SEC grants ETF no-action exemption from take-over bid rules – Finance and Banking


United States: SEC grants ETF no-action exemption from take-over bid rules

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The SEC Corporate Finance Division allowed Non-action exemption from the requirements of SEA Rule 14e-5 (“Prohibition on Purchases Outside a Takeover Bid”) on Exchange Traded Funds (“ETFs”). The exemption is granted to authorized participants trading in shares issued and redeemed by the Doubleline ETF on the basis that the authorized participants will not know which shares are actually held by the ETF and, therefore, could not act in manipulative intent.

As described in his letter at the SEC, the ETF could not avail itself of the exemption generally granted to funds which comply with ICA rule 6c-11 (“Exchange-Traded Funds”) because the ETF does not disclose its holdings in portfolio on a daily basis.

the relief is subject to the following conditions:

  • the purchase of the securities targeted by a broker acting as broker-manager will not be for the purpose of facilitating a takeover bid;
  • any purchase of portfolio securities by a broker-manager during a takeover bid will be made as an adjustment to a basket of securities in the ordinary course of business due to a change in the composition of the ETF portfolio; and
  • With the exception of the exemption granted in the no-action letter, any broker-manager of a take-over bid will comply with SEA rule 14e-5.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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