December 6, 2019
VIA E-MAIL
W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Re: ActiveShares ETF Trust
File Nos. 333-234497; 811-23487
Dear Mr. McGuire:
On November 4, 2019, ActiveShares ETF Trust (the "Trust") filed a
registration
statement on Form N-1A under the Securities Act of 1933 (the "Securities Act")
and the
Investment Company Act of 1940 (the "1940 Act") to offer shares of Clearbridge
Focus Value
ETF (the "Fund"). We have reviewed the registration statement and provide our
comments
below. Where a comment is made in one location, it applies to all similar
disclosure appearing
elsewhere in the registration statement.
General
1. We note that portions of the filing, including the Fund's financial
statements, are
incomplete. We may have additional comments on such portions when you
complete
them in a pre-effective amendment, on disclosures made in response to
this letter, on
information supplied supplementally, or on exhibits added in any
amendments.
2. Please supplementally explain if you have submitted, or expect to
submit, any exemptive
application or no-action request in connection with the registration
statement.
3. The staff is aware that Precidian ETF Trust, et al., filed an
application and subsequent
amendments seeking exemptive relief from certain provisions of the 1940
Act (the
"Application"). The Commission issued a Notice for Comment on April 8,
2019, and a
subsequent order granting certain exemptive relief on May 20, 2019 (the
"Order").
Please tailor the disclosure throughout the registration statement to
conform to the
specific exemptive relief granted by the Order, including the relevant
representations and
conditions contained in the Application.
W. John McGuire, Esq.
December __, 2019
Page 2
Cover Page
4. The Application states the Fund will include a Legend describing how the
Fund will
operate differently from a traditional ETF. Revise the cover page to
make the Legend
more prominent. For example, consider indenting the Legend in a manner
that offsets it
from the rest of the text and using a larger font size. Consider other
methods to better
highlight the Legend.
5. Update the cross-reference at the end of the Legend to include a
specific reference to the
"ActiveShares structure risk" in the principal risks section.
Prospectus
Prospectus Summary Principal investment strategies (page 2)
6. Explain briefly in plain English the term "favorable risk-adjusted
return characteristics."
7. The Order is conditioned on the Fund's investments being limited to
securities listed or
traded on a national securities exchange registered with the Securites
and Exchange
Commission that trade contemporaneously with the Fund's shares. Revise
the principal
investment strategy to discuss this condition.
Prospectus Summary Principal risks (pages 2-4)
8. Consider adding a risk factor regarding any operational and
concentration risks related to
effecting all creation and redemptions through the AP representative.
9. Consider adding a risk factor that discusses in more detail the concerns
raised in the
Legend and how each of these bulleted points may affect the Fund.
10. The "ActiveShares structure risk," should be revised to more closely
track the language
of the Application on page 21. Please address the following issues, as
well as any other
discrepancies:
a. Revise the second sentence to state the VIIV is intended to provide
investors "with
enough information to allow for an effective arbitrage mechanism that
will keep the
market price of the fund at or close to the underlying NAV per share
of the fund."
b. Revise the fourth sentence to delete the reference to market price
varying from VIIV,
and state that market price may vary significantly from the
underlying NAV of the
fund, particularly during periods of market disruption or volatility.
c. Revise the last sentence to replace the reference to "investment
strategy" with
"trading strategy."
W. John McGuire, Esq.
December __, 2019
Page 3
d. Revise the last sentence to add the phrase "and its shareholders"
after "fund."
11. In "Early close/trading halt risk," expand the risk factor to discuss
specifically how
trading halts affect the Fund given that it is a non-transparent ETF.
Consistent with page
24 of the Application, state that the Fund will disclose on its website
any security for
which trading has been halted for an extended period of time.
12. In "Liquidity Risk" the disclosure states, "[t]he fund may experience
heavy redemptions
that could cause the fund to liquidate its assets at inopportune times."
Elsewhere in the
document, the disclosure states that the Fund will redeem Creation Units
"in-kind."
Disclose the circumstances under which this risk factor will apply to the
Fund. Further,
pursuant to the Order, the Fund is not permitted to invest in illiquid
securities or fixed
income securities, and should only be exposed to illiquid securities to
the extent a holding
becomes illiquid after investment. Please revise the risk factor
captioned "Liquidity risk"
accordingly.
13. In the risk factor captioned "Absence of active market" or in a separate
risk factor,
disclose that the Fund is offering a novel and unique structure, which
may affect the
number of entities willing to act as Authorized Participants.
14. In the risk factor captioned "Shares of the fund may trade at prices
other than NAV," add
disclosure discussing the possibility that premiums and discounts may be
larger for this
Fund than other ETFs given its unique structure and lack of transparency.
15. In "Trading issues risk," add disclosure to state that if 10% or more of
the Fund's
portfolio becomes subject to a trading halt or otherwise does not have
readily available
market quotations, the Fund will request the exchange to halt trading in
the Fund. Also
state that trading halts may have a greater impact on this Fund, compared
to other ETFs,
due to its lack of transparency. Make similar disclosures in the
"Secondary market
trading risk" on page 9 of the prospectus.
16. The risk factor "Limited Authorized Participants, Market Markets (sic)
and Liquidity
Providers Risk," is largely duplicative of the risk factor captioned
"Authorized
Participant Concentration Risk" on the same page. Consider consolidating
or separating
risks related to limited market makers and liquidity providers to the
extent they are
different from risks associated with limited authorized participants.
Further, consider
discussing in this risk factor the extent to which the unique
non-transparent nature of the
product and its reliance on a VIIV may exacerbate the risk of authorized
participants and
market makers choosing not to fulfill their respective obligations.
17. In the risk factor captioned "Risk of secondary lists," the disclosure
notes the Fund's
shares may be listed or traded on U.S. and non-U.S. stock exchanges other
than the U.S.
stock exchange where the fund's primary listing is maintained..." Confirm
W. John McGuire, Esq.
December __, 2019
Page 4
supplementally whether the Funds shares may, in fact, be traded after
hours. If accurate,
please disclose that after hours trading of the Fund could involve
heightened risk due to
the Fund's lack of transparency and the lack of availability of a VIIV
after hours.
Prospectus Important Information (page 6)
18. The disclosure states that the Board may change the Fund's investment
objective without
shareholder approval "on notice to shareholders." Clarify the number of
days' notice
shareholders will receive.
Prospectus More on the Fund's Investments, Exchange-traded funds (ETFs) (page
6)
19. The disclosure states that the Fund may invest in other investment
companies. If the
Fund anticipates that the expenses associated with such investments will
exceed 0.01% of
the Fund's net assets, please disclose the estimated amount of such
expenses as a separate
line item in the fee table. If the estimated expenses will be less than
0.01% of net assets,
these expenses should be reflected in "Other Expenses."
Share prices are reported in dollars and cents per share (page 13)
20. In this section, discuss the possibility that the Fund will trade with a
wider spread because
of its non-transparent structure. Additionally, please discuss here, or
where appropriate,
that at certain thresholds for spreads and premiums or discounts to NAV,
the Fund's
Board will discuss and determine what, if anything, should be done to
address such
issues.
Fund share trading prices Verified intra-day indicative value (page 15)
21. Provide a brief overview of how VIIV will be calculated and verified in
this section.
22. In the first sentence, insert the phrase "calculated and" before the
term "disseminated."
23. In this section, discuss that the Fund will request the exchange to halt
trading in the Fund
if 10% or more of the Fund's holdings are subject to trading halts or
are without readily
available market quotations, as noted above.
Calculation of net asset value (pages 15-16)
24. The last paragraph of this section on page 16 is largely duplicative of
the last bullet point
on page 15. Please eliminate unnecessary duplication.
W. John McGuire, Esq.
December __, 2019
Page 5
Creations and redemptions (page 18)
25. Discuss in this section the Authorized Participant Representative and
the Confidential
Account mechanism.
Premium/discount and NAV information (page 19)
26. Disclose here, or in an appropriate place in the prospectus, the
information that the Fund
will make available on its website, including the information required
by condition 2 of
the Application.
Statement of Additional Information
Glossary (page 1)
27. In the definition of "AP Representative," disclose that the AP
Representative cannot trade
for its own account on the information regarding the Deposit Securities,
be a counterparty
to the trades for an Authorized Participant or an affiliate, or be an
affiliate of the Fund, its
adviser or the Authorized Participant.
Fundamental and Non-Fundamental Investment Policies (pages 3-6)
28. Revise the Fund's fundamental and non-fundamental policies, as
appropriate, to ensure
the disclosure represents the Fund's specific investment limitations.
For example, the
Fund may not borrow for investment purposes, invest in real estate or
commodities (other
than through the specific instruments noted in the Application), and may
not invest in
illiquid securities.
Investment Practices and Risk Factors (page 7)
29. Consider stating that the Order limits the types of investments in which
the Fund may
invest, and discuss the specific limitations that apply to the Fund. For
example, please
disclose that all of the Fund's investments must be traded on a U.S.
exchange.
Foreign Investments (page 8)
30. Revise the disclosure to state that the Fund's investments in foreign
companies "will be"
instruments that trade on a U.S. exchange.
Investments in Other Investment Companies (page 8)
31. Revise this section to reflect the terms and conditions of the Order
(i.e., that the Fund can
only invest in certain investment companies).
W. John McGuire, Esq.
December __, 2019
Page 6
Manager (page 13)
32. Where appropriate, disclose the Adviser's responsibility for the
oversight of the
calculation and dissemination of the VIIV ("VIIV Procedures"), as well
as the Board's
oversight of the VIIV Procedures, consistent with pages 22 and 28 of the
Application.
Sub-advisers (page 14)
33. The disclosure defines the term "Subadviser" in some circumstances as
ClearBridge
Investments, LLC and in other circumstances, as ClearBridge Investments,
LLC and
Western Asset Management Company, LLC combined. Please revise to use
consistent
and distinct defined terms.
Expenses (page 16)
34. Confirm supplementally there will be no additional expenses related to
the AP
Representative.
Custodian and Transfer Agent (page 20)
35. The disclosure states that the Fund has entered into agreements with the
custodian and the
transfer agent. On page 14, however, the disclosure states that the
Manager will arrange
for and pay for such services under a unitary fee structure. Please
reconcile.
Exchange Listing and Trading (page 20)
36. Revise, as necessary, the disclosure here for consistency with the
relief being sought
under Rule 19b-4 of the Securities Exchange Act of 1934.
Redemption Transaction Fee (page 27)
37. Clarify that the overall limit for the redemption transaction fee is 2%,
consistent with the
Order.
38. Confirm supplementally that the last paragraph of this section is
applicable to the Fund.
Disclosure of Portfolio Holdings (page 33)
39. Confirm that the Fund's portfolio holdings disclosure policy, and the
relevant disclosure
in this section, reflect the fact that the Fund will disclose holdings
to the AP
Representative in order to facilitate transactions.
W. John McGuire, Esq.
December __, 2019
Page 7
Codes of Ethics (page 45)
40. Consider disclosing, here or in another appropriate location, the
enhanced requirements
related to the Fund in light of the AP Representative and the
Confidential Account, such
as any obligations pursuant Regulation F-D.
Part C: Other Information
Item 28: Exhibits
41. Please include as an exhibit the agreement with the AP Representative.
Item 15. Financial Statements and Exhibits
42. Please file the finalized exhibits once they are available.
Signatures
43. Please note the signature requirements of Section 6(a) of the Securities
Act, which
require that the registration statement be signed by the Trust's
principal executive officer,
principal financial officer, and principal accounting officer or
comptroller. In this regard,
any person who occupies more than one of the positions specified in
section 6(a) of the
Securities Act should indicate each capacity in which he or she signs
the registration
statement.
* * *
Responses to this letter should be made in a letter to me filed on
Edgar and in the form
of a pre-effective amendment filed pursuant to Rule 472 under the Securities
Act. Where no
change will be made in the filing in response to a comment, please indicate
this fact in the
letter to us and briefly state the basis for your position.
You should review and comply with all applicable requirements of the
federal securities
laws in connection with the preparation and distribution of preliminary
prospectuses.
Although we have completed our initial review of the registration
statement, the filing
will be reviewed further after we receive your response. Therefore, we reserve
the right to
comment further on the registration statement and any amendments. After we have
resolved
all issues, the Fund and its underwriter must request acceleration of the
effective date of the
registration statement.
In closing, we remind you that the Fund and its management are
responsible for the
accuracy and adequacy of their disclosures in the registration statement,
notwithstanding
any review, comments, action, or absence of action by the staff.
W. John McGuire, Esq.
December __, 2019
Page 8
Should you have any questions regarding this letter, please feel free to
contact me at
(202) 551-3250.
Sincerely,
/s/ Raymond
A. Be
Raymond
A. Be
Attorney-Adviser
cc: Marianne Dobelbower