
[Federal Register Volume 81, Number 211 (Tuesday, November 1, 2016)]
[Notices]
[Pages 75865-75867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26299]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79159; File No. TP 16-14]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to Premise Capital Frontier 
Advantage Diversified Tactical ETF Pursuant to Exchange Act Rule 10b-
17(b)(2) and Rules 101(d) and 102(e) of Regulation M

October 26, 2016.
    By letter dated October 26, 2016 (the ``Letter''), as supplemented 
by conversations with the staff of the Division of Trading and Markets, 
counsel for ETF Series Solutions (the ``Trust''), on behalf of the 
Trust, Premise Capital Frontier Advantage Diversified Tactical ETF (the 
``Fund''), any national securities exchange on or through which shares 
of the Fund (``Shares'') are listed and may subsequently trade, Quasar 
Distributors, LLC (the ``Distributor''), and persons 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 Securities and Exchange Commission 
(``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 Premise 
Capital Frontier Advantage Diversified Tactical Index (the ``Underlying 
Index''). The Underlying Index seeks to provide exposure to major U.S. 
and non-U.S. equity and fixed income asset classes.
    The Fund will seek to track the performance of its Underlying Index 
by normally investing at least 80% of its total assets in the ETFs that 
comprise the Underlying Index.\1\ Except for the fact that the Fund 
will operate as an ETF of ETFs, the Fund will operate in a manner 
identical to the underlying ETFs.
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    \1\ The remaining 20% of the Fund's total assets may be invested 
in securities (including other underlying funds) not included in the 
Underlying Index and in cash, money market instruments, or funds 
that invest exclusively in money market instruments, subject to 
applicable limitations under the 1940 Act.
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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 of a request for 
redemption 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 BATS 
Exchange, Inc., or another exchange in accordance with exchange listing 
standards that are, or will become, effective pursuant to Section 19(b) 
of the Exchange Act (the ``Listing Exchange''); \2\
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    \2\ Further, Requestors represent in the Letter that should the 
Shares also trade on a market pursuant to unlisted trading 
privileges, such trading will be conducted pursuant to self-
regulatory organization rules that are, or will become, effective 
pursuant to Section 19(b) of the Exchange Act.
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     All ETFs in which the Fund is invested will meet all 
conditions set forth in one or more class relief letters, will have 
received individual relief from the Commission, will be able to rely 
upon individual relief even though they are not named parties, or will 
be able to

[[Page 75866]]

rely on applicable class relief for actively-managed ETFs;
     At least 70% of the Fund is comprised of component 
securities that will meet the minimum public float and minimum average 
daily trading volume thresholds under the ``actively-traded 
securities'' definition found in Regulation M for excepted securities 
during each of the previous two months of trading prior to formation of 
the Fund;
     The Fund seeks to track the performance of the Underlying 
Index, all of the components of which will have publicly available last 
sale trade information;
     The intraday 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 
Listing Exchange, the Fund will cause to be published through the 
National Securities Clearing Corporation the list of the names and the 
quantities of securities and other assets of the Fund's portfolio that 
will be applicable that day to creation and redemption requests;
     The Listing Exchange will disseminate continuously every 
15 seconds throughout the trading day, through the facilities of the 
Consolidated Tape Association, the market value of a Share;
     The Listing Exchange, market data vendors, or other 
information providers will disseminate, every 15 seconds throughout the 
trading day, a calculation of the intraday indicative value of a Share;
     The Fund will invest in securities that will facilitate an 
effective and efficient arbitrage mechanism and the ability to create 
workable hedges;
     The arbitrage mechanism will be facilitated by the 
transparency of the Fund's portfolio and the availability of the 
intraday indicative value, the liquidity of securities held by the 
Fund, the ability to acquire such securities, as well as arbitrageurs' 
ability to create workable hedges;
     The Fund will invest solely in liquid securities;
     The Trust believes 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 Rules 101 and 
102 of Regulation M, the Requestors may not rely upon those exceptions 
for the Shares.\3\ 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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    \3\ 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 that 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.\4\
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    \4\ 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, the Commission finds 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.\5\
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    \5\ 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. Further, the Commission finds, 
based upon the representations of the Requestors in the Letter, that 
the provision of the notices as described in the Letter and subject 
to the conditions of this Order would not constitute a manipulative 
or deceptive device or contrivance comprehended within the purpose 
of Rule 10b-17.

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[[Page 75867]]

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 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 Listing Exchange as soon as 
practicable before trading begins on the ex-dividend date, but in no 
event later than the time when the Listing 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. This 
exemption is based on the facts presented and the representations made 
in the Letter. Any different facts or representations may require a 
different response. 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, as is the case 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), 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.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(6) and (9).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26299 Filed 10-31-16; 8:45 am]
 BILLING CODE 8011-01-P


