[Federal Register: October 3, 2008 (Volume 73, Number 193)]
[Notices]
[Page 57688-57693]
[DOCID:fr03oc08-111]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28409; 812-13480]

Dodge & Cox Funds and Dodge & Cox Incorporated; Notice of
Application

September 29, 2008.
AGENCY: Securities and Exchange Com mission (``Commission'').

ACTION: Notice of an application for an order under (a) section 6(c) of
the Investment Company Act of 1940 (``Act'') granting an exemption from
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act
granting an exemption from section 12(d)(1) of the Act; (c) sections
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1)
and 17(a)(3) of the Act; and (d) section 17(d) of the Act and rule 17d-
1 under the Act to permit certain joint arrangements.

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Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.

Applicants: Dodge & Cox Funds (the ``Trust'') and Dodge & Cox Inc
orporated (``Dodge & Cox'').

Filing Dates: The application was filed on January 18, 2008 and amended
on April 16, 2008. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in the notice.

Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on October 24, 2008, and should be accompanied by proof of service
on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, 555 California
Street, 40th Floor, San Francisco, California 94104.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-6873 or Mary Kay Frech, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549-1520 (tel.<PHONE_NUMBER>).

Applicants' Representations

    1. The Trust is organized as a Delaware statutory trust and is
registered under the Act as an open-end management investment company.
The Trust consists of five series and may offer addit ional series in
the future (``Funds''). Dodge & Cox, a California corporation, is
registered as an investment adviser under the Investment Advisers Act
of 1940, and serves as the investment adviser to each Fund.\1\
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    \1\ Applicants request that the relief apply to (a) any Fund of
the Trust, (b) any successor entity to Dodge & Cox, (c) any other
registered open-end management investment company or its series
advised by Dodge & Cox or a person controlling, controlled by, or
under common control (within the meaning of section 2(a)(9) of the
Act) with Dodge & Cox (each, also a ``Fund''). The term
``successor'' is limited to entities that result from a
reorganization into another jurisdiction or a change in the type of
business organization. All entities that currently intend to rely on
the requested relief are named as applicants. Any other existing or
future Funds that subsequently rely on the order will comply with
the terms and conditions in the application.
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    2. Some Funds may lend money to banks or other entities by entering
into repurchase agreements or purchasing other short-term investments.
Other Funds may borrow money from the same or similar banks for
temporary purposes to satisfy redemption requests or to cover
unanticipated cash shortfalls such as a trade ``fail'' in which cash
payment for a security sold by a Fund has been delayed, or for other
temporary purposes. Currently, the Trust has an overdraft facility with
its custodian bank and a committed line of credit with a bank.
    3. If a Fund were to borrow money under the committed line of
credit or incur an overdraft with the custodian bank, the Fund would
pay interest on the borrowed cash at a rate which would be higher than
the rate that would earned by other (non-borrowing) Funds on
investments in repurchase agreements and other short-term instruments
of the same maturity as the bank loan. Applicants state that this
differential represents the profit the bank would earn for serving as a
middleman between a borrower and lender and is not attributable to any
material difference in the credit quality or risk of such transactions.
In addition, while bank borrowings generally could supply needed cash
to cover unanticipated redemptions and sales fails, the borrowing Funds
would incur commitment fees and/or other charges involved in obtaining
a bank loan.
    4. Applicants request an order that would permit the Funds to enter
into master interfund lending agre ements (``Interfund Lending
Agreements'') under which the Funds would lend and borrow money for
temporary purposes directly to and from each other through a credit
facility (``Interfund Loan''). Applicants believe that the proposed
credit facility would reduce the Funds' borrowing costs and enhance
their ability to earn higher interest rates on short-term investments.
Although the proposed credit facility would reduce the Funds' need to
borrow from banks, the Funds would be free to establish committed lines
of credit or other borrowing arrangements with unaffiliated banks.
    5. Applicants anticipate that the credit facility would provide a
borrowing Fund with significant savings when the cash position of the
Fund is insufficient to meet temporary cash requirements. This
situation could arise when redemptions exceed anticipated volumes and
certain Funds have insufficient cash on hand to satisfy such
redemptions. When a Fund liquidates portfolio securities to meet
redemption requests which normally are effected immediately, it often
does not receive payment in settlement for up to three days (or longer
for certain foreign transactions). The credit facility would provide a
source of immediate, short-term liquidity pending settlement of the
sale of portfolio securities.
    6. Applicants also propose using the credit facility when a sale of
securities ``fails'' due to circumstances such as a delay in the
delivery of cash to a Fund's custodian or improper delivery
instructions by the broker effecting the transaction. Sales fails may
present a cash shortfall if a Fund has undertaken to purchase
securities using the proceeds from the securities sold. Alternatively,
the Fund could fail on its intended purchase due to lack of funds from
the previous sale, resulting in additional cost to the Fund, or sell a
security on a same-day settlement basis, earning a lower return on the
investment. Use of the credit facility under these circumstances would
enable the Fund to have access to immediate short-term liquidity.
    7. While bank borrowings generally could supply needed cash to
cover unanticipated redemptions and sales fails, under the proposed
credit facility a borrowing Fund would pay lower interest rates than
those offered by banks on short-term loans. In addition, Funds making
short-term cash loans directly to other Funds would earn interest at a
rate higher than they otherwise could obtain from investing their cash
in repurchase agreements. Thus, applicants believe that the proposed
credit facility would benefit both borrowing and lending Funds.
    8. The interest rate charged to a Fund on any Interfund Loan
(``Interfund Loan Rate'') would be the average of the ``Repo Rate'' and
the ``Bank Loan Rate,'' both as defined below. The Repo Rate on any day
would be the highest rate available to a lending Fund from investing in
overnight repurchase agreements. The Bank Loan Rate on any day would be
calculated by the ``Interfund Lending Committee'' (as

defined below) each day an Interfund Loan is made according to a
formula established by a Fund's board of directors or trustees (``Fund
Board'') intended to approximate the lowest interest rate at which bank
short-term loans would be available to the Funds. The formula would be
based upon a publicly available rate (e.g., Federal funds plus 25 basis
points) and would vary with this rate so as to reflect changing bank
loan rates. Each Fund Board would periodically review the continuing
appropriateness of using the publicly available rate to determine the
Bank Loan Rate, as well as the relationship between the Bank Loan Rate
and current bank loan rates that would be available to the Funds. The
initial formula and any subsequent modifications to the formula would
be subject to the approval of each Fund Board.
    9. The credit facility would be administered by investment
professionals and administrative personnel from Dodge & Cox (the
``Interfund Lending Committee''). No member of Dodge & Cox's investment
policy committee (``Investment Policy Committee'') for any Fund will
serve as a member of the Interfund Lending Committee.\2\ Under the
proposed credit facility, the Investment Policy Committee for each
participating Fund could provide standing instructions to participate
daily as a borrower or lender. The Interfund Lending Committee on each
business day would collect data on the uninvested cash and borrowing
requirements of all participating Funds from the Funds' custodian. Once
it determined the aggregate amount of cash available for loans and
borrowing demand, the Interfund Lending Committee would allocate loans
among borrowing Funds without any further communication from a Fund's
Investment Policy Committee. Applicants expect far more available
uninvested cash each day than borrowing demand. After the Interfund
Lending Committee has allocated cash for Interfund Loans, the Interfund
Lending Committee would invest any remaining cash in accordance with
the standing instructions of the Investment Policy Committee or return
remaining amounts for investment directly by a Fund's Investment Policy
Committee.
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    \2\ Each Fund's investments are managed solely by the members of
an Investment Policy Committee, which consists of a team of
portfolio managers.
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    10. The Interfund Lending Committee would allocate borrowing demand
and cash available for lending among the Funds on what the Interfund
Lending Committee believes to be an equitable basis, subject to certain
administrative considerations applicable to all Funds, such as the time
of filing requests to participate, minimum loan lot sizes, and the need
to minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each Interfund Loan normally would
be allocated in a manner intended to minimize the number of
participants necessary to complete the loan transaction. The method of
allocation and related administrative procedures would be approved by
each Fund Board, including a majority of directors or trustees who are
not ``interested persons'' of the Fund, as defined in section 2(a)(19)
of the Act (``Independent Fund Board Members''), to ensure that both
borrowing and lending Funds participate on an equitable basis.
    11. The Interfund Lending Committee would (a) monitor the Interfund
Loan Rate and the other terms and conditions of the loans; (b) limit
the borrowings and loans entered into by each Fund to ensure that they
comply with the Fund's investment policies and limitations; (c) ensure
equitable treatment of each Fund; and (d) make quarterly reports to
each Fund Board concerning any transactions by the Funds under the
credit facility and the Interfund Loan Rate charged.
    12. Dodge & Cox, through the Interfund Lending Committee, would
administer the credit facility under the investment management contract
with each Fund and would receive no additional compensation for its
services. Dodge & Cox may in the future collect standard pricing,
recordkeeping, bookkeeping, and accounting fees in connection with
repurchase and lending transactions generally, including transactions
through the credit facility. These fees would be no higher than those
applicable for comparable bank loan transactions.
    13. No Fund may participate in the credit facility unless: (a) The
Fund has obtained shareholder approval for its participation, if such
approval is required by law; (b) the Fund has fully disclosed all
material information concerning the credit facility in its prospectus
and/or statement of additional infor mation (``SAI''); and (c) the
Fund's participation in the credit facility is consistent with its
investment objectives, limitations and organizational documents. In
connection with the credit facility, applicants request an order under
(a) section 6(c) of the Act granting relief from sections 18(f) and
21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting relief
from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of the
Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act; and
(d) under section 17(d) of the Act and rule 17d-1 under the Act to
permit certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated
person, or affiliated person of an affiliated person, from borrowing
money or other property from a registered investment company. Section
21(b) generally prohibits any registered management company from
lending money or other property to any person if that person controls
or is under common control with the company. Section 2(a)(3)(C) of the
Act defines an ``affiliated person'' of another person, in part, to be
any person directly or indirectly controlling, controlled by, or under
common control with, the other person. Applicants state that the Funds
may be under common control by virtue of having Dodge & Cox as their
common investment adviser and/or by having a common Fund Board and
officers.
    2. Section 6(c) of the Act provides that an exemptive order may be
granted where an exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) provided that the terms of the
transaction, including the consideration to be paid or received, are
fair and reasonable and do not involve overreaching on the part of any
person concerned, and the transaction is consistent with the policy of
the investment company as recited in its registration statement and
with the general purposes of the Act. Applicants believe that the
proposed arrangements satisfy these standards for the reasons discussed
below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act
were intended to prevent a party with strong potential adverse
interests to, and some influence over the investment decisions of, a
registered investment company from causing or inducing the investment
company to engage in lending transactions that unfairly inure to the
benefit of such party and that are detrimental to the best interests of
the investment company and its shareholders. Applicants assert that the
proposed credit facility transactions do not raise these concerns
because: (a) Dodge & Cox, through the Interfund

Lending Committee, would administer the program as a disinterested
fiduciary; (b) all Interfund Loans would consist only of uninvested
cash reserves that the lending Fund otherwise would invest in short-
term repurchase agreements or other short-term instruments; (c) the
Interfund Loans would not involve a greater risk than such other
investments; (d) the lending Fund would receive interest at a rate
higher than it could otherwise obtain through such other investments;
and (e) the borrowing Fund would pay interest at a rate lower than
otherwise available to it under its bank loan agreements and avoid the
up-front commitment fees associated with committed lines of credit.
Moreover, applicants believe that the other terms and conditions in the
application would effectively preclude the possibility of any Fund
obtaining an undue advantage over any other Fund.
    4. Section 17(a)(1) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
an affiliated person, from selling any securities or other property to
the company. Section 12(d)(1) of the Act generally makes it unlawful
for a registered investment company to purchase or otherwise acquire
any security issued by any other investment company except in
accordance with the limitations set forth in that section. Applicants
state that the obligation of a borrowing Fund to repay an Interfund
Loan may constitute a security for the purposes of sections 17(a)(1)
and 12(d)(1). Section 12(d)(1)(J) of the Act provides that the
Commission may exempt persons or transactions from any provision of
section 12(d)(1) if and to the extent such exemption is consistent with
the public interest and the protection of investors. Applicants contend
that the standards under sections 6(c), 17(b), and 12(d)(1)(J) are
satisfied for all the reasons set forth above in support of their
request for relief from sections 17(a)(3) and 21(b) and for the reasons
discussed below.
    5. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid imposing on
investors additional and duplicative costs and fees attendant upon
multiple layers of investment companies. Applicants submit that the
proposed credit facility does not involve these abuses. Applicants note
that there will be no duplicative costs or fees to the Funds or
shareholders, and that Dodge & Cox will receive no additional
compensation for its services in administering the credit facility
through the Interfund Lending Committee. Applicants also note that the
purpose of the proposed credit facility is to provide economic benefits
for all of the participating Funds and their shareholders.
    6. Section 18(f)(1) of the Act prohibits open-end investment
companies from issuing any senior security except that a company is
permitted to borrow from any bank; provided, that immediately after the
borrowing, there is asset coverage of at least 300 per centum for all
borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' includes any bond, debenture, note or similar
obligation or instrument constituting a security and evidencing
indebtedness. Applicants request relief from section 18(f)(1) to the
limited extent necessary to implement the credit facility (because the
lending Funds are not banks).
    7. Applicants believe that granting relief under section 6(c) is
appropriate because the Funds would remain subject to the requirement
of section 18(f)(1) that all borrowings of a Fund, including combined
interfund and bank borrowings, have at least 300% asset coverage. Based
on the conditions and safeguards described in the application,
applicants also submit that to allow the Funds to borrow from other
Funds pursuant to the proposed credit facility is consistent with the
purposes and policies of section 18(f)(1).
    8. Section 17(d) of the Act and rule 17d-1 under the Act generally
prohibit any affiliated person of a registered investment company, or
affiliated persons of an affiliated person, when acting as principal,
from effecting any joint transactions in which the company participates
unless the transaction is approved by the Commission. Rule 17d-1(b)
provides that in passing upon applications filed under the rule, the
Commission will consider whether the participation of a registered
investment company in a joint enterprise on the basis proposed is
consistent with the provisions, policies, and purposes of the Act and
the extent to which the company's participation is on a basis different
from or less advantageous than that of other participants.
    9. Applicants submit that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to investment company insiders.
Applicants believe that the credit facility is consistent with the
provisions, policies, and purposes of the Act in that it offers both
reduced borrowing costs and enhanced returns on loaned funds to all
participating Funds and their shareholders. Applicants note that each
Fund would have an equal opportunity to borrow and lend on equal terms
consistent with its investment policies and fundamental investment
limitations. Applicants therefore believe that each Fund's
participation in the credit facility will be on terms that are no
different from or less advantageous than that of other participating
Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will
be subject to the following conditions:
    1. The Interfund Loan Rate will be the average of the Repo Rate and
the Bank Loan Rate.
    2. On each business day, the Interfund Lending Committee will
compare the Bank Loan Rate with the Repo Rate and will make cash
available for Interfund Loans only if the Interfund Loan Rate is: (a)
more favorable to the lending Fund than the Repo Rate; and (b) more
favorable to the borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the
Fund: (a) Will be at an interest rate equal to or lower than any
outstanding bank loan; (b) will be secured at least on an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding bank loan that requires collateral; (c)
will have a maturity no longer than any outstanding bank loan (and in
any event not over seven days); and (d) will provide that, if an event
of default by the Fund occurs under any agreement evidencing an
outstanding bank loan to the Fund, that event of default will
automatically (without need for action or notice by the lending Fund)
constitute an immediate event of default under the Interfund Lending
Agreement entitling the lending Fund to call the Interfund Loan (and
exercise all rights with respect to any collateral) and that such call
will be made if the lending bank exercises its right to call its loan
under its agreement with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the proposed
credit facility if its outstanding borrowings from all sources
immediately after the interfund borrowing total 10% or less of its
total assets, provided that if the Fund has a secured loan outstanding
from any other lender, including but not limited to another Fund, the
Fund's interfund borrowing will be secured on at least an equal
priority basis with at least an equivalent percentage of collateral to
loan value as any outstanding loan that requires collateral. If a
Fund's total outstanding borrowings immediately after an interfund
borrowing would be greater than 10% of its total assets, the Fund may
borrow through the proposed credit facility only on a secured basis. A
Fund may not borrow through the proposed credit facility or from any

other source if its total outstanding borrowings immediately after such
borrowing would be more than 33 1/3% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its
total assets for any other reason (such as a decline in net asset value
or because of shareholder redemptions), the Fund will within one
business day thereafter: (a) Repay all its outstanding Interfund Loans;
(b) reduce its outstanding indebtedness to 10% or less of its total
assets; or (c) secure each outstanding Interfund Loan by the pledge of
segregated collateral with a market value at least equal to 102% of the
outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition 5 shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceeds 10% is
repaid or the Fund's total outstanding borrowings cease to exceed 10%
of its total assets, the Fund will mark the value of the collateral to
market each day and will pledge such additional collateral as is
necessary to maintain the market value of the collateral that secures
each outstanding Interfund Loan at least equal to 102% of the
outstanding principal value of the Interfund Loan.
    6. No Fund may lend to another Fund through the proposed credit
facility if the loan would cause its aggregate outstanding loans
through the proposed credit facility to exceed 15% of the lending
Fund's current net assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of
the lending Fund's net assets.
    8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
    9. The Fund's borrowings through the proposed credit facility, as
measured on the day when the most recent loan was made, will not exceed
the greater of 125% of the Fund's total net cash redemptions or 102% of
sales fails for the preceding seven calendar days.
    10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
    11. A Fund's participation in the proposed credit facility must be
consistent with its investment objectives, and limitations and
organizational documents.
    12. The Interfund Lending Committee will calculate total Fund
borrowing and lending demand through the proposed credit facility, and
allocate loans on an equitable basis among the Funds, without the
intervention of any member of a Fund's Investment Policy Committee. The
Interfund Lending Committee will not solicit cash for the proposed
credit facility from any Fund or prospectively publish or disseminate
loan demand data to any member of the Investment Policy Committee. The
Interfund Lending Committee Team will invest any amounts remaining
after satisfaction of borrowing demand in accordance with the standing
instructions of the Investment Policy Committee or return remaining
amounts for investment directly by a Fund's Investment Policy
Committee.
    13. The Interfund Lending Committee will monitor the Interfund Loan
Rates charged and the other terms and conditions of the Interfund Loans
and will make a quarterly report to each Fund Board concerning the
participation of the Funds in the proposed credit facility and the
terms and other conditions of any extensions of credit under the credit
facility.
    14. Each Fund Board, including a majority of the Independent Fund
Board Members, will:
    (a) Review, no less frequently than quarterly, each Fund's
participation in the proposed credit facility during the preceding
quarter for compliance with the conditions of any order permitting such
transactions;
    (b) Establish the Bank Loan Rate formula used to determine the
interest rate on Interfund Loans and review, no less frequently than
annually, the continuing appropriateness of the Bank Loan Rate formula;
and
    (c) Review, no less frequently than annually, the continuing
appropriateness of each Fund's participation in the proposed credit
facility.
    15. In the event an Interfund Loan is not paid according to its
terms and such default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, Dodge & Cox
will promptly refer such loan for arbitration to an independent
arbitrator selected by each Fund Board involved in the loan who will
serve as arbitrator of disputes concerning Interfund Loans.\3\ The
arbitrator will resolve any problem promptly, and the arbitrator's
decision will be binding on both Funds. The arbitrator will submit, at
least annually, a written report to each Fund Board setting forth a
description of the nature of any dispute and the actions taken by the
Funds to resolve the dispute.
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    \3\ If the dispute involves Funds with different Fund Boards,
the respective Fund Boards will select an independent arbitrator
that is satisfactory to each Fund.
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    16. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
by it under the proposed credit facility occurred, the first two years
in an easily accessible place, written records of all such transactions
setting forth a description of the terms of the transactions, including
the amount, the maturity and the Interfund Loan Rate, the rate of
interest available at the time on overnight repurchase agreements and
commercial bank borrowings, and such other information presented to the
Fund Board in connection with the review required by conditions 13 and
14.
    17. The Interfund Lending Committee will prepare and submit to the
Fund Board for review an initial report describing the operations of
the proposed credit facility and the procedures to be implemented to
ensure that all Funds are treated fairly. After the commencement of the
proposed credit facility, the Interfund Lending Committee will report
on the operations of the proposed credit facility at the Fund Board's
quarterly meetings.
    In addition, for two years following the commencement of the
proposed credit facility, the independent auditors for each Fund shall
prepare an annual report that evaluates the Interfund Lending
Committee's assertion that it has established procedures reasonably
designed to achieve compliance with the terms and conditions of the
order. The report shall be prepared in accordance with the Statements
on Standards for Attestation Engagements No. 10 and it shall be filed
pursuant to Item 77Q3 of Form N-SAR, as such Statements or Form may be
revised, amended, or superseded from time to time. In particular, the
report shall address procedures designed to achieve the following
objectives:

    (a) That the Interfund Loan Rate will be higher than the Repo Rate,
but lower than the Bank Loan Rate;
    (b) Compliance with the collateral requirements as set forth in the
application;
    (c) Compliance with the percentage limitations on interfund
borrowing and lending;
    (d) Allocation of interfund borrowing and lending demand in an
equitable manner and in accordance with procedures established by the
Fund Board; and
    (e) That the interest rate on any Interfund Loan does not exceed
the interest rate on any third-party borrowings of a borrowing Fund at
the time of the Interfund Loan.
    After the final report is filed, each Fund's independent auditors,
in connection with their audit examinations of the Fund, will continue
to review the operation of the proposed credit facility for compliance
with the conditions of the application and their review will form the
basis, in part, of the auditor's report on internal accounting controls
in Form N-SAR.
    18. No Fund will participate in the proposed credit facility upon
receipt of requisite regulatory approval unless it has fully disclosed
in its prospectus and/or SAI all material facts about its intended
participation.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-23343 Filed 10-2-08; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 5 (Wednesday, January 8, 2014)]
[Notices]
[Pages 1407-1408]
[FR Doc No: 2014-00065]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71221; File No. SR-NYSEArca-2013-115]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2 and Order Granting Accelerated Approval of Proposed
Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, To Adopt
Commentary .03 to Rule 6.91 To Limit the Volume of Complex Orders by a
Single OTP Holder or OTP Firm During the Trading Day

January 2, 2014.

I. Introduction

    On October 28, 2013, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to adopt Commentary .03 to NYSE Arca Rule 6.91 to
limit the volume of complex orders that may be entered by a single OTP
Holder or OTP Firm (collectively, ``OTPs'') during the trading day. On
November 5, 2013, the Exchange submitted Amendment No. 1 to the
proposed rule change. The proposed rule change, as modified by
Amendment No. 1 thereto, was published for comment in the Federal
Register on November 13, 2013.\4\ The Commission received no comments
on the proposed rule change. On December 23, 2013, the Exchange granted
an extension of time for the Commission to act on the filing until
January 3, 2014.\5\ On December 24, 2013, the Exchange submitted
Amendment No. 2 to the proposed rule change.\6\ The Commission is
publishing this notice to solicit comments on Amendment No. 2 from
interested persons, and is approving the proposed rule change, as
modified by Amendment Nos. 1 and 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 70817 (November 6,
2013), 78 FR 68113 (``Notice'').
    \5\ In addition, on December 24, 2013, the Commission extended
the time period for Commission action to January 3, 2014. See
Securities Exchange Act Release No. 71184 (December 24, 2013).
    \6\ In Amendment No. 2, the Exchange amended the proposed rule
change by removing the language in the proposal that gives the
Exchange discretion to adjust the specified percentage (i.e.,
``n%'') to an amount less than 60% and ``n%-x'' to an amount less
than 40%. Amendment No. 2 has been placed in the public comment file
for NYSEArca-2013-115 at http://www.sec.gov/comments/sr-nysearca-2013-115/nysearca2013115.shtml (see letter from Janet McGinness, EVP
& Corporate Secretary, General Counsel, NYSE Arca, to Elizabeth M.
Murphy, Secretary, Commission, dated December 26, 2013).
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II. Description of the Proposed Rule Change

    The Exchange currently ranks and tracks Electronic Complex Orders
in the Consolidated Book in a ``complex order table.'' Although the
Exchange stated that the complex order table has sufficient capacity to
accept all Complex Orders submitted by all OTPs under normal operating
conditions, the Exchange also noted that that capacity is not
unlimited.\7\ Given that this capacity is not unlimited, the Exchange
proposes to adopt Commentary .03 to Rule 6.91 \8\ to provide that if an
OTP submits orders that comprise more than ``n%'' of the capacity of
the complex order table (the ``Cap''), the Exchange will reject that
OTP's Electronic Complex Orders for the remainder of the trading day.
Proposed Commentary .03 to Rule 6.91 also provides a ``warning
threshold'' of ``n%--x'' of the complex order table. If an OTP breaches
such warning threshold, it would result in the Exchange rejecting the
OTP's

Electronic Complex Orders until such time that the OTP has notified the
Exchange to re-enable the submission of Electronic Complex Orders. The
Exchange will not reject any Electronic Complex Orders until after an
OTP has breached either the warning threshold (i.e., ``n%-x'') or the
Cap.\9\ The specified percentage (i.e., ``n%'') will be no less than
60%, and ``n%-x'' will be no less than 40%.
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    \7\ According to the Exchange, the complex order table currently
has the capacity to hold Electronic Complex Orders containing up to
14 million legs throughout the trading day. See Notice, supra note 4
at 68114, n. 8.
    \8\ Rule 6.91 governs trading of Complex Orders on the NYSE Arca
System (``Electronic Complex Orders'').
    \9\ For example, if an OTP submits an Electronic Complex Order
that, once accepted, breaches the Cap, the Exchange will accept that
order in its entirety and then will reject all subsequent Electronic
Complex Orders from that OTP for the remainder of the trading day.
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    The Exchange will announce the implementation date of the proposed
rule change by Trader Update to be published no later than 60 days
following approval by the Commission. The implementation date will be
no later than 60 days following the issuance of the Trader Update.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and rules and
regulations thereunder applicable to a national securities
exchange.\10\ In particular, the Commission finds that the proposed
rule is consistent with Section 6(b)(5) of the Act,\11\ which requires,
among other things, that the rules of an exchange be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and, in general,
to protect investors and the public interest. The Commission believes
that providing the Cap could provide the Exchange with a system
protection tool to address the potential risk that a single OTP could--
either intentionally or inadvertently- utilize the entire complex order
table, effectively shutting out all other OTPs' Electronic Complex
Orders from the Exchange for the remainder of the trading day. By
disabling the submission of Electronic Complex Orders of a single OTP
that has exceeded the Cap, the Cap should allow the Exchange to
accommodate Electronic Complex Orders from all other OTPs, thereby
helping to ensure efficient functionality of the complex order table
and the protection of investors and the public interest. In approving
this proposed rule change, the Commission notes that the Exchange
represented that under normal operating conditions, the combined
Electronic Complex Orders of all OTPs do not exceed 40% of the complex
order table.\12\ Therefore, the Exchange believes that setting the Cap
for a single OTP at 60% would allow 40% of the complex order table--
which is typically sufficient to accommodate all OTP's Electronic
Complex Orders--to remain accessible to the balance of OTPs and would
not unfairly deny these OTPs access to the market.\13\
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    \10\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ See Notice, supra note 4 at 68114. The Commission also
notes that the Exchange represented that a single OTP would only
exceed the Cap (or receive a warning of a near breach) in the event
of a bona fide problem (e.g., a system error or malfeasance). See
id.
    \13\ See Notice, supra note 4 at 68115.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
is consistent with the Act. Comments may be submitted by any of the
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2013-115 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2013-115. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-NYSEArca-2013-115 and should
be submitted on or before January 29, 2014.

V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2

    As proposed, the proposed rule change provided that, unless
determined otherwise by the Exchange and announced to OTPs via Trader
Update, the specified percentage (i.e., ``n%'') will be no less than
60%, and ``n%-x'' will be no less than 40%. Amendment No. 2 amended the
proposed rule change by removing the language in the proposal that
gives the Exchange discretion to adjust the specified percentage (i.e.,
``n%'') to an amount less than 60% and ``n%-x'' to an amount less than
40%. By removing this discretion, Amendment No. 2 reduces potential
uncertainty about the application of the proposed rule change.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\14\ for approving the proposed rule change, as
modified by Amendment Nos. 1 and 2, prior to the 30th day after the
date of publication of notice in the Federal Register.
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    \14\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\15\ that the proposed rule change (SR-NYSEArca-2013-115), as modified
by Amendment Nos. 1 and 2, be, and hereby is, approved on an
accelerated basis.
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    \15\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00065 Filed 1-7-14; 8:45 am]
BILLING CODE 8011-01-P