SEC Division of Trading and Markets no-action letter: iShares Trust Equity-Index Exchange Traded Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

DIVISION OF
TRADING AND MARKETS November 3,2011
Matthew B. Comstock, Esq.
1875 K Street, NW
Washington, DC 20006
Re: iShares Trust Equity-Index Exchange Traded Fund File No. TP 11-22 Dear Mr. Comstock:
In your letter dated November 3,2011, as supplemented by conversations with the staff ofthe Division ofTrading and Markets ("Division"), iShares Trust (the "Trust") on behalf of itself, the iShares S&P International Preferred Stock Index Fund (the "Fund"), any national securities exchange on or through which shares issued by the Fund ("Shares") may subsequently trade, and persons or entities engaging in transactions in Shares, requests exemptions, or interpretive or no-action relief, from Rules 1 Ob-17 and 14e-5 ofthe Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rules 101 and 102 ofRegulation M in connection with secondary market transactions in Shares and the creation or redemption of Creation Units as discussed in your letter. We have enclosed a photocopy of your letter. Each defined term in this letter has the same meaning as defined in your letter, unless we note otherwise. The Trust was organized on December 16, 1999, as a Delaware statutory trust. The Trust is registered with the Commission under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company. The Trust currently consists of approximately 189 investment series or portfolios. Your letter requests relief related to the Fund, a newly created series ofthe Trust. The Fund will invest in preferred stocks consisting ofthe Component Securities ofthe S&P International Preferred Stock Index, consistent with the Fund's investment strategy. The Fund will use a "passive" or indexing approach to try to achieve the Fund's investment objectives. In your letter, you represent the following:

• Shares ofthe Fund will be issued by the Trust, an open-end management
  investment company that is registered with the Commission;
• The Trust will continuously redeem, at net asset value ("NA V"), Creation Unit
  aggregations of at least 50,000 Shares, and the secondary market price ofthe Shares should not vary substantially from the NAV of such Shares;
• Shares ofthe Fund will be listed and traded on the NYSE Arca;

Matthew B. Comstock
November 3,2011

• The Fund will hold 20 or more Portfolio Securities with no one Portfolio Security
  constituting more than 25% of the Fund;
• On each business day, before the opening of business on the Exchange (normally
  9:30 a.m., Eastern time), the Adviser and the Distributor, through the National Securities Clearing Corporation, will make available the identity and required number of shares of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information at the end ofthe previous business day). The Deposit Securities generally remain the same, subject to certain limited adjustment, until such time as the next￾announced composition ofthe Deposit Securities is made available;
• The Exchange or other market information provider will disseminate every 15
  seconds throughout the trading day through the facilities ofthe Consolidated Tape Association an amount representing on a per-share basis, the sum of the current value ofthe Deposit Securities and the estimated Cash Component;
• The arbitrage mechanism will be facilitated by the transparency of the Fund's
  portfolio and the availability of the IIV, the liquidity of its Portfolio Securities, ability to acquire such securities, as well as the arbitrageurs' ability to create workable hedges;
• The Fund will invest solely in liquid securities;
• The Trust expects arbitrageurs to take advantage of price variations between the
  Fund's market price and its NAV; and
• As a result, the Trust expects that there will be a close alignment between the
  Fund's market price and the Fund's NAV.
  Response:
  Regulation M
  Redeemable securities issued by an open-end management investment company are excepted from the provisions of Rule 101 and 102 of Regulation M. The Commission granted the Trust an exemption from certain provisions of the 1940 Act in order to permit the Trust to maintain its registration as an open-end management investment company and to issue shares that are redeemable only in Creation Unit size aggregations of Shares. Rule 101 o/Regulation M

I
Matthew B. Comstock
November 3,2011
Generally, Rule 101 of Regulation M is an anti-manipulation regulation that, subject to certain exceptions, prohibits any "distribution participant" and its "affiliated purchasers" from bidding for, purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of a distribution until after the applicable restricted period except as specifically permitted in the Regulation. The provisions of Rule 101 of Regulation M apply to underwriters, prospective underwriters, brokers, dealers, or other persons whe have agreed to participate or are participating in a distribution of securities. On the basis of your representations and the facts presented, particularly that the Trust is a registered open-end management investment company that will continuously redeem at the NAV Creation Unit size aggregations ofthe Shares of the Fund, and the secondary market price ofthe Shares ofthe Fund should not vary substantially from the NA V of such Shares, which is based on the identity and quantity of the securities and the other assets held by the Fund, and without necessarily concurring in your analysis, the Division hereby confirms that the Trust is excepted under paragraph (c)( 4) of Rule 101 of Regulation M with respect to the Fund, thus permitting persons who may be deemed to be participating in a distribution of Shares ofthe Fund to bid for or purchase such Shares during their participation in such distribution. 1 The Division also confirms the interpretation of Rule 101 of Regulation M that a redemption of Creation Unit size aggregations of Shares of the Fund and the receipt of In-Kind Redemption Securities in exchange therefor by a participant in a distribution of Shares of the Fund would not constitute an "attempt to induce any person to bid for or purchase a covered security, during the applicable restricted period" within the meaning of Regulation M, and therefore would not violate Regulation M. Rule 102 ofRegulation M Rule 102 of Regulation M prohibits issuers, selling security holders, or any affiliated purchaser of such person from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security during the applicable restricted We note that Regulation M does not prohibit a distribution participant and its affiliated purchasers from bidding for and purchasing portfolio securities in accordance with the exceptions contained in paragraphs (b)(6) and (c)(l) of Rule 101. Rule 101 (b)(6)(i) excepts basket transactions in which bids or purchases are made in the ordinary course of business in connection with a basket of 20 or more securities in which a covered security does not comprise more that 5% of the value of the basket purchased. Rule 101(b)(6)(ii) excepts adjustments to such a basket made in the ordinary course of business as a result of a change in the composition ofa standardized index. Also, Rule 10 1(c)(l) excepts transactions in actively-traded securities, that is,
securities that have an average daily trading volume value of at least $1 million and are issued by an issuer whose common equity securities have a public float value of at least $150 million; provided however, that such securities are not issued by the distribution participant or an affiliate ofthe distribution participant.

Matthew B. Comstock period in connection with a distribution of securities effected by or on behalf of an issuer or selling security holder. Rule 100 of Regulation M defines "distribution" to mean any offering of securities that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods. On the basis of your representations and the facts presented, particularly that the Trust is a registered open-end management investment company that will redeem at the NA V Creation Units of Shares of the Fund, the Division hereby confirms that the Trust is excepted under paragraph (d)(4) of Rule 102 of Regulation M with respect to the Fund, thus permitting the Fund to redeem Shares ofthe Fund during the continuous offering of such Shares. Rule lOb-17 Rule 1 Ob-I7, with certain exceptions, requires an issuer of a class of publicly traded securities to give notice of certain specified actions (for example, a dividend distribution) relating to such class of securities in accordance with Rule 1 Ob-I7(b). On the basis of your representations and the facts presented, and without necessarily concurring in your analysis, particularly that the concerns that the Commission raised in adopting Rule 1 Ob-I7 generally will not be implicated if exemptive relief is granted to the Trust because market participants will receive timely notification of the existence and timing of a pending distribution, the Commission hereby grants an exemption from the requirements of Rule 1 Ob-I7 to the Trust with respect to transactions in the Shares.2 This exemptive relief is subject to the following conditions:

• The Trust will comply with Rule 1 Ob-I7 except for Rule 1 Ob-I7(b)(1 )(v)(a) and
  (b); and
• The Trust will provide the information required by Rule IOb-I7(b)(1)(v)(a) and
  (b) to the Exchange as soon as practicable before trading begins on the ex￾dividend date, but in no event later than the time when the Exchange last accepts information relating to distributions on the day before the ex-dividend date. Rule 14e-5 Rule 14e-5 under the Exchange Act, among other things, prohibits a person making a tender offer or exchange offer for any equity security from directly or indirectly, purchasing or arranging to purchase any subject or related securities except as
  part of the offer, from the time the offer is publicly announced until its expiration.
  2 We also note that timely compliance with Rule IOb-17(b)(l)(v)(a) and (b) would be impracticable in light of the nature of the Trust. This is because it is not possible for the Trust to accurately project ten days in advance what dividend, ifany, would be paid on a particular record date.

Matthew B. Comstock
November 3,2011
Rule 14e-5 explicitly includes dealer-managers within the rule's definition of "covered person." Accordingly, while acting as dealer-manager of a tender offer for a Component Security, a dealer-manager is prohibited from purchasing or arranging to purchase that Component Security until the expiration of the offer. On the basis of your representations and the facts presented, particularly that purchases or redemptions of the Shares would not appear to result in the abuses at which Rule 14e-5 is directed, and that any bids or purchases by Covered Persons would not be effected for the purpose of facilitating a tender offer, the Commission hereby grants an exemption from Rule 14e-5 to permit any person acting as dealer-manager of a tender offer for a Component Security to: (1) redeem the Shares in Creation Unit size aggregations for the Fund Securities that may include a security subject to the tender offer or exchange offer; and (2) engage in secondary market transactions in Shares during such offer. 3 These exemptions and interpretations are subject to modification or revocation if at any time the Commission or Division determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, persons relying on these exemptions and interpretations are directed to the anti-fraud and anti￾manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and other provisions ofthe federal or state securities laws must rest with persons relying on these exemptions and interpretations. The Division expresses no view with respect to other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of other federal and state laws to, the proposed transactions. 3 The Staff also confinns its no-action position under Rule 14e-5 when a broker-dealer (including a member or member organization of the NYSE Arca or other national securities exchange), acting as a dealer-manager ofa tender offer for a Component Security, purchases such Component Security in the secondary market for the purpose of tendering them to purchase a Creation Unit size aggregation of Fund Securities, if such transactions are effected as adjustments to such a basket in the ordinary course of business as a result ofa change in the composition ofthe relevant index.

Matthew B. Comstock
November 3,2011
For the Commission, by the Division of

Trading and Markets,

pursuant to delegated authority,

Lz~ Assistant Director
Attachment

WILLKIE FARR &GALLAGHERllP 1875 K Street, NW
Washington, DC 20006-1238
Td: 2023031000
Fax: 202 303 2000
November 3, 20] ]
Ms. Josephine J. Tao, Esq.

Assistant Director

Office ofTrading Practices and Processing

Division ofTrading and Markets

U.S. Securities and Exchange Commission

] 00 F Street, NE

Washington, DC 20549

Re: Request for Exemptive, Interpretive and No-Action Re]ief from Rules 101 and 102 ofRegulation M under the Securities Exchange Act of 1934 (the "Exchange Act") and Rules I Ob-17 and 14e-5 under the Exchange Act for an Equity-Index Exchange Traded Fund Dear Ms. Tao:
iShares Trust (the "Trust") requests relief under the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of itself and the market participants discussed below with respect to one of its series operated as an exchange-traded fund (an "ETF"). The Trust is an open-end management investment company, registered as an investment company with the U.S. Securities and Exchange Commission (the "Commission"), that was organized on December 16, 1999 as a Delaware statutory trust. The Trust consists of approximately 189 investment series or portfolios. This letter requests relief with respect to the iShares S&P International Preferred Stock Index Fund (the "Fund"), a newly-created series of the Trust. The Trust is seeking approval from the NYSE Arca (the "Exchange") to have the Fund's shares (the "Shares") listed on the Exchange, subject to notice of issuance. The Exchange is expected to rely on Rule] 9b-4(e) under the Exchange Act to list the Shares for trading. The Shares will meet the Exchange'S listing criteria for ETFs pursuant to Exchange Rule 5.2(j)(3), including the trading volume and portfolio liquidity criteria thereof.! I Rule 5 of the NYSE Arca Equities Rules governs listing of equity securities. Rule 5.2(j)(3), as noted, sets out the listing standards for investment company units, such as the Shares. To be eligible to list its shares on the Exchange, Rule 5.2(j)(3) generally requires, in relevant part, an investment company to hold securities comprising, or otherwise based on or representing an interest in, an index or portfolio of NEW YORK WASHINGTON PARIS LONDON MILAN ROME fRANKFURT BRUSSELS in alliance with Dickson Minto w.S., London and Edinburgh

November 3,2011
The Fund will invest in preferred stocks consisting of the component securities

(the "Component Securities") of the S&P International Preferred Stock Index (the

"Index"), consistent with the Fund's investment strategy. The Trust will issue and

redeem Shares only in aggregations of at least 50,000 Shares (referred to as "Creation

Units").

The Trust, on behalfof itself, the Fund, the Exchange and any other national securities exchange on or through which the Shares may subsequently trade (with each such market being a "Market"), and persons or entities engaging in transactions in Shares, as the case may be, requests that the Commission grant exemptive, interpretive or no-action relief from Rules 101 and 102 of Regulation M under the Exchange Act, and Rules I Ob-17 and 14e-5 under the Exchange Act, in connection with secondary market transactions in Shares and the creation or redemption ofCreation Units of Shares, as discussed below. On October 24,2006, the Commission granted relief to the PowerS hares Exchange-Traded Fund Trust with respect to the rules under the Exchange Act identified above (the "PowerShares Letter,,}.2 ETFs listed and traded on an exchange may rely upon the relief granted in the PowerShares Letter without the submission of an Exchange Act exemptive/no-action request if such ETFs meet specified conditions, including that:
(a) at least 70% of the ETF must be comprised of component stocks that have a minimum average daily trading volume ("ADTV") ofat least $1 million during each of the previous two months of trading prior to fonnation of the relevant ETF; and (b) at least 70% of the ETF must be comprised of component stocks that have a minimum public float value of at least $150 million; provided, however, that if the ETF has 200 or more component stocks, then 50% ofthe component stocks must meet the $1 million ADTV and $150 million public float thresholds.3 Although the Fund is expected to meet the applicable requirements to be listed on the Exchange, certain of the Component Securities of the Fund will not meet the ADTV criterion of the PowerShares Letter;4 therefore, the Fund securities. The investment company must issue units in a specific aggregate number of individual shares in return for a deposit of securities and/or a cash amount. Units must be redeemable directly or indirectly from the investment company in return for securities and/or cash, a minimum number ofunits must be outstanding at the commencement of trading on the Exchange, and the units' net asset value per share must be calculated daily and available to all market participants at the same time. 2 Letter from James A. Brigagliano, Assistant Director of Market Regulation, to Stuart M. Strauss, Esq. (Oct. 24,2006). Relief was granted for the Commission by the Division of Market Regulation (now the Division of Trading and Markets) pursuant to delegated authority . .~ PowerS hares Letter at 2-3. 4 Except for the ADTV criterion of the PowerS hares Letter, the Fund meets all other conditions ofthe PowerS hares Letter. We note that the Commission has previously granted relief to ETFs that did not meet, among other things, the ADTV requirement, but that otherwise met the conditions of the PowerShares Letter. See Letter from James A. Brigagliano, Associate Director, Division of Market Regulation, to Domenick Pugliese (Mar. 8,2007) ("Health Shares Composite Letter"); Letter from James A. Brigagliano, Associate Director, Division of Market Regulation, to Domenick Pugliese (Jan. 22,2007) ("HealthShares Emerging Letter"):
We note that 99 percent of the Fund's component stocks would meet the minimum public float criterion.

may not rely on the relief provided in the PowerShares Letter with respect to Rules 101 and 102 of Regulation M under the Exchange Act and Rules 1 Ob-17 and 14e-5 under the Exchange Act.s
I. The Parties
A. The Fund
The Fund is a separate investment portfolio ofthe Trust. The investment

objective of the Fund is to provide investment results that, before fees and expenses,

correspond generally to the price and yield of the Index. The Fund's investment

objective is not a fundamental policy and can be changed by the board oftrustees ofthe

Trust (the "Board") without shareholder approval.

The Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualifY as a "regulated investment company" for purposes of the Internal Revenue Code of 1986. The Index is a Standard and Poor's ("S&P") Global Index. Each of the S&P Global Indexes is a free float-adjusted market capitalization weighted index that begins with an eligible investable universe of stocks covering approximately 95% of each country's total market capitalization. The Index measures the performance of a select group ofpreferred stocks trading on exchanges in developed countries other than the United States. The Index has approximately 50 constituents and as of the close ofbusiness on January 24,2011, the Index was concentrated in the financial industry group, which comprised approximately 83% ofthe market capitalization ofthe Index. The Index is also concentrated in the preferred equity securities of Canadian issuers, with approximately 73% of the market capitalization of the Index comprised of Canadian issuances as of the close of business on January 24,2011. As of that date, the Index also included securities ofissuers in Japan, New Zealand and the United Kingdom. The Index generally includes developed~market preferred stocks with a market capitalization of over $100 miIlion that meet minimum price, liquidity, maturity and other requirements determined by S&P. S&P excludes from the Index: (i) preferred stocks that are structured products and brand-name products issued by financial institutions or are packaged securities linked to indexes, baskets of stock or another company's stock; We note that for the two-month period from May 25,2011 through July 26,2011,17 of7l, or 24% of the component stocks, met the $1 million ADTV criterion. 5 The Commission has granted class relief with respect to Section II(d)(I) of the Exchange Act and Rules IOb-IO, Ildl-2, 15cl-5 and 15cl-6 thereunder to certain "Qualifying ETFs." See Letter from Catherine McGuire, Chief Counsel, Division of Market Regulation, to the Securities Industry Association (Nov. 21, 2005). The Fund meets the requirements of "Qualifying ETFs" under the aforementioned letter and is relying on the letter with respect to these provisions.

November 3, 20 II

(ii) preferred stocks that are issued by special ventures such as highway, airport, or dam operators; (iii) preferred stocks that have a mandatory conversion or scheduled maturity within the next 12 months; and (iv) trust preferred stocks. Preferred stocks are removed from the Index on a quarterly rebalancing date if they: (i) have an outstanding market capitalization ofless than $100 million; (ii) have a six-month average trading volume ofless than 125,000 shares and have been a component ofthe Index for at least 12 months; or (iii) have an undetermined indicated dividend yield or an indicated dividend yield of less than 1 % or greater than 20%. B. The Adviser BlackRock Fund Advisors ("BFA" or the "Adviser") has overall responsibility for the general management and administration ofthe Fund, including investment ofthe Fund's assets. BFA is registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). BFA provides an investment program for the Fund . and manages the investment of the Fund's assets. In seeking to achieve the Fund's investment objective, BFA uses a team ofportfolio managers, investment strategists and other investment specialists. The Fund will be subadvised by BlackRock International Limited ("BIL"), an affiliate ofBFA. BFA's management and administration ofthe Fund is subject to the oversight ofthe Board. BFA uses a "passive" or indexing approach to try to achieve the Fund's investment objective. Unlike many investment companies, the Fund does not try to outperform the index that it tracks and does not seek temporary defensive positions when markets decline or appear overvalued. Under the Investment Advisory Agreement between BFA and the Trust (entered into on behalfofthe Fund), BFA is responsible for substantially all expenses ofthe Fund other than interest expense, taxes, brokerage expenses, future distribution fees or expenses and extraordinary expenses.
C. The Distributor
SEI Investments Distribution Co. (the "Distributor"), a broker-dealer registered with the Commission under the Exchange Act, will act on an agency basis and will be the Fund's "principal underwriter," as defined in Section 2(a)(29) ofthe Investment Company Act of 1940 (the "1940 Act"). The Trust issues and sells Shares only in Creation Units on a continuous basis through the Distributor at their net asset value ("NA V") next determined after receipt of an order in proper form. The Distributor will not maintain a secondary market in the Shares. The Distributor may enter into selected dealer agreements with other broker-dealers or other qualified financial institutions for the sale ofCreation Units of Shares ("Soliciting Dealers"). Such Soliciting Dealers may also be participants in the Depository Trust Company (,'DTC").

November 3,2011
D. The Depository Trust Company
DTC will serve as the securities depository for the Shares (the Shares may be held only in book-entry form; stock certificates will not be issued). DTC, or its nominee, will be the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records ofDTC or its participants (i.e., securities brokers￾dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC, referred to herein as "DTC Participants"). Beneficial owners of Shares generally are not entitled to have Shares registered in their names, and will not receive or be entitled to receive physical delivery of certificates. To exercise any rights of a holder of Shares, each beneficial owner must rely on the procedures of (i) DTC; (ii) DTC Participants; and (iii) broker-dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly, through which such beneficial owner holds its interests.
II. Intraday Indicative Value and the Trading Market
A. Calculation of Intraday Indicative Value
The Exchange or other market information provider will disseminate every 15 seconds throughout the trading day, through the facilities ofthe Consolidated Tape Association ("CTA"), an amount (the "lIV") representing, on a per-share basis, the sum of the current value ofthe Deposit Securities, as that term is defined below, and the estimated Cash Component, also defined below. The Trust is not involved in or responsible for the calculation or dissemination of any such amount and makes no representation or warranty as to its accuracy. B. The Trading Market As noted above, Shares will be listed for trading and will trade throughout the day on the Exchange and, potentially, other Markets. The price of Shares trading on the Exchange will be based on a current bid/offer market. The trading market on the Exchange affords investors the opportunity to assume and liquidate positions in Shares at their discretion, permitting them to take advantage ofprices at any time during the trading day. This combination of intra-day liquidity with the Creation Unit purchase and redemption features creates potential arbitrage opportunities that, in turn, should mitigate pricing inefficiencies. The structural characteristics of the Shares are believed to provide investors with a liquid, price-efficient security that closely tracks the performance of the applicable Index. The arbitrage mechanism will be facilitated by the transparency ofthe Fund's portfolio as represented by the Deposit Securities and Fund Securities, as discussed more fully below; availability ofthe IIV; the liquidity of the securities and the ability to access

November 3,2011 such securities; as well as the arbitrageurs' ability to create workable hedges. As discussed above, there will be disclosure on each business day of the Fund's Deposit Securities and Fund Securities, and the IIV will be disseminated every 15 seconds throughout the trading session. The Fund will invest solely in liquid securities, which will facilitate an effective and efficient arbitrage mechanism and the ability to create workable hedges. For these reasons, we expect arbitrageurs to be able to take advantage of price variations between the Fund's market price and its NAV. We therefore expect close alignment between the market price and the NA V per share.
III. Creation and Redemption of Shares
A. Method ofPurchase and Creation of Shares
The consideration for purchase ofCreation Units of the Fund generally consists of the in-kind deposit of a designated portfolio ofsecurities (induding any portion of those securities for which cash may be substituted) (i.e., the "Deposit Securities"), and the "Cash Component," 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 ofthe Fund. The Cash Component is an amount equal to the difference between the NAV of the Creation Unit and the "Deposit Amount," which is an amount equal to the market value of the Deposit Securities. The function ofthe Cash Component is to compensate for any differences between the NAV per Creation Unit and the Deposit Amount. BFA, through the National Securities Clearing Corporation ("NSCC"), makes available on each business day, before the opening of business on the Exchange, the identity and required number ofshares of each Deposit Security and the amount ofthe Cash Component to be included in the current Fund Deposit (based on information at the end ofthe previous business day). The Deposit Securities generally remain the same, subject to any adjustments as described below, until such time as the next-announced composition of the Deposit Securities is made available. To be eligible to place orders with the Distributor and to create a Creation Unit of the Fund, an entity must be: (i) a "Participating Party," i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of NSCC (the "Clearing Process"), (ii) a dearing agency that is registered with the Commission, or (iii) a DTC Participant, and must have executed an agreement with the Distributor with respect to creations and redemptions ofCreation Units ("Participant Agreement"). A Participating Party that has executed a Participant Agreement is referred to as an "Authorized Participant." All creation orders must be placed for one or more Creation Units by or through an Authorized Participant and must be received by the Distributor in proper form no later than the time specified in the Fund's prospectus on any business day in order for the

November 3,2011 purchase to be effected based on the NA V of the Shares as next determined on such date. The date on which an order to create Creation Units (or an order to redeem Creation Units, as discussed below) is timely received in proper form is referred to as the "Transmittal Date." State Street Bank and Trust Company ("State Street"), the custodian of the Fund's assets, will maintain or cause a sub-custodian of the Fund to maintain an account into which the Authorized Participant shall deliver, on behalf ofitself or the party on whose behalfit is acting, the securities included in the Fund Deposit (or the cash value ofsuch securities, in the case of permitted or required cash purchases or "cash in lieu" amounts), with any appropriate adjustments as permitted by the Trust. Because Deposit Securities normally will consist of non-U.S. securities, they will be delivered to an account maintained at the applicable local sub-custodians. A Creation Unit typically will not be issued until the transfer to the Trust of good title to the Deposit Securities or cash, as applicable, and the payment of the Cash Component, have been completed. When the sub-custodian has confirmed to the Custodian that the securities included in the Fund Deposit (or the cash value thereof) have been delivered to the account ofthe relevant sub-custodian or sub-custodians, the Distributor and the Adviser shall be notified ofsuch delivery and the Trust will issue and cause the delivery ofthe Creation Unit in respect ofthe Fund. Creation Units are typically issued on aT+3 basis. To the extent contemplated by the applicable Participant Agreement, Creation Units may be issued to an Authorized Participant notwithstanding the fact that the corresponding Deposit Securities have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking must be secured by such Authorized Participant's delivery and maintenance ofcollateral. The Participant Agreement generally permits the Fund to use the collateral to buy the missing Deposit Securities at any time. The Trust reserves the absolute right to reject any creation order for Shares transmitted to it by the Distributor in respect of the Fund if: (i) the order is not in proper form; (ii) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares; (iii) the Deposit Securities delivered do not conform to the identity and number ofshares of Deposit Securities disseminated through the facilities ofNSCC for that date by BFA, as described above; (iv) acceptance of Deposit Securities would have certain adverse tax consequences to the Fund; (v) acceptance ofthe Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance ofthe Fund Deposit would, in the discretion of the Trust or BFA, have an adverse effect on the Trust or the rights of the beneficial owners; or
(vii) circumstances outside the control of the Trust, State Street, the Distributor or BFA would make it impossible or impracticable to process creation orders.

November 3,201 I
A standard creation transaction fee is imposed to offset the transfer and other transaction costs associated with the issuance ofCreation Units. The standard creation transaction fee will be the same regardless ofthe number of Creation Units purchased by the purchaser on the same day. An Authorized Participant also may be required to compensate the Fund for additional expenses incurred by the Fund in certain circumstances. When the Trust pennits an in-kind purchaser to substitute cash-in-lieu of depositing a portion ofthe Deposit Securities, for example, the purchaser may be responsible for certain brokerage, tax, foreign exchange, execution, market impact and other costs and expenses related to the transaction up to a maximum amount that is disclosed in the Fund's prospectus. B. Redemption of Shares in Creation Units Shares may be redeemed only in Creation Units at their NA V next detennined after receipt of a redemption request in proper fonn by the Fund through the Distributor and only on a business day. The Fund will not nonnally redeem Shares in aggregations less than Creation Units. Beneficial owners must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to be eligible to have such Shares redeemed by the Trust. BF A and the Distributor make available through NSCC, immediately prior to the opening ofbusiness on the Exchange (nonnally 9:30 a.m., Eastern time) on each business day, the identity and number of Shares that will be applicable (subject to possible amendment or correction) to redemption requests received in proper fonn on that day ("Fund Securities"). Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to purchases ofCreation Units. Unless cash redemptions are available or specified for the Fund, the redemption proceeds for a Creation Unitgenerally consist of Fund Securities plus cash in an amount equal to the difference between the NA V of the Creation Unit, as next detennined after receipt of a request in proper fonn, and the value of the Fund Securities (such difference, the "Cash Redemption Amount"), less the redemption transaction fee or any additional fee described in the Fund's registration statement. Ifthe Fund Securities have a value greater than the NAV of the Creation Unit, a compensating cash payment equal to such difference is required to be made by or through an Authorized Participant by the redeeming shareholder. Orders to redeem Creation Uriits must be delivered by or through an Authorized Participant. An order in good fonn to redeem Creation Units is deemed received by the Trust on the Transmittal Date if: (i) a request in satisfactory fonn to the Trust is received by State Street not later than the time specified in the Fund's prospectus on the Transmittal Date; (ii) such order is accompanied or followed by the requisite number of Shares specified in such order, which delivery must be made through DTC to State Street no later
than 10:00 a.m., Eastern time, on the next business day following the Transmittal Date; and (iii) all other procedures set forth in the Participant Agreement are properly

November 3,2011 followed. Deliveries of Fund Securities to redeeming investors generally will be made within three business days. To take delivery of Fund Securities upon redemption ofShares, a redeeming beneficial owner, or Authorized Participant acting on behalfofsuch beneficial owner, must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody provider in each jurisdiction in which any of the Fund Securities are customarily traded, to which account such Fund Securities will be delivered. If contemplated by an Authorized Participant's agreement with the Distributor, if an Authorized Participant has submitted a redemption request in proper form, but cannot transfer all or part of the Creation Unit to be redeemed to the Fund's Transfer Agent, the Distributor may accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral. The calculation ofthe value ofthe Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by State Street according to specified procedures for determining NA V computed on the business day on which a redemption order is deemed received in proper form by the Trust. Ifit is not possible to effect deliveries ofthe Fund Securities, the Trust may in its discretion redeem Shares in cash, and the redeeming beneficial owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that the Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV ofthe tendered shares next determined after the redemption request is received in proper form, minus applicable fees. A standard fixed transaction fee is imposed on redemptions to offset transfer and other transaction costs that may be incurred by the Fund. The standard transaction fee will be the same regardless of the number ofCreation Units redeemed by an investor on the same day. The redeeming investor may be responsible for certain additional costs and expenses associated with the cash-in-lieu portion of its redemption proceeds, up to a maximum amount that is disclosed in the Fund's prospectus.
IV. Requests for Relief
The Trust requests relief from specified rules promulgated under the Exchange Act, as set out below. A. Rule 101 ofRegulation M The Trust seeks relief from Rule 101 of Regulation M under the Exchange Act with respect to the Fund. 6 Subject to certain enumerated exceptions, Rule 101 prohibits a 617 eFR 242.101 (201 I).

November 3,2011
"distribution participant," in connection with a distribution ofsecurities, from bidding for or purchasing or from attempting to induce any person to bid for or purchase, a "covered security" during the applicable restricted period. "Distribution participant" is defined in Rule 100(b) of Regulation M to include an underwriter or prospective underwriter in a particular distribution of securities, or any broker, dealer or other person who has agreed to participate or is participating in such distribution. Rule 100(b) ofRegulation M defines "distribution," for purposes ofthe Rule, as an offering of securities, whether or not subject to registration under the Securities Act of 1933, that is distinguished from ordinary trading transactions by the magnitude ofthe offering and the presence ofspecial selling efforts and selling methods. We understand that while broker-dealers that tender Deposit Securities to the Trust through the Distributor in return for Creation Unites) of Shares generally will not be
part of a syndicate or selling group, and no broker-dealer will receive fees, commissions
or other remuneration from the Trust or the Distributor for the sale ofCreation Units, under certain circumstances they could be deemed to be an "underwriter" or "distribution participant," as those terms are defined in Rule 1 00(b). The Trust respectfully requests that the Commission or Staff grant exemptive,

interpretive or no-action relief from Rule 101, as discussed below, to permit persons

participating in a distribution of Shares to bid for or purchase, or engage in other

secondary market transactions in, such Shares during their participation in such

distribution.

The purpose ofRule 101 is to prevent persons from conditioning the market to facilitate a distribution. Because a Fund's NAV is generally determined based on the market values ofits portfolio securities, and purchases or sales ofShares in the secondary market generally occur at negotiated prices that reflect the underlying portfolio value, as generally represented by the NAV, creation or redemption of Shares should not have a significant impact on the NA V, or the market value of Shares. Rather, the ability to create and redeem Shares each business day, combined with the arbitrage and market making mechanisms ofmarket participants, should work to keep the market prices of Shares, and the NAV ofsuch Shares, closely aligned. Paragraph (c)(4) of Rule 101 exempts from its application, among other things, redeemable securities issued by an open-end management investment company (as such terms are used in the 1940 Act). The Trust is registered as an open-end management investment company under the 1940 Act. However, the individual Shares are not redeemable except in Creation Unit size aggregations. As discussed above, due to the redeemability ofthe Shares in Creation Unit size aggregations each business day, combined with the ability ofmarket participants to engage in arbitrage and other market making mechanisms throughout the trading day, there should be little disparity between the Shares' market price and their NA V per Share. Accordingly, the rationale for exempting redeemable securities of open-end management investment companies from the application of Rule 101 is equally applicable to the Shares. Although Shares may

only be redeemed in Creation Unit size aggregations, the Trust is intended to function like any other open-end fund continuously offering its shares. In recognition of the special nature ofsuch offerings, open-end management investment company and unit investment trust securities are exempted under paragraph (c)(4). Without such an exemption, they could not operate as intended. In view ofthe foregoing, the Trust requests that the Commission or Staff confirm that as a result of registration of the Trust as an open-end management investment company and the redeemable nature ofthe Shares in Creation Unit size aggregations, transactions in the Shares would be exempted from Rule 101 on the basis of the exception contained in subsection (c)(4) of the Rule. The Trust also respectfully requests relief from the provisions of Rule 101 to the extent necessary to permit persons or entities that may be deemed to be participating in the distribution of the Shares or a Component Security ofthe Fund to tender Shares for redemption in Creation Unit size aggregations and to receive as part ofredemption proceeds the Fund Securities ofthe Fund. The Trust requests, in this regard, that the Commission or Staff confirm that the tender of the Shares to the Trust for redemption and the receipt of Fund Securities upon redemption does not constitute a bid for or purchase of any of such securities for the purposes of Rule 101, or alternatively, that the Commission or Staff grant exemptive or no-action relief to the extent necessary to permit redemptions of Shares for Fund Securities as described above. Redemption entails no separate bid for any ofthe Fund Securities. Absent unusual circumstances, the Trust will not purchase Fund Securities in the secondary market to fulfill a redemption request. Therefore, redemptions of Shares cannot be expected to affect the market price of the Fund Securities. The Trust believes that the purchase of Fund Securities, while engaged in a distribution with respect to such securities, for the purpose of acquiring a Creation Unit aggregation of Shares should be exempted from Rule 101. The purpose of Rule 101 is to prevent persons from conditioning the market to facilitate a distribution. Application of Rule 101 in this context would not further the anti-manipulation purposes underlying the Rule. In view ofthe lack of any special financial incentive to create Creation Unit size aggregations of the Shares, combined with a predictable lack of any meaningful potential for the issuance and the secondary market trading of the Shares to affect significantly Share pricing, application of Rule 101 to a broker-dealer or other person who may be participating in a distribution or broker-dealers or other persons in their creation and redemption activities, in their day-to-day ordinary business of buying and selling securities and the Shares, may undermine the potential beneficial market effect of Share trading. For the reasons set forth above, the Trust
requests that the Commission or Staff grant exemptive, interpretive or no-action relief from Rule 101 to permit persons participating in a distribution of Shares to bid for or purchase, or engage in other secondary market transactions in, such Shares during their participation in such distribution.

November 3,2011

B. Rule 102 of Regulation M
The Trust also requests that the Commission or Staff confirm that as a result of registration ofthe Trust as an open-end management investment company and the redeemable nature of the Shares in Creation Unit size aggregations that, for the reasons previously stated under the request with respect to the exemption under Rule 101(c)(4), transactions in the Shares would be exempted from Rule 102 of Regulation M on the basis ofthe exception contained in subsection (d)(4) ofsuch Rule. 7 Alternatively, the Trust respectfully requests that the Commission grant an

exemption under paragraph (e) of Rule 102 to such effect. Application ofRule 102 in

this context would not further the anti-manipulation purposes underlying the Rule.

Rule 102 is intended to prevent persons from manipulating the price of a security during a distribution and to protect the integrity ofthe offering process by prohibiting activities that could artificially influence the market for that particular security. For the reasons described in connection with the requested Rule 101 relief, redemption transactions and secondary market transactions in the Shares are not viable means to manipulate the price of a Component Security during a distribution ofsuch security. The Trust will redeem the Creation Unit size aggregations of Shares at the NAV ofthe Shares. Although the Shares will be traded on the secondary market, the Shares may only be redeemed in Creation Unit size aggregations. Thus, the Trust believes that the redemption by the Trust ofthe Shares at their NAV in consideration principally for Fund Securities does not involve the abuses that Rule 102 was intended to prevent. For the reasons set forth above, the Trust requests that the Commission or the

Staff grant exemptive, interpretive or no-action relieffrom paragraph (e) of Rule 102.

C. Rule 10b-17
The Trust seeks relief from specified provisions of Rule 1 Ob-17 under the Exchange Act. Rule 1 Ob-17 requires an issuer of a class ofpublicly-traded securities to give notice of certain actions (e.g., dividends, stock splits, rights offerings) relating to the class ofsecurities. At issue with respect to the Fund are subparagraphs (b)(1)(v)(a)-(b) of Rule 1 Ob-17. Those subparagraphs generally require an issuer to provide ten (10) days' advance notice of, in regard to (a) cash distributions, the amount of cash to be paid or distributed per share,8 and (b) in-kind distributions, the amount ofthe security outstanding immediately prior to and immediately following the dividend or distribution and the rate ofsuch dividend or distribution. Paragraph (c) ofthe Rule, however, states that the Rule shall not apply to redeemable securities issued by open-end investment companies and unit investment trusts registered under the 1940 Act. Except for the fact that Shares may be purchased and redeemed from the Fund only in Creation Unit aggregations and are listed for individual trading on a national securities exchange, the Trust generally is intended to operate like other open-end funds continuously offering 717 CFR 242.102 (201 I).

their shares. In recognition of the foregoing, the Commission issued an order permitting the Trust to issue shares with limited redeemability. Compliance with Rule lOb-17(b)(J )(v)(a)-(b) would be impractical in light of the nature ofthe Fund. Specifically, because the number of Shares outstanding may increase or decrease on each business day, it is not possible for the Trust to project accurately, 10 days in advance, what dividend would be paid on a particular record date. Applying the timing requirements of Rule 1 Ob-17(b )(l)(v)(a)-(b) to the Trust, therefore, would subject the Trust to the risk of inaccurately calculating the amount of any such dividend. The Trust represents that it will comply with the requirements of Rule IOb-I7, other than subparagraphs (b)(l)(v)(a) and (b) thereof. The Trust further represents that, as soon as practicable following the end of trading on the Exchange on the day prior to the ex-date (but not later than the last time at which the Exchange accepts such infomiation on such date) with respect to any distribution made by the Fund, the Trust will provide notice to the Exchange containing the information required in Rule IOb￾17(b)(l)(v)(a-b). In the release proposing Rule 1 Ob-17 (the "Proposing Release"),9 the Commission stated:
It has been the experience of the Commission and the securities industry that the failure of a publicly held company to provide a timely announcement ofthe record date with respect to these types ofrights has had a misleading and deceptive effect on both the broker-dealer community and the investing pUblic. As a direct result ofsuch failure, purchasers and their brokers may have entered into and settled securities transactions without knowledge ofthe accrual of such rights and were thus unable to take necessary steps to protect their interests. Further, sellers who have received the benefits ofsuch rights as recordholders on the specified record date after having disposed of their securities, have also disposed ofthe cash or stock dividends or other rights received as such recordholders without knowledge ofpossible claims of purchasers of the underlying security to those rights ... .ln many instances, innocent buyers and sellers have suffered losses. In addition, some issuers have made belated declarations ofstock splits or dividends with the apparent knowledge that this action would have a manipulative effect on the market for their securities. 8 The rule pennits a reasonable approximation of the per share distribution to be provided if exact amounts cannot be given because ofexisting conversion rights that may be exercised during the notice period and may affect the per share cash distribution, as long as the actual per share distribution is subsequently provided on the record date. 9 Exchange Act Release No. 9076 (Feb. 17, 1971).

November 3,2011
We respectfully submit that none ofthese concerns raised by the Commission in the Proposing Release'o will be implicated ifthe requested reliefis granted. As set out above, the Trust will comply with the requirements of Rule I Ob-17 except for the timing requirements for notification ofthe actual amounts ofthe distributions under Rule IOb￾17(b)(l )(v)(a)-(b). Consequently, market participants will receive timely notification of the existence and timing of a pending distribution, and will be able to plan their transactions in Shares accordingly. As a result, there should be no confusion or opportunity for manipulation regarding parties' rights to receive distributions, which concerns led the Commission to propose and adopt Rule 10b-17. Therefore, the requested relief concerning the timing requirements of Rule 1 Ob-17(b)(1 )(v)(a)-(b) is consistent with the purposes underlying the adoption ofRule 1 Ob-17 as outlined in the Proposing Release and Adopting Release. The exemption under paragraph (c) ofRule 1 Ob-17, which covers open-end investment companies with fully redeemable shares, thus should be applicable to the Trust with respect to the timing requirements ofRule I Ob-17(b)(1 )(v)( a)-(b). For the reasons set forth above, the Trust requests that the Commission or the Staff grant exemptive, interpretive or no-action relief from Rule lOb-17(b)(1 )(v)(a)-(b). D. Rule 14e-5 The Trust requests relief from Rule 14e-5 under the Exchange Act." Rule 14e-5 prohibits a person who makes a cash tender offer or exchange offer for any equity security from directly or indirectly purchasing such security (or a security immediately convertible into or exchangeable for such security) otherwise than pursuant to such tender offer or exchange offer. The Rule also applies to the dealer-manager of a tender or exchange ofTer, its affiliates and to advisers thereto ("Covered Persons"). The Trust respectfully requests that the Commission or Staff grant an exemption from Rule 14e-5 to permit any Covered Person (including a member or member organization ofthe Exchange or other Market), during the existence of such offer, to (1 ) redeem Shares in Creation Unit size aggregations for the Fund Securities that may include a security subject to the tender or exchange offer; and (2) engage in secondary market transactions in Shares during such offer. The acquisition ofindividual Fund Securities by means ofredemptions of Shares would be impractical and extremely inefficient in view ofthe requirement that a minimum number ofShares be redeemed. In addition, as discussed in the relief requested under Regulation M, application ofthe Rule's prohibition would impede the valid and useful market and arbitrage activity that would assist secondary market trading and improve Share pricing efficiency. In no case would redemptions ofShares or secondary market transactions by Covered Persons be effected for the purpose of 10 The foregoing concerns were largely reiterated by the Commission in
the release adopting Rule IOb-17. See Exchange Act Release No. 9192 (June 7, 1971) (the "Adopting Release"). II 17 CFR 240.14e-5 (2011).

facilitating a tender offer. Accordingly, purchases and redemptions of Shares in the circumstances described would not appear to result in the abuses at which Rule 14e-5 is directed. In addition, the Trust requests that the Commission or Stafftake a no-action position under Rule 14e-5 if a broker-dealer (including a member or member organization ofthe Exchange or other Market) acting as a dealer-manager of a tender offer for a Fund Security purchases such securities in the secondary market for the purpose oftendering such securities to purchase one or more Creation Unit size aggregations of Shares, ifmade in conformance with the following: (i) such bids or purchases are effected in the ordinary course of business, in connection with a basket of 20 or more securities in which any security that is the subject of a distribution, or any reference security, does not comprise more than 5% ofthe value ofthe basket purchased; or (ii) purchases are effected as adjustments to such basket in the ordinary course ofbusiness as a result ofa change in the composition of the Index; and (iii) such bids or purchases are not effected for the purpose offacilitating such tender offer.
V. Conclusion
Based on the foregoing, we respectfully request that the Commission or Staff grant the reliefrequested herein. Should you have any questions, please call me at (202) 303-1257. Sincerely, Matthew B. Comstock cc: David Bloom, Branch Chief, Division ofTrading and Markets, U.S. Securities and Exchange Commission Daniel Staroselsky, Attorney-Advisor, Division ofTrading and Markets, U.S. Securities and Exchange Commission

Deepa Damre, Director, Blackrock

Kyle D. Wirth, Vice President, Blackrock