The SEC Division of Corporation Finance granted no-action relief to an exchange-traded fund ("ETF") from requirements under SEA Rule 14e-5 ("Prohibiting purchases outside of a tender offer"). As described in its letter to the SEC, the company argued that the ETF could not rely on the relief generally granted to funds that comply with ICA Rule 6c-11 ("Exchange-traded funds") (see 84 FR 57089, Order Granting a Conditional Exemption from [14e-5] for Certain Exchange Traded Funds) because the ETF does not disclose its complete portfolio holdings daily as required by paragraph (c) of Rule 14e-5.

The Division stated that the exemptive relief is subject to the following conditions:

  • the purchase of subject securities by a broker-dealer acting as a dealer-manager will not be for the purpose of facilitating a tender offer;
  • if, under certain circumstances, the composition of the ETF's portfolio changes and a broker-dealer acting as a dealer-manager can no longer rely on the so-called "basket exception," then the dealer-manager's purchase of a portfolio security during a tender offer will be effected as an adjustment to a basket of securities and not for the purpose of facilitating a tender offer; and
  • except for the relief granted in the no-action letter, any dealer-manager of a tender offer will comply with SEA Rule 14e-5.

Primary Sources

  1. Schwab Strategic Trust (September 14, 2021)
  2. Incoming Letter
  3. Exemptive Order

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