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U.S. Securities and Exchange Commission

Securities Exchange Act of 1934
Section 16

April 8, 2019

Response of the Office of Chief Counsel
Division of Corporation Finance


Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated
Incoming letter dated April 1, 2019

You have asked the Division's view concerning the application of Rule 16c-4 under Section 16 of the Exchange Act to Bank of America Merrill Lynch's proposed option-based Collar Contracts with Insiders subject to Section 16. Specifically, you ask whether an Insider owning OP Units would be considered, for purposes of Section 16(c) and Rule 16c-4, to own the Corporation Shares for which those OP Units are exchangeable.

Capitalized terms have the same meanings as defined in your letter.

OP Units are exchangeable at the option of the OP Unitholders for Corporation Shares on a one-for-one basis (or at a ratio that maintains economic parity between OP Units and Corporation Shares), although, in certain structures, the Corporation may instead in its sole discretion elect to deliver cash in an amount equal to the market value of the Corporation Shares otherwise deliverable in exchange for the OP Units.

On the Commencement Date:

  • the Insider will sell to Bank of America Merrill Lynch a Call Option on a fixed number of Corporation Shares exercisable at the Call Price; and
  • the Insider will purchase from Bank of America Merrill Lynch a Put Option, on the same fixed number of Corporation Shares, exercisable at the Put Price that in all cases will be less than the Call Price.

The number of Corporation Shares subject to each of the Call Option and Put Option will not exceed the number of Corporation Shares underlying the OP Units subject to the Collar Contract. A Collar Contract may be "European" style, where each of the Call Option and the Put Option may only be exercised on the Maturity Date, or "American" style, where the Insider may exercise the Collar Contract on any date within a period specified in the Collar Contract. The Call Option and Put Option will be inextricably linked so that, at the Maturity Date, only one may expire in-the-money, and, upon its exercise, the other would be cancelled. The premium income received by the Insider for writing the Call Option will not exceed the purchase price paid by the Insider for the Put Option.

You represent that:

  • for the duration of the Collar Contract, the Insider is not permitted to exchange, transfer or otherwise dispose of the relevant OP Units;
  • the Insider will receive no net economic or other benefit if the price of the Corporation Shares falls during the term of the Collar Contract;
  • the Collar Contract will specifically provide that the Insider's settlement method pursuant to the Collar Contract will in all cases match the result of the OP Unit exchange (i.e., a delivery of Corporation Shares by the Insider if the Insider receives Corporation Shares in the OP Unit exchange, and a delivery of cash by the Insider if the Insider receives cash in the OP Unit exchange); and
  • the Insider will at all times have the ability to cover its delivery obligations under the Collar Contract.

As stated in Berkshire Hathaway (Nov. 12, 1996) and Credit Suisse First Boston (Mar. 18, 2004), it is generally the Division's view that securities underlying derivative securities are not owned for purposes of Rule 16c-4. Based on the facts presented, and particularly noting your representations, however, the Division concurs that, for purposes of applying Rule 16c-4 to the Collar Contracts, an Insider will be considered to own the Corporation Shares underlying the OP Units.

Because this position is based on the representations made to the Division in your letter, it should be noted that any different facts or conditions might require a different conclusion. This position solely addresses the application of Rule 16c-4 to the Collar Contracts. This position does not address the status under the Securities Act of 1933 or any other provision of the federal securities laws of the Collar Contracts, the parties thereto or any other securities transactions related to the Collar Contracts, including any hedging of the Collar Contracts by Bank of America Merrill Lynch.


Mark F. Vilardo
Special Counsel

Incoming Letter:

The Incoming Letter is in Acrobat format.


Modified: 04/08/2019