Document ID: SEC-2016-2214-0001
Agency: sec
Document Type: Notice
Title: Applications: Alpha Architect ETF Trust, et al.
Posted Date: 2016-12-16T05:00Z

[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Notices]
[Pages 91215-91216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30251]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32389; 812-14663]

Alpha Architect ETF Trust, et al.; Notice of Application

December 12, 2016
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies to 
issue shares (``Shares'') redeemable in large aggregations only 
(``Creation Units''); (b) secondary market transactions in Shares to 
occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of Shares for 
redemption; (d) certain affiliated persons of a fund to deposit 
securities into, and receive securities from, the fund in connection 
with the purchase and redemption of Creation Units; and (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the funds (``Funds 
of Funds'') to acquire Shares of the Funds.

-----------------------------------------------------------------------

Applicants: Alpha Architect ETF Trust (the ``Trust''), a Delaware 
statutory trust registered under the Act as an open-end management 
investment company with multiple series, Empowered Funds, LLC (the 
``Adviser''), a Pennsylvania limited liability company registered as an 
investment adviser under the Investment Advisers Act of 1940, and 
Quasar Distributors, LLC (the ``Initial Distributor''), a Delaware 
limited liability company and broker-dealer registered under the 
Securities Exchange Act of 1934 (``Exchange Act'').

Filing Dates: The application was filed on June 15, 2016, and amended 
on October 7, 2016.

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 writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on January 6, 2017, 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 writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants: Alpha Architect ETF Trust 
and Empowered Funds, LLC, 213 Foxcroft Road, Broomall, PA 19008; Quasar 
Distributors, LLC, 615 East Michigan Street, 4th Floor, Milwaukee, 
Wisconsin 53202.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel at 
(202) 551-6868, or Daniele Marchesani, Assistant Chief Counsel, at 
(202) 551-6821 (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 Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Summary of the Application

    1. Applicants request an order that would allow funds to operate as 
index exchange traded funds (``ETFs'').\1\ Fund Shares will be 
purchased and redeemed at their NAV in Creation Units only. All orders 
to purchase Creation Units and all redemption requests will be placed 
by or through an ``Authorized Participant'', which will have signed a 
participant agreement with a broker-dealer registered under the 
Securities Exchange Act of 1943 (``Exchange Act'') (the Initial 
Distributor, together with any future distributor, the 
``Distributor''). Shares will be listed and traded individually on a 
national securities exchange, where share prices will be based on the 
current bid/offer market. Any order granting the requested relief would 
be subject to the terms and conditions stated in the application.
---------------------------------------------------------------------------

    \1\ Applicants request that the order apply to the initial 
series of the Trust and any additional series of the Trust, and any 
other open-end management investment companies or series thereof 
that may be created in the future (each, included in the term 
``Fund''), each of which will operate as an ETF and will track a 
specified index comprised of domestic and/or foreign equity 
securities or domestic and/or foreign fixed income securities (each, 
an ``Underlying Index''). Any Fund will (a) be advised by the 
Adviser or an entity controlling, controlled by, or under common 
control with the Adviser (included in the term ``Adviser'') and (b) 
comply with the terms and conditions of the application.
---------------------------------------------------------------------------

    2. Each Fund will hold investment positions selected to correspond 
generally to the performance of an Underlying Index. In the case of 
self-indexing Funds, an affiliated person, as defined in section 
2(a)(3) of the Act (``Affiliated Person''), or an affiliated person of 
an Affiliated Person (``Second-Tier Affiliate''), of the Trust or a 
Fund, of the Adviser, of any sub-adviser to or promoter of a Fund, or 
of the Distributor will compile, create, sponsor or maintain the 
Underlying Index.\2\
---------------------------------------------------------------------------

    \2\ Each self-indexing fund (``Self-Indexing Fund'') will post 
on its Web site the identities and quantities of the investment 
positions that will form the basis for the Fund's calculation of its 
NAV at the end of the day. Applicants believe that requiring Self-
Indexing Funds to maintain full portfolio transparency will help 
address, together with other protections, conflicts of interest with 
respect to such Funds.
---------------------------------------------------------------------------

    3. Shares will be purchased and redeemed in Creation Units and 
generally on an in-kind basis. Except where the purchase or redemption 
will include cash under the limited circumstances specified in the 
application, purchasers will be required to purchase Creation Units by 
depositing specified instruments (``Deposit Instruments''), and 
shareholders redeeming their Shares will receive specified instruments 
(``Redemption Instruments''). The Deposit Instruments and the 
Redemption Instruments will each correspond pro rata to the positions 
in the Fund's portfolio (including cash positions) except as specified 
in the application.
    4. Because Shares will not be individually redeemable, applicants 
request an exemption from section 5(a)(1) and section 2(a)(32) of the 
Act that would permit the Funds to register as open-end management 
investment companies and issue Shares that are redeemable in Creation 
Units only.
    5. Applicants also request an exemption from section 22(d) of the 
Act and rule 22c-1 under the Act as

[[Page 91216]]

secondary market trading in Shares will take place at negotiated 
prices, not at a current offering price described in a Fund's 
prospectus, and not at a price based on NAV. Applicants state that (a) 
secondary market trading in Shares does not involve a Fund as a party 
and will not result in dilution of an investment in Shares, and (b) to 
the extent different prices exist during a given trading day, or from 
day to day, such variances occur as a result of third-party market 
forces, such as supply and demand. Therefore, applicants assert that 
secondary market transactions in Shares will not lead to discrimination 
or preferential treatment among purchasers. Finally, applicants 
represent that share market prices will be disciplined by arbitrage 
opportunities, which should prevent Shares from trading at a material 
discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of 
Creation Units in-kind and that are based on certain Underlying Indexes 
that include foreign securities, applicants request relief from the 
requirement imposed by section 22(e) in order to allow such Funds to 
pay redemption proceeds within fifteen calendar days following the 
tender of Creation Units for redemption. Applicants assert that the 
requested relief would not be inconsistent with the spirit and intent 
of section 22(e) to prevent unreasonable, undisclosed or unforeseen 
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to 
acquire Fund Shares beyond the limits of section 12(d)(1)(A) of the 
Act; and the Funds, and any principal underwriter for the Funds, and/or 
any broker or dealer registered under the Exchange Act, to sell Shares 
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 
The application's terms and conditions are designed to, among other 
things, help prevent any potential (i) undue influence over a Fund 
through control or voting power, or in connection with certain 
services, transactions, and underwritings, (ii) excessive layering of 
fees, and (iii) overly complex fund structures, which are the concerns 
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act to permit persons that are Affiliated Persons, or 
Second Tier Affiliates, of the Funds, solely by virtue of certain 
ownership interests, to effectuate purchases and redemptions in-kind. 
The deposit procedures for in-kind purchases of Creation Units and the 
redemption procedures for in-kind redemptions of Creation Units will be 
the same for all purchases and redemptions and Deposit Instruments and 
Redemption Instruments will be valued in the same manner as those 
investment positions currently held by the Funds. Applicants also seek 
relief from the prohibitions on affiliated transactions in section 
17(a) to permit a Fund to sell its Shares to and redeem its Shares from 
a Fund of Funds, and to engage in the accompanying in-kind transactions 
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of 
Funds directly from a Fund will be accomplished in accordance with the 
policies of the Fund of Funds and will be based on the NAVs of the 
Funds.
---------------------------------------------------------------------------

    \3\ The requested relief would apply to direct sales of Shares 
in Creation Units by a Fund to a Fund of Funds and redemptions of 
those Shares. Applicants, moreover, are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an Affiliated Person, or a 
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an 
entity controlling, controlled by or under common control with an 
Adviser provides investment advisory services to that Fund of Funds.
---------------------------------------------------------------------------

    9. Section 6(c) of the Act permits the Commission to exempt any 
persons or transactions from any provision of the Act if such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors. 
Section 17(b) of the Act authorizes the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2016-30251 Filed 12-15-16; 8:45 am]
 BILLING CODE 8011-01-P