Document ID: SEC-2013-2090-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-12-10T05:00Z

[Federal Register Volume 78, Number 237 (Tuesday, December 10, 2013)]
[Notices]
[Pages 74212-74216]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29386]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70986; File No. SR-BATS-2013-051]

Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change To List and Trade Shares of 
the iShares Liquidity Income Fund

December 4, 2013.

I. Introduction

    On September 19, 2013, BATS Exchange, Inc. (``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
iShares Liquidity Income Fund (``Fund''). The proposed rule change was 
published for comment in the Federal Register on October 22, 2013.\3\ 
The Commission received no comments on the proposal. This order grants 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70608 (October 3, 
2013), 78 FR 62791 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to BATS Rule 14.11(i), which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
iShares U.S. ETF Trust (``Trust''), which was established as a Delaware 
statutory trust on June 21,

[[Page 74213]]

2011.\4\ BlackRock Fund Advisors is the investment adviser 
(``Adviser'') to the Fund.\5\ State Street Bank and Trust Company is 
the administrator, custodian, and transfer agent for the Trust. 
BlackRock Investments, LLC serves as the distributor for the Trust. The 
Exchange represents the Adviser is not a registered broker-dealer, but 
is affiliated with multiple broker-dealers, and has implemented fire 
walls with respect to those broker-dealers regarding access to 
information concerning the composition of or changes to the Fund's 
portfolio.\6\
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    \4\ The Trust is registered as an open-end investment company 
under the Investment Company Act of 1940 (``1940 Act''). See 
Registration Statement on Form N-1A for the Trust, dated February 4, 
2013 (File Nos. 333-179904 and 811-22649) (``Registration 
Statement''). The Commission has issued an order granting certain 
exemptive relief under the Investment Company Act of 1940 (15 U.S.C. 
80a-1) (``1940 Act'') (``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\ See BATS Rule 14.11(i)(7). The Exchange represents further 
that, in the event (a) the Adviser becomes a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a broker-dealer or becomes affiliated with a broker-
dealer, the Adviser will implement a fire wall with respect to its 
relevant personnel or its broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition of or 
changes to the portfolio and will be subject to procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding such portfolio.
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Description of the Fund and the Shares
    The Fund will seek to provide current income consistent with 
preservation of capital. To achieve its objective, the Fund will 
invest, under normal circumstances,\7\ at least 80% of its net assets 
in a portfolio of U.S.-dollar-denominated, investment-grade, fixed- and 
floating-rate debt securities (``Fixed Income Securities''). The Fund 
will not be a money market fund and thus will not seek to maintain a 
stable net asset value of $1.00 per Share. In the absence of normal 
circumstances, the Fund may temporarily depart from its normal 
investment process, provided that such a departure is, in the opinion 
of the Adviser, consistent with the Fund's investment objective and in 
the best interest of the Fund. For example, the Fund may hold a higher-
than-normal proportion of its assets in cash in response to adverse 
market, economic, or political conditions.
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    \7\ According to the Exchange, the term ``under normal 
circumstances'' includes, but is not limited to, the absence of 
adverse market, economic, political, or other conditions, including 
extreme volatility or trading halts in the fixed income markets or 
the financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption, or any similar intervening circumstance.
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    The Fund will hold Fixed Income Securities of at least 13 non-
affiliated issuers. The Fund will not purchase the securities of 
issuers conducting their principal business activity in the same 
industry if, immediately after the purchase and as a result thereof, 
the value of the Fund's investments in that industry would equal or 
exceed 25% of the current value of the Fund's total assets, provided 
that this restriction does not limit the Fund's: (i) Investments in 
securities of other investment companies; (ii) investments in 
securities issued or guaranteed by the U.S. government or its agencies 
or instrumentalities; or (iii) investments in repurchase agreements 
collateralized by U.S. government securities. The Fund will not invest 
in non-U.S. equity securities.
    According to the Exchange, the Fund intends to qualify each year as 
a regulated investment company (``RIC'') under Subchapter M of the 
Internal Revenue Code of 1986, as amended.\8\ According to the 
Exchange, the Fund will invest its assets, and will otherwise conduct 
its operations, in a manner that is intended to satisfy the qualifying 
income, diversification, and distribution requirements necessary to 
establish and maintain RIC qualification under Subchapter M.
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    \8\ 26 U.S.C. 851.
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Fixed Income Securities
    According to the Exchange, the Fund intends to achieve its 
investment objective by investing, under normal circumstances, at least 
80% of its net assets in a portfolio of U.S.-dollar-denominated, 
investment-grade Fixed Income Securities that are rated BBB- or higher 
by Standard & Poor's Financial Services LLC or Fitch Inc. (``Fitch''), 
rated Baa3 or higher by Moody's Investors Service, Inc. (``Moody's''), 
or, if unrated, determined by the Adviser to be of equivalent 
quality.\9\ Under normal circumstances, the Fund will invest primarily 
in Fixed Income Securities maturing in three years or less. Under 
normal circumstances, short-term investments (generally, securities 
with original maturities of one year or less) held by the Fund will 
carry a rating in the highest two-rating categories of at least one 
nationally recognized statistical ratings organization (e.g., A-2, P-2, 
or F2 or better by Standard & Poor's Ratings Services, Moody's, or 
Fitch, respectively) or will, if unrated, have been determined to be of 
comparable quality by the Adviser, at the time of investment.
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    \9\ The Adviser may determine that unrated Fixed Income 
Securities are of ``equivalent quality'' based on such credit 
quality factors as it deems appropriate, which may include among 
other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, the Adviser may consider internal 
analyses and risk ratings, third party research and analysis, and 
other sources of information, as deemed appropriate by the Adviser.
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    According to the Exchange, Fixed Income Securities will include 
fixed- and floating-rate debt securities, such as corporate \10\ and 
government bonds, agency securities,\11\ instruments of non-U.S. 
issuers, privately-issued securities,\12\ structured securities,\13\ 
municipal bonds, money market securities,\14\ and investment companies

[[Page 74214]]

(including investment companies advised by the Adviser or its 
affiliates) that invest in such Fixed Income Securities.\15\ The Fund 
may invest up to 5% of its net assets in Fixed Income Securities and 
instruments of issuers that are domiciled in emerging market countries.
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    \10\ While the Fund is permitted to invest without restriction 
in corporate bonds, the Adviser expects that, under normal 
circumstances, the Fund will generally seek to invest in corporate 
bond issuances that have at least $100 million par amount 
outstanding in developed countries and at least $200 million par 
amount outstanding in emerging market countries.
    \11\ According to the Exchange, the term ``agency securities'' 
for these purposes generally includes securities issued by the 
following entities: Government National Mortgage Association (Ginnie 
Mae); Federal National Mortgage Association (Fannie Mae); Federal 
Home Loan Banks (FHLBanks); Federal Home Loan Mortgage Corporation 
(Freddie Mac); Farm Credit System (FCS) Farm Credit Banks (FCBanks); 
Student Loan Marketing Association (Sallie Mae); Resolution Funding 
Corporation (REFCORP); Financing Corporation (FICO); and the Farm 
Credit System (FCS) Financial Assistance Corporation (FAC). Agency 
securities can include, but are not limited to, mortgage-backed 
securities.
    \12\ According to the Exchange, ``privately-issued securities'' 
generally include Rule 144A securities and, in this context, may 
include both mortgage-backed and non-mortgage Rule 144A securities.
    \13\ According to the Exchange, ``structured securities'' 
generally include privately-issued and publicly-issued structured 
securities, including certain publicly-issued structured securities 
that are not agency securities. Examples include, but are not 
limited to: Asset-backed securities backed by assets such as 
consumer receivables, credit cards, student loans, and equipment 
leases; asset-backed commercial paper; credit linked notes; and 
secured funding notes.
    \14\ According to the Exchange, the Adviser expects that, under 
normal circumstances, the Fund intends to invest in money market 
securities (as described below) in a manner consistent with its 
investment objective in order to help manage cash flows in and out 
of the Fund, such as in connection with payment of dividends or 
expenses, and to satisfy margin requirements, to provide collateral, 
or to otherwise back investments in derivative instruments. For 
these purposes, money market securities include: Short-term, high-
quality obligations issued or guaranteed by the U.S. Treasury or the 
agencies or instrumentalities of the U.S. government; short-term, 
high-quality securities issued or guaranteed by non-U.S. 
governments, agencies, and instrumentalities; repurchase agreements; 
money market mutual funds; commercial paper; and deposits and other 
obligations of U.S. and non-U.S. banks and financial institutions. 
All money market securities acquired by the Fund will be rated 
investment grade. The Fund does not intend to invest in any unrated 
money market securities. However, the Exchange states that the Fund 
may do so to a limited extent--for example, when a rated money 
market security becomes unrated, if that money market security is 
determined by the Adviser to be of comparable quality to investment 
grade money market securities. The Adviser may determine that 
unrated securities are of comparable quality to investment grade 
securities based on such credit quality factors as it deems 
appropriate, which may include, among other things, performing an 
analysis similar, to the extent possible, to that performed by a 
nationally recognized statistical rating organization rating similar 
securities and issuers.
    \15\ According to the Exchange, the Fund currently anticipates 
investing in only registered open-end investment companies, 
including mutual funds and the open-end investment company funds 
described in BATS Rule 14.11, but the Exchange notes that the 
Exemptive Order allows the Fund to invest in ``shares of other ETFs, 
shares of money market mutual funds, or other investment 
companies.''
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    The Fund will invest in asset-backed and mortgage-backed Fixed 
Income Securities.\16\ Asset-backed securities are fixed-income 
securities that are backed by a pool of assets, usually loans such as 
installment sale contracts or credit card receivables. Mortgage-backed 
securities are asset-backed securities based on a particular type of 
asset, a mortgage. According to the Exchange, there are a wide variety 
of mortgage-backed securities involving commercial or residential, 
fixed-rate or adjustable-rate mortgages, and mortgages issued by banks 
or government agencies.\17\
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    \16\ The Fund has not established a fixed limit to the amount of 
asset-backed and mortgage-backed debt securities in which it will 
invest, but the Exchange represents that, as noted above, at least 
80% of the Fund's net assets will be, under normal circumstances, 
invested in investment-grade Fixed Income Securities; that neither 
high-yield, asset-backed securities nor high-yield mortgage-backed 
securities are included in the Fund's principal investment 
strategies; and that the Fund's portfolio will meet certain criteria 
of the Exchange's generic listing standards for index-based, fixed-
income exchange-traded funds. See, infra, note 20. The exchange 
states that the liquidity of a security, especially in the case of 
asset-backed and mortgage-backed debt securities, is a substantial 
factor in the Fund's security selection process, and the Commission 
notes that the Fund may not invest more than 15% of its net assets 
in illiquid securities.
    \17\ See supra note 11.
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    According to the Exchange, the Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage. The Exchange states that, under normal circumstances, 
the dollar-weighted average life of the Fund's portfolio is expected to 
be one year or less, as calculated by the Adviser,\18\ and that the 
Fund will also seek to maintain a dollar-weighted average maturity that 
is less than 180 days.\19\
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    \18\ Dollar-weighted average life is the weighted average of the 
times when principal is to be repaid.
    \19\ According to the Exchange, dollar-weighted average maturity 
is calculated by taking the average length of time to maturity 
(fixed-rate) or the next interest rate reset (floating-rate) for 
each underlying instrument held by the Fund, weighted according to 
the relative holdings per instrument.
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    The Fund is an actively-managed fund that does not seek to 
replicate the performance of a specified index. The Exchange notes, 
however, that the Fund's portfolio will meet certain criteria for 
index-based, fixed income exchange-traded funds contained in Rule 
14.11(c)(4)(B)(i).\20\
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    \20\ See BATS Rule 14.11(c)(4)(B)(i) governing fixed income 
based Index Fund Shares. The Fund's portfolio will meet the 
following requirements of Rule 14.11(c)(4)(B)(i): (i) The index or 
portfolio must consist of Fixed Income Securities (Rule 
14.11(c)(4)(B)(i)(a)); (ii) a component may be a convertible 
security, however, once the convertible security component converts 
to an underlying equity security, the component is removed from the 
index or portfolio (Rule 14.11(c)(4)(B)(i)(c)); (iii) no component 
fixed-income security (excluding Treasury Securities) will represent 
more than 30% of the weight of the index or portfolio, and the five 
highest weighted component fixed-income securities do not in the 
aggregate account for more than 65% of the weight of the index or 
portfolio (Rule 14.11(c)(4)(B)(i)(d)); (iv) an underlying index or 
portfolio (excluding exempted securities) must include securities 
from a minimum of 13 non-affiliated issuers (Rule 
14.11(c)(4)(B)(i)(e)); and (v) component securities that in 
aggregate account for at least 90% of the weight of the index or 
portfolio must be either: (1) From issuers that are required to file 
reports pursuant to Sections 13 and 15(d) of the Act; (2) from 
issuers that have a worldwide market value of its outstanding common 
equity held by non-affiliates of $700 million or more; (3) from 
issuers that have outstanding securities that are notes, bonds, 
debentures, or evidence of indebtedness having a total remaining 
principal amount of at least $1 billion; (4) exempted securities as 
defined in Section 3(a)(12) of the Act; or (5) from issuers that are 
a government of a foreign country or a political subdivision of a 
foreign country (Rule 14.11(c)(4)(B)(i)(f)).
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Other Portfolio Holdings
    The Fund may, to a limited extent (under normal circumstances, less 
than 20% of the Fund's net assets), engage in transactions in futures 
contracts, options, and swaps.\21\
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    \21\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. According to the 
Exchange, examples include, but are not limited to, treasury futures 
to hedge against rising interest rates, currency futures to hedge 
against foreign exchange rates, interest rate swaps, credit default 
swaps, total return swaps, and equity index options. The derivatives 
will be exchange traded or centrally cleared, and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser \22\ 
under the 1940 Act. The Fund will monitor its portfolio liquidity on an 
ongoing basis to determine whether, in light of current circumstances, 
an adequate level of liquidity is being maintained, and will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, net assets, or other circumstances, more 
than 15% of the Fund's net assets are held in illiquid securities. 
According to the Exchange, illiquid securities include securities 
subject to contractual or other restrictions on resale and other 
instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \22\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
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    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees 
and expenses, portfolio holdings disclosure policies, calculation of 
net asset value (``NAV''), distributions, taxes, and reports to be 
distributed to beneficial owners of the Shares can be found in the 
Notice and Registration Statement, as applicable.\23\
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    \23\ See supra notes 3 and 4, respectively.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \24\ and the rules and regulations thereunder applicable to a 
national securities exchange.\25\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\26\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and

[[Page 74215]]

coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of proposed 
BATS Rule 14.11(i) to be listed and traded on the Exchange.
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    \24\ 15 U.S.C. 78f.
    \25\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal is also consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\27\ which sets forth Congress' 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for, and transactions in, 
securities. Quotation and last-sale information for the Shares will be 
available on the facilities of the Consolidated Tape Association 
(``CTA''). The Intraday Indicative Value (``IIV''), which will reflect 
an estimated intraday value of the Fund's portfolio and be based upon 
the current value for the components of the Disclosed Portfolio (as 
defined below), will be updated and widely disseminated by one or more 
major market data vendors at least every 15 seconds during the 
Exchange's Regular Trading Hours.\28\ On each business day, before 
commencement of trading in Shares during Regular Trading Hours \29\ on 
the Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (``Disclosed 
Portfolio'') held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\30\ The NAV of the 
Fund's Shares generally will be calculated once daily Monday through 
Friday as of the close of regular trading on the New York Stock 
Exchange, generally 4:00 p.m. Eastern Time. Additionally, information 
regarding market price and volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. The previous day's closing price 
and trading volume information for the Shares will also be published 
daily in the financial section of newspapers. Intraday, executable 
price quotations on Fixed Income Securities and other assets are 
available from major broker-dealer firms and--for exchange-traded 
assets, including investment companies, futures, and options--intraday 
price and volume information is available directly from the applicable 
listing exchange. Intraday price and volume 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 Web site for the Fund 
will include a form of the prospectus for the Fund, additional data 
relating to NAV, and other applicable quantitative information.
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    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \28\ According to the Exchange, several major market data 
vendors display or make widely available IIVs published via the CTA 
or other data feeds. Quotations of certain of the Fund's holdings 
may not be updated during U.S. trading hours if those holdings do 
not trade in the United States or if updated prices cannot be 
ascertained.
    \29\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \30\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting, and market value of Fixed 
Income Securities and other assets held by the Fund, and the 
characteristics of such assets. The Web site and information will be 
publicly available at no charge.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\31\ 
Trading in the Shares also will be subject to BATS Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.\32\ The Exchange may halt trading in the 
Shares if trading is not occurring in the securities or the financial 
instruments constituting the Disclosed Portfolio of the Fund, or if 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\33\ Further, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of the 
portfolio.\34\ The Exchange states that it prohibits the distribution 
of material, non-public information by its employees. The Exchange also 
states that the Adviser is affiliated with multiple broker-dealers, and 
the Adviser has implemented fire walls with respect to those broker-
dealers regarding access to information concerning the composition of 
or changes to the Fund's portfolio.\35\ Moreover, the Exchange 
represents that it is able to obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
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    \31\ See BATS Rule 14.11(i)(4)(A)(ii).
    \32\ See BATS Rule 14.11(i)(4)(B)(iv).
    \33\ See BATS Rule 14.11(i)(4)(B)(iii) (providing additional 
considerations for the suspension of trading in or removal from 
listing of Managed Fund Shares on the Exchange). With respect to 
trading halts, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares 
of the Fund. The Exchange will halt trading in the Shares under the 
conditions specified in BATS Rule 11.18. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    \34\ See BATS Rule 14.11(i)(4)(B)(ii)(B).
    \35\ See supra note 6 and accompanying text. An investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and its related personnel are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients as well 
as compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will be subject to BATS Rule 14.11(i), which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, are adequate to properly 
monitor the trading of the Shares on the Exchange during all trading 
sessions and to deter and detect violations of

[[Page 74216]]

Exchange rules and applicable federal securities laws.
    (4) The Exchange may obtain information regarding trading in the 
Shares and the underlying shares in investment companies, futures, and 
options via the ISG, from other exchanges who are members or affiliates 
of the ISG or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.\36\
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    \36\ The Exchange represents that all of the investment company 
securities, futures, and options will trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    (5) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular (``Circular'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Circular will discuss the following: (a) The 
procedures for purchases and redemptions of Shares in Creation Units 
(and that Shares are not individually redeemable); (b) BATS Rule 3.7, 
which imposes suitability obligations on Exchange members with respect 
to recommending transactions in the Shares to customers; (c) how 
information regarding the IIV is disseminated; (d) the risks involved 
in trading the Shares during the Pre-Opening \37\ and After Hours 
Trading Sessions \38\ when an updated IIV will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (f) trading 
information.
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    \37\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \38\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    (6) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\39\
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    \39\ See 17 CFR 240.10A-3.
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    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser under the 
1940 Act. The Fund will monitor its portfolio liquidity on an ongoing 
basis to determine whether, in light of current circumstances, an 
adequate level of liquidity is being maintained, and will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, net assets, or other circumstances, more 
than 15% of the Fund's net assets are held in illiquid securities.
    (8) The Fund may engage in derivatives transactions, including 
transactions in futures contracts, options, and swaps, to a limited 
extent (under normal circumstances, less than 20% of the Fund's net 
assets). The derivatives will be exchange-traded or centrally cleared, 
and they will be collateralized.
    (9) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
    (10) The Fund's portfolio will meet certain criteria for index-
based, fixed income exchange-traded funds contained in Rule 
14.11(c)(4)(B)(i).\40\
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    \40\ See supra note 20 and accompanying text.
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    (11) The Fund will not invest in non-U.S. equity securities.
    (12) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations 
and description of the Fund, including those set forth above and in the 
Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \41\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \41\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\42\ that the proposed rule change (SR-BATS-2013-051) be, and it 
hereby is, approved.
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    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29386 Filed 12-9-13; 8:45 am]
BILLING CODE 8011-01-P