the Members of the ESC Fund, the ESC Fund's organizational documents 
and the ESC Fund's reports to its Members.
    (b) the Section 17 Transaction is consistent with the interests of 
the Memberws of the ESC Fund, the ESC Fund's organizational documents 
and the ESC Fund's reports to its Members.
    In addition, the Managing Member will record and will preserve a 
description of all Section 17 Transactions, the Managing Member's 
findings, the information or materials upon which the findings are 
based and the basis for the findings. All such records will be 
maintained for the life of the ESC Fund and at least six years 
thereafter, and will be subject to examination by the Commission and 
its staff. Each ESC Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place for 
at least the first two years.
    2. The Managing Member will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
prior to the consummation of any Section 17 Transaction, with respect 
to the possible involvement in the transaction of any affiliated person 
or promoter of or principal underwriter for any ESC Fund, or any 
``affiliated person'' of such an ``affiliated person,'' promoter or 
principal underwriter.
    3. The Managing Member of each ESC Fund will not cause any of the 
funds of the ESC Fund to be invested in any investment in which a Co-
Investor \10\ has acquired or proposes to acquire the same class of 
securities of the same issuer and where the investment involves a joint 
enterprise or other joint arrangement within the meaning of rule 17d-1 
in which the ESC Fund and the Co-Investor are participants, unless 
prior to such investment any such Co-Investor, prior to disposing of 
all or part of its investment: agrees to (a) give the Managing Member 
sufficient, but not less than one day's notice of its intent to dispose 
of its investment; and (b) refrain from disposing of its investment 
unless the ESC Fund has the opportunity to dispose of its investment 
prior to or concurrently with, and on the same terms as, and pro rata 
with, the Co-Investor.
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    \10\ ``Co-Investor'' means with respect to any ESC Fund, any 
person who is: (a) An ``affiliated person'' (as defined in section 
2(a)(3) of the Act) of the ESC Fund (other than a Citadel Third 
Party Fund); (b) a Citadel Entity; (c) an officer, director or 
partner of a Citadel Entity; or (d) an entity (other than a Citadel 
Third Party Fund) for which the Managing Member or an Affiliate acts 
as a managing member or in a similar capacity so as to control the 
sale or other disposition of the entity's investments.
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    The restrictions contained in this condition, however, shall not be

[[Page 84403]]

deemed to limit or prevent the disposition of an investment by a Co-
Investor:
    (a) To its direct or indirect wholly-owned subsidiary, to a Parent 
\11\ of which the Co-Investor is a direct or indirect wholly-owned 
subsidiary or to a direct or indirect wholly-owned subsidiary of such 
Parent;
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    \11\ ``Parent'' means any company of which an entity is a direct 
or indirect wholly-owned subsidiary.
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    (b) to immediate family members of the Co-Investor or to a trust or 
other investment vehicle established for any such family member; and
    (c) when the investment is comprised of securities that are (i) 
listed on any exchange registered as a national exchange under section 
6 of the Exchange Act; (ii) NMS stocks, pursuant to section 11A(a)(2) 
of the Exchange Act and rule 600(a) of Regulation NMS thereunder; (iii) 
government securities as defined in section 2(a)(16) of the Act, or 
(iv) listed or traded on any foreign securities exchange or board of 
trade that satisfies regulatory requirements under the law of the 
jurisdiction in which such foreign securities exchange or board of 
trade is organized similar to those that apply to a national securities 
exchange or a national market system for securities.
    4. Each ESC Fund and its Managing Member will maintain and 
preserve, for the life of such ESC Fund and at least six years 
thereafter, such accounts, books, and other documents as constitute the 
record forming the basis for the audited financial statements that are 
to be provided to the Members of such ESC Fund, and each annual report 
of such ESC Fund required to be sent to such Members, and agree that 
all such records will be subject to examination by the Commission and 
its staff. Each ESC Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place for 
the first two years after the life of such ESC Fund.
    5. Within 120 days after the end of the fiscal year of each ESC 
Fund, or as soon as practicable thereafter, the Managing Member of each 
ESC Fund will send to each person who was a Member having an Interest 
in the ESC Fund at any time during the fiscal year then ended (except 
for the first fiscal year of operations of an ESC Fund if no investment 
activities took place in such fiscal year), audited financial 
statements with respect to those ESC Funds in which the Member held 
Interests. At the end of each fiscal year, the Managing Member will 
make a valuation or have a valuation made of all of the assets of the 
ESC Fund as of such fiscal year end in a manner consistent with 
customary practice with respect to the valuation of assets of the kind 
held by the ESC Fund. In addition, within 120 days after the end of 
each fiscal year of each ESC Fund or as soon as practicable thereafter, 
the Managing Member will send a report to each person who was a Member 
at any time during the fiscal year then ended, setting forth such tax 
information as shall be necessary for the preparation by the Member of 
his, her or its U.S. federal and state income tax returns and a report 
of the investment activities of the ESC Fund during that fiscal year.
    6. If an ESC Fund makes purchases from, or sales to, an entity 
affiliated with the ESC Fund by reason of an officer, director or 
employee of Citadel (a) serving as an officer, director, managing 
member, general partner or investment adviser of the entity, or (b) 
having a 5% or more investment in the entity, such individual will not 
participate in the ESC Fund's determination of whether or not to effect 
the purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28492 Filed 12-23-20; 8:45 am]
BILLING CODE 8011-01-P