December 10, 2012.
On October 12, 2012, BATS Exchange, Inc. (“Exchange” or “BATS”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) 
and Rule 19b-4 thereunder,
a proposed rule change to list and trade shares (“Shares”) of the iShares Sovereign Screened Global Bond Fund (“Fund”) under BATS Rule 14.11(i). The proposed rule change was published for comment in the Federal Register on October 30, 2012.
The Commission received no comments on the proposed rule change. This order grants approval of the proposed rule change.
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund pursuant to BATS Rule 14.11(i), which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by iShares Sovereign Screened Global Bond Fund, Inc. (“Company”),
a Maryland corporation that is registered with the Commission as an open-end investment company. BlackRock Fund Advisors is the investment adviser (“BFA” or “Adviser”) to the Fund. BlackRock International Limited serves as sub-adviser for the Fund (“Sub-Adviser”).
State Street Bank and Trust Company is the administrator, custodian, and transfer agent for the Company, and BlackRock Investments, LLC is the distributor for the Company. The Exchange states that the Adviser and the Sub-Adviser are both affiliated with multiple broker-dealers and have both implemented fire walls with respect to such broker-dealer affiliates regarding access to information concerning the composition and/or changes to the Fund's portfolio.
iShares Sovereign Screened Global Bond Fund
The Fund will seek to generate current income while striving to mitigate downside risk by investing principally in global sovereign debt obligations. To achieve its objective, the Fund will invest, under normal circumstances,
at least 80% of its net assets in sovereign government bonds from both developed and emerging market countries. In the absence of normal circumstances, the Fund may temporarily depart from its normal investment process, provided that such departure is, in the opinion of the portfolio management team of the Fund, consistent with the Fund's investment objective and in the best interest of the Fund. For example, the Fund may hold a higher than normal proportion of its assets in cash in response to adverse market, economic, or political conditions.
The Fund will hold sovereign debt obligations of at least 13 non-affiliated issuers. The Fund will not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund's investments in that industry would equal or exceed 25% of the current value of the Fund's total assets, provided that this restriction does not limit the Fund's: (i) Investments in securities of other investment companies; (ii) investments in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities; or (iii) investments in repurchase agreements collateralized by U.S. government securities. The Fund will not invest in equity securities.
The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.
The Fund intends to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets in bonds denominated in local currencies and the U.S. dollar, issued by governments in both developed and emerging market countries.
The Fund intends to maintain specific exposure to global government bonds with targeted investment characteristics. The Adviser will utilize a model-based proprietary investment process to assemble the investment portfolio from a defined group of developed and emerging market countries across all credit rating categories, including below investment grade. The investment process primarily will utilize the universe of sovereign debt issuers included in the BlackRock Sovereign Risk Index, a proprietary model that scores countries using a comprehensive list of relevant fiscal, financial, and institutional metrics to assess sovereign credit risk. These country scores, along with other model-driven factors, will be used to construct the Fund's investment portfolio by screening out lower scoring countries and weighting the remaining sovereigns based on their scores. According to the Exchange, as of July 31, 2012, there were 48 countries in the universe of eligible countries, any of which may or may not be held by the Fund.
This proprietary investment process is intended to provide an increased exposure to sovereign debt securities issued by countries with higher credit quality, as defined by the model, than would a fund that seeks to replicate the performance of a broad global government bond index that is weighted more heavily towards countries based on their amount of debt outstanding. According to the Exchange, as of July 31, 2012, the following countries were included in the universe of eligible countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Croatia, the Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, the United States, and Venezuela.
Countries may be added to, eliminated from, or replaced in the universe of eligible countries at any time, and the model may score countries differently over time, which means that countries may be added to, deleted from, or re-weighted within the model.
The universe of sovereign debt currently includes securities that are rated “investment grade” as well as “below investment grade.” 
The Fund will not invest in distressed debt. The Fund expects that, under normal circumstances, the securities included in the Fund will be primarily investment grade. According to the Exchange, as of July 31, 2012, 97% of the securities in the BlackRock Sovereign Risk Index were rated investment grade.
The Fund's investments will be consistent with the Fund's investment objective and will not be used to enhance leverage. Under normal circumstances, the effective duration of the Fund's portfolio is expected to be 5-7 years, as calculated by the Adviser.
Other Portfolio Holdings
While the Fund will invest at least 80% of its net assets in bonds denominated in local currencies and the U.S. dollar issued by governments in both developed and emerging market countries, the Adviser expects that, under normal market circumstances, the Fund intends to invest its remaining assets in money market securities (as described below) in a manner consistent with its investment objective in order to help manage cash flows in and out of the Fund, such as in connection with payment of dividends or expenses, and to satisfy margin requirements, to provide collateral, or to otherwise back investments in derivative instruments. For these purposes, money market securities include: Short-term, high-quality obligations issued or guaranteed by the U.S. Treasury or the agencies or instrumentalities of the U.S. government; short-term, high-quality securities issued or guaranteed by non-U.S. governments, agencies, and instrumentalities; repurchase agreements backed by U.S. government securities; money market mutual funds; and deposits and other obligations of U.S. and non-U.S. banks and financial institutions. All money market securities acquired by the Fund will be rated investment grade. The Fund does not intend to invest in any unrated money market securities. However, it may do so, to a limited extent, such as where a rated money market security becomes unrated, if such money market security is determined by the Adviser or the Sub-Adviser to be of comparable quality.
Additionally, the Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities. The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund's net assets are held in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.
Pursuant to the Exemptive Order, the Fund will not invest in swap agreements, futures contracts, or option contracts. The Fund may invest in currency forwards for hedging against foreign currency exchange rate risk and/or trade settlement purposes.
Additional information regarding the Shares and the Fund, including investment strategies, risks, creation and redemption procedures, fees and expenses, portfolio holdings disclosure policies, distributions, taxes, and reports to be distributed to beneficial owners of the Shares can be found in the Notice,
the Registration Statement,
or on the Web site for the Fund (www.iShares.com), as applicable.
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 
and the rules and regulations thereunder applicable to a national securities exchange.
In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,
which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Fund and the Shares must comply with the requirements of BATS Rule 14.11(i) to be listed and traded on the Exchange.
The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,
which sets forth Congress's finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. Quotation and last-sale information for the Shares will be available on the facilities of the Consolidated Tape Association (“CTA”). In addition, the Intraday Indicative Value, as defined in BATS Rule 14.11(i)(3)(C), will be updated and widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange's Regular Trading Hours.
On each business day, before commencement of trading in Shares during Regular Trading Hours on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio, as defined in BATS Rule 14.11(i)(3)(B), held by the Fund that will form the basis for the Fund's calculation of NAV at the end of the business day.
The NAV of the Fund's Shares generally will be calculated once daily Monday through Friday as of the close of regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern Time). Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. Information regarding the previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Intraday, executable price quotations on sovereign bonds and other assets are available from major broker-dealer firms. Such intraday information is also available through subscription services, such as Bloomberg, Thomson Reuters, and International Data Corporation. The Fund's Web site will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information.
The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time.
In addition, trading in the Shares will be subject to BATS Rule 14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares of the Fund may be halted. The Exchange may halt trading in the Shares if trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund, or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.
Further, the Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, non-public information regarding the actual components of the portfolio.
The Exchange may obtain information via the Intermarket Surveillance Group (“ISG”) from other exchanges that are members or affiliates of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. The Exchange prohibits the distribution of material, non-public information by its employees. The Exchange also states that the Adviser and the Sub-Adviser are both affiliated with multiple broker-dealers and have both implemented fire walls with respect to such broker-dealer affiliates regarding access to information concerning the composition and/or changes to the Fund's portfolio.
The Exchange represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including:
(1) The Shares will be subject to BATS Rule 14.11(i), which sets forth the initial and continued listing criteria applicable to Managed Fund Shares.
(2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures applicable to derivative products, which include Managed Fund Shares, are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.
(4) Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) BATS Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (c) how information regarding the Intraday Indicative Value is disseminated; (d) the risks involved in trading the Shares during the Pre-Opening and After Hours Trading Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (e) a reminder that there may be periods of time during Regular Trading Hours during which the Intraday Indicative Value would be static to the extent securities that comprise the Fund's holdings are not actively trading; (f) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (g) trading information.
(5) For initial and/or continued listing, the Fund must be in compliance with Rule 10A-3 under the Exchange Act.
(6) Consistent with the Exemptive Order, the Fund will not invest in options, swaps, or futures. The Fund's investments will be consistent with its investment objective and will not be used to enhance leverage. The Fund will not invest in equity securities.
(7) Countries must have at least $5 billion of outstanding debt principal amounts at the beginning of the calendar year in order to be included as an eligible investment.
(8) The Fund expects that, under normal circumstances, the securities included in the Fund will be primarily investment grade. In addition, the Fund will not invest in distressed debt.
(9) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities.
(10) A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations and description of the Fund, including those set forth above and in the Notice.
For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 
and the rules and regulations thereunder applicable to a national securities exchange.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-BATS-2012-042) be, and it hereby is, approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Kevin M. O'Neill,
[FR Doc. 2012-30165 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P