Document ID: SEC-2014-1398-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-08-18T04:00Z

[Federal Register Volume 79, Number 159 (Monday, August 18, 2014)]
[Notices]
[Pages 48809-48811]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19477]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72821; File No. SR-BATS-2014-031]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Reflect 
Changes to the Means of Achieving the Investment Objective Applicable 
to the iShares Short Maturity Bond Fund

August 12, 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 August 4, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to reflect changes to the means of 
achieving the investment objective applicable to the iShares Short 
Maturity Bond Fund (the ``Fund''). The shares of the Fund are currently 
listed and traded on the Exchange under BATS Rule 14.11(i).
    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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved listing and trading on the Exchange of 
shares of the Fund (``Shares''), which are offered by the iShares U.S. 
ETF Trust (the ``Trust''),\3\ under BATS Rule 14.11(i), which governs 
the listing of Managed Fund Shares. The Shares are currently listed and 
traded on the Exchange under BATS Rule 14.11(i).
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    \3\ See Securities Exchange Act Release No. 67894 (September 20, 
2012), 77 FR 59227 (September 26, 2012) (SR-BATS-2012-033 Amendment 
No. 1) (the ``Prior Filing'').
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    The Shares are 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\ BlackRock Fund 
Advisors is the investment adviser (``BFA'' or ``Adviser'') to the 
Fund.\5\ BlackRock Financial Management, Inc. serves as sub-adviser for 
the Fund (``Sub-Adviser'').\6\ 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.
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    \4\ See Registration Statement on Form N-1A for the Trust, dated 
March 1, 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).
    \5\ BlackRock Fund Advisors is an indirect wholly owned 
subsidiary of BlackRock, Inc.
    \6\ The Adviser manages the Fund's investments and its business 
operations subject to the oversight of the Board of Trustees of the 
Trust (the ``Board''). While BFA is ultimately responsible for the 
management of the Fund, it is able to draw upon the trading, 
research and expertise of its asset management affiliates for 
portfolio decisions and management with respect to portfolio 
securities. The Adviser also has ongoing oversight responsibility. 
The Sub-Adviser, subject to the supervision and oversight of the 
Adviser and the Board, is responsible for day-to-day management of 
the Fund and, as such, typically makes all decisions with respect to 
portfolio holdings.

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[[Page 48810]]

    The Exchange proposes to make the following change, described 
below, to the investment strategy the Sub-Adviser will use to obtain 
the Fund's investment objective (the ``Proposed Amendment'').\7\ The 
Prior Filing stated that the Fund will not invest in swap agreements, 
futures contracts, or option contracts (``Derivatives''), pursuant to 
the Exemptive Order. However, on December 6, 2012, the Office of 
Exemptive Applications/Office of Investment Company Regulation, 
Division of Investment Management, issued an announcement stating that 
they would not recommend enforcement action to the Commission if 
actively-managed ETFs such as the Fund invested in swap agreements, 
futures contracts, or option contracts. Consequently, going forward, 
while the Fund will continue to invest in the manner described in the 
Prior Filing, the Fund is proposing to also be allowed to invest in 
Derivatives. Specifically, the Fund proposes that it may, to a limited 
extent (under normal circumstances, less than 20% of the Fund's net 
assets), engage in transactions in futures contracts and swaps.\8\
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    \7\ The Proposed Amendment described herein will be effective 
upon filing with the Commission of an amendment to the Trust's 
Registration Statement or supplement thereto. See supra note 4. The 
Adviser represents that the Adviser and the Sub-Adviser have managed 
and will continue to manage the Fund in the manner described in the 
Prior Filing and the Fund will not implement the Proposed Amendment 
described herein until the instant proposed rule change is 
operative.
    \8\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. The Fund proposes to 
invest in interest rate futures (and may reference interest rates or 
prices of Eurodollars, US federal funds, or Treasury bonds or notes) 
and fixed-for-floating interest rate swaps, in each case, to manage 
the Fund's interest rate exposure. The Fund will invest only in 
futures contracts that are traded on an exchange that is a member of 
the Intermarket Surveillance Group (``ISG'') or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement. The Derivatives will be exchange traded and/or centrally 
cleared, and they will be collateralized. Derivatives are not a 
principal investment strategy of the Fund.
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    The Exchange notes that the Commission has approved similar 
representations relating to issues of Managed Fund Shares proposed to 
be listed and traded both on the Exchange and on other Exchanges.\9\
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    \9\ See, e.g., Securities Exchange Act Release Nos. 70986 
(December 4, 2013), 78 FR 74212 (December 10, 2013) (SR-BATS-2013-
051) (order approving listing and trading on the Exchange of the 
iShares Liquidity Income Fund); 70773 (October 30, 2013), 78 FR 
66409 (November 5, 2013) (SR-NYSEArca-2013-86) (order approving 
listing and trading on NYSE Arca, Inc. of the Franklin Short 
Duration U.S. Government ETF); and 70282 (August 29, 2013), 78 FR 
54700 (September 5, 2013) (SR-NYSEArca-2013-70) (order approving 
listing and trading on NYSE Arca, Inc. of First Trust Inflation 
Managed Fund).
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    The value of the securities and other assets held by the Fund will 
be determined pursuant to valuation policies and procedures approved by 
the Board. Futures contracts, including U.S. Treasury futures 
contracts, will be valued at their last sale price or settlement price 
as of the close of such exchange. Interest rate swaps are generally 
valued by pricing services by calculating the new present value of 
future cash flows according to the terms of the swap agreement. The 
future cash flows are based on the difference between the agreed fixed 
rate and estimated level of a defined floating rate on the specified 
reset date.
    Intraday price quotations in swaps of the type proposed to be held 
by the Fund are available from major broker-dealer firms and from 
third-parties. Intraday, executable price quotations on futures are 
available directly from the applicable listing exchange. All such 
intraday price information is also available through subscription 
services, such as Bloomberg, Thomson Reuters and International Data 
Corporation, which can be accessed by authorized participants and other 
investors.
    The Adviser represents that there is no change to the Fund's 
investment objective. The Fund will continue to comply with all initial 
and continued listing requirements under BATS Rule 14.11(i). Except for 
the changes noted above, all other representations made in the Prior 
Filing remain unchanged. The Fund's investments will be in compliance 
with the 1940 Act and consistent with the Fund's investment objective, 
and will not be used to enhance leverage.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \10\ in general and Section 6(b)(5) of the Act \11\ 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.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will continue to be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in BATS Rule 14.11(i). 
With respect to the proposal to invest in Derivatives, the Exchange 
notes that the Commission has approved similar representations relating 
to issues of Managed Fund Shares proposed to be listed and traded on 
the Exchange.\12\ The Adviser represents that Derivatives are not a 
principal investment strategy of the Fund and that any Derivatives held 
by the Fund will be exchange traded and/or centrally cleared, and they 
will be collateralized. The Fund may hold Derivatives that include 
interest rate futures (and may reference interest rates or prices of 
Eurodollars, US federal funds, or Treasury bonds or notes) and fixed-
for-floating interest rate swaps to manage the Fund's interest rate 
exposure. The value of the securities and other assets held by the Fund 
will be determined pursuant to valuation policies and procedures 
approved by the Board. Futures contracts, including U.S. Treasury 
futures contracts, will be valued at their last sale price or settle 
price as of the close of such exchange. Interest rate swaps are 
generally valued by pricing services by calculating the new present 
value of future cash flows according to the terms of the swap 
agreement. The future cash flows are based on the difference between 
the agreed fixed rate and estimated level of a defined floating rate on 
the specified reset date. Intraday price quotations in swaps of the 
type proposed to be held by the Fund are available from major broker-
dealer firms and from third-parties. Intraday, executable price 
quotations on futures are available directly from the applicable 
listing exchange. All such intraday price information is also available 
through subscription services, such as Bloomberg, Thomson Reuters and 
International Data Corporation, which can be accessed by authorized 
participants and other investors.
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    \12\ See supra note 9.
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    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 Adviser represents that there is no change to the Fund's 
investment objective. The Fund will continue to comply with all initial 
and continued listing requirements under BATS Rule 14.11(i). The 
Adviser represents that the purpose of this change is to provide 
additional flexibility to the Adviser to meet the Fund's investment 
objective, as discussed above.
    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

[[Page 48811]]

the Fund will continue to comply with all initial and continued listing 
requirements under BATS Rule 14.11(i). The Adviser represents that the 
purpose of this change is to provide additional flexibility to the 
Adviser to meet the Fund's investment objective, as discussed above. 
The Adviser represents that there is no change to the Fund's investment 
objective. Except for the changes noted above, all other 
representations made in the Prior Filing remain unchanged.

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 proposed changes to the 
Fund's means of achieving the investment objective will permit the Fund 
to adjust its portfolio to allow the Fund to continue to meet its 
investment objectives by investing in Derivatives in a manner 
consistent with other actively-managed exchange-traded funds and will 
enhance competition among other issues of Managed Fund Shares.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it is filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6), the Exchange provided the Commission with written notice of 
its intent to file the proposed rule change, along with a brief 
description and the text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2014-031 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-2014-031. 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-2014-031, and should be submitted on or before September 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19477 Filed 8-15-14; 8:45 am]
BILLING CODE 8011-01-P