SEC Division of Corporation Finance Grants Exemption for Prohibited Securities Transactions
The SEC Division of Corporation Finance granted no-action relief to an exchange-traded fund trust (the “Trust”) for transactions involving "subject securities" and "related securities" outside of a tender offer.
In the Incoming Letter, the Trust requested relief from the requirements under Exchange Act Rule 14e-5 ("Prohibiting Purchases Outside of a Tender Offer"), which prohibits certain covered persons from purchasing, or arranging to purchase, any equity securities that are involved in a tender offer. Among those covered persons are dealer-managers involved in a tender offer. The Trust sought conditional relief from the rule's requirement in the event that it, or the fund it operates, becomes a covered person under the rule. The conditional relief would permit (i) the redemption of fund shares that may include the subject securities and (ii) engagement in certain secondary market transactions involving the fund shares, including for the purpose of transferring those securities to purchase units of the fund shares.
In the Order, the Division said that the no-action relief is conditioned upon the Trust ensuring that broker-dealers acting as dealer-managers of a tender offer:
- cannot effect purchases of subject securities or related securities for the “purpose of facilitating a tender offer”;
- must, under certain circumstances where the broker-dealer is unable to rely on the exception for basket transactions found in Rule 14e-5(b)(5) ("Basket Transactions"), effect purchases of a Proxy Portfolio for “the purpose of adjusting a basket of securities in the ordinary course of its business and not for the purpose of facilitating a tender offer”; and
- comply with Rule 14e-5 except for the relief specifically provided for in the SEC no-action letter.