[Federal Register Volume 77, Number 178 (Thursday, September 13, 2012)]
[Notices]
[Pages 56681-56683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22522]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67804; File No. TP 12-10]
Order Granting Limited Exemptions From Exchange Act Rule 10b-17
and Rules 101 and 102 of Regulation M to iShares, Inc. and iShares MSCI
Frontier 100 Index Fund Pursuant to Exchange Act Rule 10b-17(b)(2) and
Rule 101(d) and 102(e) of Regulation M
September 7, 2012.
By letter dated September 7, 2012 (the ``Letter''), as supplemented
by conversations with the staff of the Division of Trading and Markets,
counsel for iShares, Inc. (the ``Company'') on behalf of the Company,
the iShares MSCI Frontier 100 Index Fund (the ``Fund''), any national
securities exchange on or through which shares issued by the Fund
(``Shares'') may subsequently trade, and persons or entities engaging
in transactions in Shares (collectively, the ``Requestors'') requested
exemptions, or interpretive or no-action relief, from Rule 10b-17 of
the Securities Exchange Act of 1934, as amended (``Exchange Act'') and
Rules 101 and 102 of Regulation M in connection with secondary market
transactions in Shares and the creation or redemption of aggregations
of Shares of at least 50,000 shares (``Creation Units'').
The Company was organized on August 31, 1994, as a Maryland
corporation. The Company is registered with the Commission under the
Investment Company Act of 1940, as amended (``1940 Act''), as an open-
end management investment company. The Company currently consists of
approximately 50 investment series or portfolios. The Requestors
request relief related to the Fund, a newly created series of the
Company. The Fund will invest in stocks consisting of the component
securities of the MSCI Frontier Markets 100 Index (the ``Index''),
consistent with the Fund's investment strategy. The Fund will use a
``passive'' or indexing approach to try to achieve the Fund's
investment objectives. The Index is a free float-adjusted market-
capitalization index designed to measure equity market performance of a
subset of the MSCI Frontier Markets index while putting greater
emphasis on tradability and liquidity as compared to the larger MSCI
Frontier Markets index.
The Requestors represent, among other things, the following:
Shares of the Fund will be issued by the Company, an open-
end management investment company that is registered with the
Commission;
The Company will continuously redeem Creation Units at net
asset value (``NAV'') and the secondary market price of the Shares
should not vary substantially from the NAV of such Shares;
Shares of the Fund will be listed and traded on the NYSE
Arca (the ``Exchange'');
The Fund will hold 20 or more portfolio securities with no
one portfolio security constituting more than 25% of the Fund;
The Fund will be managed to track a particular index all
the components of which have publicly available last sale trade
information;
The intra-day proxy value of the Fund per share and the
value of the Index will be publicly disseminated by a major market data
vendor throughout the trading day;
On each business day before the opening of business on the
Exchange (normally 9:30 a.m., Eastern time), BlackRock Fund Advisors
(an investment advisor registered under the Investment Advisors Act of
1940 that serves as the Fund's advisor) and Blackrock Investments, LLC
(a broker-dealer who is registered with the Commission under the
Exchange Act and acts as the Fund's principal
[[Page 56682]]
underwriter as defined in Section 2(a)(29) of the 1940 Act), through
the National Securities Clearing Corporation, will make available the
identities and quantities of the securities and other assets held by
the Fund which will form the basis for their calculation of NAV at the
end of the business day;
The Exchange or other market information provider will
disseminate every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association an amount representing
on a per-share basis, the current value of the securities and cash to
be deposited as consideration for the purchase of Creation Units;
The arbitrage mechanism will be facilitated by the
transparency of the Fund's portfolio and the availability of the intra-
day indicative value, the liquidity of securities and other assets held
by the Fund, ability to acquire such securities, as well as the
arbitrageurs' ability to create workable hedges;
The Fund will invest solely in liquid securities;
The Fund will invest in securities that will facilitate an
effective and efficient arbitrage mechanism and the ability to create
workable hedges;
The Requestors believe that arbitrageurs are expected to
take advantage of price variations between the Fund's market price and
its NAV; and
A close alignment between the market price of Shares and
the Fund's NAV is expected.
Regulation M
While redeemable securities issued by an open-end management
investment company are excepted from the provisions of Rule 101 and 102
of Regulation M, the Requestors may not rely upon that exception for
the Shares.\1\ However, we find that it is appropriate in the public
interest and is consistent with the protection of investors to grant a
conditional exception from Rules 101 and 102 to persons who may be
deemed to be participating in a distribution of Shares and the Fund as
described in more detail below.
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\1\ While ETFs operate under exemptions from the definitions of
``open-end company'' under Section 5(a)(1) of the 1940 Act and
``redeemable security'' under Section 2(a)(32) of the 1940 Act, the
ETFs and their securities do not meet those definitions.
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Rule 101 of Regulation M
Generally, Rule 101 of Regulation M is an anti-manipulation rule
that, subject to certain exceptions, prohibits any ``distribution
participant'' and its ``affiliated purchasers'' from bidding for,
purchasing, or attempting to induce any person to bid for or purchase
any security, which is the subject of a distribution until after the
applicable restricted period, except as specifically permitted in the
rule. Rule 100 of Regulation M defines ``distribution'' to mean any
offering of securities that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of
special selling efforts and selling methods. The provisions of Rule 101
of Regulation M apply to underwriters, prospective underwriters,
brokers, dealers, or other persons who have agreed to participate or
are participating in a distribution of securities. The Shares are in a
continuous distribution and, as such, the restricted period in which
distribution participants and their affiliated purchasers are
prohibited from bidding for, purchasing, or attempting to induce others
to bid for or purchase extends indefinitely.
Based on the representations and facts presented in the Letter,
particularly that the Company is a registered open-end management
investment company that will continuously redeem at the NAV Creation
Unit size aggregations of the Shares of the Fund and that a close
alignment between the market price of Shares and the Fund's NAV is
expected, the Commission finds that it is appropriate in the public
interest and consistent with the protection of investors to grant the
Company an exemption under paragraph (d) of Rule 101 of Regulation M
with respect to the Fund, thus permitting persons who may be deemed to
be participating in a distribution of Shares of the Fund to bid for or
purchase such Shares during their participation in such
distribution.\2\
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\2\ Additionally, we confirm the interpretation that a
redemption of Creation Unit size aggregations of Shares of the Fund
and the receipt of securities in exchange by a participant in a
distribution of Shares of the Fund would not constitute an ``attempt
to induce any person to bid for or purchase, a covered security
during the applicable restricted period'' within the meaning of Rule
101 of Regulation M and therefore would not violate that rule.
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Rule 102 of Regulation M
Rule 102 of Regulation M prohibits issuers, selling security
holders, or any affiliated purchaser of such person from bidding for,
purchasing, or attempting to induce any person to bid for or purchase a
covered security during the applicable restricted period in connection
with a distribution of securities effected by or on behalf of an issuer
or selling security holder.
Based on the representations and facts presented in the Letter,
particularly that the Company is a registered open-end management
investment company that will redeem at the NAV Creation Units of Shares
of the Fund and that a close alignment between the market price of
Shares and the Fund's NAV is expected, the Commission finds that it is
appropriate in the public interest and consistent with the protection
of investors to grant the Company an exemption under paragraph (e) of
Rule 102 of Regulation M with respect to the Fund, thus permitting the
Fund to redeem Shares of the Fund during the continuous offering of
such Shares.
Rule 10b-17
Rule 10b-17, with certain exceptions, requires an issuer of a class
of publicly traded securities to give notice of certain specified
actions (for example, a dividend distribution) relating to such class
of securities in accordance with Rule 10b-17(b). Based on the
representations and facts in the Letter, in particular that the
concerns that the Commission raised in adopting Rule 10b-17 generally
will not be implicated if exemptive relief, subject to the conditions
below, is granted to the Company because market participants will
receive timely notification of the existence and timing of a pending
distribution,\3\ we find that it is appropriate in the public interest,
and consistent with the protection of investors to grant the Company a
conditional exemption from Rule 10b-17.
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\3\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical in light of the nature
of the Fund. This is because it is not possible for the Fund to
accurately project ten days in advance what dividend, if any, would
be paid on a particular record date.
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Conclusion
It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that
the Company, based on the representations and facts presented in the
Letter and subject to the condition contained in this order, is exempt
from the requirements of Rule 101 with respect to the Fund, thus
permitting persons who may be deemed to be participating in a
distribution of Shares of the Fund to bid for or purchase such Shares
during their participation in such distribution.
This exemptive relief is subject to the condition that such
transactions in Shares of the Fund or any related securities including
those deposited with the Fund or received from the Fund as part of the
creation or redemption process are not made for the purpose of creating
actual, or apparent, active trading in or raising or otherwise
affecting the price of such securities.
[[Page 56683]]
It is further ordered, pursuant to Rule 102(e) of Regulation M,
that the Company, based on the representations and the facts presented
in the Letter and subject to the condition contained in this order, is
exempt from the requirements of Rule 102 with respect to the Fund, thus
permitting the Fund to redeem Shares of the Fund during the continuous
offering of such Shares.
This exemptive relief is subject to the condition that such
transactions in Shares of the Fund or any related securities including
those deposited with the Fund or received from the Fund as part of the
creation or redemption process are not made for the purpose of creating
actual, or apparent, active trading in or raising or otherwise
affecting the price of such securities.
It is further ordered, pursuant to Rule 10b-17(b)(2), that the
Company, based on the representations and the facts presented in the
Letter and subject to the conditions contained in this order, is exempt
from the requirements of Rule 10b-17 with respect to transactions in
the shares of the Fund.
This exemptive relief is subject to the following conditions:
The Company will comply with Rule 10b-17 except for Rule
10b-17(b)(1)(v)(a) and (b); and
The Company will provide the information required by Rule
10b-17(b)(1)(v)(a) and (b) to the Exchange as soon as practicable
before trading begins on the ex-dividend date, but in no event later
than the time when the Exchange last accepts information relating to
distributions on the day before the ex-dividend date.
This exemptive relief is subject to modification or revocation at
any time the Commission determines that such action is necessary or
appropriate in furtherance of the purposes of the Exchange Act. Persons
relying upon this exemption shall discontinue transactions involving
the Shares of the Fund under the circumstances described above and in
the Letter, pending presentation of the facts for the Commission's
consideration, in the event that any material change occurs with
respect to any of the facts or representations made by the Requestors.
In addition, persons relying on this exemption are directed to the
anti-fraud and anti-manipulation provisions of the Exchange Act,
particularly Sections 9(a), 10(b), and Rule 10b-5 thereunder.
Responsibility for compliance with these and any other applicable
provisions of the federal securities laws must rest with the persons
relying on this exemption. This order should not be considered a view
with respect to any other question that the proposed transactions may
raise, including, but not limited to the adequacy of the disclosure
concerning, and the applicability of other federal or state laws to,
the proposed transactions.
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\4\ 17 CFR 200.30-3(a)(6) and (9).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\4\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22522 Filed 9-12-12; 8:45 am]
BILLING CODE 8011-01-P