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Bats BZX Exchange, Inc.[INQUIRY LETTER]

September 9, 2016

Mr. Brent J. Fields

Secretary

U.S. Securities and Exchange Commission

100 F. Street N.E.

Washington, D.C. 20549-1090

RE: Exemptive Application Pursuant to Rule 608(e) of Regulation NMS – NMS Plan to Implement aTick Size Pilot Program

Dear Mr. Fields:

Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats EDGA Exchange, Inc., and Bats EDGXExchange, Inc., on behalf of themselves and the Chicago Stock Exchange, Inc., the Investors ExchangeLLC (“IEX”), the National Stock Exchange, Inc. (“NSX”), New York Stock Exchange LLC (“NYSE”), NYSEMKT LLC, NYSE Arca, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock MarketLLC, and Financial Industry Regulatory Authority, Inc. (“FINRA”) (collectively, “Participants”), request thatthe Securities and Exchange Commission (“Commission” or “SEC”) grant an extension of theimplementation deadlines of the National Market System Plan to Implement a Tick Size Pilot Program(“Plan” or “Pilot”), as approved by the Commission to permit a phased rollout of securities through the firstmonth of the Pilot's effectiveness. Currently, the trading and quoting requirements for the Pilot arc set tocommence no later than October 3, 2016. 1

Rule 608(c) of Regulation NMS provides that “[e]ach self-regulatory organization shall comply with the termsof any effective national market system plan of which it is a sponsor or a participant. Each self-regulatoryorganization also shall, absent reasonable justification or excuse, enforce compliance with any such plan byits members and persons associated with its members.” 2 Rule 608(e) allows the Commission to “exemptfrom the provisions of this section, either unconditionally or on specified terms and conditions, any self-regulatory organization, member thereof, or specified security, if the Commission determines that suchexemption is consistent with the public interest, the protection of investors, the maintenance of fair andorderly markets and the removal of impediments to, and perfection of the mechanisms of, a national marketsystem.” 3 The Participants arc seeking exemptive relief from Article IX of the Plan as set forth below.

The Participants respectfully request that the Commission grant an exemption from Article IX of the Plan topermit a phased rollout of securities beginning on October 3, 2016 and ending on October 31, 2016. Thebelow table sets forth the Participants' proposed rollout schedule: 4

 Date Action Additional Details October3, 2016

• 5 Symbols –Test Group 1 • 5 Symbols –

• All other symbols assigned to Test Group 1, Test Group 2, orTest Group 3 would be placed into the Control Group until theyare activated in their respective group.

Test Group 2 • NYSE, Nasdaq, and FINRA symbol lists will be updatedaccordingly.

October10,2016

• 100 TotalSymbols -Test Group 1 • 100 TotalSymbols -Test Group 2

October17,2016

• 400 TotalSymbols –Test Group 1 • 400 TotalSymbols –Test Group 2 • 5 Symbols –Test Group 3

• All Test Group 1 and 2 symbols are live.

October24,2016

• 100 TotalSymbols –Test Group 3

October31,2016

• 400 TotalSymbols –Test Group 3

• All Test Group 3 symbols are live.

The Operating Committee will oversee the proposed rollout process. The ninety-five Securities assigned tothe October 10, 2016 rollout for Test Group 1 and Test Group 2, and the October 24, 2016 rollout for TestGroup 3 will be chosen randomly. Securities assigned to the October 3, 2016 rollout for Test Group 1 andTest Group 2, and the October 17, 2016 rollout of five symbols for Test Group 3 will be chosen from theremaining symbols in each test group. The symbols may be selected based on listing venue, liquiditycharacteristics, random assignment, or alpha range.

If a symbol is removed from the Pilot or changes its listing venue for the October 3, 2016 Test Group 1 orTest Group 2 or the October 17, 2016 Test Group 3 rollout, it may be replaced by choosing a new symbolfrom the remaining symbols available in the same Test Group to ensure a balanced five symbol rollout. If asymbol is removed from the Pilot or changes its listing venue for the October 10, 2016 or October 24, 2016rollouts, it will not be replaced.

NYSE, NYSE MKT, and Nasdaq published an automated list of securities eligible for the Pilot on the eveningof September 2, 2016. At that time, all securities were designated for the Control Group. All securities willcontinue to be reflected as Control Group securities for the entire month of September 2016. On September6, 2016, NYSE, NYSE MKT, and Nasdaq published a manual list identifying the final Test Group assignmentfor each eligible security. 5 The manual list will be updated by September 15, 2016 to identify securitiesselected for the October 3, 2016, October 10, 2016 and October 17, 2016 and October 24, 2016 rollouts.

Commencing on October 3, 2016, as securities would be assigned to their designated Test Group, asdetermined by the phase in schedule above, an automated list published by NYSE, NYSE MKT, and Nasdaqwould be updated to reflect the security's applicable Test Group. 6

The Participants believe that a phased rollout approach is consistent with the public interest, the protectionof investors, the maintenance of fair and orderly markets, and the removal of impediments to, and theperfection of the mechanisms of, a national market system. The Participants believe that a phased rollout isessential to the maintenance of fair and orderly markets because it will facilitate an effective transition ofPilot Securities being subject to the Pilot's trading and quoting requirements while minimizing the impact ofany potential system disruption. The phased rollout set forth above would allow the Participants and themarket as a whole, to address any systems issues that result from programming changes made to complywith the Pilot in a timely manner without impacting all securities within a test group or all Pilot Securities as awhole. A phased rollout approach would limit the impact of a potential systems issue to a discrete group ofsecurities, thereby diminishing the impact on the operation of the Pilot.

For the reasons set forth above, the Participants respectfully request that, pursuant to Rule 608(e), theCommission grant exemptive relief to the provisions in the Plan as set forth above. The Participantstherefore believe that this exemption is consistent with the public interest, the protection of investors, themaintenance of fair and orderly markets and the removal of impediments to, and perfection of themechanisms of, a national market system.

Thank you in advance for your consideration ofthis request.

Sincerely,

/s/

Eric Swanson

EVP, General Counsel and Secretary

[STAFF REPLY LETTER]

September 13, 2016

Mr. Eric Swanson

EVP, General Counsel and Secretary

Bats Global Markets, Inc.

17 State Street, 31 st Floor

New York, NY 10004

Re: Exemption Under Rule 608(e) of Regulation NMS under the Securities Exchange Act of 1934 froma Certain Provision of the “Plan to Implement a Tick Size Pilot Program”

Dear Mr. Swanson,

In your letter dated September 9, 2016, 1 Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats EDGAExchange, and Bats EDGX, Inc., on behalf of themselves and the Chicago Stock Exchange, Inc., theInvestors Exchange LLC, the National Stock Exchange, Inc., New York Stock Exchange LLC (“NYSE”),NYSE MKT LLC, NYSE Area, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq StockMarket LLC (“Nasdaq”), and the Financial Industry Regulatory Authority, Inc. (“FINRA”) (collectively,“Participants”) request that the Commission grant an an extension of the implementation deadline of thePlan to Implement a Tick Size Pilot Program (“Tick Size Pilot”) 2 to permit the Pilot Period 3 to begin with aphased rollout of Pilot Securities starting on October 3, 2016 and ending on October 31, 2016, as described

below.

Specifically, the Participants request that the Commission, pursuant to Rule 608(e) of Regulation NMSunder the Securities Exchange Act of 1934 (“Exchange Act”), exempt the Participants from the requirementsof Rule 608(c) of Regulation NMS that they comply with, and enforce compliance by their members withSection IX of the Plan, which specifies that the Tick Size Pilot will be implemented with an operative periodlasting two years from the date of implementation. The date of implementation for the Tick Size Pilot isOctober 3, 2016. 4

Rule 608(c) of Regulation NMS requires the Participants to comply with the terms of the Tick Size Pilot 5Further, Rule 608(c) of Regulation NMS requires each Participant to enforce compliance with the Tick SizePilot by its members and persons associated with its members. 6 Rule 608(e) of Regulation NMS providesthat the Commission may exempt from the provisions of Rule 608 of Regulation NMS, either conditionally oron specified terms and conditions, any self-regulatory organization, if the Commission determines that suchexemption is consistent with the public interest, the protection of investors, the maintenance of fair andorderly markets, and the removal of impediments to, and the perfection of the mechanisms of, a nationalmarket system. 7

As discussed below, the Commission, pursuant to its authority under Rule 608(e) of Regulation NMS, ishereby granting to each Participant a limited exemption from the requirement to fully implement the TickSize Pilot on October 3, 2016 so long as the Participants implement the Tick Size Pilot pursuant to thephase-in schedule outlined in the Exemption Request and described below.

The Participants propose the following phase-in implementation schedule, which the Operating Committeewill oversee. 8

 Date Action Additional Details October3, 2016

• 5 Symbols –Test Group 1 • 5 Symbols –Test Group 2

• All other symbols assigned to Test Group 1, Test Group 2, orTest Group 3 would be placed into the Control Group until theyare activated in their respective group. • NYSE, Nasdaq, and FINRA symbol lists will be updatedaccordingly.

October10,2016

• 100 TotalSymbols -Test Group 1 • 100 TotalSymbols -Test Group 2

October17,2016

• 400 TotalSymbols –Test Group 1 • 400 TotalSymbols –Test Group 2

• All Test Group 1 and 2 symbols are live.

• 5 Symbols –Test Group 3

October24,2016

• 100 TotalSymbols –Test Group 3

October31,2016

• 400 TotalSymbols –Test Group 3

• All Test Group 3 symbols are live.

As proposed, the ninety-five securities assigned to the October 10, 2016 rollout for Test Group 1 and TestGroup 2, and the October 24, 2016 rollout for Test Group 3 will be chosen randomly. Securities assigned tothe October 3, 2016 rollout for Test Group 1 and Test Group 2, and the October 17, 2016 rollout of fivesymbols for Test Group 3 will be chosen from the remaining symbols in each test group. The symbols maybe selected based on listing venue, liquidity characteristics, random assignment, or alpha range.

If a symbol is removed from the Tick Size Pilot or changes its listing venue for the October 3, 2016 rollout, orthe October 17, 2016 Test Group 3 rollout, it may be replaced by choosing a new symbol from the remainingsymbols available in the same Test Group to ensure a balanced five symbol rollout. If a symbol is removedfrom the Tick Size Pilot or changes its listing venue for the October 10, 2016 or October 24, 2016 rollouts, itwill not be replaced

The Participants expressed their belief that on the date of implementation, the proposed phaseed rollout ofPilot Securities, as opposed to an immediate introduction of all Pilot Securities, would limit the impact of anypotential systems issue to a discrete group of securities, thereby diminishing the technological risk on theoperation of the Tick Size Pilot. The Participants propose that this schedule would allow them and themarket as a whole to address, in a timely manner, any systems issues that may occur at the start of the PilotPeriod without impacting all Pilot Securities within a particular test group or all Pilot Securities in the TickSize Pilot.

The Commission hereby grants the exemption to each Participant from the requirement to fully implementthe Tick Size Pilot on October 3, 2016 so long as the Participants implement the phase-in schedule asdescribed in the Exemption Request. This exemption will allow the Participants to follow the phased rolloutschedule to implement the Tick Size Pilot. The Commission believes that this exemption is consistent withthe public interest, the protection of investors, the maintenance of fair and orderly markets and the removalof impediments to, and the perfection of a national market system, because it should facilitate an effectivetransition to the rules for quoting and trading for Pilot Securities under the Tick Size Pilot. Further, theCommission believes that the phased rollout could minimize any potential disruption to the operation of theTick Size Pilot and trading of Pilot Securities due to potential, unforeseen technological systems issues.

* * *

This exemption is conditioned on the facts and representations presented in your letter. In the event anymaterial change occurs with respect to any of the facts or representations presented, the exemption willexpire and the Participants must immediately resume operating in accordance with all of the provisions inthe Tick Size Pilot.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 9

/s/

David S. Shillman

Associate Director

cc: Chicago Stock Exchange, Inc.

Investors Exchange LLC

National Stock Exchange, Inc.

New York Stock Exchange LLC

NYSE MKT LLC

NYSE Arca, Inc.

NASDAQ OMX BX, Inc.

NASDAQ OMX PHLX LLC

The Nasdaq Stock Market LLC

Financial Industry Regulatory Authority, Inc.

Footnotes1 The data collection requirements of the Plan commenced on April 4, 2016, six months prior to thePilot start date of October 3, 2016.

2 17 CFR 242.608(c).

3 17 CFR 242.608(e).

4 The number of securities shown in the table for each phase of the rollout reflects the number as ofthe date the listing exchanges identify securities for each phase of the rollout and for the test groups.The actual number of securities assigned to each test group as of each date shown may be less thanindicated in the table due to corporate actions, the price of test group securities breaching the $1minimum price threshold, and other events.

5 This list will no longer be published once the rollout has been completed as it will no longer benecessary once all securities are assigned to their respective Test Groups.

6 FINRA will obtain each of the above referenced securities lists upon publication by NYSE, NYSEMKT, and Nasdaq and publish a consolidated list on www.finra.org.

1 See letter from Eric Swrfnson, EVP, General Counsel, and Secretary, Bats Global Markets, Inc., toBrent J. Fields, Secretary, Securities and Exchange Commission ( "Commission") dated September9, 2016 ( "Exemption Request").

2 See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) ("Approval Order"). In the Approval Order, the Commission stated that the Tick Size Pilot was to beimplemented within one year after the date of publication. On November 6, 2015, the Commissionissued an order granting an exemption to Participants from implementing the Tick Size Pilot untilOctober 3, 2016. See Securities and Exchange Act Release No. 76382, 80 FR 70284 (November 13,2015).

3 Capitalized terms not otherwise defined herein shall have the same meaning as they are defined inthe Tick Size Pilot.

4 See supra note 2.

5 17 CFR 242.608(c).

6 Id.

7 17 CFR 242.608(e).

8 The Participants noted that the number of securities shown in the table for each phase of the rolloutreflects the number as of the date the listing exchanges identify securities for each phase of therollout and for the test groups. The actual number of securities assigned to each test group as ofeach date shown may be less than indicated in the table due to corporate actions, the price of testgroup securities breaching the $1 minimum price threshold, and other events.

9 17 CFR 200.30-3(a)(42).

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Sancus Capital Management LP[INQUIRY LETTER]

September 1, 2016

Katherine Hsu

Chief, Office of Structured Finance

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Dear Ms. Hsu:

On behalf of our client, Sancus Capital Management LP, and its affiliates, (“ Sancus Capital”) we respectfullyrequest that the staff (the “ Staff”) of the Securities and Exchange Commission (the “ Commission”) confirmyour concurrence with our view that, based on the facts and circumstances described in this letter, aproposed “applicable margin reset” with respect to notes issued pursuant to a collateralized loan obligationtransaction would not constitute an “offer and sale of asset-backed securities by an issuing entity.”

I. Background

Section 15G of the Securities Exchange Act (“ Section 15G”) 1 requires a “securitizer” of an asset-backedsecuritization (“ ABS”) to retain at least 5% of the credit risk of the assets collateralizing the ABS. 2 InOctober 2014, pursuant to Section 15G, the Commission, along with the Board of Governors of the FederalReserve System (“ FRB”), the Office of the Comptroller of the Currency (“ OCC”) and the Federal DepositInsurance Corporation (“ FDIC”) (collectively the “ Agencies”) adopted final rules (the “ Final Rule”)implementing this credit risk requirement.

The Final Rule requires that the sponsor of each “securitization transaction” occuring after the effective date3 (the “ Effective Date”) retain at least 5% of the credit risk of the transaction (the “ Retention Interest”). 4

The sponsor is the entity that “organizes and initiates” 5 a securitization transaction whereas a securitizationtransaction is defined as “a transaction involving the offer and sale of asset-backed securities by an issuingentity,” 6 relying on the definition of “offer and sale” from the Securities Act of 1933. 7

Our client, Sancus Capital, directly and through its affiliates, invests in rated senior and unratedsubordinated asset-backed securities (collectively, “ CLO Securities”) issued in collateralized loan obligationtransactions (“ CLOs”).

Typically, senior CLO Securities bear interest at a fixed rate or at a fixed margin over Libor. As the issuer ofCLO Securities (“ Issuer”) collects interest and principal proceeds from its assets, it distributes thoseproceeds to the holders of its CLO Securities or reinvests them in new assets through separate interest andprincipal waterfalls. On each payment date, the interest waterfall provides for the sequential payment ofinterest accrued on the CLO Securities using available interest proceeds, subject to diversion to the earlyamortization of senior classes or to the purchase of additional assets if certain covenants are not satisfied.Principal proceeds are initially reinvested in new assets, and then, following the termination of areinvestment period, are applied to the sequential redemption of CLO Securities in their order of seniority.

In a typical CLO transaction, the Issuer is capitalized by only a nominal amount of equity interests, which are

owned by a Cayman Islands charitable trust. The true economic equity in the transaction is provided by themost subordinated CLO Securities (the “ Residual Interests”) which do not have a stated interest coupon butinstead receive variable returns based on the residual performance of the CLO's assets after payments dueon the senior CLO Securities (the “ Excess Return”). As a result, the holders of Residual Interests are oftenreferred to as being in the “first loss” position on the CLO: any reduction in the portfolio return, whether fromprincipal losses or from lower portfolio yields, is borne first by the Residual Interests through a reduction inExcess Return. Some principal and interest coverage covenants further provide that interest proceeds thatwould otherwise be distributed to the Residual Interests be diverted to pay down principal on the moresenior classes. For this reason, investors in Residual Interests are acutely sensitive to principal losses onthe underlying assets, as well as to the tightening of asset spreads. 8

The risk of a reduction of Excess Return is especially high due to the fact that leveraged loans can typicallyreprice or prepay almost at any time at the option of the borrower. Accordingly, periods of general creditspread tightening are correlated with waves of loan repricings and refinancings that can adversely impactResidual Interests. As a result, most, if not all, CLO indentures contain structural features that allow theIssuer, typically at the instruction of the holders of the Residual Interests, to reduce the interest paid on oneor more senior tranches of CLO Securities to then-current market rates (“ Re-Pricing”). This Re-Pricingfeature is valuable to investors in Residual Interests such as our client, because it enables them to protecttheir returns by mirroring the loan prepayment option with the option to reset the margin rates paid on thesenior CLO Securities. In addition, it allows CLOs to maintain competitive returns and proper interestcoverage on their mezzanine securities over the life of the transaction.

Without a re-pricing feature, the return attrition in Residual Interests caused by tightening asset spreadscould leave subordinated noteholders with no other option than to trigger a general redemption of the CLO,liquidating the underlying CLO portfolio and redeeming all CLO Securities. Alternatively, the return attrition inResidual Interests and the lowering of interest coverage ratios may, in an environment of tightening interestspreads, lead CLO managers to seek out higher-yielding investments in the form of cov-lite, 9 second-lien 10

or middle-market loans, 11 thereby contributing to lower investment and underwriting standards and toincreased risk within CLO portfolios.

Each Issuer contracts with an investment manager (“ Manager”) to select assets to be purchased by theIssuer throughout the life of the CLO. As explained in the Supplementary Information accompanying theFinal Rule, “the agencies believe that the risk retention rules apply to CLOs because CLO Managers clearlyfall within the statutory definition of ‘securitizer’ set forth in Exchange Act section 15G.” 12 Accordingly, ourclient expects that the Manager, with respect to any CLO in which our client invests, will be considered asponsor of any CLO the Manager manages, and as such the Manager would be charged with holding theRetention Interest in connection with any “offer and sale” of ABS interests by the Issuer after the EffectiveDate.

While CLOs that close prior to the Effective Date are “grandfathered” from risk retention compliance, newoffers and sales of CLO Securities, including securitization transactions in respect of CLOs that originallyclosed prior to the Effective Date, will be required to comply with the retention provisions of the Final Rule.Accordingly, if the Commission takes the position that a Re-Pricing is an “offer and sale of asset-backedsecurities by an issuing entity,” previously-grandfathered transactions that undergo a Re-Pricing after theEffective Date would be required to come into compliance with the risk retention provisions.

In light of the possibility that a Re-Pricing would cause a CLO initially issued prior to the Effective Date tobecome subject to the risk retention provisions of the Final Rule, our client has developed an applicablemargin reset (“ AMR”) mechanism substantially modeled after the widely employed auction rate mechanismfound in auction rate securities (“ ARS”). Based on previous Commission relief and various courtinterpretation, it is our opinion that the AMR mechanism constructed as described below does not consititutea new “offer and sale of asset-backed securities by an issuing entity” within the meaning of the Final Rule,and thus would not trigger retention requirements if employed after the Effective Date.

While the obligation to hold risk retention pursuant to the Final Rule falls on the Manager of a CLO, theconsequences of not being able to effect a Re-Pricing are borne by the holders of mezzanine andsubordinated CLO Securities. 13 Therefore, our client is requesting that the Staff confirm its concurrence

with our opinion that a reset of CLO liabilities through an AMR procedure does not constitute a new “offerand sale of asset-backed securities by an issuing entity,” as without such confirmation CLO Securitiessubject to AMR procedures would be unavailable. Alternatively, given the limited number of Managerscapable of complying with the Final Rule prior to the Effective Date, between now and the Effective Date ourclient may have to invest in CLOs which do not comply with the Final Rule and thus will not be able torefinance or re-price after the Effective Date, thereby exposing our client to potential losses in case of ageneral spread tightening occurring after the Effective Date.

II. Applicable Margin Reset

Having some sort of mechanic to allow interest rates to reset on the notes issued by a CLO is critical to theeconomics of a CLO. The underlying assets of a CLO are a pool of commercial loans, each of which issubject to periodic interest rate resets and call features. If a sufficient number of the underlying commercialloans either see their interest rates reduced as a result of a periodic interest rate reset, or are called andreplaced by new commercial loans bearing interest at lower rates, the interest proceeds available to theCLO to pay interest to the holders of CLO Securities will be reduced. Without the ability of the CLO to modifythe yield on its existing liabilities to better reflect current yields in credit markets, it may become impossiblefor the CLO to properly pay its debt as it becomes due or to distribute excess income to the subordinatedSecurities, which increases the odds of substantial CLO portfolio unwinds. Therefore, given the uncertaintysurrounding the status of Re-Pricing mechanics employed after the Effective Date, CLO market participantsare currently searching for ways to ensure their continued grandfathered status after the Effective Date whilemaintaining the ability to reprice a CLO in case the interest rates on the underlying collateral becomemisaligned with CLO liabilities.

Because of past Staff relief granted to ARS transactions, our client has developed a mechanism wherebyinterest rates payable to the senior CLO Securities are periodically reset pursuant to an auction mechanism.Our client (or members of our client's firm) intends to establish a newly-formed affiliate to act as “auctionservice provider” (in such capacity, the “ Auction Service Provider”) by providing a platform on which broker-dealers could submit bids to purchase CLO Securities following each auction, depending on the interest ratedetermined pursuant to the auction, and our client would use its position as a purchaser of subordinatedCLO Securities to negotiate with the Manager and underwriter of new CLOs to include the auctionmechanism in the documentation for CLOs that close after the date the Final Rule was adopted. Asdiscussed more fully below, the auction mechanism requires no Issuer, noteholder or Residual Interestinvolvment and, because it will be fully outlined in the initial offering documents and indenture, it willnecessitate no amendments to the indenture or CLO Securities at the time of auction.

Unlike a typical CLO Re-Pricing, which occurs at the behest of the holders of the Residual Interests or theManager, the proposed AMR procedure would serve to reset interest rates through a reverse Dutch auctionoccurring at predetermined intervals after the CLO closing (each, an “ AMR Date”), up to a specifiedmaximum number of such AMR dates. The first AMR Date would be scheduled to occur on a specified dateafter the end of the non-call period, and subsequent AMR Dates could follow at certain specified intervalsthereafter. For example, an AMR could take place on certain specified payment dates or anniversaries of theclosing date. Ultimately we would not anticipate the AMR procedures being applied to any class of CLOSecurities more than two or three times over the life of a CLO.

The occurrence of an AMR Date could also be subject to certain objective conditions precedent, includingstandard conditions such as the absence of an event of default under the CLO indenture, economicconditions evidenced by publicly observable economic or market indicators, 14 the Trustee having receivedan opinion of counsel to the effect that the AMR will not cause certain adverse tax consequences, 15 or theSettlement Agent (as defined below) having received confirmation from at least three broker-dealers of theirintent to submit bids in the AMR, each of which conditions will be set forth in the initial offering documentsfor the CLO Securities. None of the Issuer, the Manager, the holders of any CLO Securities (including theResidual Interests), or any other party, would have any discretion to call for or cause an AMR Date to occur,and as long as the conditions precedent to an AMR Date set forth in the offering documents are satisfied, nosuch party would have any discretion to cancel the occurrence of an AMR Date. 16

At the time of closing, all AMR procedures and each proposed AMR Date, as well as the conditions

precedent to the occurrence of an AMR Date, will be clearly outlined in the offering documents and theindenture, and the Issuer will retain the Auction Service Provider to conduct the auction procedureconfidentially between the auction participants, as well as a settlement agent (“ Settlement Agent”) to solicitbroker-dealers from a pre-approved list to participate in the auction and to facilitate settlement of tradesresulting from the AMR procedure.

The Auction Service Provider will be independent from the Issuer, Manager, trustee and placement agentsin the CLO. While affiliates of the Auction Service Provider (including Sancus Capital, but not the AuctionService Provider itself) may acquire CLO Securities (including Residual Interests), the ownership of suchCLO Securities is not in our view material to the analysis set forth herein due to the limited nature and dutiesof the Auction Service Provider. Specifically, the role of the Auction Service Provider will be purelymechanical and without any discretionary functions (i.e., merely assembling confidential orders andcalculating the winning bid margin as outlined below). Moreover, the Auction Service Provider will berequired to keep all bids and calculations confidential (including without any disclosure to its affiliatedentities) except to the extent of any required notices to the Trustee and the Settlement Agent as part of itsrole as Auction Service provider, meaning our client will not have any informational advantages with respectto the bids submitted through the Auction Service Provider's platform. The Settlement Agent may be one ofthe placement agents in the CLO, but will be independent from the Issuer and the Manager.

Access to the Auction Service Provider's platform would only be granted to settlement agents designatedwith respect to CLO transactions and to other auction participants selected by settlement agents; for anyAMR procedure held in relation to a specific CLO, the list of broker-dealers allowed to participate in theauction would be limited to the settlement agents listed under the Auction Service Provider's platform, andany other auction participants designated by the Settlement Agent for that transaction, with the expectationthat this would substantially encompass the universe of banks and broker-dealers most active in the CLOmarket. For any given auction, broker-dealers listed on the platform could be excluded (i) from that auctiononly, by the Settlement Agent in charge of that auction, if the Settlement Agent has reason to believe thatsuch broker-dealer would not be able to settle its orders and would thereby expose the Settlement Agent tounacceptable counterparty risk, or (ii) from any third-party auction, by the Auction Service Provider, usingobjective criteria aimed at identifying broker-dealers who repeatedly fail to bid auctions after havingconfirmed their intention to participate to the related settlement agent. 17 Broker-dealers will not be affiliatedwith, and would not receive any compensation from, the Issuer or the Manager, but would be paid directly bythe investors buying and selling CLO Securities pursuant to the AMR procedures as with any other salebetween third parties facilitated by a broker-dealer.

Prior to an AMR Date, the trustee will provide notice to the Settlement Agent and the holders of CLOSecurities of each outstanding class subject to the AMR procedure (each such class, an “ AMR Class”). Thenotice will specify the AMR Date, a copy of the auction procedures initially included in the offeringdocuments and indenture, and the transfer price, which will be substantially equal to par plus accruedinterest, if any (together, the “ Transfer Price”). Upon receiving notice from the trustee, the Settlement Agentwill solicit the pre-approved broker-dealers to participate in the AMR by submitting bids on behalf of theirclients. If at least three approved broker-dealers have not logged onto the Auction Service Provider's AMRplatform to indicate their intent to participate in an AMR on or prior to a cutoff date, the Auction ServiceProvider will notify the Settlement Agent and the Trustee and the AMR will be cancelled (and rescheduledfor the next succeeding payment date).

Existing holders of CLO Securities and new third-party buyers may direct their participating broker-dealer tosubmit to the Auction Service Provider a confidential bid (a “Bid”), committing to purchase, for the applicableTransfer Price, up to a given principal balance of CLO Securities of a particular AMR Class on the applicableAMR Date, but only if the rate determined through the auction is not lower than a specified minimumapplicable margin specified in the bid. Bids submitted during the auction may not specify a rate higher than aspecified maximum (typically the applicable margin above three month LIBOR in effect prior to the AMRDate, less a specified amount set forth in the offering documents (as an illustrative example, perhaps0.20%)).

In order to ensure that a retention holder affiliated with the sponsor or originator (“ Retention Holder”) thatmust hold at least a minimum fraction of certain classes of CLO Securities in order to satisfy applicable

regulatory requirements 18 is able to satisfy this obligation, a Retention Holder (and only a Retention Holder)will also be able to submit a retention order (a “ Retention Order”) committing to retain up to a given principalbalance of CLO Securities of a particular AMR Class on the applicable AMR Date, irrespective of the ratedetermined through the auction. CLO Securities subject to Retention Orders will not be included in the AMRprocedures. 19 Bids and Retention Orders are collectively referred to as “ Orders.”

Broker-dealers could submit Bids on their own behalf as well as on behalf of third-party investors, and in theevent that a third-party buyer fails to deliver funds to settle its purchase of CLO Securities, its related broker-dealer may choose to purchase those CLO Securities for its own account (or, in the alternative, theSettlement Agent may purchase those CLO Securities directly), and then seek to sell those CLO Securitiesto another buyer after the completion of the AMR procedures. The Retention Holder would not be permittedto submit Orders other than its Retention Order, and other than any such Retention Orders submitted by theRetention Holder, neither the Issuer, the Manager, nor other person affiliated with the Issuer or Managerwould be eligible to submit Orders as part of the AMR procedures, and therefore no such affiliated personwould be able to influence the outcome of the AMR procedures.

All Orders must be submitted to the Auction Service Provider through a broker-dealer at least six businessdays prior to the AMR Date (the 6 th business day prior being the “ AMR Determination Date”). On the AMRDetermination Date, the Auction Service Provider will assemble all Orders submitted and, for each AMRClass, determine the amount of notes not subject to a Retention Order and therefore available to purchasepursuant to the AMR procedure. The Auction Service Provider will apply Bids for such AMR Class with thelowest specified minimum applicable margin to each available note, with Bids for higher minimum applicablemargins only subsequently accepted, until all notes of such class are subject to Bids or Retention Orders.The lowest applicable margin at which there are sufficient Bids and Retention Orders specifying margins nothigher than such margin to account for all of the notes in such class is the “ Clearing Rate” for such class.Bids lower than the Clearing Rate will be accepted, Bids higher than the Clearing Rate will be rejected, andBids at the Clearing Rate will be allocated pro rata among winning bidders, as all available notes are sold.

If there are sufficient Bids to establish a Clearing Rate for any AMR Class not higher than the specifiedmaximum margin, the Clearing Rate will become the applicable margin applied to all notes in the AMR Class(whether or not subject to the auction) until the next AMR Date, if any. Once the new margin has beendetermined, the Auction Service Provider will provide notice of the Clearing Rate and winning bids for eachAMR Class to the Settlement Agent, which will inform each existing holder of CLO Securities and eachbroker-dealer participating in the AMR.

On the AMR Date, for each AMR Class for which a Clearing Rate has been successfully established, theSettlement Agent will call the CLO Securities of such class using the mandatory call mechanism of theapplicable securities depositary, and pay to each existing holder the Transfer Price of its notes subject to thecall. The Settlement Agent will then re-sell the CLO Securities (now bearing an applicable margin equal tothe Clearing Rate) on the same day to any bidder whose Bid was accepted in the auction, again for theTransfer Price. None of the sale proceeds will accrue for the ultimate benefit of the Issuer or the SettlementAgent; the end result after all of the transfers on the AMR Date will be a transfer of CLO Securities from theexisting holders to the winning bidders, and a transfer of the Transfer Price from the winning bidders to theexisting holders.

If there are not enough Bids to purchase all available notes in a particular AMR Class, the AMR procedure“fails,” the current holders of notes in such AMR Class will continue to hold their CLO Securities at theapplicable margin that existed just prior to the AMR process, and a new AMR Date (and corresponding AMRDetermination Date) will be scheduled for the next succeeding payment date, to be repeated on eachsucceeding payment date until a successful auction is held. In addition, notes subject to Retention Orderswill not be subject to tender and repurchase, but will continue to be held by the Retention Holder (and bearinterest at the rate determined pursuant to the AMR from and after the AMR Date).

For all CLOs electing treatment under the AMR procedures, the offering circular for such CLOs will include aprominent statement (e.g., on the cover of the offering document) as to whether the Manager (or sponsor) issubject to risk retention requirements with respect to the CLO, and if it is, the manner in which it intends tocomply with the requirements. The offering circular for the CLO will also contain a section entitled

“Applicable Margin Reset Procedures” setting forth all of the applicable conditions and criteria for an AMR,and other information relevant to an investor contemplating investing in CLO Securities of an AMR Class,including:

- the initial schedule of AMR Dates, and the procedure for designating a new AMR Date if a scheduled AMRDate does not occur or an AMR fails;

- conditions necessary for an AMR Date to occur, including the minimum number of participating broker-dealers to permit an AMR to occur,

- the mechanics of the bidding process, including how to submit a Bid, how the Clearing Rate will bedetermined, and how Orders will be deemed accepted or rejected;

- the calculations defining the maximum margin permitted to be set forth in any Bid;

- the identity of the initial Auction Service Provider and Settlement Agent;

- a statement to the effect that reliance on the interpretive letter contemplated hereby does not preclude theavailability of any applicable private rights of actions for any violation of the federal securities laws; and

- a statement that the purpose of AMR is not to provide liquidity, but rather to permit the margin on CLOSecurities in each AMR Class to be adjusted to reflect changes in interest on the CLO's assets and/or toreflect current market pricing.

Both the Auction Service Provider and the Settlement Agent may be paid a fee for their services by theIssuer, irrespective of the success or failure of any application of the AMR procedure or the margindetermined. In either case, expenses incurred by the Auction Service Provider and the Settlement Agentwould be reimbursed by the Issuer as administrative expenses pursuant to the terms of the priority ofpayments in the CLO indenture. In the event that the AMR procedures fail and a Clearing Rate cannot bedetermined, the expenses of the Auction Service Provider and the Settlement Agent would be reimbursedalong with other administrative expenses on the next quarterly payment date. In the event that the AMRprocedures succeed and a Clearing Rate is determined, the expenses of the Auction Service Provider andthe Settlement Agent would again be payable by the Issuer on subsequent payment dates, but with theamount payable on any payment date capped so as not to exceed the difference between the amount ofinterest that would have been due on the CLO Securities if the AMR had not taken place (and hence theCLO Securities still bore their original, higher rate of interest) and the amount of interest actually due on theCLO Securities on that payment date.

III. Previous Staff No-Action Letters and Other Guidance

The AMR procedures discussed above have been designed so as to fit squarely within previous Staffguidance and substantially modeled after auction procedures widely found in ARS transactions. ARS areissued as long term nominal maturity bonds with interest rate auctions occurring at predetermined short termintervals, usually every 7, 28 or 35 days. On each auction date, both existing holders and potential investorsof ARS enter into the bidding process through the same mechanisms described in the AMR procedure. Theauction agent determines the Clearing Rate at which all available ARS are sold and this Clearing Ratebecomes the applicable interest rate until the next auction date.

The aim of issuers and investors in issuing and purchasing ARS differs from the aim of Issuers and investorsin CLO Securities interested in issuing and purchasing AMR notes. ARS have typically been employed as ameans of ensuring added liquidity for the security holders, but as explained above, AMR procedures wouldbe incorporated into CLO offering documents and indentures to ensure that interest rate margins on CLOliabilities are able to properly trace prevailing market rates. Rather than the 7, 28 or 35 day intervalsbetween auctions typically found in ARS transactions, AMR would only be employed on specificpredetermined dates occurring after a non-call period. 20 Because it will be clearly disclosed in the offeringcircular that the purpose of AMR is not to provide liquidity, investors should not perceive CLO Securitiessubject to AMR as equivalent to a short-term investment; thus, there is no expectation that CLO Securitieswith AMR provisions will suffer widespread failures as previously seen in ARS.

Issuers of ARS have received Staff no-action guidance indicating that the resetting of interest rates via aDutch auction does not constitute an “offer and sale” of securities under the Securities Act. 21 In LehmanBrothers Kuhn Loeb lncorporated (available 4/20/83), 22 the Staff considered whether preferred stock havingits interest rate reset every 28 days at an auction would constitute a “continuous distribution of securities”(such that a new prospectus would have to be distributed to purchasers at each auction) 23 The preferredstock issuer argued that the “purchases and sales in the auction process should be considered markettransactions in a security whose distribution has previously been completed.” 24 The Staff granted no-actionrelief, concluding that such a mechanic would not constitute an offer and sale of the security and thus wouldnot require the continuous filing of registration statements. 25

Similarly, in City Capital Funding, Inc. (available 10/11/84), 26 the Staff considered whether money marketpreferred shares having its dividend rate periodically reset through an auction process was a continuousdistribution. Noting that the Staff has provided no-action relief to issuers using a similar auction mechanic,the issuer argued that the dividend rate reset was a secondary market transaction rather than a continuousdistribution by the issuer. 27 The Staff concurred with the issuer, stating that a new registration statement orpost-effective amendment would not have to be filed each time the dividend rate on the shares was resetthrough an auction. 28

Outside of the context of ARS, the Staff has provided no-action relief for issuers of securities with interestrate reset mechanisms clearly built into the offering documents and indenture. In Xerox Credit Corporation(available 5/12/83), 29 the Staff considered whether predetermined annual interest rate adjustments trackingchanges in the effective interest rate on one-year U.S. Treasury obligations were “new securities” whichrequired registration under the Securities Act of 1933. The issuer argued that the interest rate adjustment is“accomplished in the manner contemplated and expressly provided for at the time the security was issued.”30 The Staff concurred, stating that the annual reset mechanism did not necessitate filing a new registrationstatement. 31

Courts have also addressed the question of whether certain changes to the terms of a security, including areset of interest rates, constitutes a new purchase and sale of a security. In Sanderson v. Roethenmund, theplaintiffs purchased international certificates of deposit (“ICDs”) which, upon their maturity, were rolled overinto other ICDs issued and sold by the same issuing entity. 32 They brought claims under Section 12(a)(2) ofthe Securities Act several years after their initial investment, which they claimed were not time-barredbecause “each rollover was a separate sale of a security which commenced the running of a new three yearlimitation period.” 33 The court noted that the Second Circuit had held previously stated that “[b]eforechanges in the rights of a security holder can qualify as the purchase of a new security … there must besuch significant change in the nature of the investment or in the investment risks as to amount to a newinvestment.” 34 The court held that à rollover of ICDs did not amount to a new purchase, because “eachrollover represented merely a periodic interest rate and maturity date adjustment to a new security” which“was something contemplated by the Sandersons when they made their initial purchases.” 35

The Staff have more recently considered auction structures similar to the AMR procedures in Eaton VanceManagement. 36 Eaton Vance Management sought to market “liquidity protected preferred shares (“ LPP”),a new type of preferred stock.” 37 The LPP were subject to weekly dividend resets in which “broker-dealersacting as remarketing agents” would “set dividend rates on the LPP based upon canvassing of the potentialmarket buyers of shares,” with the result being “the lowest possible rate at which all the LPP would be eitherheld or bought after matching up sell, bid and buy orders.” 38 Bids of potential dividend rates on the LPPwere subject to a capped “Boundary Rate” based on a spread above LIBOR or a percentage of LIBOR atthe time of the dividend reset.

In analyzing whether periodic adjustments to interest rates on, or transactions involving the repurchase andre-marketing of, securities previously issued pursuant to a registration statement, constitute a continuous ordelayed offering by the original registrant under the Securities Act of 1933, the Staff has explained that:

Plans of financing can involve periodic adjustments of interest or dividend rates, rollovers of securities, and

plans to buy back and re-market securities, sometimes coupled with “puts” or guarantees (which themselvesare securities). Filings involving such plans require an analysis of Section 5 and Rule 415 issues withrespect to all securities involved in the offerings. Even after the original offering of the securities hasterminated, the registrant may still be engaged in a continuous or delayed offering with respect to the futureperiodic issuance or modification of securities. These subsequent transactions may involve primary offeringsof the issuer's securities to the extent the issuer pays a remarketing or auction agent or otherwise is involvedin subsequent sales such as in the remarketings or auctions. 39

Two months later, the Staff specifically outlined the analysis required in “identify[ing] whether a purportedsecondary offering is really a primary offering, i.e., the selling shareholders are actually underwriters sellingon behalf of an issuer” in the context of Rule 415 under the Securities Act. In the Securities Act RulesCompliance and Disclosure Interpretations Question 612.09 (“ CDI 612.09”), the Staff outlined a multi-partfactual test for whether an offering should be considered as a primary or secondary one, writing:

The question of whether an offering styled a secondary one is really on behalf of the issuer is a difficultfactual one, not merely a question of who receives the proceeds. Consideration should be given to how longthe selling shareholders have held the shares, the circumstances under which they received them, theirrelationship to the issuer, the amount of shares involved, whether the sellers are in the business ofunderwriting securities, and finally, whether under all the circumstances it appears that the seller is acting asa conduit for the issuer.

IV. Discussion

As discussed above, Section 15G requires risk retention compliance in connection with any “securitizationtransaction” occurring after the Effective Date. A securitization transaction is a “transaction involving theoffer and sale of asset-backed securities by an issuing entity.” 40 In the CLO context, therefore, risk retentioncompliance is only required in connection with an “offer and sale” of CLO Securities by the Issuer.

(a) The AMR procedures involve secondary market transactions betweeninvestors.

The AMR procedures were modeled on the ARS procedures previously granted relief by the Staff.Accordingly, application of the AMR procedures should be interepreted in a manner consistent therewith,i.e., as involving secondary market transactions between investors rather than an “offer and sale” of CLOSecurities by the Issuer.

As the Staff indicated in the Lehman Brothers Kuhn Loeb and City Capital Funding no-action letters, periodicinterest rate resets through a Dutch auction, conducted by an independent auction agent under proceduresclearly outlined in the indenture, are secondary transactions rather than a new distribution of securities bythe Issuer. In the absence of a new distribution, an issuer is not deemed to have engaged in an “offer andsale” of securities as defined under the Securities Act of 1933. 41 The AMR procedures substantially followthe mechanics the Staff approved in Lehman Brothers Kuhn Loeb and City Capital Funding. Similar to theprocess in Lehman Brothers Kuhn Loeb, broker-dealers will canvas investors to determine whether theydesire to hold the CLO Securities and at what margin, and investors will submit their bids through broker-dealers. In this case an independent Auction Service Provider, filling the role of the Transfer Agent inLehman Brothers Kuhn Loeb, will determine the margin for each AMR Class without any interference orinfluence from the Issuer or Manager, being the lowest bid that, in combination with all other lower bids,would clear the market of the entire principal amount of CLO Securities of each AMR Class. After theClearing Rate is determined, it will become the applicable margin on the CLO Securities until the nextapplication of the AMR procedures.

Similar to the LPP discussed in Eaton Vance Management, bids on the notes of each AMR Class will besubject to a maximum permissible rate, the formula of which will be fully disclosed in the CLO offeringcircular. This maximum rate narrows the possible range of outcomes for each application of the AMRprocedures, which both gives initial investors in the CLO Securities additional certainty as to the marginspayable on the CLO Securities over the life of the deal, and further limits the investment decision to be madeby investors at the time of each AMR.

Furthermore, addressing the concerns in Xerox Credit Corp., the specifics of the AMR procedure will be fullydisclosed in the CLO offering documents and the indenture at the time of closing. No amendment will benecessary as the auction will be conducted pursuant to procedures contemplated and expressly provided forat the time the CLO Securities are issued. As the applicant in Xerox Credit Corp. wrote, “[t]he interest rateadjustment is a change in one term of the security, accomplished in the manner contemplated and expresslyprovided for at the time the security was issued.”

Finally, the CLO Securities subject to the AMR procedures are subject to even fewer changes than the ICDsin Sanderson, in that only their interest rate will be adjusted, and not their maturity date, and unlike the ICDsin Sanderson, no new CLO Securities will be issued at the time of an AMR: rather, the notes of each AMRClass will be tendered to the Settlement Agent, who will immediately re-sell them to the winning bidders,without obtaining a new CUSIP, re-registering the notes with the relevant securities depositary, or cancelingthe existing CLO Securities.

(b) The AMR procedures do not constitute a primary offering.

The Staff explained in CDI 239.14 that financings involving “periodic adjustments of interest or dividendrates, rollovers of securities, and plans to buy back and re-market securities … require an analysis ofSection 5 and Rule 415 issues with respect to all securities involved in the offerings,” and “these subsequenttransactions may involve primary offerings of the issuer's securities to the extent the issuer pays aremarketing or auction agent or otherwise is involved in subsequent sales such as in the remarketings orauctions.” We do not believe that payments by the Issuer to the Auction Service Provider and the SettlementAgent in connection with the AMR procedures would cause the AMR procedures to constitute a primaryoffering, based on the prior no-action guidance issued by the Staff and discussed above, as well as a reviewof the criteria outlined by the Staff in the context of Rule 415 in CDI 612.09. Specifically, we note that theindicia of a primary offering (i.e., an offer and sale “ by an issuing entity”) outlined in CDI 612.09 are absentin the context of the AMR procedures.

The criteria identified in CDI 612.09 are described below. We consider these criteria from the perspective ofthe current holders of notes of each AMR Class who tender their CLO Securities to the Settlement Agent asthe “selling” party. While these notes are tendered to the Settlement Agent and then sold by the SettlementAgent to the winning bidder, the Settlement Agent takes no exposure to the notes between the time they aretendered to it and the time it sells them on, and is selling notes for precisely the same price as it purchasedthem, without any commission, holdback or economic interest other than its ongoing fee and right toexpense reimbursement. Accordingly, the Settlement Agent through the use of its electronic portal is merelyacting as a facilitator for the buying and selling of notes, rather than as a party that is buying or selling ortaking principal risk for its own account.

- Identity of the party receiving the proceeds of the sale of CLO Securities. 42

The selling noteholders, rather than the Issuer, will receive the proceeds of the sale of CLO Securities ineach AMR Class.

- How long the selling noteholders have held the CLO Securities.

Other than as a result of any trading directly between investors in the secondary market, the initialnoteholders will have held their CLO Securities for at least the duration of the non-call period prior to the firstapplication of the AMR procedures, while any subsequent noteholders will hold their CLO Securities until thenext AMR Date, a period that may be as short as several months, but is expected to last for a year or more;in any case, the noteholders will have acquired the CLO Securities as a long-term investment and not with aview to distribution on behalf of the Issuer.

- The circumstances under which the selling noteholders received the CLO Securities.

To the extent the selling noteholders are the initial noteholders, they will have acquired their CLO Securitiesfrom the underwriter or placement agent of the CLO in arm's-length transactions on the CLO closing date.Otherwise, the selling noteholders will have acquired their CLO Securities either from the Settlement Agent

at par on an AMR Date, or from another noteholder in the secondary market between AMR Dates. In eachcase, the offering circular for the CLO will require that any purchaser or transferee of CLO Securities heldthrough a securities depositary (including the CLO Securities of each AMR Class) have represented andagreed that it is acquiring its interest in such CLO Securities for its own account for investment and not witha view to the resale, distribution or other disposition thereof in violation of the Securities Act. Accordingly, theAMR procedures will not be a means for a selling noteholder to distribute CLO Securities on behalf of theIssuer.

- The relationship of the selling noteholders to the Issuer.

Both the selling noteholders and bidding investors in the AMR will have arm's-length relationships with theIssuer and will be required to submit bids through broker-dealers designed to result in a robust biddingprocess for the CLO Securities.

- The amount of CLO Securities involved.

The full outstanding amount of each AMR Class will be subject to tender and purchase on each successfulapplication of the AMR Procedures, other than any CLO Securities held by the Retention Holder and subjectto a Retention Order.

- Whether the sellers are in the business of underwriting securities.

The selling noteholders will be the current holders of the CLO Securities, and as a result will have previouslyrepresented at the time of their purchase of CLO Securities that they were acquiring their interest in suchCLO Securities for their own account for investment and not with a view to the resale, distribution or otherdisposition thereof in violation of the Securities Act. Thus, the selling noteholders will not be underwriters ofCLO Securities.

Whether under all the circumstances it appears that the seller is acting as a conduit for the Issuer.

Selling noteholders in an AMR process are clearly not acting as a conduit for the Issuer. Rather, the AMRprocedures involve a secondary-market sale from existing noteholders to new noteholders. This noteholdertransaction is conducted without the Issuer's involvement or receipt of any sale proceeds, and in a mannerfully disclosed in the offering circular for the CLO.

(c) The application of the AMR procedures is consistent with the policy goals ofthe Final Rule.

As the Agencies noted in the Supplementary Information accompanying the Final Rule, asset-backedsecuritization involves “the transfer of … assets—in exchange for new capital—to other market participants,”which could lead to a “moral hazard problem of loan originators or securitization sponsors incurring risks inthe underwriting or securitization process for which they did not bear the consequence.” 43 Notably, theAMR procedures do not involve any transfer of assets by the Issuer in exchange for additional capital;rather, the AMR is solely a secondary market transaction between noteholders that serves to reset theapplicable margin to market clearing rates. No additional proceeds are made available to the Issuer as aresult of such process. As a result, the AMR procedures are fully consistent with the policy goalsunderpinning the Final Rule.

V. Request for Relief

For the forgoing reasons, we respectfully request the Staff to confirm your concurrence with our view that,based on the facts and circumstances described in this letter, application of the AMR procedures would notconstitute an “offer and sale of asset-backed securities by an issuing entity” within the meaning of the FinalRule.

* * * * *

We appreciate your assistance in this matter. Please do not hesistate to call John Timperio of Dechert LLP

at (704) 339-3180 if you have any questions regarding the relief requested herein. If the Staff does notconcur with Sancus Capital's position, Sancus Capital requests an opportunity to confer with the Staffconcerning the applicable terms of the AMR procedures prior to the issuance of a response.

Sincerely,

/s/

John M. Timperio

JMT

[STAFF REPLY LETTER]

September 1, 2016

Response of the Office of Structured Finance

Division of Corporation Finance

Re: Sancus Capital Management LP

Incoming letter dated September 1, 2016

Dechert LLP

Bank of America Corporate Center

100 North Tryon Street

Suite 4000

Charlotte, NC 28202-4025

Attention: John M. Timperio

Dear Mr. Timperio:

Based on the facts and representations in your letter regarding the proposed “applicable margin reset” withinrespect to notes issued pursuant to a collateralized loan obligation, the Division's views are as follows.Capitalized terms have the same meanings as defined in your letter.

The Division concurs that the application of the AMR procedures as described in your letter would notconstitute an “offer and sale of asset-backed securities by an issuing entity” within the meaning ofRegulation RR (17 CFR Part 246).

This position[ 1] is based on the facts and representations made to the Division in your letter. Any differentfacts, representations or conditions might require the Division to reach a different conclusion.

Sincerely,

/s/ Katherine Hsu

Katherine Hsu

Office Chief

Footnotes1 Section 941 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act added section

15G to the Securities Exchange Act of 1934.

2 See Securities Exchange Act of 1934 §15G, 15 U.S.C. §78o-11.

3 The Effective Date for securitization transactions (other than residential mortgage backedsecuritization) is two years after the Final Rule was published in the Federal Register, which occurson December 24, 2016.

4 See Credit Risk Retention; 79 Fed. Reg. 77,602, 77,742 (Subpart B, § .3) (December 24, 2014).

5 Id. at 77,742 (Subpart A, § .2).

6 Id. at 77,741 (Subpart A, § .2).

7 See Securities Act of 1-933 §2(a)(3), 15 U.S.C. §77b(a)(3).

8 Mezzanine CLO Securities, which receive principal and interest payments after the senior CLOsecurities but prior to the Residual Interests, share many of the formal features of senior CLOsecurities, including bearing interest at a fixed rate or at a fixed margin over Libor. However, as withResidual Interests, interest proceeds that would otherwise be payable on mezzanine CLO Securitiesmay be diverted to pay down principal on more senior classes if certain coverage tests are not met,making mezzanine CLO securities sensitive to tightening asset spreads as well.

9 "Cov-lite" loans are loans that contain limited, if any, financial covenants. Generally, "cov-lite loans"either do not require the borrower thereunder to maintain debt service or other financial ratios or donot contain common restrictions on the ability of the borrower to change significantly its operations orto enter into other significant transactions that could affect its ability to repay such loans. Ownershipof "cov-lite loans" may expose the CLOs to different risks, including with respect to liquidity, pricevolatility and ability to restructure Ions, than is the case with loans that have such requirements andrestrictions. In addition, in the current economic environment, the market prices of "cov-lite loans"may be depressed.

10 Second-lien loans are subordinated in right of payment and ranked junior to one or more otherloans made to a borrower. If the underlying borrower experiences financial difficulty, holders of itsmore senior debt obligations will be entitled to exercise any remedies and receive payments in priorityto the loan held by the CLO.

11 "Middle-market" loans are loans that are made to smaller borrowers and in smaller principalamounts (typically in an aggregate principal amount of up to $200-250 million) than the broadly-syndicated loans that make up the bulk of the CLO market. Such loans involve a number of particularrisks that may not exist in the case of large public companies, including: (i) these companies mayhave limited financial resources and limited access to additional financing, which may increase therisk of their defaulting on their obligations, leaving creditors dependent on any guarantees orcollateral they may have obtained; (ii) these companies frequently have shorter operating histories,narrower product lines and smaller market shares than larger businesses, which render them morevulnerable to competitors' actions and market conditions, as well as general economic downturns; (iii)there may not be as much information publicly available about these companies as would beavailable for public companies, and such information may not be of the same quality; and (iv) thesecompanies are more likely to depend on the management talents and efforts of a small group ofpersons, and as a result, the death, disability, resignation or termination of one or more of thesepersons could have a material adverse impact on these companies' ability to meet their obligations.

12 Credit Risk Retention; 79 Fed. Reg. 77,602, 77,650.

13 Notably, the holders of mezzanine CLO Securities do not have the right to trigger a CLOredemption, meaning that, if spreads on the underlying assets were to tighten to the point that interest

payable on the mezzanine CLO Securities was diverted to the holders of senior CLO Securities, themezzanine investors would be unable to mitigate their losses other than through selling their notes,likely at a loss.

14 By way of example, these economic or market indicators could include indices of leveraged loaninterest rates such as the Par Weighted Coupon of the S&P U.S. Issued High Yield Corporate BondIndex, or broader measures of bank lending rates such as the Wall Street Journal prime rate, eachmeeting certain predefined thresholds.

15 For this reason, and because mezzanine CLO Securities are typically originally sold with original-issue discount and trade at a discount to par while (as explained below) CLO Securities subject toAMR are redeemed and then re-sold at par, it is expected that only senior CLO Securities – thoserated ‘A’ or above – will be subject to AMR.

16 While the conditions precedent will be objectively observable and verifiably either true or false, weanticipate, given current market practice, that parties like CLO trustees will not want to make thesedeterminations of their own accord, and that therefore a certification by the Issuer may be required forthe trustee to permit the AMR to proceed. Given the objective nature of the conditions precedent, thelack of discretion in the Issuer certifying as to their satisfaction, and the fact that Issuers are typicallymanaged by professional directors without a direct financial stake in the returns generated by theCLO, we do not consider this extremely limited involvement by the Issuer material to consideration ofwhether the AMR constitutes an offer and sale "by an issuing entity."

17 For example, a broker-dealer may be excluded if it has given positive indications of its intention tobid in at least three AMRs across various transaction in the past six months but failed to submit bidsin any of them, or if it has given positive indications of its intention to bid in at least five AMRs butfailed to submit bids in more than half of them.

18 As the AMR procedures will initially be included into transactions that are not subject to the FinalRule as of their respective closing dates, we expect that this requirement would initially only pertain toEuropean risk retention requirements, and not any retention requirement under the Final Rule.However, in the event that the CLO market found the AMR procedures to be a useful mechanism forinclusion in CLOs closing after the Effective Date, the Retention Holder concept could apply to asponsor holding the Retention Interest required by the Final Rule as well.

19 As described below, CLO Securities subject to Retention Orders will not be included in thecalculation of the Clearing Rate and will not be subject to the mandatory call on the AMR Date asdescribed below, but would nevertheless bear interest at the applicable margin determined for CLOSecurities of the relevant Class from and after the AMR Date.

20 The "non-call period" for a CLO typically comprises the period from the closing date to the secondanniversary of the closing date, and guaranties the holders of the rated CLO Securities that theirinvestment will remain outstanding within this period. Following the end of the non-call period, theholders of the Residual Interests have the right to trigger a redemption (or a re-pricing) of the ratedCLO Securities. Two to three years after the end of the non-call period, the "reinvestment period"ends, meaning that the Manager may no longer cause the Issuer to buy and sell the corporate loansthat back the CLO other than in certain very limited circumstances, and the asset pool becomesstatic.

21 In addition to the no-action support discussed below, courts have exhibited similar treatment toperiodic interest rate resets; see generally Sanderson v. Roethenmund, 682 F. Supp. 205 (S.D.N.Y.1988).

22 See Lehman Brothers Kuhn Loeb Incorporated, SEC No-Action Letter (Apr. 20, 1983).

23 Id.

24 Id.

25 Id.

26 See City Capital Funding, Inc., SEC No-Action Letter (Nov. 12, 1984).

27 Id.

28 Id.

29 See Xerox Credit Corporation, SEC No-Action Letter (May 12, 1983).

30 Id; see also Continental Telephone Company, SEC No-Action Letter (June 17, 1983).

31 Id.

32 682 F. Supp. 205 (S.D.N.Y. 1998). The "investment decision doctrine" is used by courts todetermine whether there was a continuous distribution of securities rather than a "one-shot deal." SeeGoodman y. Epstein, 582F.2d 388 (7 th Cir. 1978), cert denied, 440 U.S. 939 (1979); see also Hill v.Equitable Bank, Nat'l Ass'n, 599 F. Supp. 1062, 1972 (D. Del. 1984).

33 Id. at 208-09.

34 Id. at 209, quoting Abrahamson v. Fleschner, 568 F.2d 862, 858 (2d Cir. 1997), cert. denied, 436U.S. 905 (1978).

35 Id. at 209.

36 Eaton Vance Management, SEC No-Action Letter (Jure 12, 2008).

37 Id.

38 Id.

39 Securities Act Sections Compliance and Disclosure Interpretations Question 239.14 ( "CDI239.14").

40 Credit Risk Retention, 79 Fed. Reg. at 77,741 (Subpart A, § .2) (emphasis added).

41 As the Lehman Brothers Kuhn Loeb, and City Capital Funding no-action letters make clear, theissuer is not required to file a new registration statement or post-effective amendment following eachauction. This would not be the case had the Staff found the issuer was engaged in the "offer andsale" of new securities, pursuant to the registration requirements of Securities Act of 1933 §5, 15U.S.C. §77e(a).

42 In CDI 612.09, the Staff wrote that the consideration of whether an offering was a primary orsecondary offering was "not merely e question of who receives the proceeds" (emphasis added).

43 Credit Risk Retention, 79 Fed. Reg. at 77,705.

1 In reaching this position, the staff has consulted with the staffs of the Board of Governors of theFederal Reserve System, the Office of the Comptroller of the Currency and the Federal DepositInsurance Corporation.

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Royal Bank of Scotland Group, plc[INQUIRY LETTER]

August 8, 2016

Re: The Royal Bank of Scotland Group plc: Request for Exemptive Relief from Rule 102 ofRegulation M

By Hand and E-mail

Josephine J. Tao

Assistant Director

Office of Trading Practices

Division of Trading and Markets

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

United States of America

Dear Ms Tao:

We are writing on behalf of our client The Royal Bank of Scotland Group plc, a public limited companyorganized under the laws of the United Kingdom and registered in Scotland (“ RBSG”), about the applicationof Regulation M under the Securities Exchange Act of 1934, as amended (the “ Exchange Act”), totransactions by affiliates of RBSG (“ RBSG Affiliates”, and each an “ RBSG Affiliate”) in the ordinaryshares of RBSG (“ RBSG Shares”), and the American Depositary Shares each representing the right toreceive two RBSG Shares (“ RBSG ADSs”). The request for relief relates to the offering by RBSG of theContingent Convertible Securities (defined below).

We refer to our letter of August 3, 2015 (the “ Original Request Letter”), in which RBSG sought anexemption to permit RBSG and RBSG Affiliates to conduct the ongoing market activities described therein (“Market Activities”) in connection with the offering by RBSG of the Contingent Convertible Securities, whichwas completed on August 10, 2015 (the “ 2015 AT1 Contingent Convertible Securities Offering”) and forwhich relief was granted (the “ Original Relief”). 1 RBSG reiterates the facts and representations containedin the Original Request Letter and confirms that, since the date of the Original Request Letter, there hasbeen no material change in the matters described therein other than the details of the Offering describedherein.

In this request letter, on behalf of RBSG, we ask the staff (the “ Staff”) of the Securities and ExchangeCommission (the “ Commission”) to grant RBSG and RBSG Affiliates exemptive relief from Rule 102 ofRegulation M (“ Rule 102”) to permit them to continue, in the ordinary course of business and in accordancewith applicable local law, to engage during the Restricted Period (as defined below) in connection with theOffering in the types of activities described in the Original Request Letter.

The availability of the exemption that RBSG is requesting would be conditioned on the undertakings set forthin conditions 1 to 8 of the Original Relief.

Background to the Contingent Convertible Securities Offering

In February 2015, RBSG announced a number of initiatives which will lead to significant transformationswithin its businesses and operations, including the implementation of the ring-fence of its retail activities inthe United Kingdom, the restructuring of its Corporate and Institutional Banking Business and the continuingimplementation of the capital plan announced in November 2013. In 2015, RBSG sold its remaining interestin Citizens Financial Group, Inc. RBSG targets to maintain a 13% Common Equlty Tier 1 (“ CET1”) ratio on afully loaded Basel Ill basis during the implementation of its restructuring plan. In addition, European banks,including RBSG, are subject to the capital and liquidity requirements of the Capital Requirements RegulationIV and Capital Requirements Directive IV (together, “ CRD IV”) which implement the Basel III framework inEurope and became effective on January 1, 2014. In addition, the UK Prudential Regulation Authority (“PRA”), RBSG's primary regulator, has required that major UK banks and building societies (includingRBSG), hold a minimum 7% CETI capital ratio and a 3% leverage ratio requirement applicable from 1January 2014. In addition to the requirements imposed by CRD IV. RBSG and its subsidiaries are and mayin the future be, subject to additional firm-specific capital and liquidity requirements imposed by the PRA aspart of its Pillar 2 framework. Proposals currently under consideration in Europe relating to minimumrequirements for own funds and eligible liabilities under the Bank Recovery and Resolution Directive as wellas the Financial Stability Board's proposals relating to total loss absorbency capacity for globallysystemically important banks, are likely to result in increased capital and other requirements for institutionssuch as RBSG. Earlier this year, RBSG announced that it would issue around £2 billion of CRD IV compliantAdditional Tier 1 (“ AT1”) capital instruments in 2016, subject to market conditions. In light of thesedevelopments, RBSG intends to offer perpetual subordinated contingent convertible capital notes (“Contingent Convertible Securities”) with no fixed maturity date intended to qualify as AT1 capital (the “Offering”) in August 2016.

In addition to the Original Relief, the Commission has granted substantially similar exemptive relief fromRule 102 of Regulation M to RBSG and ABN AMRO Holding N.V. under the exemptive relief letters datedFebruary 18, 2009, October 17, 2008 and April 21, 2008 in connection with the placing and open offers andrights offering by RBSG of RBSG Shares. The Commission has also granted substantially similar exemptiverelief from Rule 102 of Regulation M to Barclays PLC under exemptive letters dated May 14, 2014 andNovember 7, 2013 in connection with its offering of contingent convertible additional tier 1 capital securitiesand to ING Groep N.V. under an exemptive letter dated April 7, 2015 in connection with its offering ofperpetual contingent convertible capital securities.

Davis Polk & Wardwell London LLP is acting as US counsel to RBSG. RBSG has provided and authorizedDavis Polk & Wardwell London LLP to make on its behalf the factual representations set forth in this letter.The statements contained in the Original Request Letter with respect to UK regulation have been reviewedby Davis Polk & Wardwell London LLP.

I. The Market for RBSG Shares

As noted in the Original Request Letter, the principal trading market for the RBSG Shares is the UnitedKingdom. As noted above, RBSG reiterates the factual representations set forth in the Original RequestLetter and confirms that there has been no material change in the matters described therein since the dateof the Original Request Letter. We do, however, note that as of June 30, 2016, 11,755 million RBSG Shareswere outstanding, held by 197,842 record holders, approximately 71.8% of the outstanding RBSG Shareswere held by HM Treasury, approximately, 92.7% were held of record by residents of the United Kingdom,and approximately 7.3% were held of record by non-residents of the United Kingdom. RBSG's marketcapitalization at June 30, 2016 was £20 billion (approximately $27 billion) and during the twelve-monthperiod ended June 30, 2016 the worldwide ADTV of RBSG Shares was approximately 31.48 million shares,with a value of £86.3 million (approximately $128.8 million).

II. Application of Regulation M

In connection with the Offering, RBSG, directly or through the underwriters participating in the Offering, willoffer the Contingent Convertible Securities which, under limited circumstances, could automatically andmandatorily convert into RBSG Shares. As a result, the RBSG Shares and RBSG ADSs may be deemed“reference securities” in relation to the Contingent Convertible Securities pursuant to Rule 100 of RegulationM. As a result, the RBSG Shares and RBSG ADSs may be deemed “covered securities” in connection with

the Offering.

Subject to enumerated exceptions, Rule 102 of Regulation M makes it unlawful for an issuer or affiliatedpurchaser, directly or indirectly, to bid for, purchase, or attempt to induce any person to bid for or purchase acovered security during the applicable restricted period. RBSG believes that, under Regulation M, theRestricted Period for the distribution (the “Restricted Period”) may be deemed to begin, with respect to theOffering, one business day prior to the determination of the issue price of the Contingent ConvertibleSecurities, and will end upon the completion of the Offering in the United States. Accordingly, it is expectedthat the Restricted Period for RBSG and RBSG Affiliates will last several days. As such, we request relief forthe ordinary course Market Activities of RBSG and RBSG Affiliates described in the Original Request Letterunder Rule 102 of Regulation M.

Under Rule 102 of Regulation M, without the requested exemptive relief, RBSG and RBSG Affiliates wouldnot be permitted to bid for or purchase, or attempt to induce any person to bid for or purchase, RBSGShares or RBSG ADSs in the ordinary course of their business and for the purposes of their MarketActivities during the Restricted Period, except to the extent that one of the specified exceptions in the rule isavailable.

There are no exceptions available under Rule 102 that would permit RBSG and RBSG Affiliates to engage inthe Market Activities with respect to RBSG Shares and RBSG ADSs during the Restricted Period asdescribed in this letter. Therefore, without the requested exemptive relief, RBSG and RBSG Affiliates wouldnot be permitted to engage in such Market Activities during the Restricted Period.

RBSG believes that the continuation of the Market Activities will not have a significant effect on the marketprice of the Contingent Convertible Securities, the RBSG Shares or the RBSG ADSs. The withdrawal fromthe market of the RBSG Shares and RBSG ADSs which are actively traded in the United Kingdom wouldhave a harmful effect on the customers of RBSG and the ordinary business of RBSG and its affiliates. TheMarket Activities of RBSG described in the Original Request Letter and which RBSG and its affiliatescontinue to carry out are also important aspects of RBSG's business as a major global financial institution inthe United Kingdom and, therefore, interrupting those activities during the Restricted Period could also havean adverse impact on RBSG's business, including its ability to properly manage its risks.

Furthermore, RBSG believes that the risk of market manipulation by RBSG Affiliates in connection with theMarket Activities is limited by: (1) the information barrier policies and procedures that are in place; (2) thefiduciary duties to which many RBSG Affiliates are subject; (3) the fact that the Market Activities that are thesubject of this request for exemptive relief are the ordinary course market activities of the RBSG Affiliatesrather than activities commenced or managed in contemplation of the Offering; (4) the fact that the Offeringwould be conducted and trading by RBSG Affiliates in Contingent Convertible Securities would be subject toand conducted in accordance with applicable UK and other laws; and (5) applicable UK law providesimportant safeguards against the type of risk of abuse that Regulation M was designed to prevent.

III. Relief Requested

For the foregoing reasons, RBSG asks the Staff to provide an exemption from Regulation M that would allowRBSG and RBSG Affiliates to continue to engage in the Market Activities with respect to RBSG Shares andRBSG ADSs in the ordinary course of their respective businesses described in the Original Request Letterduring the Restricted Period, as permitted in accordance with applicable law in the United Kingdom.

The availability of the exemption that RBSG is requesting would be conditioned on the undertakings set forthin conditions 1 to 8 of the Original Relief.

*  *  *

If you have any questions or require any additional information about this request, please contact ReuvenYoung in London at 011-44-20-7418-1012 or Connie Milonakis in London at 011-44-20-7418-1327.

Sincerely yours,

/s/

[STAFF REPLY LETTER]

August 8, 2016

Mr. Reuven Young

Davis Polk & Wardwell London LLP

5 Aldermanbury Square

London EC2V 7HR

England

Re: The Royal Bank of Scotland Group plc

File No. TP 16-11

Dear Mr. Young:

In your letter dated August 8, 2016 (your “New Request Letter”), as supplemented by conversations with thestaff, you request on behalf of The Royal Bank of Scotland Group plc, a public limited company organizedunder the laws of the United Kingdom and registered in Scotland (“RBSG”), an exemption from Rule 102 ofRegulation M under the Securities Exchange Act of 1934, as amended (“Exchange Act”), for transactions inthe ordinary shares of RBSG (“RBSG Shares”), and the American Depositary Shares each representing theright to receive two RBSG Shares (“RBSG ADSs”), during an offering by RBSG (the “Offering”) ofContingent Convertible Securities, as defined in your New Request Letter. 1

On August 3, 2015, RBSG requested (the “Original Request Letter”), and the Securities and ExchangeCommission (“Commission”) granted, RBSG an exemption from-Rule 102 of Regulation M (the “OriginalRelief”) to permit the RBSG Affiliates 2 to conduct certain ongoing market activities (“Market Activities”) 3 inconnection with an offering by RBSG of Conting.ent Convertible Securities, as described in the OriginalRequest Letter and the Original Relief. 4 In your New Request Letter, you state that you seek the sameexemptive relief from Rule 102 of Regulation M, as granted in the Original Relief, to permit RBSG andRBSG Affiliates to continue to engage, in the ordinary course of business and in accordance with applicablelocal law, in the Market Activities.

In your New Request Letter, you reiterate the facts and representations set forth in the Original RequestLetter and confirm that, since the date of the Original Request Letter, there has been no material change inthe matters described therein other than the details of the Offering for which relief was previously granted.

Response:

Based on the facts and representations that you have made in your New Request Letter, but withoutnecessarily concurring in your analysis, the Commission finds that it is necessary or appropriate in the publicinterest, and is consistent with the protection of investors, to grant, and hereby grants, RBSG an exemptionfrom Rule 102 of Regulation M to permit the RBSG Affiliates to continue to engage in the Market Activitiesreferenced in your New Request Letter, subject to all conditions set forth in the Original Relief.

This exemption is based solely on the facts presented and the representations made in your letter. Anydifferent facts or circumstances may require a different response. In the event that any material changeoccurs with respect to any of those facts or representations, transactions in the RBSG Shares and RBSGADSs must be discontinued, pending presentation of the facts for our consideration. In addition, yourattention is directed to the antifraud and anti-manipulation provisions of the Exchange Act, includingSections 9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and any otherapplicable provisions of the federal securities laws must rest with the participants in the various transactions.

We express no view with respect to any other questions that the proposed transactions may raise, including,but not limited-to, the adequacy of disclosure concerning, and the applicability of any other federal or statelaws to, the proposed transactions.

For the Commission,

by the Division of Trading and Markets,

pursuant to delegated authority, 5

/s/

Josephine J. Tao

Assistant Director

Attachment

Footnotes1 A copy of the Original Request Letter and the Original Relief may be found on the Commission'swebsite at: https://www.sec.gov/divisions/marketreg/mr-noaction/2015/royal-bank-scotland-080315-atl.pdf.

1 We have attached a copy of your letter. Each defined term in our response has the same meaningas defined, directly or by reference, in your attached letter, unless we note otherwise.

2 The RBSG Affiliates are: RBSG CIG, the RBSG Asset Manager, the RBSG Investment Managers,the RBSG Trustees and Personal Representatives, the RBSG Banking Units, and the RBSG StockBorrowing and Lending Units, as described in the Original Request Letter and Original Relief.

3 The Market Activities are: the derivatives and investor product market-making and hedgingactivities; the investment management activities; the trustee and personal representative-relatedactivities; the banking-related activities; the unsolicited brokerage activities; and the stock borrowingand lending activities, as described in the Original Request Letter and the Original Relief.

4 The Original Request Letter and the Commission's Original Relief are available on theCommission's Website at: https://www.sec.gov/divisions/marketreg/mr-noaction/2015/royal-bank-scotland-080315-atl.pdf

5 17 CFR 200.30-3(a)(6).

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Nasdaq OMX BX, Inc.[INQUIRY LETTER]

October 14, 2015

Brent J. Fields

Secretary

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549-9303

Re: Request for Exemption from Certain Provisions of the Plan to Implement a Tick Size Pilot Program (FileNo. 4-657)

Dear Mr. Fields:

On May 6, 2015, the Commission approved the Plan to Implement a Tick Size Pilot Program submitted tothe Commission pursuant to Rule 608 of Regulation NMS under the Securities Exchange Act of 1934 (“Act”)(the “Plan”). 1 Absent an exemption, Rule 608 of Regulation NMS requires each Plan Participant 2 to complywith, and enforce compliance by its members, as applicable, with the provisions of the Plan. 3 As describedbelow, and subject to certain conditions, the Plan Participants respectfully request from the Securities andExchange Commission (“Commission”) an exemption from the requirements in Section VI of the Plan whenthe Closing Price 4 of a Pilot Security in a test group is below $1.00.

Background

The Plan will allow the Commission, market participants, and the public to study and assess the impact ofincrement conventions on the liquidity and trading of the common stocks of small capitalization companies.To facilitate this analysis, the Plan provides for the widening of quoting and trading increments for a group ofPilot Securities. As set forth in Section V of the Plan, the Pilot Securities will be subdivided into three testgroups and a control group, each with its own requirements and exceptions relating to quoting and tradingincrements.

Section V(A) of the Plan sets forth the criteria for determining the NMS Common Stocks that are PilotSecurities. 5 The Operating Committee will select the Pilot Securities to be placed into three test groups bymeans of a stratified random sampling process. Each test group will consist of 400 Pilot Securities; PilotSecurities not placed into a test group will constitute the control group. 6

Exemption Request

The Plan Participants request an exemption from the Plan to be able to move specified Pilot Securities tothe control group during the course of the Pilot Period. Specifically, the Plan Participants believe that a PilotSecurity in one of the three test groups that has a Closing Price below $1.00 should be removed from itsrespective test group and added to the control group for the remainder of the Pilot Period. The PlanParticipants further believe that a Pilot Security that has a price that drops below $1.00 during regulartrading hours, but maintains a Closing Price above $1.00, would remain in its test group. All Pilot Securities,including a Pilot Security that is removed from a test group and added to the control group because itsClosing Price is below $1.00, would continue to be subject to the data collection provisions of the Plan. 7

Without an exemption from the Plan and the ability to reassign a Pilot Security from a particular test group tothe control group, Section VI of the Plan requires that Pilot Securities with a Closing Price below $1.00continue to be quoted and traded according to the provisions for each respective test group described insubparagraphs (A)-(D) of Section VI of the Plan. Therefore, for example, a Pilot Security that is in test grouptwo and has a Closing Price below $1.00 will continue to quote and trade in $0.05 increments.

The Plan Participants believe that such a result would not be consistent with the Commission's reasoningdescribed in the Approval Order. The Commission stated in its Approval Order that it believes that alteringtick sizes could result in significant market-wide benefits and improvements to liquidity and capital formation,especially for small capitalization stocks, and therefore investors and issuers would benefit because it wouldbe easier and less expensive to trade in these stocks. However, requiring Pilot Securities that have aClosing Price below $1.00 quote and/or trade at large $0.05 increments, rather than $0.01 or subpennyincrements, as would be the case in the control group, could be potentially harmful for trading in such PilotSecurities, as the spread for such Pilot Securities can become too large in comparison to the price of theactual Pilot Securities. The Plan Participants believe this would have a negative impact on the tradingactivity for such securities and thus be contrary to the stated goals of the Commission in approving the Plan.Furthermore, the Plan Participants believe that not moving such Pilot Securities to the control group couldimpact the quality of data generated and collected from such Pilot Securities because the spreadsassociated with such Pilot Securities would not correlate to the actual price of such Pilot Securities.

The Participants further believe that removing a Pilot Security with a Closing Price below $1.00 from a testgroup is consistent with the intentions of the Plan because, in identifying the criteria for the selection andgrouping of Pilot Securities, the Plan provides that Pilot Securities consist of those NMS Common Stocksthat have a Closing Price of at least $2.00 on the last day of the Measurement Period (which is a three-calendar-month period) and a Closing Price on every U.S. trading day during the Measurement Period thatis not less than $1.50. The goal of using a three-month Measurement Period is to reduce the potential forsecurities that trade below $1.00 to be included as a Pilot Security. If the price of a security, based on theclosing price, were to decline during the Pilot Period to below $1.00, it would be consistent with the originalgoals of how Pilot Securities are selected initially to remove such Pilot Security from a test group. The PlanParticipants note that by including such a Pilot Security in the control group for the remainder of the PilotPeriod, such security will continue to be subject to the data collection provisions of the Plan, and thereforethe Commission and the Plan Participants would still be able to assess trading activity in such a PilotSecurity.

Accordingly, the Participants respectfully request that the Commission approve an exemption from SectionVI of the Plan that would:

1.require that Pilot Securities that drop below $1.00 during regular trading hours, butmaintain a Closing Price above $1.00, continue to quote and trade in accordancewith the provisions of the test groups they are originally placed into,

2.permit the Plan Participants to remove a Pilot Security that has been included in atest group and that has a Closing Price below $1.00 during the Pilot Period from itstest group, and

3. add such Pilot Security to the control group for the remainder of the Pilot Period.

The requested exemption satisfies the requirements of Rule 608(e) of Regulation NMS, in that it isconsistent with the public interest, the protection of investors, the maintenance of fair and orderly marketsand the removal of impediments to, and the perfection of the mechanisms of, a national market system.Specifically, the Exchange believes that the exemption will promote the goals of Regulation NMS byfostering market efficiencies and complying with the original intentions of the Plan.

We thank you for your attention to this request.

Respectfully submitted,

/s/

Elizabeth K. King

[STAFF REPLY LETTER]

July 20, 2016

Mr. T. Sean Bennett

Associate General Counsel

Nasdaq OMX BX LLC

805 King Farm Boulevard

Rockville, MD 20850

Re: Exemption Under Rule 608(e) of Regulation NMS under the Securities Exchange Act of 1934 fromCertain Provisions of the “Plan to Implement a Tick Size Pilot Program”

Dear Mr. Bennett:

In its letter dated October 14, 2015, 1 the New York Stock Exchange LLC (“NYSE”), on behalf of itself andBATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc.,EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc. (“FINRA”), NASDAQ OMX BX, Inc. (“BX”or the “Exchange”), NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, NYSE MKT LLC, and NYSEArca, Inc. (collectively, “Participants”) 2 requested an exemption from certain quoting and tradingrequirements set forth in the Plan to Implement a Tick Size Pilot Program (“Tick Size Pilot Plan”). 3Specifically, in the October Exemption Request, the Participants requested that the Commission, pursuant toRule 608(e) of Regulation NMS under the Securities Exchange Act of 1934 (“Exchange Act”), exempt theParticipants from the requirements of Rule 608(c) of Regulation NMS that they comply, and enforce thecompliance by its members with certain provisions of Section VI of the Tick Size Pilot Plan when the ClosingPrice 4 of a Pilot Security assigned to any Test Group is below $1.00.

On February 23, 2016, FINRA, on behalf of itself and the Participants, submitted an additional request forexemption from certain quoting and trading provisions set forth in the Tick Size Pilot Plan. 5 Specifically, theParticipants requested that the Commission, pursuant to Rule 608(e) of Regulation NMS under theExchange Act, exempt them from the requirements of Rule 608(c) of Regulation NMS that they comply, andenforce compliance by its members, with: (1) certain provisions of Section VI.C and Section VI.D of the TickSize Pilot Plan to permit a member to execute certain orders in increments other than $0.05 when a memberhas executed a proprietary trade in an increment other than $0.05 that triggers the obligation to executeanother customer order held by the member; (2) certain provisions of Section VI.D to permit members toexecute certain error correction transactions in Test Group Three as an additional exception to the Trade-atProhibition; and (3) Section VI.D(12) concerning the stopped order exception to the Trade-at Prohibition.

The Commission notes that BX submitted a proposed rule change to implement the quoting and tradingrequirements set forth in the Tick Size Pilot Plan and that the proposed rule change includes rules thataddress the items described herein for which BX seeks exemption from Rule 608(c) of Regulation NMS. 6

Rule 608(c) of Regulation NMS requires the Participants to comply with the terms of the Tick Size Pilot Plan.7 Further, Rule 608(c) of Regulation NMS requires each Participant to enforce compliance with the Tick SizePilot Plan by its members and persons associated with its members. 8 Rule 608(e) of Regulation NMSprovides that the Commission may exempt from the provisions of Rule 608 of Regulation NMS, eitherconditionally or on specified terms and conditions, any self-regulatory organization, if the Commissiondetermines that such exemption is consistent with the public interest, the protection of investors, themaintenance of fair and orderly markets, and the removal of impediments to, and the perfection of the

mechanisms of, a national market system. 9

As discussed below, the Commission, pursuant to its authority under Rule 608(e) of Regulation NMS, ishereby granting BX a limited exemption from the requirement to comply with certain provisions of the TickSize Pilot Plan as required under Rule 608(c) of Regulation NMS. 10

Exemption from Certain Provisions of the Tick Size Pilot PlanI. Exemption from the Requirement to Enforce Compliance with Certain Grouping,and Quoting and Trading Requirements for Pilot Securities Under Sections VI ofthe Tick Size Pilot Plan

Section V of the Tick Size Pilot Plan sets forth the criteria for identifying Pilot Securities and the method bywhich Pilot Securities will be grouped and placed into the three Test Groups. Pursuant to Section V of theTick Size Pilot Plan, Pilot Securities that are not placed into the three Test Groups will constitute the ControlGroup. Section VI of the Tick Size Pilot Plan sets forth the quoting and trading requirements established forthe Control Group and each Test Group.

In the October Exemption Request, the Participants requested an exemption from Section VI of the TickSize Pilot Plan to permit Participants to move a Pilot Security from its assigned Test Group to the ControlGroup if the Closing Price of a Pilot Security is below $1.00 on any trading day during the Pilot Period. 11 APilot Security that is reassigned to the Control Group would be subject to the quoting and tradingrequirements of the Control Group. In addition, any reassigned Pilot Security would continue to be subject tothe data collection provisions of the Tick Size Pilot Plan.

In the BX Proposal, BX Rule 4770(a)(5)provides, in pertinent part, that if a Pilot Security's Closing Price isbelow $1.00, then that Pilot Security would be moved from its respective Test Group to the Control Group,and would quote and trade in accordance with the rules for Pilot Securities in the Control Group for theremainder of the Pilot Period. 12 In addition, such Pilot Security would continue to be subject to the datacollection requirements under the Tick Size Pilot Plan and BX Rule 4770(b).

In the October Exemption Request, the Participants stated that requiring a Pilot Security whose price fallsbelow $1.00 to quote and/or trade in $0.05 increments could be potentially harmful as the spread for suchPilot Security could become too large in comparison to its price. Further, the Participants believe that thiscould have a negative impact on the trading activity for such securities. Finally, the Participants believe thatif such Pilot Securities are not moved into the Control Group, the quality of data generated and collectedcould be impacted because the spreads associated with such Pilot Securities would not correlate with theiractual price.

The Commission grants the exemption to BX from the requirements in Section VI of the Tick Size Pilot Planthat Pilot Securities with a Closing Price below $1.00 must quote and trade according to the provisions of itsassigned Test Group, so long as BX complies, and enforces compliance by its member with, BX Rule4770(a)(5). Accordingly, BX may move any Pilot Security that has a Closing Price below $1.00 during thePilot Period from a Tick Size Pilot Plan Test Group to the Control Group. Thereafter, such Pilot Securitywould be permitted to quote and trade according to the provisions of the Control Group for the remainder ofthe Pilot Period. Further, BX and its members must continue to collect and submit the data related to suchPilot Security as set forth in the Tick Size Pilot Plan and BX Rule 4770(b).

The Commission has determined that this exemption is consistent with the public interest, the protection ofinvestors, the maintenance of fair and orderly markets and the removal of impediments to, and theperfection of a national market system, because requiring Pilot Securities with a Closing Price of less than$1.00 to quote and/or trade in increments larger than as provided under the Control Group could cause thespread for such Pilot Securities to become too large relative to its price, which could potentially harm thetrading of such securities and the quality of the data generated under the Tick Size Pilot Plan.

II. Exemption from the Requirement to Enforce Compliance with Certain TradingRequirements Under Sections VI.C and VI.D of the Tick Size Pilot Plan

Section VI.C of the Tick Size Pilot Plan sets forth the quoting and trading requirements for Pilot Securities inTest Group Two. Specifically, Test Group Two Pilot Securities may only be quoted and traded in $0.05increments, subject to the following circumstances: 13 (i) trading may occur at the midpoint between theNational Best Bid and National Best offer (“NBBO”) or the midpoint between the best protected bid and bestprotected offer (“PBBO”); (ii) Retail Investor Orders may be provided price improvement of at least $0.005better than the PBBO; and (iii) Negotiated Trades may trade in increments less than $0.05. BX proposes toimplement these provisions in BX Rule 4770(c)(2)(C)(i), (ii), and (iii). 14

Section VI.D of the Tick Size Pilot Plan sets forth the quoting and trading requirements for Pilot Securities inTest Group Three. Specifically, Test Group Three Pilot Securities may only be quoted and traded in $0.05increments, subject to the same three trading circumstances noted above for Test Group Two, 15 and aresubject to the Trade-at Prohibition. BX proposes to implement these provisions in BX Rule 4770(c)(3)(C)(i),(ii), and (iii) along with BX Rule 4770(c)(3)(C). 16

In the February Exemption Request, the Participants noted that a member of a Participant may be obligatedunder its rules ( e.g., BX Rule 2110-2) to execute a customer order in a Pilot Security after executing aproprietary trade in the same Pilot Security. In these instances, the Participants requested that members beexempt from having to execute such a customer order in a Test Group Two Pilot Security or a Test GroupThree Pilot Security in a $0.05 increment. Rather, the Participants propose to allow their members in theseinstances to execute the customer order at the same price as (or within the prescribed amount of), for thesame Pilot Security, on the same side as the triggering proprietary trade.

In the BX Proposal, BX Rule 4770(c)(2)(C)(iv) would provide an exception in Test Group Two to therequirement of executing an order in a $0.05 increment for the execution of customer orders to comply withBX Rule 2110-2 following the execution of a proprietary trade by the member at an increment other than$0.05, where such proprietary trade was permissible pursuant to an exception under the Tick Size PilotPlan. BX Rule 4770(c)(3)(C)(iv) would provide for the same exception for Test Group Three.

In the February Exemption Request, the Participants note that they believe that an additional exception tothe requirement of executing orders in a $0.05 trading increment in Test Group Two and Test Group Threewould best facilitate the ability of members to continue to protect a customer order while retaining theflexibility to engage in proprietary trades that are permissible under the Tick Size Pilot Plan.

The Commission grants the exemption to BX from the $0.05 increment trading requirements of SectionsVI.C and VI.D for certain transactions so long as BX complies with, and enforces compliance with BX Rule4770(c)(2)(C) and Rule 4770(c)(3)(C). The Commission has determined that this exemption is consistentwith the public interest, the protection of investors, the maintenance of fair and orderly markets and theremoval of impediments to, and the perfection of a national market system because it will facilitate theexecution of customer orders.

III. Exemption from the Requirement to Enforce Compliance with Certain TradingRequirements Under Section VI.D of the Tick Size Pilot Plan for Error CorrectionTransactions

As noted above, Section VI.D of the Tick Size Pilot Plan sets forth the quoting and trading requirements forPilot Securities in Test Group Three, which includes the Trade-at Prohibition. In the February ExemptionRequest, the Participants requested an exemption from having to comply, and enforce compliance by itsmembers with, the Trade-at Prohibition for certain error correction transactions. Rather, as set forth in BXRule 4770(c)(3)(D)(iii)(o), certain error correction transactions as defined in BX Rule 4770(c)(3)(D)(iii)(o)would be excepted from the Trade-at Prohibition. In addition, BX notes in its proposal that BX Rule 4770(c)(3)(D)(iii)(o) would be subject to conditions set forth in the Commission's Order exempting error correctiontransactions from Rule 611 of Regulation NMS. 17

The Participants note that certain error correction transactions are exempt from the provisions of Rule 611 ofRegulation NMS. Accordingly, the Participants believe that certain transactions to correct bona fide errors inthe execution of customer orders should likewise be excepted from the Trade-at Prohibition.

The Commission grants the exemption to BX from the requirements of Section VI.D of the Tick Size PilotPlan so that certain error correction transactions would be excepted from the Trade-at Prohibition, so longas BX complies with and enforces compliance with BX Rule 4770(c)(3)(D)(iii)(o). The Commission hasdetermined that this exemption is consistent with the public interest, the protection of investors, themaintenance of fair and orderly markets and the removal of impediments to, and the perfection of a nationalmarket system because it would provide consistency in how error correction transactions are treated. BXhas proposed to use the same definition and process for error correction transactions under the Tick SizePilot Plan as it does under Rule 611 of Regulation NMS.

IV. Exemption from the Requirement to Enforce Compliance with Certain TradingRequirements Under Section VI.D of the Tick Size Pilot Plan for “Stopped Orders”

Section VI.D(12) of the Tick Size Pilot Plan provides an exception to the Trade-at Prohibition for “stoppedorders” that provides, among other things, that “the price of the trade-at transaction was, for a stopped buyorder, equal to the national best bid in the Pilot Security at the time of execution or, for a stopped sell order,equal to the national best offer in the Pilot Security at the time of execution.”

BX proposes to adopt a modified stopped order exception in BX Rule 4770(c)(3)(D)(iii)(m). Specifically, BXproposes BX Rule 4770(c)(3)(D)(iii)(m) to provide that “[t]he price of the Trade-at transaction was, for astopped buy order, equal to or less than the National Best Bid in the Pilot Security at the time of executionor, for a stopped sell order, equal to or greater than the Nation Best Offer in the Pilot Security at the time ofexecution, as long as such order is priced at an acceptable increment.”

According to the Participants, the stopped order exception to the Trade-at Prohibition is based upon theexception provided for stopped orders in Rule 611 of Regulation NMS. 18 However, as currently drafted, theTrade-at Prohibition exception for stopped orders would result in an inconsistent result compared to theanalogous exception to Rule 611 of Regulation NMS. Accordingly, the Participants believe that the proposedstopped order exception to the Trade-at Prohibition would result in a more consistent approach for stoppedorders.

The Commission grants the exemption to BX from the requirements of Section VI.D(12)(c) so long as BXcomplies with, and enforces compliance with BX Rule 4770(c)(3)(D)(iii)(m). The Commission hasdetermined that this exemption is consistent with the public interest, the protection of investors, themaintenance of fair and orderly markets and the removal of impediments to, and the perfection of a nationalmarket system, because it would provide consistency in the treatment of stopped order transactions underboth Regulation NMS and the Tick Size Pilot Plan. Therefore, the exemption should facilitate and easeimplementation of the stopped order exception to the Trade-at Prohibition.

*  *  *

This exemption is conditioned on the facts and representations presented in your letter. In the event anymaterial change occurs with respect to any of the facts or representations presented, the exemption willexpire and the Exchange must immediately resume operating in accordance with all of the provisions in theTick Size Pilot Plan.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 19

/s/

David S. Shillman

Associate Director

Footnotes1 See Securities and Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (File No. 4-657)(the "Approval Order").

2 The Commission notes that on February 5, 2016, the National Stock Exchange, Inc. ( "NSX") filed aPlan amendment with the Commission to become a Plan Participant pursuant to Section II.0 of thePlan. See Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR 12162 (March 8,2016).

3 17 CFR 242.608(c); See Section II of the Plan.

4 Unless otherwise specified, capitalized terms used in this rule filing are based on the defined termsof the Plan.

5 Pilot Securities will consist of those NMS Common Stocks with: (1) a market capitalization of $5billion or less on the last day of the Measurement Period; (2) a Closing Price of at least $2.00 on thelast day of the Measurement Period; (3) a Closing Price on every U.S. trading day during theMeasurement Period that is not less than $1.50; (4) a Consolidated Average Daily Volume ( "CADV")during the Measurement Period of one million shares or less; and (5) a Measurement Period Volume-Weighted Average Price ( "VWAP") of at least $2.00. In addition, an NMS Common Stock for anissuer that had its IPO within 6 months of the start of the Pilot Period would not be eligible to be aPilot Security. See Section V(A) of the Plan.

6 See Section V(B) of the Plan.

7 In compliance with the Plan, Plan Participants would also propose SRO rules to address themechanics of what happens to Pilot Securities with a Closing Price below a $1.00. Furthermore, inaccordance with Appendix A of the Plan, Pilot Securities that are removed from test groups andplaced into the control group would be made publicly available in a pipe delimited format.

1 See letter from Elizabeth K. King, New York Stock Exchange, to Brent J. Fields, Secretary, Securityand Exchange Commission ( "Commission") dated October 14, 2015 ( "October ExemptionRequest").

2 The Plan Participants are BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange,Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc.,NASDAQ OMX BX, Inc., NASDAQ OMX PFILX LLC, the Nasdaq Stock Market LLC, New York StockExchange LLC, NYSE MKT LLC, and NYSE Arca. Inc.

3 See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015).

4 Unless otherwise specified, capitalized terms in this rule filing are based on the defined terms of thePlan.

5 See letter from Marcia E. Asquith, Senior Vice President and Corporate Secretary, FINRA, toRobert W. Errett, Deputy Secretary, Commission dated February 23, 2016 ( "February ExemptionRequest").

6 See Securities Exchange Act No. 78250 (July 7, 2016), 81 FR 45340 (July 13, 2016) ( "BXProposal").

7 17 CFR 242.608(c).

8 Id.

9 17 CFR 242.608(e).

10 The Commission notes that while the October Exemption Request and the February ExemptionRequest seek exemptive relief for all of the Participants, the Commission is granting exemptive relief

only to BX. The Commission would consider granting similar limited exemptions to other Participantsshould they submit proposed rule changes pursuant to Section 19(b) of the Exchange Act that aresubstantially similar to the BX Proposal.

11 See October Exemption Request, supra note 1.

12 BX Rule 4770(a)(5) also provides that if a Pilot Security's price drops below $1.00 during regulartrading hours but does not have a Closing Price below $1.00 the Pilot Security will continue to tradeaccording to the quoting and trading of its assigned Test Group.

13 Section VI.C of the Tick Size Pilot Plan also provides certain quoting exceptions.

14 See BX Proposal, supra note 6.

15 Section VI.D of the Tick Size Pilot Plan also provides certain quoting exceptions.

16 See BX Proposal, supra note 6.

17 See BX Proposal, supra note 6. See also Securities Exchange Act Release No. 55884 (June 8,2007, 72 FR 32926 (June 14, 2007) (order exempting certain error correction transactions from Rule611 of Regulation NMS). Specifically, the bona fide error must be evidenced by objective facts andcircumstances. The Trading Center must maintain documentation of such facts and circumstances.The Trading Center must record the transaction in its error account. Further, the Trading Center mustestablish, maintain, and enforce written policies and procedures that are reasonably designed toaddress the occurrence of errors, and, in the event of an error, the use and terms of a transaction tocorrect the error in compliance with this exemption. Finally, the Trading Center must regularly surveilto ascertain the effectiveness of its policies and procedures to address errors and transactions tocorrect errors and take prompt action to remedy deficiencies in such policies and procedures.

18 Rule 611(b)(9)(iii) of Regulation NMS provides that "the price of the trade-through transaction was,for a stopped buy order, lower than the national best bid in the NMS stock at the time of execution or,for a stopped sell order, higher than the national best offer in the NMS stock at the time of execution."

19 17 CFR 200.30-3(a)(42).

http://www.rbsftstaging.com/document/read/NAL-sdv01a72652987c7a1000b34c90b11c2ac4f101

New York Stock Exchange LLC[INQUIRY LETTER]

October 14, 2015

Brent J. Fields

Secretary

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549-9303

Re: Request for Exemption from Certain Provisions of the Plan to Implement a Tick Size Pilot Program (FileNo. 4-657)

Dear Mr. Fields:

On May 6, 2015, the Commission approved the Plan to Implement a Tick Size Pilot Program submitted tothe Commission pursuant to Rule 608 of Regulation NMS under the Securities Exchange Act of 1934 (“Act”)(the “Plan”). 1 Absent an exemption, Rule 608 of Regulation NMS requires each Plan Participant 2 to complywith, and enforce compliance by its members, as applicable, with the provisions of the Plan. 3 As describedbelow, and subject to certain conditions, the Plan Participants respectfully request from the Securities 6dExchange Commission (“Commission”) an exemption from the requirements in Section VI of the Plan whenthe Closing Price 4 of a Pilot Security in a test group is below $1.00.

Background

The Plan will allow the Commission, market participants, and the public to study and assess the impact ofincrement conventions on the liquidity and trading of the common stocks of small capitalization companies.To facilitate this analysis, the Plan provides for the widening of quoting and trading increments for a group ofPilot Securities. As set forth in Section V of the Plan, the Pilot Securities will be subdivided into three testgroups and a control group, each with its own requirements and exceptions relating to quoting and tradingincrements.

Section V(A) of the Plan sets forth the criteria for determining the NMS Common Stocks that are PilotSecurities. 5 The Operating Committee will select the Pilot Securities to be placed into three test groups bymeans of a stratified random sampling process. Each test group will consist of 400 Pilot Securities; PilotSecurities not placed into a test group will constitute the control group. 6

Exemption Request

The Plan Participants request an exemption from the Plan to be able to move specified Pilot Securities tothe control group during the course of the Pilot Period. Specifically, the Plan Participants believe that a PilotSecurity in one of the three test groups that has a Closing Price below $1.00 should be removed from itsrespective test group and added to the control group for the remainder of the Pilot Period. The PlanParticipants further believe that a Pilot Security that has a price that drops below $1.00 during regulartrading hours, but maintains a Closing Price above $1.00, would remain in its test group. All Pilot Securities,including a Pilot Security that is removed from a test group and added to the control group because itsClosing Price is below $1.00, would continue to be subject to the data collection provisions of the Plan. 7

Without an exemption from the Plan and the ability to reassign a Pilot Security from a particular test group tothe control group, Section VI of the Plan requires that Pilot Securities with a Closing Price below $1.00continue to be quoted and traded according to the provisions for each respective test group described insubparagraphs (A)-(D) of Section VI of the Plan. Therefore, for example, a Pilot Security that is in test grouptwo and has a Closing Price below $1.00 will continue to quote and trade in $0.05 increments.

The Plan Participants believe that such a result would not be consistent with the Commission's reasoningdescribed in the Approval Order. The Commission stated in its Approval Order that it believes that alteringtick sizes could result in significant market-wide benefits and improvements to liquidity and capital formation,especially for small capitalization stocks, and therefore investors and issuers would benefit because it wouldbe easier and less expensive to trade in these stocks. However, requiring Pilot Securities that have aClosing Price below $1.00 quote and/or trade at large $0.05 increments, rather than $0.01 or subpennyincrements, as would be the case in the control group, could be potentially harmful for trading in such PilotSecurities, as the spread for such Pilot Securities can become too large in comparison to the price of theactual Pilot Securities. The Plan Participants believe this would have a negative impact on the tradingactivity for such securities and thus be contrary to the stated goals of the Commission in approving the Plan.Furthermore, the Plan Participants believe that not moving such Pilot Securities to the control group couldimpact the quality of data generated and collected from such Pilot Securities because the spreadsassociated with such Pilot Securities would not correlate to the actual price of such Pilot Securities.

The Participants further believe that removing a Pilot Security with a Closing Price below $1.00 from a testgroup is consistent with the intentions of the Plan because, in identifying the criteria for the selection andgrouping of Pilot Securities, the Plan provides that Pilot Securities consist of those NMS Common Stocksthat have a Closing Price of at least $2.00 on the last day of the Measurement Period (which is a three-calendar-month period) and a Closing Price on every U.S. trading day during the Measurement Period thatis not less than $1.50. The goal of using a three-month Measurement Period is to reduce the potential forsecurities that trade below $1.00 to be included as a Pilot Security. If the price of a security, based on theclosing price, were to decline during the Pilot Period to below $1.00, it would be consistent with the originalgoals of how Pilot Securities are selected initially to remove such Pilot Security from a test group. The PlanParticipants note that by including such a Pilot Security in the control group for the remainder of the PilotPeriod, such security will continue to be subject to the data collection provisions of the Plan, and thereforethe Commission and the Plan Participants would still be able to assess trading activity in such a PilotSecurity.

Accordingly, the Participants respectfully request that the Commission approve an exemption from SectionVI of the Plan that would:

1.require that Pilot Securities that drop below $1.00 during regular trading hours, butmaintain a Closing Price above $1.00, continue to quote and trade in accordancewith the provisions of the test groups they are originally placed into,

2.permit the Plan Participants to remove a Pilot Security that has been included in atest group and that has a Closing Price below $1.00 during the Pilot Period from itstest group, and

3. add such Pilot Security to the control group for the remainder of the Pilot Period.

The requested exemption satisfies the requirements of Rule 608(e) of Regulation NMS, in that it isconsistent with the public interest, the protection of investors, the maintenance of fair and orderly marketsand the removal of impediments to, and the perfection of the mechanisms of, a national market system.Specifically, the Exchange believes that the exemption will promote the goals of Regulation NMS byfostering market efficiencies and complying with the original intentions of the Plan.

We thank you for your attention to this request.

Respectfully submitted,

/s/

Elizabeth K. King

[STAFF REPLY LETTER]

June 23, 2016

Mr. Albert Kim

Vice President and Associate General Counsel

Chicago Stock Exchange, Inc.

440 S. LaSalle Street, Suite 800

Chicago, IL 60605

Re: Exemption Under Rule 608(e) of Regulation NMS under the Securities Exchange Act of 1934 fromCertain Provisions of the “Plan to Implement a Tick Size Pilot Program”

Dear Mr. Kim:

In its letter dated October 14, 2015, 1 the New York Stock Exchange LLC, on behalf of itself and BATSExchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc. (the Exchange” or “CHX”), BATSEDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc. (“FINRA”),NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, NYSE MKT LLC, andNYSE Arca, Inc. (collectively, “Participants”) 2 requested an exemption from certain quoting and tradingrequirements set forth in the Plan to Implement a Tick Size Pilot Program (“Tick Size Pilot Plan”). 3Specifically, in the October Exemption Request, the Participants requested that the Commission, pursuant toRule 608(e) of Regulation NMS under the Securities Exchange Act of 1934 (“Exchange Act”), exempt theParticipants from the requirements of Rule 608(c) of Regulation NMS that they comply, and enforce thecompliance by its members with certain provisions of Section VI of the Tick Size Pilot Plan when the ClosingPrice 4 of a Pilot Security assigned to any Test Group is below $1.00.

On February 23, 2016, FINRA, on behalf of itself and the Participants, submitted an additional request forexemption from certain quoting and trading provisions set forth in the Tick Size Pilot Plan. 5 Specifically,FINRA, on behalf of the Participants, requested that the Commission, pursuant to Rule 608(e) of RegulationNMS under the Exchange Act, exempt them from the requirements of Rule 608(c) of Regulation NMS thatthey comply, and enforce compliance by its members, with (1) certain provisions of Section VI.C and SectionVI.D of the Tick Size Pilot Plan to permit a member to execute certain orders in increments other than $0.05when a member has executed a proprietary trade in an increment other than $0.05 that triggers theobligation to execute another customer order held by the member; and (2) certain provisions of Section VI.Dto permit members to execute certain error correction transactions in Test Group Three as an additionalexception to the Trade-at Prohibition; and (3) Section VI.D(12) concerning stopped orders of the Tick SizePilot Plan.

The Commission notes that CHX submitted a proposed rule change to implement the quoting and tradingrequirements set forth in the Tick Size Pilot Plan and that the proposed rule change includes rules thataddress the items described herein for which CHX seeks exemption from Rule 608(c) of Regulation NMS. 6

Rule 608(c) of Regulation NMS requires the Participants to comply with the terms of the Tick Size Pilot Plan.7 Further, Rule 608(c) of Regulation NMS requires each Participant to enforce compliance with the Tick SizePilot Plan by its members and persons associated with its members. 8 Rule 608(e) of Regulation NMSprovides that the Commission may exempt from the provisions of Rule 608 of Regulation NMS, eitherconditionally or on specified terms and conditions, any self-regulatory organization, if the Commissiondetermines that such exemption is consistent with the public interest, the protection of investors, the

maintenance of fair and orderly markets, and the removal of impediments to, and the perfection of themechanisms of, a national market system . 9

As discussed below, the Commission, pursuant to its authority under Rule 608(e) of Regulation NMS, ishereby granting CHX a limited exemption from the requirement to comply with certain provisions of the TickSize Pilot Plan as required under Rule 608(c) of Regulation NMS. 10

Exemption from Certain Provisions of the Tick Size Pilot PlanI. Exemption from the Requirement to Enforce Compliance with Certain Grouping,and Quoting and Trading Requirements for Pilot Securities Under Sections VI ofthe Tick Size Pilot Plan

Section V of the Tick Size Pilot Plan sets forth the criteria for identifying Pilot Securities and the method bywhich Pilot Securities will be grouped and placed into the three Test Groups. Pursuant to Section V of theTick Size Pilot Plan, Pilot Securities that are not placed into the three Test Groups will constitute the ControlGroup. Section VI of the Tick Size Pilot Plan sets forth the quoting and trading requirements established forthe Control Group and each Test Group.

In the October Exemption Request, the Participants requested an exemption from Section VI of the TickSize Pilot Plan to permit Participants to move a Pilot Security from its assigned Test Group to the ControlGroup if the Closing Price of a Pilot Security is below $1.00 on any trading day during the Pilot Period. 11 APilot Security that is reassigned to the Control Group would be subject to the quoting and tradingrequirements of the Control Group. In addition, any reassigned Pilot Security would continue to be subject tothe data collection provisions of the Tick Size Pilot Plan.

In the CHX Proposal, CHX Article 20, Rule 13(a)(3) provides, in pertinent part, that if a Pilot Security'sClosing Price is below $1.00, then that Pilot Security would be moved from its respective Test Group to theControl Group, and would quote and trade in accordance with the rules for Pilot Securities in the ControlGroup for the remainder of the Pilot Period. 12 In addition, such Pilot Security would continue to be subjectto the data collection requirements under the Tick Size Pilot Plan and CHX Article 20, Rule 13(b).

In the October Exemption Request, the Participants stated that requiring a Pilot Security whose price fallsbelow $1.00 to quote and/or trade in $0.05 increments could be potentially harmful as the spread for suchPilot Security could become too large in comparison to its price. Further, the Participants believe that thiscould have a negative impact on the trading activity for such securities. Finally, the Participants believed thatif such Pilot Securities are not moved into the Control Group, the quality of data generated and collectedcould be impacted because the spreads associated with such Pilot Securities would not correlate with theiractual price.

The Commission grants the exemption to CHX from the requirements in Section VI of the Tick Size PilotPlan that Pilot Securities with a Closing Price below $1.00 must quote and trade according to the provisionsof its assigned Test Group, so long as CHX complies, and enforces compliance by its member with, CHXArticle 20, Rule 13(a)(3). Accordingly, NYSE Arca may move any Pilot Security that has a Closing Pricebelow $1.00 during the Pilot Period from a Tick Size Pilot Plan Test Group to the Control Group. Thereafter,such Pilot Security would be permitted to quote and trade according to the provisions of the Control Groupfor the remainder of the Pilot Period. Further, CHX and its member must continue to collect and submit thedata related to such Pilot Security as set forth in the Tick Size Pilot Plan and CHX Article 20, Rule 13(b).

The Commission has determined that this exemption is consistent with the public interest, the protection ofinvestors, the maintenance of fair and orderly markets and the removal of impediments to, and theperfection of a national market system, because requiring Pilot Securities with a Closing Price of less than$1.00 to quote and/or trade at increments larger than as provided under the Control Group could cause thespread for such Pilot Securities to become too large relative to its price, which could potentially harm thetrading of such securities and the quality of the data generated under the Plan.

II. Exemption from the Requirement to Enforce Compliance with Certain Trading

Requirements Under Sections VI.C and VI.D of the Tick Size Pilot Plan

Section VI.C of the Tick Size Pilot Plan sets forth the quoting and trading requirements for Pilot Securities inTest Group Two. Specifically, Test Group Two Pilot Securities may only be quoted and traded in $0.05increments, subject to the following circtunstances: 13 (A) trading may occur at the midpoint between theNational Best Bid and National Best offer (“NBBO”) or the midpoint between the best protected bid and bestprotected offer (“PBBO”); (B) Retail Investor Orders may be provided price improvement of at least $0.005better than the PBBO; and (C) Negotiated Trades may trade in increments less than $0.05. CHX proposesto implement these provision in CHX Article 20, Rule 13(a)(5)(i), (ii), and (iii), 14

Section VI.D of the Tick Size Pilot Plan sets forth the quoting and trading requirements for Pilot Securities inTest Group Three. Specifically, Test Group Three Pilot Securities may only be quoted and traded in $0.05increments, subject to the same three trading circumstances noted above for Test Group Two, 15 and aresubject to the Trade-at Prohibition. CHX proposes to implement these provisions in CHX Article 20, Rule13(a)(6)(C)(i), (ii), and (iii) along with CHX Article 20, Rule 13(a)(6)(D). 16

In the February Exemption Request, the Participants noted that a member of a Participant may be obligatedunder its rules ( e.g., CHX Article 9, Rule 17) to execute a customer order in a Pilot Security after executinga proprietary trade in the same Pilot Security. In these instances, the Participants requested that membersbe exempt from having to execute such a customer order in a Test Group Two Pilot Security or a TestGroup Three Pilot Security in a $0.05 increment. Rather, the Participants propose to allow its members inthese instances to execute the customer order at the same price as (or within the prescribed amount of), forthe same Pilot Security, on the same side as the triggering proprietary trade.

In the CHX Proposal, CHX Article, Rule 13(a)(5)(C)(iv) would provide an exception in Test Group Two to therequirement of executing an order in a $0.05 increment for execution of customer orders to comply with CHXArticle 9, Rule Rule 17 following the execution of a proprietary trade by the member at a non $0.05increment, where such proprietary trade was permissible pursuant to an exception under the Tick Size PilotPlan. CHX Article 20, Rule 13(a)(6)(C)(iv) would provide for the same exception for Test Group Three.

In the February Exemption Request, the Participants note that they believe that an additional exception tothe requirement of executing orders in a $0.05 trading increment in Test Group Two and Test Group Threewould best facilitate the ability of members to continue to protect a customer order while retaining theflexibility to engage in proprietary trades that are permissible under the Tick Size Pilot Plan.

The Commission grants the exemption to CHX from the $0.05 increment trading requirements of SectionsVI.C and VI.D for certain transactions so long as CHX complies with, and enforces compliance with CHXArticle 20, Rule 13(a)(5)(C)(iv) and CHX Article 20, Rule 13(a)(6)(C)(iv). The Commission has determinedthat this exemption is consistent with the public interest, the protection of investors, the maintenance of fairand orderly markets and the removal of impediments to, and the perfection of a national market systembecause it will facilitate the execution of customer orders.

III. Exemption from the Requirement to Enforce Compliance with Certain TradingRequirements Under Section VI.D of the Tick Size Pilot Plan for Error CorrectionTransactions

As noted above, Section VI.D of the Tick Size Pilot Plan sets forth the quoting and trading requirements forPilot Securities in Test Group Three, which includes the Trade-at Prohibition. In the February ExemptionRequest, the Participants requested an exemption from having to comply, and enforce compliance by itsmembers with, the Trade-at Prohibition for certain error correction transactions. Rather, as set forth in CHXArticle 20, Rule 13(a)(6)(D)(ii)(n), certain error correction transactions as defined in CHX Article 20, Rule13(a)(6)(D)(ii)(n) would be excepted from the Trade-at Prohibition. In addition, CHX notes in its proposal thatits CHX Article 20, Rule 13(a)(6)(D)(ii)(n) would be subject to conditions set forth in the Commission's Orderexempting error correction transactions from Rule 611 of Regulation NMS. 17

The Participants note that certain error correction transactions are exempt from the provisions of Rule 611 of

Regulation NMS. Accordingly, the Participants believe that certain transactions to correct bona fide errors inthe execution of customer orders should likewise be excepted from the Trade-at Prohibition.

The Commission grants the exemption to CHX from the requirements of Section VI.D of the Tick Size PilotPlan so that certain error correction transactions would be excepted from the Trade-at Prohibition, so longas CHX complies with and enforces compliance with CHX Article 20, Rule 13(a)(6)(D)(ii)(n). TheCommission has determined that this exemption is consistent with the public interest, the protection ofinvestors, the maintenance of fair and orderly markets and the removal of impediments to, and theperfection of a national market system because it would provide consistency in how error correctiontransactions are treated. CHX has proposed to use the same definition and process for error correctiontransactions under the Tick Size Pilot Plan as it does under Rule 611 of Regulation NMS.

IV. Exemption from the Requirement to Enforce Compliance with Certain TradingRequirements Under Section VI.D of the Tick Size Pilot Plan for “Stopped Orders”

Section VI.D(12) of the Tick Size Pilot Plan provides an exception to the Trade-at Prohibition for “stoppedorders” that provides, among other things, that “the price of the trade-at transaction was, for a stopped buyorder, equal to the national best bid in the Pilot Security at the time of execution or, for a stopped sell order,equal to the national best offer in the Pilot Security at the time of execution.”

CHX proposes to adopt a modified stopped order exception in CHX Article 20, Rule 13(a)(6)(D)(ii)(l).Specifically, CHX proposes CHX Article 20, Rule 13(a)(6)(D)(ii)(l) to provide that “[t]he price of the Trade-attransaction was, for a stopped buy order, equal to or less than the National Best Bid in the Pilot Security atthe time of execution or, for a stopped sell order, equal to or greater than the Nation Best Offer in the PilotSecurity at the time of execution, as long as such order is priced at an acceptable increment.”

According to the Participants, the stopped order exception to the Trade-at Prohibition is based upon theexception provided for stopped orders in Rule 611 of Regulation NMS. 18 However, as currently drafted, theTrade-at Prohibition exception for stopped orders would result in an inconsistent result compared to theanalogous exception to Rule 611 of Regulation NMS. Accordingly, the Participants believe that the proposedstopped order exception to the Trade-at Prohibition would result in a more consistent approach for stoppedorders.

The Commission grants the exemption to CHX from the requirements of Section VI.D(12)(c) so long as CHXcomplies with, and enforces compliance with CHX Article 20, Rule 13(a)(6)(D)(ii)(l). The Commission hasdetermined that this exemption is consistent with the public interest, the protection of investors, themaintenance of fair and orderly markets and the removal of impediments to, and the perfection of a nationalmarket system, because it would provide consistency in the treatment of stopped order transactions underboth Regulation NMS and the Tick Size Pilot Plan. Therefore, the exemption should facilitate and easeimplementation of the stopped order exception to the Trade-at Prohibition.

* * *

This exemption is conditioned on the facts and representations presented in your letter. In the event anymaterial change occurs with respect to any of the facts or representations presented, the exemption willexpire and the Exchange must immediately resume operating in accordance with all of the provisions in theTick Size Pilot Plan.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 19

/s/

David S. Shillman

Associate Director

Footnotes

1 See Securities and Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (File No. 4-657)(the "Approval Order").

2 The Plan Participants are BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange,Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc.,NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, New York StockExchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.

3 17 CFR 242.608(c); See Section II of the Plan.

4 Unless otherwise specified, capitalized terms used in this rule filing are based on the defined termsof the Plan.

5 Pilot Securities will consist of those NMS Common Stocks with: (1) a market capitalization of $5billion or less on the last day of the Measurement Period; (2) a Closing Price of at least $2.00 on thelast day of the Measurement Period; (3) a Closing Price on every U.S. trading day during theMeasurement Period that is not less than $1.50; (4) a Consolidated Average Daily Volume ( "CADV")during the Measurement Period of one million shares or less; and (5) a Measurement Period Volume-Weighted Average Price ( "VWAP") of at least $2.00. In addition, an NMS Common Stock for anissuer that had its IPO within 6 months of the start of the Pilot Period would not be eligible to be aPilot Security. See Section V(A) of the Plan.

6 See Section V(B) of the Plan.

7 In compliance with the Plan, Plan Participants would also propose SRO rules to address themechanics of what happens to Pilot Securities with a Closing Price below a $1.00. Furthermore, inaccordance with Appendix A of the Plan, Pilot Securities that are removed from test groups andplaced into the control group would be made publicly available in a pipe delimited format.

1 See letter from Elizabeth K. King, New York Stock Exchange, to Brent J. Fields, Secretary, Securityand Exchange Commission ( "Commission") dated October 14, 2015 ( "October ExemptionRequest").

2 The Commission notes that on February 5, 2016, the National Stock Exchange, Inc. ( "NSX") filed aPlan amendment with the Commission to become a Plan Participant pursuant to Section II.C of thePlan. See Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR 12162 (March 8,2016).

3 See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015).

4 Unless otherwise specified, capitalized terms in this rule filing are based on the defined terms of thePlan

5 See letter from Marcia E. Asquith, Senior Vice President and Corporate Secretary, FINRA, toRobert W. Errett, Deputy Secretary, Commission dated February 23, 2016 ( "February ExemptionRequest").

6 See Securities Exchange Act No. 78146 (June 23, 2016) ( "CHX Proposal").

7 17 CFR 242.608(c).

8 Id.

9 17 CFR 242.608(e).

10 The Commission notes that while the October Exemption Request and the February Exemption

Request seek exemptive relief for all of the Participants, the Commission is granting exemptive reliefonly to CHX. The Commission would consider granting similar limited exemptions to otherParticipants should they submit proposed rule changes pursuant to Section 19(b) of the ExchangeAct that are substantially similar to the CHX Proposal.

11 See October Exemption Request, supra note 1.

12 CHX Article 20, Rule 13(a)(3) also provides that if a Pilot Security's price drops below $1.00 duringregular trading hours but does not have a Close Price below $1.00 the Pilot Security will continue totrade according to the quoting and trading of its assigned Test Group.

13 Section VI.C of the Tick Size Pilot Plan also provides certain quoting exceptions.

14 See CHX Proposal, supra note 6.

15 Section VI.D of the Tick Size Pilot Plan also provides certain quoting exceptions.

16 See CHX Proposal, supra note 6.

17 See CHX Proposal, supra note 6. See also Securities Exchange Act Release No. 55884 (June 8,2007, 72 FR 32926 (June 14, 2007) (order exempting certain error correction transactions from Rule611 of Regulation NMS). Specifically, the bona fide error must be evidenced by objective facts andcircumstances. The Trading Center must maintain documentation of such facts and circumstances.The Trading Center must record the transaction in its error account. Further, the Trading Center mustestablish, maintain, and enforce written policies and procedures that are reasonably designed toaddress the occurrence of errors, and, in the event of an error, the use and terms of a transaction tocorrect the error in compliance with this exemption. Finally, the Trading Center must regularly surveilto ascertain the effectiveness of its policies and procedures to address errors and transactions tocorrect errors and take prompt action to remedy deficiencies in such policies and procedures.

18 Rule 611(b)(9)(iii) of Regulation NMS provides that "the price is the trade-through transaction was,for a stopped buy order, lower than the national best bid in the NMS stock at the time of execution or,for a stopped sell order, higher than the national best offer in the NMS stock at the time of execution."

19 17 CFR 200.30-3(a)(42).