Notice2022-28384
Franklin FTSE Russia ETF, a Series of Franklin Templeton ETF Trust, and Franklin Advisory Services, LLC; Notice of Application and Temporary Order
Primary source
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Published
December 29, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 249 (Thursday, December 29, 2022)</title>
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[Federal Register Volume 87, Number 249 (Thursday, December 29, 2022)]
[Notices]
[Pages 80238-80240]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28384]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34791; File No. 812-15416]
Franklin FTSE Russia ETF, a Series of Franklin Templeton ETF
Trust, and Franklin Advisory Services, LLC; Notice of Application and
Temporary Order
December 23, 2022.
Agency: Securities and Exchange Commission (``Commission'').
Action: Notice of application and a temporary order under Section
22(e)(3) of the Investment Company Act of 1940 (the ``Act'').
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Summary of Application: Applicants request a temporary order to permit
Franklin FTSE Russia ETF (the ``Fund''), a series of Franklin Templeton
ETF Trust (the ``Trust''), to suspend the right of redemption of its
outstanding redeemable securities and postpone the date of payment of
redemption proceeds with respect to redemption orders received but not
yet paid.
Applicants: The Trust, on behalf of the Fund, and Franklin Advisory
Services, LLC, the Fund's investment adviser (``Adviser'' and together
with the Trust, the ``Applicants'').
Filing Date: The application was filed on December 23, 2022.
Hearing or Notification of Hearing: Interested persons may request a
hearing by emailing to the Commission's Secretary at <a href="/cdn-cgi/l/email-protection#3d6e585e4f58495c4f444e10725b5b545e587d4e585e135a524b"><span class="__cf_email__" data-cfemail="b1e2d4d2c3d4c5d0c3c8c29cfed7d7d8d2d4f1c2d4d29fd6dec7">[email protected]</span></a> and serving Applicants with a copy of the request by
email, if an email address is listed for the relevant Applicant below,
or personally or by mail, if a physical address is listed for the
relevant Applicant below. Hearing requests should be received by the
Commission by 5:30 p.m. on January 19, 2023, and should be accompanied
by proof of service on Applicants, in the form of an affidavit or, for
lawyers, a certificate of service. Pursuant to rule 0-5 under the Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Commission's Secretary at <a href="/cdn-cgi/l/email-protection#194a7c7a6b7c6d786b606a34567f7f707a7c596a7c7a377e766f"><span class="__cf_email__" data-cfemail="0f5c6a6c7d6a7b6e7d767c22406969666c6a4f7c6a6c21686079">[email protected]</span></a>.
ADDRESSES: The Commission: <a href="/cdn-cgi/l/email-protection#83d0e6e0f1e6f7e2f1faf0aecce5e5eae0e6c3f0e6e0ade4ecf5"><span class="__cf_email__" data-cfemail="7c2f191f0e19081d0e050f51331a1a151f193c0f191f521b130a">[email protected]</span></a>. Applicants: J.
Stephen Feinour, Jr., Esq. and Bruce G. Leto, Esq., Stradley Ronon
Stevens and Young, LLP, 2005 Market Street, Suite 2600, Philadelphia,
PA 19103-7018, with copies to Navid J. Tofigh, Franklin Templeton
Investments, One Franklin Parkway, San Mateo, CA 94403-1906.
FOR FURTHER INFORMATION CONTACT: Christopher D. Carlson, Senior
Counsel, Trace W. Rakestraw, Branch Chief, or Daniele Marchesani,
Assistant Chief Counsel, at (202) 551-6825 (Division of Investment
Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: For Applicants' representations, legal
analysis, and conditions, please refer to Applicants' application,
dated December 23, 2022, which may be obtained via the Commission's
website by searching for the file number at the top of this document,
or for an Applicant using the Company name search field, on the SEC's
EDGAR system. The SEC's EDGAR system may be searched at <a href="https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html">https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html</a>. You may also
call the SEC's Public Reference Room at (202) 551-8090.
Background
1. The Trust is registered under the Act as an open-end series
management investment company. Adviser is the investment adviser to the
Fund, a series of the Trust. Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940.
2. The Fund is a non-diversified exchange-traded fund (``ETF'')
that operates pursuant to Rule 6c-11 under the Act, which provides that
shares of an ETF can be purchased or redeemed directly from the ETF at
net asset value solely by authorized participants (``APs'') and only in
aggregations of a specified number of shares. Shares of the Fund are
listed on NYSE Arca, Inc. (``NYSE Arca'').
3. The Fund's investment goal is to seek to provide investment
results that closely correspond, before fees and expenses, to the
performance of an index composed of Russian equities (the ``Underlying
Index''). On March 7, 2022, in light of ongoing issues related to
[[Page 80239]]
Russia's invasion of Ukraine, FTSE Russell suspended rebalancings/
reconstitutions of the Underlying Index, including application of the
capping methodology, as well as other index policies until further
notice.
4. Applicants state that the request for relief arises from the
effect of geopolitical affairs on transactions in the Russian equity
markets and on the relevant markets for Russian equity securities
generally, and on related clearance and payment systems. As a result of
these geopolitical affairs, virtually all of the Fund's direct and
indirect holdings of Russian equity securities have become illiquid and
are fair valued at zero.
5. Effective March 1, 2022, the Fund temporarily suspended new
creations of its shares until further notice due to concerns about
newly imposed restrictions impacting the ability of U.S. investors to
transact in securities in the Underlying Index, among other reasons.\1\
Prior to market open on March 4, 2022, NYSE Arca halted trading of the
Fund's shares in light of ongoing issues related to Russia's invasion
of Ukraine.
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\1\ See Exchange-Traded Funds, Investment Company Act Release
Number 33646 (Sept. 25, 2019) (``[A]n ETF generally may suspend the
issuance of creation units only for a limited time and only due to
extraordinary circumstances, such as when the markets on which the
ETF's portfolio holdings are traded are closed for a limited period
of time.'').
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6. Applicants anticipate that the Fund's shares will be delisted by
NYSE Arca on a date 15 days after the requested relief is granted (or
an earlier date if NYSE Arca determines in its discretion to delist
shares of the Fund, which may occur even if the requested relief is not
granted). If shares of the Fund are delisted by NYSE Arca, the Fund
will not be able to continue to operate as an ETF, pursuant to Rule 6c-
11.
7. If the order requested in the Application is granted, pursuant
to the Plan of Liquidation and Dissolution of Series (the ``Plan of
Liquidation'') approved by the Board of Trustees of the Trust (the
``Board''), the Fund will distribute in liquidation all of its assets
to shareholders, less any provision for payment of any liabilities,
including the costs of the liquidation that would be borne by the Fund,
prior to its termination. Other than the amount of cash that is
expected to be included in one or more liquidating distributions, the
Fund will have no assets of realizable value, and the Fund's positions
in Russian securities are not transferable by the Fund. If some or all
of those Russian securities were at some point before the Fund's final
termination determined to have a greater value, it is possible that
they would continue not to be transferable at that time. In addition,
it is possible that even if Russian securities were able to be sold,
local regulations may not permit the proceeds of any such sale(s) to be
converted to U.S. dollars which are freely available to the Fund. The
Fund's Russian equity securities will therefore remain in the Fund
until they can be sold and converted into U.S. dollars (with the
proceeds distributed to the Fund's shareholders) or are permanently
written off, in each case as determined by the Adviser and approved by
the Board.
8. Applicants believe the requested relief will permit the Fund to
liquidate its holdings in the manner described above without the risk
that it might be required to meet redemption requests submitted when
the Fund would have no or few assets to meet the redemption requests.
In addition, applicants state that suspension of redemptions prior to a
distribution in liquidation will ensure that shareholders submitting
such redemption requests will participate in the liquidation and also
will be entitled to share in any liquidating distribution.
Notwithstanding the present inability to dispose of Russian securities
held by the Fund, Applicants have determined to seek the requested
order at this time because Applicants believe that liquidation of the
Fund is in the best interests of the Fund's shareholders. Without the
requested relief, the Fund will be required to satisfy redemption
requests from APs, while other investors would be unable to trade the
Fund's shares. Although the Fund has received no redemption orders
since the invasion began, it is possible that redemption orders could
be received at any time.
9. In addition, as noted above, the NYSE Arca may determine in its
discretion to delist shares of the Fund if the requested relief is not
granted. The Fund will not be eligible to rely on Rule 6c-11 once the
Fund's shares are delisted by NYSE Arca. As a consequence, to the
extent that the Fund is obligated to satisfy any individual redemption
requests received from non-AP shareholders of the Fund, the Fund would
be unable to accept or process such redemption requests from an
operational perspective because the Fund and its service providers do
not have the operational infrastructure to enable the Fund to engage in
non-AP primary market transactions. The Fund therefore would not, for
its part, initiate delisting of the Fund's shares with NYSE Arca until
after the requested relief is granted.\2\
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\2\ It is not anticipated that NYSE Arca will delist the Fund's
shares before the Fund's requested relief is granted by the SEC.
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Relief Requested
1. Applicants request an order pursuant to Section 22(e) of the Act
to suspend the right of redemption with respect to shares of the Fund
effective December 23, 2022, and postpone the date of payment of
redemption proceeds with respect to redemption orders received on or
after December 21, 2022 but not yet paid as of December 23, 2022, for
more than seven days after the tender of securities to the Fund, until
the Fund completes the liquidation of its portfolio and distributes all
its assets to the shareholders, or until the Commission rescinds the
order granted herein. Applicants believe that the relief requested is
appropriate for the protection of shareholders of the Fund.
Applicants' Legal Analysis
1. Section 22(e)(1) of the Act provides that a registered
investment company may not suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption of any redeemable
security in accordance with its terms for more than seven days after
the tender of such security to the company or its designated agent
except for any period during which the New York Stock Exchange
(``NYSE'') is closed other than customary week-end and holiday
closings, or during which trading on the NYSE is restricted.
2. Section 22(e)(3) of the Act provides that redemptions may be
suspended by a registered investment company for such other periods as
the Commission may by order permit for the protection of security
holders of the registered investment company.
3. Applicants submit that granting the requested relief would be
for the protection of the shareholders of the Fund, as provided in
Section 22(e)(3) of the Act. Applicants assert that, in requesting an
order by the Commission, the Applicants' goal is to ensure that all of
the Fund's shareholders will be treated appropriately and fairly in
view of the otherwise detrimental effect on the Fund of the illiquidity
of the Fund's investments and the ongoing uncertainty surrounding the
Russian equity markets. The requested relief is intended to permit an
orderly liquidation of the Fund's portfolio and ensure that all of the
Fund's shareholders are protected in the process.
[[Page 80240]]
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The Board, including a majority of the Independent Trustees,\3\
will adopt or has adopted the Plan of Liquidation for the orderly
liquidation of Fund assets and distribution of appropriate payments to
Fund shareholders.
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\3\ ``Independent Trustees'' means trustees who are not
``interested persons'' of the Trust, as such term is defined in
section 2(a)(19) of the Act.
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2. Pending liquidating distributions, the Fund will invest proceeds
of cash dispositions of portfolio securities solely in U.S. government
securities, money market funds that are registered under the Act and
comply with the requirements of Rule 2a-7 under the Act, cash
equivalents, securities eligible for purchase by a registered money
market fund meeting the requirements of Rule 2a-7 under the Act with
legal maturities not in excess of 90 days and, if determined to be
necessary to protect the value of a portfolio position in a rights
offering or other dilutive transaction, additional securities of the
affected issuer.
3. The Fund's assets will be distributed to the Fund's shareholders
solely in accordance with the Plan of Liquidation.
4. The Fund and the Adviser will make and keep true, accurate, and
current all appropriate records, including but not limited to those
surrounding the events leading to the requested relief, the Plan of
Liquidation, the sale of Fund portfolio securities, the distribution of
Fund assets, and communications with shareholders (including any
complaints from shareholders and responses thereto).
5. The Fund and the Adviser will promptly make available to
Commission staff all files, books, records, and personnel, as
requested, relating to the Fund.
6. The Fund and the Adviser will provide periodic reporting to
Commission staff regarding their activities carried out pursuant to the
Plan of Liquidation.
7. The Adviser, its affiliates, and its and their associated
persons will not receive any fee for managing the Fund.
8. The Fund will be in liquidation and will not be engaged and does
not propose to engage in any business activities other than those
necessary for the protection of its assets, the protection of
shareholders, and the winding-up of its affairs, as contemplated by the
Plan of Liquidation.
9. The Fund and the Adviser will appropriately convey accurate and
timely information to shareholders of the Fund, before or promptly
following the effective date of the liquidation, with regard to the
status of the Fund and its liquidation (including posting such
information on the Fund's website), and will thereafter from time to
time do so to reflect material developments relating to the Fund or its
status, including, without limitation, information concerning the dates
and amounts of distributions, and press releases and periodic reports,
and will maintain a toll-free number to respond to shareholder
inquiries.
10. The Fund and the Adviser shall consult with Commission staff
prior to making any material amendments to the Plan of Liquidation.
Commission Finding
Based on the representations and conditions in the application, the
Commission permits the temporary suspension of the right of redemption
for the protection of the Fund's shareholders. Under the circumstances
described in the application, which require immediate action to protect
the Fund's shareholders, the Commission concludes that it is not
practicable to give notice or an opportunity to request a hearing
before issuing the order.
Accordingly, in the matter of Franklin FTSE Russia ETF, a series of
Franklin Templeton ETF Trust, and Franklin Advisory Services, LLC (File
No. 812-15416),
It is ordered, pursuant to Section 22(e)(3) of the Act, that the
requested relief from Section 22(e) of the Act is granted with respect
to the Fund until it has liquidated, or until the Commission rescinds
the order granted herein. This order shall be in effect as of December
23, 2022, with suspension of redemption rights as requested by the
Applicants to be effective as of December 23, 2022 and the postponement
of payment of redemption proceeds to apply to redemption orders
received on or after December 21, 2022 but not yet paid as of December
23, 2022.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28384 Filed 12-28-22; 8:45 am]
BILLING CODE 8011-01-P
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