
[Federal Register Volume 81, Number 36 (Wednesday, February 24, 2016)]
[Notices]
[Pages 9231-9233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03792]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77173; File No. TP 15-15]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to WisdomTree Put Write Strategy 
Fund Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 
102(e) of Regulation M

February 18, 2016.
    By letter dated February 18, 2016 (the ``Letter''), as supplemented 
by conversations with the staff of the Division of Trading and Markets, 
counsel for WisdomTree Trust (the ``Trust'') on behalf of the Trust, 
WisdomTree Put Write Strategy 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 50,000 shares (``Creation Units'').
    The Trust is registered with the Commission under the Investment 
Company Act of 1940, as amended (``1940 Act''), as an open-end 
management investment company. The Fund seeks to track the performance 
of an underlying index, the CBOE S&P 500 Put Write Index (``Index''). 
The Index is based on a passive investment strategy which consists of 
overlapping hypothetical investments in a single series of exchange-
listed S&P 500 Index options (``SPX Puts'') over a money market account 
hypothetically invested in one and three-month Treasury bills. 
Specifically, the Index hypothetically writes at-the-money SPX Puts on 
a monthly basis, usually on the third Friday of the month (i.e., the 
``Roll Date''), which match the expiration date of the hypothetical SPX 
Puts. All SPX Puts hypothetically invested in by the Index are 
standardized options traded on the Chicago Board Options Exchange. At 
each Roll Date, any settlement loss in the Index based on the expiring 
SPX Puts is financed by the Treasury bill account and a new batch of 
hypothetical at-the-money SPX Puts is sold. Revenue from their sale is 
added to the Index's hypothetical Treasury bill account. On each Roll 
Date in March, June, September, and December (``March quarterly cycle 
months''), the proceeds from the hypothetical sales of the SPX Puts are 
invested in hypothetical three-month Treasury bills. On each Roll Date 
in a March quarterly cycle month, the three month Treasury bills 
hypothetically purchased in the prior March quarterly cycle month, and 
any one-month Treasury bills hypothetically purchased in the prior 
month are deemed to mature, and the proceeds are hypothetically 
invested in new three-month Treasury bills at the three-month Treasury 
bill rate. In other months, the revenue from the hypothetical sale of 
SPX Puts is hypothetically invested separately at the one-month 
Treasury bill rate, and where applicable, any one-month Treasury bills 
purchased in the prior month are deemed to mature and hypothetically 
invested in new one-month Treasury bills at the one-month Treasury bill 
rate. As stated above, all investments used to determine Index value 
are hypothetical.
    In order to track the Index, under normal circumstances, as 
described in the Letter, the Fund will invest not less than 80% of its 
assets in SPX Puts and one and three month U.S. Treasury bills. The 
Fund may invest up to 20% of its net assets (in the aggregate) in other 
investments, as described in the Letter, that are not included in the 
Index, but which WisdomTree Asset Management, Inc. (``Adviser'') or 
Mellon Capital Management (``Sub-Adviser'') believes will help the Fund 
to track the Index and that will be disclosed at the end of each 
trading day (``Other Assets').\1\ The Fund's investment strategy will 
be designed to write a sequence of one-month, at-the-money, SPX Puts 
and invest cash and Other Assets targeted to achieve one- and three-
month Treasury bill rates. The number of SPX Puts written will vary 
from month to month, but will be limited to permit the amount held in 
the Fund's investment in Treasury bills to finance the maximum possible 
loss from final settlement of the SPX Puts.
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    \1\ For example, the Requestors represent that there may be 
instances in which the Adviser or Sub-Adviser may choose to purchase 
or sell financial instruments not in the Index which the Adviser or 
Sub-Adviser believes are appropriate to substitute for one or more 
Index components in seeking to replicate, before fees and expenses, 
the performance of the Index.
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    The Requestors represent, among other things, the following:
     Shares of the Fund will be issued by the Trust, an open-
end management investment company that is registered with the 
Commission;
     Creation Units will be continuously redeemable at the net 
asset value (``NAV'') next determined after receipt

[[Page 9232]]

of a request for redemptions by the Fund 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 an 
Exchange;
     The Fund seeks to replicate the performance of the Index, 
all the components of which have publicly available last sale trade 
information;
     The intra-day indicative value of the Fund per share and 
the intra-day value of the Index will be publicly disseminated every 15 
seconds throughout the trading day through the facilities of the 
Consolidated Tape Association;
     On each business day before commencement of trading in 
Shares on the Exchange, the Fund will disclose on its Web site the 
identities and quantities of the Fund's options positions as well as 
Other Assets held by the Fund that will form the basis for the 
calculation of the Fund's 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 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, the ability to access the options sold by the Fund, as 
well as arbitrageurs' ability to create workable hedges;
     The Fund will invest solely in liquid securities;
     The options sold by the Fund will facilitate an effective 
and efficient arbitrage mechanism and the ability to create workable 
hedges;
     The Requestors expect arbitrageurs to be able 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.\2\ However, we find that it is appropriate in the public 
interest and is consistent with the protection of investors to grant a 
conditional exemption from Rules 101 and 102 to persons who may be 
deemed to be participating in a distribution of Shares of the Fund as 
described in more detail below.
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    \2\ 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 
Fund and its 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 Trust is a registered open-end management 
investment company, that Creation Unit size aggregations of the Shares 
of the Fund will be continuously redeemable at the NAV next determined 
after receipt of a request for redemption by 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 
Trust an exemption under paragraph (d) of Rule 101 of Regulation M with 
respect to the Fund, thus permitting persons participating in a 
distribution of Shares of the Fund to bid for or purchase such Shares 
during their participation in such distribution.\3\
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    \3\ 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, and 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 Trust is a registered open-end management 
investment company, that Creation Unit size aggregations of the Shares 
of the Fund will be continuously redeemable at the NAV next determined 
after receipt of a request for redemption by 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 
Trust 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, and subject to the conditions 
below, we find that it is appropriate in the public interest, and 
consistent with the protection of investors to grant the Trust a 
conditional exemption from Rule 10b-17 because market participants will 
receive timely notification of the existence and timing of a pending 
distribution, and thus the concerns that the Commission raised in 
adopting Rule 10b-17 will not be implicated.\4\
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    \4\ 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 Trust, based on the representations and facts presented in the 
Letter, is exempt from the requirements of Rule 101 with respect to the 
Fund, thus permitting

[[Page 9233]]

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.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust, based on the representations and the facts presented in 
the Letter, 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.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, based on the representations and the facts presented in the 
Letter and subject to the conditions below, 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 Trust will comply with Rule 10b-17 except for Rule 
10b-17(b)(1)(v)(a) and (b); and
     The Trust 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 exemptive relief shall discontinue transactions 
involving the Shares of the Fund, 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 and, consistent with all preceding letters, particularly 
with respect to the close alignment between the market price of Shares 
and the Fund's NAV. 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) and 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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    \5\ 17 CFR 200.30-3(a)(6) and (9).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03792 Filed 2-23-16; 8:45 am]
BILLING CODE 8011-01-P


