[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62791-62798]
[FR Doc No: 2013-24559]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70608; File No. SR-BATS-2013-051]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Proposed Rule Change To List and Trade Shares of the iShares
Liquidity Income Fund

October 3, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 19, 2013, BATS Exchange, Inc. (``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is proposing to list and trade shares of the iShares
Liquidity Income Fund (``Fund'') of the iShares U.S. ETF Trust
(``Trust'') under BATS Rule 14.11(i) (``Managed Fund Shares''). The
shares of the Fund are collectively referred to herein as the
``Shares.''
    The text of the proposed rule addition is available at the
Exchange's Web site at http://www.batstrading.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule
14.11(i), which governs the listing and trading of Managed Fund Shares
on the Exchange.\3\ The Fund will be an actively managed fund. The
Shares will be offered by the Trust, which was established as a
Delaware statutory trust on June 21, 2011. The Trust is registered with
the Commission as an open-end investment company and has filed a
registration statement on behalf of the Fund on Form N-1A
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission approved BATS Rule 14.11(i) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, dated
February 4, 2013 (File Nos. 333-179904 and 811-22649). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement. The
Commission has issued an order granting certain exemptive relief to
the Company under the Investment Company Act of 1940 (15 U.S.C. 80a-
1) (``1940 Act'') (``Exemptive Order''). See Investment Company Act
Release No. 29571 (January 24, 2011) (File No. 812-13601).
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Description of the Shares and the Fund
    BlackRock Fund Advisors is the investment adviser (``BFA'' or
``Adviser'') to the Fund.\5\ State Street Bank and Trust Company is the
administrator, custodian, and transfer agent for the Trust. BlackRock
Investments, LLC (``Distributor'') serves as the distributor for the
Trust.
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    \5\ BlackRock Fund Advisors is an indirect wholly owned
subsidiary of BlackRock, Inc.
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    BATS Rule 14.11(i)(7) provides that, if the investment adviser to
the investment company issuing Managed Fund Shares is affiliated with a
broker-dealer, such investment adviser shall erect a ``fire wall''
between the investment adviser and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
investment company portfolio.\6\ In addition, Rule 14.11(i)(7) further
requires that personnel who make decisions on the investment company's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material non-public information regarding
the applicable investment company portfolio. Rule 14.11(i)(7) is
similar to BATS Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in
connection with the establishment of a ``fire wall'' between the
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case
with index-based funds. The Adviser is not a registered broker-dealer,
but is affiliated with multiple broker-dealers and has implemented
``fire walls'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, Adviser personnel who make decisions regarding
the Fund's portfolio are subject to procedures designed to prevent the
use and dissemination of material non-public information regarding the
Fund's portfolio. In the event that (a) the Adviser becomes a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser
or sub-adviser is a broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant
personnel or such broker-dealer affiliate, as applicable, regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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iShares Liquidity Income Fund
    According to the Registration Statement, the Fund will seek to
provide current income consistent with preservation of capital. To
achieve its objective, the Fund will invest, under normal
circumstances,\7\ at least 80% of its net assets in a portfolio of U.S.
dollar-denominated investment-grade fixed and floating-rate debt
securities (``Fixed Income Securities''). The Fund will not be a money
market fund and thus will not seek to maintain a stable net asset value
of $1.00 per Share. In the absence of normal circumstances, the Fund
may temporarily depart from its normal investment process, provided
that such departure is, in the opinion of BFA, consistent with the
Fund's investment objective and in the best interest of the Fund. For
example, the Fund may hold a higher than normal proportion of its
assets in cash in response to adverse market, economic, or political
conditions.
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    \7\ 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 fixed income 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.
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    The Fund will hold Fixed Income Securities of at least 13 non-
affiliated issuers. The Fund will not purchase the securities of
issuers conducting their principal business activity in the same
industry if, immediately after the purchase and as a result thereof,
the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided
that this restriction does not limit the Fund's: (i) Investments in
securities of other investment companies; (ii) investments in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; or (iii) investments in repurchase agreements
collateralized by U.S. government securities.\8\ The Fund will not
invest in non-U.S. equity securities.
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    \8\ See Form N-1A, Item 9. The Commission has taken the position
that a fund is concentrated if it invests in more than 25% of the
value of its total assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975), 40 FR 54241
(November 21, 1975).
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    The Fund intends to qualify each year as a regulated investment
company (``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended.\9\ The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification, and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M.
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    \9\ 26 U.S.C. 851.
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Fixed Income Securities
    The Fund intends to achieve its investment objective by investing,
under normal circumstances, at least 80% of its net assets in a
portfolio of U.S.

dollar-denominated investment-grade Fixed Income Securities, rated BBB-
or higher by Standard & Poor's Financial Services LLC and/or Fitch Inc.
(``Fitch''), or Baa3 or higher by Moody's Investors Service, Inc.
(``Moody's''), or, if unrated, determined by BFA to be of equivalent
quality.\10\ Under normal circumstances, the Fund will invest primarily
in Fixed Income Securities maturing in three years or less. Under
normal circumstances, short-term investments (generally, securities
with original maturities of one year or less) held by the Fund will
carry a rating in the highest two-rating categories of at least one
nationally recognized statistical ratings organization (e.g., A-2, P-2,
or F2 or better by Standard & Poor's Ratings Services, Moody's, or
Fitch, respectively), or if such investments are unrated, determined to
be of comparable quality by BFA, at the time of investment.
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    \10\ According to the Adviser, BFA may determine that unrated
Fixed Income Securities are of ``equivalent quality'' based on such
credit quality factors that it deems appropriate, which may include
among other things, performing an analysis similar, to the extent
possible, to that performed by a nationally recognized statistical
ratings organization when rating similar securities and issuers. In
making such a determination, BFA may consider internal analyses and
risk ratings, third party research and analysis, and other sources
of information, as deemed appropriate by the Adviser.
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    Fixed Income Securities will include fixed and floating rate debt
securities, such as corporate \11\ and government bonds, agency
securities,\12\ instruments of non-U.S. issuers, privately-issued
securities,\13\ structured securities,\14\ municipal bonds, money
market securities,\15\ and investment companies (including investment
companies advised by BFA or its affiliates) that invest in such Fixed
Income Securities.\16\ The Fund may invest up to 5% of its net assets
in Fixed Income Securities and instruments of issuers that are
domiciled in emerging market countries.
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    \11\ While the Fund is permitted to invest without restriction
in corporate bonds, the Adviser expects that, under normal
circumstances, the Fund will generally seek to invest in corporate
bond issuances that have at least $100 million par amount
outstanding in developed countries and at least $200 million par
amount outstanding in emerging market countries.
    \12\ ``Agency securities'' for these purposes generally includes
securities issued by the following entities: Government National
Mortgage Association (Ginnie Mae); Federal National Mortgage
Association (Fannie Mae); Federal Home Loan Banks (FHLBanks);
Federal Home Loan Mortgage Corporation (Freddie Mac); Farm Credit
System (FCS) Farm Credit Banks (FCBanks); Student Loan Marketing
Association (Sallie Mae); Resolution Funding Corporation (REFCORP);
Financing Corporation (FICO); and the Farm Credit System (FCS)
Financial Assistance Corporation (FAC). Agency securities can
include, but are not limited to, mortgage-backed securities.
    \13\ ``Privately-issued securities'' generally includes Rule
144A securities and, in this context, may include both mortgage-
backed and non-mortgage 144A securities.
    \14\ ``Structured securities'' generally includes privately-
issued and publicly-issued structured securities, including certain
publicly-issued structured securities that are not agency
securities. Examples include, but are not limited to: Asset-backed
securities backed by assets such as consumer receivables, credit
cards, student loans, and equipment leases; asset-backed commercial
paper; credit linked notes; and secured funding notes.
    \15\ The Adviser expects that, under normal circumstances, the
Fund intends to invest in money market securities (as described
below) in a manner consistent with its investment objective in order
to help manage cash flows in and out of the Fund, such as in
connection with payment of dividends or expenses, and to satisfy
margin requirements, to provide collateral or to otherwise back
investments in derivative instruments. For these purposes, money
market securities include: Short-term, high-quality obligations
issued or guaranteed by the U.S. Treasury or the agencies or
instrumentalities of the U.S. government; short-term, high-quality
securities issued or guaranteed by non-U.S. governments, agencies
and instrumentalities; repurchase agreements; money market mutual
funds; commercial paper; and deposits and other obligations of U.S.
and non-U.S. banks and financial institutions. All money market
securities acquired by the Fund will be rated investment grade. The
Fund does not intend to invest in any unrated money market
securities. However, it may do so, to a limited extent, such as
where a rated money market security becomes unrated, if such money
market security is determined by the Adviser to be of comparable
quality. BFA may determine that unrated securities are of comparable
quality based on such credit quality factors that it deems
appropriate, which may include, among other things, performing an
analysis similar, to the extent possible, to that performed by a
nationally recognized statistical rating organization rating similar
securities and issuers.
    \16\ The Fund currently anticipates investing in only registered
open-end investment companies, including mutual funds and the open-
end investment company funds described in BATS Rule 14.11, but notes
that the Exemptive Order allows the Fund to invest in ``shares of
other ETFs, shares of money market mutual funds, or other investment
companies.''
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    The Fund will invest in asset-backed and mortgage-backed Fixed
Income Securities.\17\ Asset-backed securities are fixed-income
securities that are backed by a pool of assets, usually loans such as
installment sale contracts or credit card receivables. Mortgage-backed
securities are asset-backed securities based on a particular type of
asset, a mortgage. There are a wide variety of mortgage-backed
securities involving commercial or residential, fixed-rate or
adjustable rate mortgages, and mortgages issued by banks or government
agencies.\18\
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    \17\ The Fund has not established a fixed limit to the amount of
asset-backed and/or mortgage-backed debt securities in which it will
invest, which is consistent with analogous funds. See, e.g., iShares
Short Maturity Bond Fund as described in SR-BATS-2012-033 (July 27,
2012) and approved by Securities Exchange Act Release No. 67894
(September 20, 2012), 77 FR 59227 (September 26, 2012) and PIMCO
Enhanced Short Maturity Strategy Fund (``MINT Fund'') as described
in Amendment 1 to SR-NYSEArca-2009-79 (November 10, 2009) and
approved by Securities Exchange Act Release No. 60981 (November 10,
2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79). As
noted above, at least 80% of the Fund's net assets will be, under
normal circumstances, invested in U.S. dollar-denominated investment
grade Fixed Income Securities, including asset-backed and/or
mortgage-backed debt securities. Neither high-yield asset-backed
securities nor high-yield mortgage-backed securities are included in
the Fund's principal investment strategies. The liquidity of a
security, especially in the case of asset-backed and mortgage-backed
debt securities, is a substantial factor in the Fund's security
selection process.
    \18\ See note 12, supra.
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    The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. Under
normal circumstances, the dollar-weighted average life of the Fund's
portfolio is expected to be one year or less, as calculated by the
Adviser.\19\ The Fund will also seek to maintain a dollar-weighted
average maturity that is less than 180 days.\20\
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    \19\ Dollar-weighted average life is the weighted average of the
times when principal is to be repaid.
    \20\ Dollar-weighted average maturity is calculated by taking
the average length of time to maturity (fixed-rate) or the next
interest rate reset (floating-rate) for each underlying instrument
held by the Fund, weighted according to the relative holdings per
instrument.
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    The Fund is an actively-managed fund that does not seek to
replicate the performance of a specified index. The Exchange notes,
however, that the Fund's portfolio will meet certain criteria for
index-based, fixed income exchange-traded funds contained in Rule
14.11(c)(4)(B)(i).\21\
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    \21\ See BATS Rule 14.11(c)(4)(B)(i) governing fixed income
based Index Fund Shares. The Fund's portfolio will meet the
following requirements of Rule 14.11(c)(4)(B)(i): (i) The index or
portfolio must consist of Fixed Income Securities (Rule
14.11(c)(4)(B)(i)(a)); (ii) a component may be a convertible
security, however, once the convertible security component converts
to an underlying equity security, the component is removed from the
index or portfolio (Rule 14.11(c)(4)(B)(i)(c)); (iii) no component
fixed-income security (excluding Treasury Securities) will represent
more than 30% of the weight of the index or portfolio, and the five
highest weighted component fixed-income securities do not in the
aggregate account for more than 65% of the weight of the index or
portfolio (Rule 14.11(c)(4)(B)(i)(d)); (iv) an underlying index or
portfolio (excluding exempted securities) must include securities
from a minimum of 13 non-affiliated issuers (Rule
14.11(c)(4)(B)(i)(e)); and (v) component securities that in
aggregate account for at least 90% of the weight of the index or
portfolio must be either: (1) From issuers that are required to file
reports pursuant to Sections 13 and 15(d) of the Act; (2) from
issuers that have a worldwide market value of its outstanding common
equity held by non-affiliates of $700 million or more; (3) from
issuers that have outstanding securities that are notes, bonds,
debentures, or evidence of indebtedness having a total remaining
principal amount of at least $1 billion; (4) exempted securities as
defined in Section 3(a)(12) of the Act; or (5) from issuers that are
a government of a foreign country or a political subdivision of a
foreign country (Rule 14.11(c)(4)(B)(i)(f)).

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Other Portfolio Holdings
    The Fund may, to a limited extent (under normal circumstances, less
than 20% of the Fund's net assets), engage in transactions in futures
contracts, options, and swaps.\22\
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    \22\ Derivatives might be included in the Fund's investments to
serve the investment objectives of the Fund. Examples include, but
are not limited to, treasury futures to hedge against rising
interest rates, currency futures to hedge against foreign exchange
rates, interest rate swaps, credit default swaps, total return
swaps, and equity index options. The derivatives will be exchange
traded and/or centrally cleared, and they will be collateralized.
Derivatives are not a principal investment strategy of the Fund.
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    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser \23\
under the 1940 Act.\24\ The Fund will monitor its portfolio liquidity
on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity if, through a change in values, net assets, or other
circumstances, more than 15% of the Fund's net assets are held in
illiquid securities. Illiquid securities include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.
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    \23\ In reaching liquidity decisions, the Adviser may consider
factors including: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer); any legal or contractual
restrictions on the ability to transfer the security or asset;
significant developments involving the issuer or counterparty
specifically (e.g., default, bankruptcy, etc.) or the securities
markets generally; and settlement practices, registration
procedures, limitations on currency conversion or repatriation, and
transfer limitations (for foreign securities or other assets).
    \24\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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Net Asset Value
    According to the Registration Statement, the net asset value
(``NAV'') of the Fund's Shares generally will be calculated once daily
Monday through Friday as of the close of regular trading on the New
York Stock Exchange (``NYSE''), generally 4:00 p.m. Eastern Time (``NAV
Calculation Time'') on each day that NYSE is open for trading, based on
prices at the NAV Calculation Time. NAV per Share is calculated by
dividing the Fund's net assets by the number of Fund Shares
outstanding. The Fund's net assets are valued primarily on the basis of
market quotations.
    According to the Registration Statement, the Fund values Fixed
Income Securities using prices provided directly from one or more
broker-dealers, market makers, or independent third-party pricing
services which may use matrix pricing and valuation models to derive
values. Swap agreements and other derivatives are generally valued
based upon quotations from market makers or by a pricing service in
accordance with valuation procedures approved by the Fund's board of
directors. Certain short-term debt securities may be valued on the
basis of amortized cost. Intraday, executable price quotations on Fixed
Income Securities and other assets are available from major broker-
dealer firms and for exchange-traded assets, including investment
companies, futures, and options, such intraday information is available
directly from the applicable listing exchange.
    According to the Registration Statement, generally, trading in
certain Fixed Income Securities is substantially completed each day at
various times prior to the close of business on NYSE. Generally,
trading in certain derivatives is substantially completed each day at
various times prior to the close of business on NYSE. The values of
such securities and derivatives used in computing the NAV of the Fund
are determined at such times.
    According to the Registration Statement, when market quotations are
not readily available or are believed by BFA to be unreliable, the
Fund's investments are valued at fair value. Fair value determinations
are made by BFA in accordance with policies and procedures approved by
the Fund's board of directors and in accordance with the 1940 Act. BFA
may conclude that a market quotation is not readily available or is
unreliable if a security or other asset or liability is thinly traded,
or where there is a significant event \25\ subsequent to the most
recent market quotation.
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    \25\ A ``significant event'' is an event that, in the judgment
of BFA, is likely to cause a material change to the closing market
price of the asset or liability held by the Fund.
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    According to the Registration Statement, fair value represents a
good faith approximation of the value of an asset or liability. The
fair value of an asset or liability held by the Fund is the amount the
Fund might reasonably expect to receive from the current sale of that
asset or the cost to extinguish that liability in an arm's-length
transaction. Valuing the Fund's investments using fair value pricing
will result in prices that may differ from current valuations and that
may not be the prices at which those investments could have been sold
during the period in which the particular fair values were used. The
value of assets or liabilities denominated in non-U.S. currencies will
be converted into U.S. dollars using exchange rates deemed appropriate
by BFA in its role as Adviser.
    For more information regarding the valuation of Fund investments in
calculating the Fund's NAV, see the Registration Statement.
The Shares
    The Fund will issue and redeem Shares on a continuous basis at the
NAV per Share only in large blocks of a specified number of Shares or
multiples thereof (``Creation Units'') in transactions with authorized
participants who have entered into agreements with the Distributor. The
Fund currently anticipates that a Creation Unit will consist of 50,000
Shares, though this number may change from time to time, including
prior to listing of the Fund. The exact number of Shares that will
constitute a Creation Unit will be disclosed in the Registration
Statement of the Fund. Once created, Shares of the Fund trade on the
secondary market in amounts less than a Creation Unit.
    The consideration for purchase of Creation Units of the Fund
generally will consist of the in-kind deposit of a designated portfolio
of securities (including any portion of such securities for which cash
may be substituted) (i.e., ``Deposit Securities'') and the ``Cash
Component'' computed as described below. Together, the Deposit
Securities and the Cash Component constitute the ``Fund Deposit,''
which represents the minimum initial and subsequent investment amount
for a Creation Unit of the Fund.
    The portfolio of securities required for purchase of a Creation
Unit may not be

identical to the portfolio of securities the Fund will deliver upon
redemption of Fund Shares. The Deposit Securities and Fund Securities
(as defined below), as the case may be, in connection with a purchase
or redemption of a Creation Unit, generally will correspond pro rata,
to the extent practicable, to the securities held by the Fund.
    The Cash Component will be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the ``Deposit
Amount,'' which will be an amount equal to the market value of the
Deposit Securities, and serve to compensate for any differences between
the NAV per Creation Unit and the Deposit Amount. The Fund generally
offers Creation Units partially for cash. BFA will make available
through the National Securities Clearing Corporation (``NSCC'') on each
business day, prior to the opening of business on the Exchange, the
list of names and the required number or par value of each Deposit
Security and the amount of the Cash Component to be included in the
current Fund Deposit (based on information as of the end of the
previous business day) for the Fund.
    The identity and number or par value of the Deposit Securities may
change pursuant to changes in the composition of the Fund's portfolio
as rebalancing adjustments and corporate action events occur from time
to time. The composition of the Deposit Securities may also change in
response to adjustments to the weighting or composition of the holdings
of the Fund.
    The Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through
the Depository Trust Company (``DTC'') or the clearing process through
the NSCC.
    Except as noted below, all creation orders must be placed for one
or more Creation Units and must be received by the Distributor in
proper form no later than 4:00 p.m. Eastern Time, in each case on the
date such order is placed in order for creation of Creation Units to be
effected based on the NAV of Shares of the Fund as next determined on
such date after receipt of the order in proper form. Orders requesting
substitution of a ``cash in lieu'' amount generally must be received by
the Distributor no later than 2:00 p.m. Eastern Time on the Settlement
Date. The ``Settlement Date'' is generally the third business day after
the transmittal date. On days when the Exchange or the bond markets
close earlier than normal, the Fund may require orders to create or to
redeem Creation Units to be placed earlier in the day.
    Fund Deposits must be delivered through the Federal Reserve System
(for cash and government securities), through DTC (for corporate and
municipal securities), or through a central depository account, such as
with Euroclear or DTC, maintained by State Street or a sub-custodian
(``Central Depository Account'') by an authorized participant. Any
portion of a Fund Deposit that may not be delivered through the Federal
Reserve System or DTC must be delivered through a Central Depository
Account. The Fund Deposit transfer must be ordered by the authorized
participant in a timely fashion so as to ensure the delivery of the
requisite number of Deposit Securities to the account of the Fund by no
later than 3:00 p.m. Eastern Time on the Settlement Date.
    A standard creation transaction fee will be imposed to offset the
transfer and other transaction costs associated with the issuance of
Creation Units.
    Shares of the Fund may be redeemed only in Creation Units at their
NAV next determined after receipt of a redemption request in proper
form by the Distributor and only on a business day. BFA will make
available through the NSCC, prior to the opening of business on the
Exchange on each business day, the designated portfolio of securities
(including any portion of such securities for which cash may be
substituted) that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day
(``Fund Securities''). Fund Securities received on redemption may not
be identical to Deposit Securities that are applicable to creations of
Creation Units.
    Unless cash redemptions are available or specified for the Fund,
the redemption proceeds for a Creation Unit generally will consist of a
specified amount of cash, Fund Securities, plus additional cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after the receipt of a request in proper
form, and the value of the specified amount of cash and Fund
Securities, less a redemption transaction fee. The Fund generally
redeems Creation Units partially for cash.
    A standard redemption transaction fee will be imposed to offset
transfer and other transaction costs that may be incurred by the Fund.
    Redemption requests for Creation Units of the Fund must be
submitted to the Distributor by or through an authorized participant no
later than 4:00 p.m. Eastern Time on any business day in order to
receive that day's NAV. The authorized participant must transmit the
request for redemption in the form required by the Fund to the
Distributor in accordance with procedures set forth in the authorized
participant agreement.
    Additional information regarding the Shares and the Fund, including
investment strategies, risks, creation and redemption procedures, fees
and expenses, portfolio holdings disclosure policies, distributions,
taxes, and reports to be distributed to beneficial owners of the Shares
can be found in the Registration Statement or on the Web site for the
Fund (www.iShares.com), as applicable.
Availability of Information
    The Fund's Web site, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Fund that may be downloaded. The Web site will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (``Bid/Ask
Price''),\26\ daily trading volume, and a calculation of the premium
and discount of the Bid/Ask Price against the NAV; and (2) data in
chart format displaying the frequency distribution of discounts and
premiums of the daily Bid/Ask Price against the NAV, within appropriate
ranges, for each of the four previous calendar quarters. Daily trading
volume information will be available in the financial section of
newspapers, through subscription services such as Bloomberg, Thomson
Reuters, and International Data Corporation, which can be accessed by
authorized participants and other investors, as well as through other
electronic services, including major public Web sites. On each business
day, before commencement of trading in Shares during Regular Trading
Hours \27\ on the Exchange, the Fund will disclose on its Web site the
identities and quantities of the portfolio of securities and other
assets (``Disclosed Portfolio'') held by the Fund that will form the
basis for the Fund's calculation of NAV

at the end of the business day.\28\ The Disclosed Portfolio will
include, as applicable, the names, quantity, percentage weighting and
market value of Fixed Income Securities and other assets held by the
Fund, and the characteristics of such assets. The Web site and
information will be publicly available at no charge.
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    \26\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
    \27\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
    \28\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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    In addition, for the Fund, an estimated value, defined in BATS Rule
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's portfolio, will be disseminated.
Moreover, the Intraday Indicative Value will be based upon the current
value for the components of the Disclosed Portfolio and will be updated
and widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Regular Trading Hours.\29\
In addition, the quotations of certain of the Fund's holdings may not
be updated during U.S. trading hours if such holdings do not trade in
the United States or if updated prices cannot be ascertained.
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    \29\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
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    The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and provide a
close estimate of that value throughout the trading day.
    Intraday, executable price quotations on Fixed Income Securities
and other assets are available from major broker-dealer firms and for
exchange-traded assets, including investment companies, futures, and
options, such intraday information is available directly from the
applicable listing exchange. All such intraday price information is
available through subscription services, such as Bloomberg, Thomson
Reuters, and International Data Corporation, which can be accessed by
authorized participants and other investors.
    Information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. The previous
day's closing price and trading volume information for the Shares will
be published daily in the financial section of newspapers. Quotation
and last-sale information for the Shares will be available on the
facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to BATS Rule 14.11(i), which sets forth
the initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 under the
Act.\30\ A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \30\ See 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. The Exchange will halt trading in
the Shares under the conditions specified in BATS Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing the Disclosed
Portfolio of the Fund; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BATS will allow
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BATS Rule 11.11(a), the
minimum price variation for quoting and entry of orders in Managed Fund
Shares traded on the Exchange is $0.01, with the exception of
securities that are priced less than $1.00, for which the minimum price
variation for order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Managed Fund Shares. The
Exchange may obtain information regarding trading in the Shares and the
underlying shares in investment companies, futures, and options via the
Intermarket Surveillance Group (``ISG''), from other exchanges who are
members or affiliates of the ISG, or with which the Exchange has
entered into a comprehensive surveillance sharing agreement.\31\ The
Exchange prohibits the distribution of material non-public information
by its employees.
---------------------------------------------------------------------------

    \31\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Exchange
also notes that all of the investment company securities, futures,
and options will trade on markets that are a member of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) BATS Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value is disseminated; (4) the risks involved
in trading the Shares during the Pre-Opening \32\ and After Hours
Trading Sessions \33\ when an updated Intraday Indicative Value will
not be calculated or publicly disseminated; (5) the requirement that
members deliver a prospectus to investors purchasing newly issued

Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
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    \32\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
    \33\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
    In addition, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site. In addition, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the Fund's
Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \34\ in general and Section 6(b)(5) of the Act \35\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in BATS Rule 14.11(i). The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. If the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser to the investment adviser
shall erect a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio. The
Adviser is not a registered broker-dealer, but is affiliated with
multiple broker-dealers and has implemented ``fire walls'' with respect
to such broker-dealers regarding access to information concerning the
composition and/or changes to the Fund's portfolio. The Exchange may
obtain information regarding trading in the Shares and the underlying
shares in investment companies, futures, and options via the ISG, from
other exchanges who are members or affiliates of the ISG, or with which
the Exchange has entered into a comprehensive surveillance sharing
agreement.\36\
---------------------------------------------------------------------------

    \36\ See note 31, supra.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund expects that it
will have at least 80% of its assets invested in U.S. dollar-
denominated investment grade Fixed Income Securities. The Fund's
exposure to any single industry will generally be limited to 25% of the
Fund's assets. The Fund's investments will be consistent with the
Fund's investment objective and will not be used to enhance leverage.
The Fund also may invest its net assets in money market instruments at
the discretion of the Adviser. The Fund may invest up to 5% of its net
assets in Fixed Income Securities and instruments of issuers that are
domiciled in emerging market countries. While the Fund is permitted to
invest without restriction in corporate bonds, the Adviser expects
that, under normal circumstances, the Fund will generally seek to
invest in corporate bond issuances that have at least $100 million par
amount outstanding in developed countries and at least $200 million par
amount outstanding in emerging market countries. The Fund will not
invest in non-U.S. equity securities.
    Additionally, the Fund may hold up to an aggregate amount of 15% of
its net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities. The Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are held
in illiquid securities. Illiquid securities include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance. The Fund may engage in derivatives
transactions, including transactions in futures contracts, options, and
swaps, to a limited extent.\37\ The Fund's portfolio will meet certain
criteria for index-based, fixed income exchange-traded funds contained
in Rule 14.11(c)(4)(B)(i).\38\
---------------------------------------------------------------------------

    \37\ Derivatives might be included in the Fund's investments to
serve the investment objectives of the Fund. Examples include, but
are not limited to, treasury futures to hedge against rising
interest rates, and currency futures to hedge against foreign
exchange rates. The derivatives will be exchange traded and/or
centrally cleared, and they will be collateralized. Derivatives are
not a principal investment strategy of the Fund. See note 22, supra.
    \38\ See note 21, supra.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Moreover, the Intraday
Indicative Value will be disseminated by one or more major market data
vendors at least every 15 seconds during Regular Trading Hours. On each
business day, before commencement of trading in Shares during Regular
Trading Hours, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Pricing information will be available on
the Fund's Web site including: (1) The prior business day's reported
NAV, the Bid/Ask Price of the Fund, and a calculation of the premium
and discount of the Bid/Ask Price against the NAV; and (2) data in
chart format displaying the frequency distribution of discounts and
premiums of the daily Bid/Ask Price against the NAV, within appropriate
ranges, for each of the four previous calendar quarters. Additionally,
information regarding market price and trading of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last-sale information for the Shares will be available on the
facilities of the CTA. The Web site for the Fund will include a form of
the prospectus for the Fund

and additional data relating to NAV and other applicable quantitative
information. Trading in Shares of the Fund will be halted under the
conditions specified in BATS Rule 11.18. Trading may also be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. Finally, trading in
the Shares will be subject to BATS Rule 14.11(i)(4)(B)(iv), which sets
forth circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and quotation and last-sale information
for the Shares.
    Intraday, executable price quotations on Fixed Income Securities
and other assets are available from major broker-dealer firms and for
exchange-traded assets, including investment companies, futures, and
options, such intraday information is available directly from the
applicable listing exchange. Such intraday price information is
available through subscription services, such as Bloomberg, Thomson
Reuters, and International Data Corporation, which can be accessed by
authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Intraday Indicative Value, the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional actively-managed exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days of
publication (i) as the Commission may designate if it finds such longer
period to be appropriate and publishes its reasons for so finding or
(ii) as to which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change; or
    B. institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-BATS-2013-051 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-BATS-2013-051. 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 Section, 100 F Street
NE., Washington, DC 20549, on official business days between 10:00 a.m.
and 3:00 p.m. Copies of the filing will also 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 available publicly. All
submissions should refer to File Number SR-BATS-2013-051 and should be
submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24559 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P