
[Federal Register Volume 81, Number 65 (Tuesday, April 5, 2016)]
[Notices]
[Pages 19695-19697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07681]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77474; File No. TP 16-7]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to J.P. Morgan Exchange-Traded 
Fund Trust, JPMorgan Diversified Return International Currency Hedged 
ETF, and JPMorgan Diversified Return Europe Currency Hedged ETF 
Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) 
of Regulation M

March 30, 2016.
    By letter dated March 30, 2016 (the ``Letter''), as supplemented by 
conversations with the staff of the Division of Trading and Markets, 
counsel for J.P. Morgan Exchange-Traded Fund Trust (the ``Trust''), on 
behalf of the Trust, the JPMorgan Diversified Return International 
Currency Hedged ETF and the JPMorgan Diversified Return Europe Currency 
Hedged ETF (each, a ``Fund'' and collectively the ``Funds''), any 
national securities exchange on or through which shares issued by the 
Funds (``Shares'') may subsequently trade, SEI Investments Distribution 
Co. (the ``Distributor''), 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 Trust is registered with the Securities and Exchange Commission 
(``Commission'') under the Investment Company Act of 1940, as amended 
(``1940 Act''), as an open-end management investment company. The 
JPMorgan Diversified Return International Currency Hedged ETF will seek 
to provide investment results that closely correspond, before fees and 
expenses, to the performance of the FTSE Developed ex North America 
Diversified Factor 100% Hedged to USD Index (the ``JPIH Index''), which 
consists of (a) the equity securities included in the FTSE Developed ex 
North America Diversified Factor Index (the ``JPIH Underlying Index''), 
and (b) a currency hedging component (reflecting the effect of selling 
the applicable non-U.S. currency forward each month), which is intended 
solely to mitigate exposure to fluctuations between the currencies of 
the securities included in the JPIH Index and the U.S. dollar. The Fund 
intends to track the JPIH Index by (a) holding shares of the JPMorgan 
Diversified Return International Equity ETF (the ``JPIH Underlying 
ETF''), an ETF whose investment objective is to seek investment results 
that correspond generally to the performance, before fees and expenses, 
of the JPIH Underlying Index, instead of the Fund investing directly in 
the shares of issuers of the individual securities of the JPIH 
Underlying Index \1\ and (b) entering into foreign currency forward 
contracts.
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    \1\ Each Fund may, in very rare instances, invest directly in 
the shares of issuers of the individual securities of the applicable 
Underlying Index instead of holding shares of the applicable 
Underlying ETF if holding those individual securities would provide 
greater liquidity or other efficiencies to the Fund or if the 
Underling ETF is no longer accepting purchases. In such event, the 
Fund will not operate as an ETF of ETFs for that day. Instead, the 
Fund will operate to meet the conditions of the ETF Class Relief, 
including the Equity ETF Class Letter. See, e.g., Letter from James 
A. Brigagliano, Acting Associate Director, Division of Market 
Regulation, to Stuart M. Strauss, Esq., Clifford Chance US LLP 
(October 24, 2006) regarding class relief for exchange traded index 
funds; Letter from Catherine McGuire, Esq., Chief Counsel, Division 
of Market Regulation, to the Securities Industry Association 
Derivative Products Committee (November 21, 2005); Letter from 
Racquel L. Russell, Branch Chief, Division of Market Regulation, to 
George T. Simon, Esq., Foley & Lardner LLP (June 21, 2006); Letter 
from James A. Brigagliano, Associate Director, Division of Market 
Regulation, to Benjamin Haskin, Esq., Willkie. Farr & Gallagher LLP 
(April 9, 2007); or Letter from Josephine Tao, Assistant Director, 
Division of Trading and Markets, to Domenick Pugliese, Esq., Paul, 
Hastings, Janofsky and Walker LLP (June 27, 2007).

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[[Page 19696]]

    Similarly, the JPMorgan Diversified Return Europe Currency Hedged 
ETF will seek to provide investment results that closely correspond, 
before fees and expenses, to the performance of the FTSE Developed 
Europe Diversified Factor 100% Hedged to USD Index (the ``JPEH Index'' 
and together with the JPIH Index, the ``Indexes''; each an ``Index''), 
which consists of (a) the equity securities included in the FTSE 
Developed Europe Diversified Factor Index (the ``JPEH Underlying 
Index'' and together with the JPIH Underlying Index, the ``Underlying 
Indexes''; each an ``Underlying Index''), and (b) a currency hedging 
component (reflecting the effect of selling the applicable non-U.S. 
currency forward each month), which is intended solely to mitigate 
exposure to fluctuations between the currencies of the securities 
included in the JPEH Index and the U.S. dollar. The Fund intends to 
track the JPEH Index by (a) holding shares of the JPMorgan Diversified 
Return Europe Equity ETF (the ``JPEH Underlying ETF'' and together with 
the JPIH Underlying ETF, the ``Underlying ETFs''; each an ``Underlying 
ETF''), an ETF whose investment objective is to seek investment results 
that correspond generally to the performance, before fees and expenses, 
of the JPEH Underlying Index, instead of the Fund investing directly in 
the shares of issuers of the individual securities of the JPEH 
Underlying Index; and (b) entering into foreign currency forward 
contracts.
    Accordingly, each Fund intends to operate primarily as an ``ETF of 
ETFs.'' Except for the fact that each Fund intends to operate primarily 
as an ETF of ETFs, and enter into forward currency contracts as 
described above, each Fund will operate in a manner similar to its 
respective Underlying ETF.
    The Requestors represent, among other things, the following:
     Shares of each Fund will be issued by the Trust, an open-
end management investment company that is registered with the 
Commission;
     The Trust 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 each Fund will be listed and traded on the NYSE 
Arca (the ``Exchange'') or other exchange in accordance with exchange 
listing standards that are, or will become, effective pursuant to 
Section 19(b) of the Exchange Act;
     Each ETF in which each Fund is invested will meet all 
conditions set forth in a relevant class relief letter; \2\
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    \2\ See id.
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     All the components of each Index (except for each Index's 
currency hedging component) \3\ will have publicly available last sale 
trade information;
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    \3\ While each Index's currency hedging component does not have 
last sale information in the manner associated with equities, the 
prices for the relevant currency hedging contracts are publicly 
available.
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     The intra-day proxy value of each Fund per share and the 
value of each 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, the Funds' custodian, through the National Securities 
Clearing Corporation, will make publicly available the list of the 
names and the numbers of securities and other assets (except the 
forward currency contracts) of each Fund's portfolio that will be 
applicable that day to creation and redemption requests;
     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;
     Each Fund will invest at least 80% of its total assets 
(but typically far more) in component securities of the applicable 
Index (primarily by indirect investments through the applicable 
Underlying ETF), except for entering into forward currency contracts 
\4\ designed solely to hedge against each Fund's exposure to 
fluctuations between the applicable non-U.S. currencies in each Index 
and the U.S. dollar;
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    \4\ While exact percentages are dependent on movements in the 
applicable currency market, as a practical matter, each Fund is 
likely to have the vast majority of its assets invested in equities 
(i.e., investments in the Underlying ETF) rather than forward 
currency contracts.
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     Each 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 each Fund's market price and 
its NAV;
     The arbitrage mechanism will be facilitated by the 
transparency of each Fund's portfolio and the availability of the 
intra-day indicative value, the liquidity of securities and other 
assets held by each Fund, and the ability to acquire such securities, 
as well as arbitrageurs' ability to create workable hedges; and
     A close alignment between the market price of Shares and 
each 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.\5\ 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 and the Fund as 
described in more detail below.
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    \5\ 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, each 
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

[[Page 19697]]

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 will continuously redeem at the NAV Creation 
Unit size aggregations of the Shares of each Fund and that a close 
alignment between the market price of Shares and each 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 each Fund, thus permitting persons participating in a 
distribution of Shares of each Fund to bid for or purchase such Shares 
during their participation in such distribution.\6\
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    \6\ Additionally, we confirm the interpretation that a 
redemption of Creation Unit size aggregations of Shares of each Fund 
and the receipt of securities in exchange by a participant in a 
distribution of Shares of each 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 Trust is a registered open-end management 
investment company that will redeem at the NAV Creation Units of Shares 
of each Fund and that a close alignment between the market price of 
Shares and each 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 Funds, thus permitting 
each Fund to redeem Shares of each 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 10-b17 will not be implicated.\7\
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    \7\ We also note that timely compliance with Rule 10b-
17(b)(1)(v)(a) and (b) would be impractical because it is not 
possible for the Funds 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 the facts presented in the 
Letter, is exempt from the requirements of Rule 101 with respect to 
each Fund, thus permitting persons who may be deemed to be 
participating in a distribution of Shares of each 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 
each Fund, thus permitting each Fund to redeem Shares of each 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 each 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 Funds, 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 each Fund's NAV. In addition, persons relying on 
this exemptive relief are directed to the antifraud 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 exemptive 
relief.
    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.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(6) and (9).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07681 Filed 4-4-16; 8:45 am]
 BILLING CODE 8011-01-P


