
[Federal Register Volume 82, Number 86 (Friday, May 5, 2017)]
[Notices]
[Pages 21280-21282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09080]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80567; File No. TP 17-08]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to Alpha Architect Value Momentum 
Trend ETF Pursuant to Exchange Act Rule 10b-17(b)(2) and Rules 101(d) 
and 102(e) of Regulation M

May 1, 2017.
    By letter dated May 01, 2017 (the ``Letter''), counsel for Alpha 
Architect ETF Trust (the ``Trust''), on behalf of the Trust, Alpha 
Architect Value Momentum Trend ETF (the ``Fund''), any national 
securities exchange or national securities association on or through 
which shares issued by the Fund (``Shares'') are listed and/or may 
subsequently trade, Quasar Distributors, LLC (the ``Distributor''), and 
other 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 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 
is an exchange-traded fund (``ETF'') organized as a series of the 
Trust. The Fund seeks to track the performance of the Alpha Architect 
Value Momentum Trend Index (the ``Index''). The Fund intends to operate 
as an ``ETF of ETFs'' by seeking to track the performance of its 
underlying Index through, under normal circumstances,\1\ investing at 
least 80% of its total assets \2\ in up to four ETFs that comprise the 
Index (``Underlying ETFs''). The Fund also intends to invest the 
remaining twenty percent of its total assets in cash and cash 
equivalents, other investment companies, as well as securities and 
other types of financial instruments that may not be components of the 
Index, but which will help the Fund track the Index (e.g., the Fund may 
invest in securities that are not components of the Index to reflect 
various corporate actions and other changes to the Index such as 
reconstitutions, additions, and deletions).\3\ 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 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 securities 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.
    \2\ Regardless of the representation that the Fund generally 
will invest at least 80% of its total assets in securities that 
comprise the underlying Index, the Fund seeks to have a tracking 
error of less than five percent in any given month over a one-year 
period.
    \3\ The Fund intends, under normal circumstances, to hold shares 
of the Underlying ETFs and, from time to time, for hedging purposes, 
the Fund intends to short index ETFs or various types of financial 
instruments including, but not limited to, futures contracts and 
options on securities, indices, and futures contracts (``Financial 
Instruments''). Financial Instruments held or shorted by the Fund, 
if any, will be expected to provide a hedge against potential 
adverse market movements.
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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;
     The Trust will continuously redeem Creation Units at net 
asset value (``NAV''), and the secondary market price of the Shares 
should not vary

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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 ``Exchange''); \4\
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    \4\ 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 have become effective pursuant to 
Section 19(b) of the Exchange Act.
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     All Underlying ETFs in which the Fund invests will either 
meet all conditions set forth in relevant class relief, will have 
received individual relief from the Commission, or will be able to rely 
upon individual relief even though they are not named parties;
     All of the components of the Index will 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, the Fund's custodian, through the National Securities 
Clearing Corporation, will make available the list of the names and the 
required number of shares of each security to be included in the 
consideration for purchase of a Creation Unit that day;
     The Exchange will disseminate continuously every 15 
seconds throughout the trading day, through the facilities of the 
consolidated tape, the market value of a Share, and the Exchange, 
market data vendors, or other information providers will disseminate, 
every 15 seconds throughout the trading day, a calculation of the 
intra-day indicative value of a Share;
     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 held by the Fund, and 
the ability to acquire such securities, as well as the arbitrageurs' 
ability to create workable hedges;
     The Fund will invest solely in liquid securities and 
Financial Instruments;
     The Fund will invest in securities that will facilitate an 
effective and efficient arbitrage mechanism and the ability to create 
workable hedges;
     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.\5\ However, we find that it is appropriate in the 
public interest and is consistent with the protection of investors to 
grant exemptions 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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    \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, 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 in, 
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, the Shares extends indefinitely.
    Based on the representations and the facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will continuously redeem, at NAV, Creation Unit 
aggregations of Shares of the Fund and that a close alignment between 
the market price of the 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 from Rule 101 pursuant to paragraph (d) of Rule 101 of 
Regulation M with respect to the Shares of 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.\6\
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    \6\ 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 the facts presented in the Letter, 
particularly that the Trust is a registered open-end management 
investment company that will redeem, at the NAV, Creation Unit 
aggregations of Shares of the Fund and that a close alignment between 
the market price of the 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 from Rule 102 pursuant to 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 distribution 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 the facts presented 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

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adopting Rule 10b-17 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 in light of the Fund's 
nature 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 on the 
Requestors representations in the Letter, that the provision of 
notices as described in the Letter would not constitute a 
manipulative or deceptive device or contrivance comprehended within 
the purpose of Rule 10b-17.
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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 
Shares of 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 the transactions in the 
Shares of the Fund.
    The exemption from Rule 10b-17 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. These 
exemptions are 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 
promptly present 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 relief for ETFs, particularly with respect to the close 
alignment between the market price of Shares and the Fund's NAV. In 
addition, persons relying on these exemptions 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 these exemptions.
    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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    \8\ 17 CFR 200.30-3(a)(6) and (9).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09080 Filed 5-4-17; 8:45 am]
 BILLING CODE 8011-01-P


