Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the Shares of the First Trust Strategic Floating Rate ETF of First Trust Exchange-Traded Fund IV, 11509-11517 [2015-04334]
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Federal Register / Vol. 80, No. 41 / Tuesday, March 3, 2015 / Notices
exchanges, as well as in accordance
with the Unlisted Trading Privileges
and the Consolidated Tape Association
plans, as applicable. Intra-day,
executable price quotations on the
securities and other assets held by the
Fund, other than investment company
securities that are not exchange-listed
will be available from major brokerdealer firms or on the exchange on
which they are traded, if applicable.
Intra-day price information will also be
available through subscription services,
such as Bloomberg, Markit and
Thomson Reuters, which can be
accessed by Authorized Participants and
other investors.
The Web site for the Fund will
include the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information. Trading in Shares of the
Fund will be halted or paused under the
conditions specified in Nasdaq Rules
4120 and 4121, including the trading
pauses under Nasdaq Rules 4120(a)(11)
and (12). Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the Shares inadvisable, and
trading in the Shares will be subject to
Nasdaq Rule 5735(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted. In addition,
as noted above, investors will have
ready access to information regarding
the Fund’s holdings, the Intraday
Indicative Value, the Disclosed
Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of activelymanaged exchange-traded fund that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate up if it finds such longer
period to be appropriate and publishes
its reasons for so finding or (ii) as to
which the Exchange consents, the
Commission shall: (a) By order approve
or disapprove such proposed rule
change, or (b) institute proceedings to
determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2015–013 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–013. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
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11509
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2015–013, and should be
submitted on or before March 24, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–04333 Filed 3–2–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74378; File No. SR–
NASDAQ–2015–011]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change
Relating to the Listing and Trading of
the Shares of the First Trust Strategic
Floating Rate ETF of First Trust
Exchange-Traded Fund IV
February 25, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
12, 2015, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by Nasdaq. The
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 80, No. 41 / Tuesday, March 3, 2015 / Notices
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Nasdaq proposes to list and trade the
shares of the First Trust Strategic
Floating Rate ETF (the ‘‘Fund’’) of the
First Trust Strategic Floating Rate ETF
(the ‘‘Fund’’) of First Trust ExchangeTraded Fund IV (the ‘‘Trust’’) under
Nasdaq Rule 5735 (‘‘Managed Fund
Shares’’).3 The shares of the Fund are
collectively referred to herein as the
‘‘Shares.’’
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below.
Nasdaq has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund
Shares4 on the Exchange. The Fund will
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008), 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). There are already multiple
actively-managed funds listed on the Exchange; see,
e.g., Securities Exchange Act Release Nos. 69464
(April 26, 2013), 78 FR 25774 (May 2, 2013) (SR–
NASDAQ–2013–036) (order approving listing and
trading of First Trust Senior Loan Fund); 68972
(February 22, 2013), 78 FR 13721 (February 28,
2013) (SR–NASDAQ–2012–147) (order approving
listing and trading of First Trust High Yield Long/
Short ETF); 66489 (February 29, 2012), 77 FR 13379
(March 6, 2012) (SR–NASDAQ–2012–004) (order
approving listing and trading of WisdomTree
Emerging Markets Corporate Bond Fund). The
Exchange believes the proposed rule change raises
no significant issues not previously addressed in
those prior Commission orders.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
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be an actively-managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust, which was
established as a Massachusetts business
trust on September 15, 2010.5 The Trust
is registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.6 The Fund will be a series
of the Trust. The Fund intends to
qualify each year as a regulated
investment company (‘‘RIC’’) under
Subchapter M of the Internal Revenue
Code of 1986, as amended.
First Trust Advisors L.P. will be the
investment adviser (‘‘Adviser’’) to the
Fund. First Trust Portfolios L.P. (the
‘‘Distributor’’) will be the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon Corporation (‘‘BNY’’) will act as
the administrator, accounting agent,
custodian and transfer agent to the
Fund.
Paragraph (g) of Rule 5735 provides
that if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues Index
Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
domestic stock index, fixed income securities index
or combination thereof.
5 The Commission has issued an order, upon
which the Trust may rely, granting certain
exemptive relief under the 1940 Act. See
Investment Company Act Release No. 30029 (April
10, 2012) (File No. 812–13795) (the ‘‘Exemptive
Relief’’). In addition, the Commission has issued
no-action relief, upon which the Trust may rely,
pertaining to the Fund’s ability to invest in
derivatives notwithstanding certain representations
in the application for the Exemptive Relief. See
Commission No-Action Letter (December 6, 2012).
6 See Post-Effective Amendment No. 104 to
Registration Statement on Form N–1A for the Trust,
dated January 29, 2015 (File Nos. 333–174332 and
811–22559). The descriptions of the Fund and the
Shares contained herein are based, in part, on
information in the Registration Statement.
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
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paragraph (g) further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material, non-public information
regarding the open-end fund’s portfolio.
Rule 5735(g) is similar to Nasdaq Rule
5705(b)(5)(A)(i); however, paragraph (g)
in connection with the establishment of
a ‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not a brokerdealer, although it is affiliated with the
Distributor, a broker-dealer. The Adviser
has implemented a fire wall with
respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio. In addition,
personnel who make decisions on the
Fund’s portfolio composition will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the Fund’s portfolio. In the
event (a) the Adviser becomes, or
becomes newly affiliated with, a brokerdealer, or (b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with another brokerdealer, it will implement a fire wall
with respect to its relevant personnel
and/or such broker-dealer affiliate, as
applicable, regarding access to
information concerning the composition
and/or changes to the portfolio and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio. The Fund does
not currently intend to use a subadviser.
First Trust Strategic Floating Rate ETF
The investment objective of the Fund
will be to seek current income. To
achieve its objective, the Fund will
invest, under normal market
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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conditions,8 at least 80% of its net assets
in a portfolio of the following types of
floating-rate9 debt instruments issued by
U.S. and non-U.S. public- and privatesector entities: floating-rate corporate10
and government bonds and notes;
floating-rate agency securities;11
floating-rate instruments of non-U.S.
issuers; floating-rate privately-issued
securities;12 floating-rate asset-backed
securities;13 floating-rate mortgagebacked securities;14 floating-rate
8 The term ‘‘under normal market conditions’’ as
used herein includes, but is not limited to, the
absence of adverse market, economic, political or
other conditions, including extreme volatility or
trading halts in the fixed income markets or the
financial markets generally; operational issues
causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
For temporary defensive purposes, during the
initial invest-up period and during periods of high
cash inflows or outflows, the Fund may depart from
its principal investment strategies; for example, it
may hold a higher than normal proportion of its
assets in cash. During such periods, the Fund may
not be able to achieve its investment objective. The
Fund may adopt a defensive strategy when the
Adviser believes securities in which the Fund
normally invests have elevated risks due to political
or economic factors and in other extraordinary
circumstances.
9 For the avoidance of doubt, the term ‘‘floatingrate’’ shall also include similar terms, such as
‘‘variable-rate’’ and ‘‘adjustable-rate.’’
10 The Adviser expects that, under normal market
conditions, generally, for a corporate bond to be
considered as an eligible investment, after taking
into account such an investment, at least 75% of the
Fund’s net assets that are invested in floating-rate
corporate bonds and, as described below, fixed-rate
corporate bonds (in the aggregate), will be
comprised of corporate bonds that have, at the time
of original issuance, $100 million or more par
amount outstanding.
11 ‘‘Agency securities’’ for these purposes
generally includes securities issued by the
following entities: Government National Mortgage
Association (Ginnie Mae), Federal National
Mortgage Association (Fannie Mae), Federal Home
Loan Banks (FHLBanks), Federal Home Loan
Mortgage Corporation (Freddie Mac), Farm Credit
System (FCS) Farm Credit Banks (FCBanks),
Student Loan Marketing Association (Sallie Mae),
Resolution Funding Corporation (REFCORP),
Financing Corporation (FICO), and the Farm Credit
System (FCS) Financial Assistance Corporation
(FAC). Agency securities can include, but are not
limited to, mortgage-backed securities.
12 ‘‘Privately-issued securities’’ for these purposes
generally includes Rule 144A securities other than
mortgage-backed Rule 144A securities. Under
normal market conditions, privately-issued
securities will have, at the time of original issuance,
$100 million or more principal amount outstanding
to be considered eligible investments.
13 Asset-backed securities are securities that are
backed by a pool of assets. The Fund currently
intends to invest in asset-backed securities that are
consumer asset-backed securities.
14 Mortgage-backed securities, which are
securities that directly or indirectly represent a
participation in, or are secured by and payable
from, mortgage loans on real property, will consist
of: (1) residential mortgage-backed securities
(‘‘RMBS’’); (2) commercial mortgage-backed
securities (‘‘CMBS’’); (3) stripped mortgage-backed
securities (‘‘SMBS’’), which are mortgage-backed
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loans;15 and investment companies16
(including investment companies
advised by the Adviser) that invest
primarily in the foregoing types of debt
instruments17 (collectively, ‘‘Floating
Rate Debt Instruments’’).
At least 65% of the Fund’s net assets
will be invested in Floating Rate Debt
Instruments that are, at the time of
purchase, investment grade. To be
considered ‘‘investment grade,’’ under
normal market conditions, rated
Floating Rate Debt Instruments will
securities where mortgage payments are divided
between paying the loan’s principal and paying the
loan’s interest; (4) collateralized mortgage
obligations (‘‘CMOs’’) and real estate mortgage
investment conduits (‘‘REMICs’’), which are
mortgage-backed securities that are divided into
multiple classes, with each class being entitled to
a different share of the principal and interest
payments received from the pool of underlying
assets.
15 The floating-rate loans in which the Fund will
invest will represent amounts borrowed by
companies or other entities from banks and other
lenders and a significant portion of such floatingrate loans may be rated below investment grade or
unrated. Floating-rate loans held by the Fund may
be senior or subordinate obligations of the borrower
and may or may not be secured by collateral. First
lien senior secured floating-rate loans are referred
to herein as ‘‘senior loans.’’ Floating-rate loans that
are not senior loans (i.e., unsecured floating-rate
loans and secured floating-rate loans that are not
first lien floating-rate loans) are referred to herein
as ‘‘junior loans.’’ The Fund will generally invest
in floating-rate loans that the Adviser deems to be
liquid with readily available prices;
notwithstanding the foregoing, the Fund may invest
in floating-rate loans that are deemed illiquid so
long as the Fund complies with the 15% limitation
on investments of its net assets in illiquid assets
described below under ‘‘Investment Restrictions.’’
16 The Fund currently anticipates investing only
in registered open-end investment companies that
are listed and traded in the U.S. on registered
exchanges (i.e., other ETFs). An ETF is an
investment company registered under the 1940 Act
that holds a portfolio of securities. Many ETFs are
designed to track the performance of a securities
index, including industry, sector, country and
region indexes. The Fund may invest in the
securities of ETFs in excess of the limits imposed
under the 1940 Act pursuant to exemptive orders
obtained by other ETFs and their sponsors from the
Commission. In addition, the Fund may invest in
the securities of certain investment companies in
excess of the limits imposed under the 1940 Act
pursuant to an exemptive order obtained by the
Trust and the Adviser from the Commission. See
Investment Company Act Release No. 30377
(February 5, 2013) (File No. 812–13895). The ETFs
in which the Fund may invest include Index Fund
Shares (as described in Nasdaq Rule 5705), Portfolio
Depository Receipts (as described in Nasdaq Rule
5705), and Managed Fund Shares (as described in
Nasdaq Rule 5735). While the Fund may invest in
inverse ETFs, the Fund will not invest in leveraged
or inverse leveraged (e.g., 2X or ¥3X) ETFs.
17 The liquidity of a security, especially in the
case of asset-backed and mortgage-backed
securities, will be a substantial factor in the Fund’s
security selection process. Consistent with the
discussion below under ‘‘Investment Restrictions,’’
the Fund will not purchase any Floating Rate Debt
Instruments (including asset-backed securities and
mortgage-backed securities) that, in the Adviser’s
opinion, are illiquid if, as a result, more than 15%
of the value of the Fund’s net assets will be invested
in illiquid assets.
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11511
carry, at the time of purchase, a rating
in the highest four rating categories of
at least one nationally recognized
statistical ratings organization
(‘‘NRSRO’’) (e.g., BBB- or higher by
Standard & Poor’s Ratings Services
(‘‘S&P’’), and/or Fitch Ratings (‘‘Fitch’’),
or Baa3 or higher by Moody’s Investors
Service, Inc. (‘‘Moody’s’’).18 For unrated
securities to be considered ‘‘investment
grade,’’ under normal market
conditions, such securities will be
determined, at the time of purchase, to
be of comparable quality19 by the
Adviser. The Fund may invest up to
35% of its net assets in securities that
are, at the time of investment, rated
below investment grade by each NRSRO
rating such securities (or securities that
are unrated and determined by the
Adviser to be of comparable quality),
commonly referred to as ‘‘high yield’’ or
‘‘junk’’ bonds. If, subsequent to
purchase by the Fund, a security held
by the Fund experiences a decline in
credit quality and falls below
investment grade, the Fund may
continue to hold the security, and it will
not cause the Fund to violate the 35%
investment limitation; however, the
security will be taken into account for
purposes of determining whether
purchases of additional securities will
cause the Fund to violate such
limitation.
The Fund will limit its investments in
asset-backed securities (excluding
agency mortgage-backed securities) and
non-agency mortgage-backed securities
(in the aggregate) to 20% of its net
assets.20 In addition, the Fund will limit
its investments in junior loans to 20%
of its net assets.
The Fund will hold debt securities
(including, in the aggregate, Floating
Rate Debt Instruments and the fixed-rate
debt securities described below) of at
least 13 non-affiliated issuers.
18 For the avoidance of doubt, if a security is rated
by multiple NRSROs and receives different ratings,
the Fund will treat the security as being rated in
the highest rating category received from an
NRSRO.
19 Comparable quality of unrated securities will
be determined by the Adviser based on
fundamental credit analysis of the unrated security
and comparable NRSRO-rated securities. On a best
efforts basis, the Adviser will attempt to make a
rating determination based on publicly available
data. In making a ‘‘comparable quality’’
determination, the Adviser may consider, for
example, whether the issuer of the security has
issued other rated securities, the nature and
provisions of the relevant security, whether the
obligations under the relevant security are
guaranteed by another entity and the rating of such
guarantor (if any), relevant cash flows,
macroeconomic analysis, and/or sector or industry
analysis.
20 For the avoidance of doubt, there is no
limitation on the Fund’s investments in agency
mortgage-backed securities.
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Federal Register / Vol. 80, No. 41 / Tuesday, March 3, 2015 / Notices
Other Investments
Under normal market conditions, the
Fund will invest primarily in the
Floating Rate Debt Instruments
described above to meet its investment
objective. In addition, the Fund may
invest up to 20% of its net assets in the
following types of fixed-rate debt
securities: corporate21 and government
bonds and notes; agency securities;22
instruments of non-U.S. issuers in
developed markets; privately-issued
securities;23 asset-backed securities;24
mortgage-backed securities;25 municipal
bonds; money market securities;26 and
investment companies27 (including
investment companies advised by the
Adviser) that invest primarily in the
foregoing types of debt securities.
Further, to pursue its investment
objective, the Fund may invest up to
20% of the value of its net assets in
exchange-listed options on U.S.
Treasury securities, exchange-listed
options on U.S. Treasury futures
contracts and exchange-listed U.S.
Treasury futures contracts.28 The use of
these derivative transactions may allow
the Fund to obtain net long or short
exposures to selected interest rates.
These derivatives may also be used to
hedge risks, including interest rate risks
and credit risks, associated with the
Fund’s portfolio investments. The
Fund’s investments in derivative
instruments will be consistent with the
Fund’s investment objective and the
1940 Act and will not be used to seek
to achieve a multiple or inverse
multiple of an index.
Investment Restrictions
The Fund will not invest 25% or more
of the value of its total assets in
securities of issuers in any one industry.
This restriction does not apply to (a)
obligations issued or guaranteed by the
21 See
footnote 10 above.
footnote 11 above.
23 See footnote 12 above.
24 See footnote 13 above.
25 See footnote 14 above.
26 ‘‘Money market securities’’ for these purposes
generally includes: 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; commercial paper (both asset-backed
and non-asset-backed); and deposits and other
obligations of U.S. and non-U.S. banks and
financial institutions.
27 See footnote 16 above.
28 At least 90% of the Fund’s net assets that are
invested in exchange-traded derivative instruments
will be invested in instruments that trade in
markets that are members of the Intermarket
Surveillance Group (‘‘ISG’’) (see footnote 40 below)
or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
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22 See
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U.S. government, its agencies or
instrumentalities or (b) securities of
other investment companies.29
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), including Rule 144A
securities deemed illiquid by the
Adviser.30 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 assets. Illiquid assets 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.31
The Fund will not invest in non-U.S.
equity securities.
Creation and Redemption of Shares
The Fund will issue and redeem
Shares on a continuous basis at net asset
value (‘‘NAV’’) 32 only in large blocks of
29 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
30 In reaching liquidity decisions, the Adviser
may consider the following factors: the frequency
of trades and quotes for the security; the number of
dealers wishing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
31 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a-7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
32 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
(the ‘‘NAV Calculation Time’’). NAV per Share will
be calculated by dividing the Fund’s net assets by
the number of Fund Shares outstanding. For more
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Shares (‘‘Creation Units’’) in
transactions with authorized
participants, generally including brokerdealers and large institutional investors
(‘‘Authorized Participants’’). Creation
Units generally will consist of 50,000
Shares, although this may change from
time to time. Creation Units, however,
are not expected to consist of less than
50,000 Shares. As described in the
Registration Statement and consistent
with the Exemptive Relief, the Fund
will issue and redeem Creation Units in
exchange for an in-kind portfolio of
instruments and/or cash in lieu of such
instruments (the ‘‘Creation Basket’’). In
addition, if there is a difference between
the NAV attributable to a Creation Unit
and the market value of the Creation
Basket exchanged for the Creation Unit,
the party conveying instruments with
the lower value will pay to the other an
amount in cash equal to the difference
(referred to as the ‘‘Cash Component’’).
Creations and redemptions must be
made by or through an Authorized
Participant that has executed an
agreement that has been agreed to by the
Distributor and BNY with respect to
creations and redemptions of Creation
Units. All standard orders to create
Creation Units must be received by the
transfer agent no later than the closing
time of the regular trading session on
the New York Stock Exchange
(ordinarily 4:00 p.m., Eastern Time) (the
‘‘Closing Time’’) in each case on the
date such order is placed in order for
the creation of Creation Units to be
effected based on the NAV of Shares as
next determined on such date after
receipt of the order in proper form.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt not later than
the Closing Time of a redemption
request in proper form by the Fund
through the transfer agent and only on
a business day.
The Fund’s custodian, through the
National Securities Clearing
Corporation, will make available on
each business day, prior to the opening
of business of the Exchange, the list of
the names and quantities of the
instruments comprising the Creation
Basket, as well as the estimated Cash
Component (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following business
day prior to commencement of trading
in the Shares.
information regarding the valuation of Fund
investments in calculating the Fund’s NAV, see the
Registration Statement.
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Net Asset Value
The Fund’s NAV will be determined
as of the close of trading (normally 4:00
p.m., Eastern Time) on each day the
New York Stock Exchange is open for
business. NAV will be calculated for the
Fund by taking the market price of the
Fund’s total assets, including interest or
dividends accrued but not yet collected,
less all liabilities, and dividing such
amount by the total number of Shares
outstanding. The result, rounded to the
nearest cent, will be the NAV per Share.
All valuations will be subject to review
by the Board of Trustees of the Trust
(‘‘Trust Board’’) or its delegate.
The Fund’s investments will be
valued daily at market value or, in the
absence of market value with respect to
any investment, at fair value, in each
case in accordance with valuation
procedures (which may be revised from
time to time) adopted by the Trust
Board (the ‘‘Valuation Procedures’’) and
in accordance with the 1940 Act. A
market valuation generally means a
valuation (i) obtained from an exchange,
an independent pricing service
(‘‘Pricing Service’’), or a major market
maker (or dealer) or (ii) based on a price
quotation or other equivalent indication
of value supplied by an exchange, a
Pricing Service, or a major market maker
(or dealer). The information
summarized below is based on the
Valuation Procedures as currently in
effect; however, as noted above, the
Valuation Procedures are amended from
time to time and, therefore, such
information is subject to change.
Certain securities, including Floating
Rate Debt Instruments, in which the
Fund may invest will not be listed on
any securities exchange or board of
trade. Such securities will typically be
bought and sold by institutional
investors in individually negotiated
private transactions that function in
many respects like an over-the-counter
secondary market, although typically no
formal market makers will exist. Certain
securities, particularly debt securities,
will have few or no trades, or trade
infrequently, and information regarding
a specific security may not be widely
available or may be incomplete.
Accordingly, determinations of the fair
value of debt securities may be based on
infrequent and dated information.
Because there is less reliable, objective
data available, elements of judgment
may play a greater role in valuation of
debt securities than for other types of
securities. Typically, Floating Rate Debt
Instruments and other debt securities in
which the Fund may invest (other than
those described below) will be valued
using information provided by a Pricing
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Service. Debt securities having a
remaining maturity of 60 days or less
when purchased will be valued at cost
adjusted for amortization of premiums
and accretion of discounts, provided the
Adviser’s pricing committee (the
‘‘Pricing Committee’’) has determined
that the use of amortized cost is an
appropriate reflection of fair value given
market and issuer-specific conditions
existing at the time of the
determination. Overnight repurchase
agreements will be valued at cost and
term repurchase agreements (i.e., those
whose maturity exceeds seven days)
will be valued at the average of the bid
quotations obtained daily from at least
two recognized dealers.
Asset-backed and mortgage-backed
securities will generally be valued by
using a Pricing Service. If a Pricing
Service does not cover a particular
asset-backed or mortgage-backed
security, or discontinues covering a
particular asset-backed or mortgagebacked security, the security will be
priced using broker quotes generally
provided by brokers that make or
participate in markets in the security.
To derive values, Pricing Services and
broker-dealers may use matrix pricing
and valuation models, as well as recent
market transactions for the same or
similar assets. As it deems appropriate,
the Pricing Committee may determine
that a Pricing Service price does not
represent an accurate value of an assetbacked or mortgage-backed security,
based on broker quotes it receives, a
recent trade in the security by the Fund,
information from a portfolio manager, or
other market information. In the event
that the Pricing Committee determines
that the Pricing Service price is
unreliable or inaccurate based on such
other information, broker quotes may be
used. Additionally, if the Pricing
Committee determines that the price of
an asset-backed or mortgage-backed
security obtained from a Pricing Service
and available broker quotes is unreliable
or inaccurate due to market conditions
or other reasons, or if a Pricing Service
price or broker quote is unavailable, the
security will be valued using fair value
pricing, as described below.
Equity securities listed on any
exchange other than the Exchange will
be valued at the last sale price on the
exchange on which they are principally
traded on the business day as of which
such value is being determined. Equity
securities listed on the Exchange will be
valued at the official closing price on
the business day as of which such value
is being determined. If there has been no
sale on such day, or no official closing
price in the case of securities traded on
the Exchange, the securities will be
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11513
valued using fair value pricing, as
described below. Equity securities
traded on more than one securities
exchange will be valued at the last sale
price or official closing price, as
applicable, on the business day as of
which such value is being determined at
the close of the exchange representing
the principal market for such securities.
Exchange-traded options and futures
contracts will be valued at the closing
price in the market where such
contracts are principally traded.
Certain securities, including Floating
Rate Debt Instruments, in which the
Fund will invest will not be able to be
priced by pre-established pricing
methods. Such securities may be valued
by the Trust Board or its delegate at fair
value. The use of fair value pricing by
the Fund will be governed by the
Valuation Procedures and conducted in
accordance with the provisions of the
1940 Act. Valuing the Fund’s securities
using fair value pricing will result in
using prices for those securities that
may differ from current market
valuations or official closing prices on
the applicable exchange.
Availability of Information
The Fund’s Web site
(www.ftportfolios.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include the Shares’ ticker, CUSIP and
exchange information along with
additional quantitative information
updated on a daily basis, including, for
the Fund: (1) Daily trading volume, the
prior business day’s reported NAV and
closing price, mid-point of the bid/ask
spread at the time of calculation of such
NAV (the ‘‘Bid/Ask Price’’),33 and a
calculation of the premium and
discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
displaying the frequency distribution of
discounts and premiums of the daily
Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters. On each
business day, before commencement of
trading in Shares in the Regular Market
Session 34 on the Exchange, the Fund
33 The Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
34 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m., Eastern
Time; (2) Regular Market Session from 9:30 a.m. to
4 p.m. or 4:15 p.m., Eastern Time; and (3) Post-
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will disclose on its Web site the
identities and quantities of the portfolio
of securities, and other assets (the
‘‘Disclosed Portfolio’’ as defined in
Nasdaq Rule 5735(c)(2)) held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the business day.35 The Fund’s
disclosure of derivative positions in the
Disclosed Portfolio will include
information that market participants can
use to value these positions intraday.
On a daily basis, the Fund will disclose
on the Fund’s Web site the following
information regarding each portfolio
holding, as applicable to the type of
holding: Ticker symbol, CUSIP number
or other identifier, if any; a description
of the holding (including the type of
holding), the identity of the security or
other asset or instrument underlying the
holding, if any; for options, the option
strike price; quantity held (as measured
by, for example, par value, notional
value or number of shares, contracts or
units); maturity date, if any; coupon
rate, if any; effective date, if any; market
value of the holding; and percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
In addition, for the Fund, an
estimated value, defined in Rule
5735(c)(3) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s Disclosed
Portfolio, will be disseminated.
Moreover, the Intraday Indicative Value,
available on the NASDAQ OMX
Information LLC proprietary index data
service,36 will be based upon the current
value for the components of the
Disclosed Portfolio and will be updated
and widely disseminated by one or
more major market data vendors and
broadly displayed at least every 15
seconds during the Regular Market
Session. The Intraday Indicative Value
will be based on quotes and closing
prices from the securities’ local market
and may not reflect events that occur
subsequent to the local market’s close.
Market Session from 4 p.m. or 4:15 p.m. to 8 p.m.,
Eastern Time).
35 Under accounting procedures to be followed by
the Fund, trades made on the prior business day
(‘‘T’’) will be booked and reflected in NAV on the
current business day (‘‘T+1’’). Accordingly, the
Fund will be able to disclose at the beginning of the
business day the portfolio that will form the basis
for the NAV calculation at the end of the business
day.
36 Currently, the NASDAQ OMX Global Index
Data Service (‘‘GIDS’’) is the NASDAQ OMX global
index data feed service, offering real-time updates,
daily summary messages, and access to widely
followed indexes and Intraday Indicative Values for
ETFs. GIDS provides investment professionals with
the daily information needed to track or trade
NASDAQ OMX indexes, listed ETFs, or third-party
partner indexes and ETFs.
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Premiums and discounts between the
Intraday Indicative Value and the
market price may occur. This should not
be viewed as a ‘‘real time’’ update of the
NAV per Share of the Fund, which is
calculated only once a day.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and will provide a close estimate of that
value throughout the trading day.
Investors will also be able to obtain
the Fund’s Statement of Additional
Information (‘‘SAI’’), the Fund’s annual
and semi-annual reports (together,
‘‘Shareholder Reports’’), and its Form
N–CSR and Form N–SAR, filed twice a
year. The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Fund, and those
documents and the Form N–CSR and
Form N–SAR may be viewed on-screen
or downloaded from the Commission’s
Web site at www.sec.gov. 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. Quotation and last sale
information for the Shares will be
available via Nasdaq proprietary quote
and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the Consolidated Tape
Association (‘‘CTA’’) plans for the
Shares. Quotation and last sale
information for the other ETFs in which
the Fund will invest will be available
via the quote and trade services of their
respective primary exchanges, as well as
in accordance with the Unlisted Trading
Privileges and the CTA plans, as
applicable. Quotation and last sale
information for exchange-traded options
will be available via the Options Price
Reporting Authority. Intraday
executable price quotations on Floating
Rate Debt Instruments and other assets
not traded on an exchange will be
available from major broker-dealer firms
or market data vendors, as well as from
automated quotation systems, published
or other public sources, or online
information services. Additionally, the
Trade Reporting and Compliance Engine
(‘‘TRACE’’) of the Financial Industry
Regulatory Authority (‘‘FINRA’’) will be
a source of price information for
corporate bonds, privately-issued
securities, mortgage-backed securities
and asset-backed securities to the extent
transactions in such securities are
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reported to TRACE.37 For exchangetraded assets, intraday pricing
information will be available directly
from the applicable listing exchange.
Additional information regarding the
Fund and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, Fund
holdings disclosure policies,
distributions and taxes will be included
in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule
5735, which sets forth the initial and
continued listing criteria applicable to
Managed Fund Shares. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 38 under
the Act. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. 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.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. Nasdaq will halt trading in
the Shares under the conditions
specified in Nasdaq Rules 4120 and
4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the other assets constituting the
Disclosed Portfolio of the Fund; or (2)
whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
37 Broker-dealers that are FINRA member firms
have an obligation to report transactions in
specified debt securities to TRACE to the extent
required under applicable FINRA rules. Generally,
such debt securities will have at issuance a maturity
that exceeds one calendar year.
38 See 17 CFR 240.10A–3.
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Federal Register / Vol. 80, No. 41 / Tuesday, March 3, 2015 / Notices
governing the trading of equity
securities. Nasdaq will allow trading in
the Shares from 4:00 a.m. until 8:00
p.m., Eastern Time. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in Nasdaq
Rule 5735(b)(3), the minimum price
variation for quoting and entry of orders
in Managed Fund Shares traded on the
Exchange is $0.01.
mstockstill on DSK4VPTVN1PROD with NOTICES
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by both Nasdaq and also
FINRA on behalf of the Exchange,
which are designed to detect violations
of Exchange rules and applicable federal
securities laws.39 The Exchange
represents that these procedures 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.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund with other markets and
other entities that are members of ISG,40
and FINRA may obtain trading
information regarding trading in the
Shares and the exchange-traded
securities and instruments held by the
Fund from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares and the exchange-traded
securities and instruments held by the
Fund from markets and other entities
that are members of ISG, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. Moreover, FINRA, on behalf
of the Exchange, will be able to access,
39 FINRA surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
40 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
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19:24 Mar 02, 2015
Jkt 235001
as needed, trade information for certain
Floating Rate Debt Instruments and
other debt securities held by the Fund
reported to FINRA’s TRACE.
All of the Fund’s net assets that are
invested in exchange-traded equity
securities will be invested in securities
that trade in markets that are members
of ISG or are parties to a comprehensive
surveillance sharing agreement with the
Exchange. At least 90% of the Fund’s
net assets that are invested in exchangetraded derivative instruments will be
invested in instruments that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Information Circular
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: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) Nasdaq Rule 2111A,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value is disseminated; (4) the
risks involved in trading the Shares
during the Pre-Market and Post-Market
Sessions when an updated Intraday
Indicative Value will not be calculated
or publicly disseminated; (5) the
requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (6) trading information.
The Information Circular will also
discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
Additionally, the Information Circular
will reference that the Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
Calculation Time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’s Web site.
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11515
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act
in general and Section 6(b)(5) of the Act
in particular in that it is 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, and to remove
impediments to and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the
Shares will be subject to the existing
trading surveillances, administered by
both Nasdaq and also FINRA on behalf
of the Exchange, which are designed to
detect violations of Exchange rules and
applicable federal securities laws.
The Adviser is not a broker-dealer,
although it is affiliated with the
Distributor, a broker-dealer, and is
required to implement a ‘‘fire wall’’
with respect to such broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. In
addition, paragraph (g) of Nasdaq Rule
5735 further requires that personnel
who make decisions on the open-end
fund’s portfolio composition must be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the open-end fund’s portfolio.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund with other markets and
other entities that are members of ISG,
and FINRA may obtain trading
information regarding trading in the
Shares and the exchange-traded
securities and instruments held by the
Fund from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares and the exchange-traded
securities and instruments held by the
Fund from markets and other entities
that are members of ISG, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. Moreover, FINRA, on behalf
of the Exchange, will be able to access,
as needed, trade information for certain
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Floating Rate Debt Instruments and
other debt securities held by the Fund
reported to FINRA’s TRACE.
All of the Fund’s net assets that are
invested in exchange-traded equity
securities will be invested in securities
that trade in markets that are members
of ISG or are parties to a comprehensive
surveillance sharing agreement with the
Exchange. At least 90% of the Fund’s
net assets that are invested in exchangetraded derivative instruments will be
invested in instruments that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
The investment objective of the Fund
will be to seek current income. To
achieve its objective, the Fund will
invest, under normal market conditions,
at least 80% of its net assets in a
portfolio of Floating Rate Debt
Instruments. In addition, the Fund may
invest up to 20% of its net assets in
certain fixed-rate debt securities. The
Fund may invest up to 20% of the value
of its net assets in exchange-listed
options on U.S. Treasury securities,
exchange-listed options on U.S.
Treasury futures contracts and
exchange-listed U.S. Treasury futures
contracts. The Fund’s investments in
derivative instruments will be
consistent with the Fund’s investment
objective and the 1940 Act and will not
be used to seek to achieve a multiple or
inverse multiple of an index. At least
65% of the Fund’s net assets will be
invested in Floating Rate Debt
Instruments that are, at the time of
purchase, investment grade. The Fund
will limit its investments in assetbacked securities (excluding agency
mortgage-backed securities) and nonagency mortgage-backed securities (in
the aggregate) to 20% of its net assets.
In addition, the Fund will limit its
investments in junior loans to 20% of its
net assets. The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including Rule
144A securities deemed illiquid by the
Adviser. 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 assets. Illiquid assets 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.
VerDate Sep<11>2014
19:24 Mar 02, 2015
Jkt 235001
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in 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, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Moreover, the
Intraday Indicative Value, available on
the NASDAQ OMX Information LLC
proprietary index data service, will be
widely disseminated by one or more
major market data vendors and broadly
displayed at least every 15 seconds
during the Regular Market Session. On
each business day, before
commencement of trading in Shares in
the Regular Market Session on the
Exchange, the Fund will disclose on its
Web site the Disclosed Portfolio that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day. 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, and quotation and
last sale information for the Shares will
be available via Nasdaq proprietary
quote and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the CTA plans for the
Shares. Quotation and last sale
information for the other ETFs in which
the Fund will invest will be available
via the quote and trade services of their
respective primary exchanges, as well as
in accordance with the Unlisted Trading
Privileges and the CTA plans, as
applicable. Quotation and last sale
information for exchange-traded options
will be available via the Options Price
Reporting Authority. Intraday
executable price quotations on Floating
Rate Debt Instruments and other assets
not traded on an exchange will be
available from major broker-dealer firms
or market data vendors, as well as from
automated quotation systems, published
or other public sources, or online
information services. Additionally,
FINRA’s TRACE will be a source of
price information for corporate bonds,
privately-issued securities, mortgagebacked securities and asset-backed
securities to the extent transactions in
such securities are reported to TRACE.
For exchange-traded assets, intraday
pricing information will be available
directly from the applicable listing
exchange.
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
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. Trading in Shares of the
Fund will be halted under the
conditions specified in Nasdaq Rules
4120 and 4121 or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and trading in
the Shares will be subject to Nasdaq
Rule 5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The Fund’s investments will be
valued daily at market value or, in the
absence of market value with respect to
any investment, at fair value, in each
case in accordance with the Valuation
Procedures and the 1940 Act.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund with other markets and
other entities that are members of ISG,
and FINRA may obtain trading
information regarding trading in the
Shares and the exchange-traded
securities and instruments held by the
Fund from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares and in the exchange-traded
securities and instruments held by the
Fund from markets and other entities
that are members of ISG, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. Furthermore, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
E:\FR\FM\03MRN1.SGM
03MRN1
Federal Register / Vol. 80, No. 41 / Tuesday, March 3, 2015 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of activelymanaged exchange-traded fund that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
shall: (a) By order approve or
disapprove such proposed rule change,
or (b) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2015–011 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–011. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
VerDate Sep<11>2014
19:24 Mar 02, 2015
Jkt 235001
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2015–011, and should be
submitted on or before March 24, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–04334 Filed 3–2–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of Agent155 Media Corp.,
QSound Labs, Inc., STEN Corp., and
Wind Energy America, Inc.; Order of
Suspension of Trading
February 27, 2015.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Agent155
Media Corp. because it has not filed any
periodic reports since the period ended
September 30, 2011.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of QSound
Labs, Inc. because it has not filed any
periodic reports since the period ended
December 31, 2007.
It appears to the Securities and
Exchange Commission that there is a
41 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00131
Fmt 4703
Sfmt 4703
11517
lack of current and accurate information
concerning the securities of STEN Corp.
because it has not filed any periodic
reports since the period ended
September 28, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Wind
Energy America, Inc. because it has not
filed any periodic reports since the
period ended June 30, 2010.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
companies.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed companies
is suspended for the period from 9:30
a.m. EST on February 27, 2015, through
11:59 p.m. EDT on March 12, 2015.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–04450 Filed 2–27–15; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Order of Suspension of Trading; In the
Matter of China Pharmaceuticals, Inc.,
China Printing & Packaging, Inc.,
Silvan Industries, Inc., and Ziyang
Ceramics Corp.
February 27, 2015.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of China
Pharmaceuticals, Inc. because it has not
filed any periodic reports since the
period ended June 30, 2012.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of China
Printing & Packaging, Inc. because it has
not filed any periodic reports since the
period ended June 30, 2012.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Silvan
Industries, Inc. because it has not filed
any periodic reports since the period
ended December 31, 2011.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Ziyang
Ceramics Corp. because it has not filed
E:\FR\FM\03MRN1.SGM
03MRN1
]]>Agencies
[Federal Register Volume 80, Number 41 (Tuesday, March 3, 2015)]
[Notices]
[Pages 11509-11517]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-04334]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74378; File No. SR-NASDAQ-2015-011]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the First Trust Strategic Floating Rate ETF of
First Trust Exchange-Traded Fund IV
February 25, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 12, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by Nasdaq. The
[[Page 11510]]
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to list and trade the shares of the First Trust
Strategic Floating Rate ETF (the ``Fund'') of the First Trust Strategic
Floating Rate ETF (the ``Fund'') of First Trust Exchange-Traded Fund IV
(the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\
The shares of the Fund are collectively referred to herein as the
``Shares.''
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\3\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see, e.g., Securities Exchange
Act Release Nos. 69464 (April 26, 2013), 78 FR 25774 (May 2, 2013)
(SR-NASDAQ-2013-036) (order approving listing and trading of First
Trust Senior Loan Fund); 68972 (February 22, 2013), 78 FR 13721
(February 28, 2013) (SR-NASDAQ-2012-147) (order approving listing
and trading of First Trust High Yield Long/Short ETF); 66489
(February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-
004) (order approving listing and trading of WisdomTree Emerging
Markets Corporate Bond Fund). The Exchange believes the proposed
rule change raises no significant issues not previously addressed in
those prior Commission orders.
---------------------------------------------------------------------------
The text of the proposed rule change is available at https://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares\4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust, which was established as a Massachusetts business trust on
September 15, 2010.\5\ The Trust is registered with the Commission as
an investment company and has filed a registration statement on Form N-
1A (``Registration Statement'') with the Commission.\6\ The Fund will
be a series of the Trust. The Fund intends to qualify each year as a
regulated investment company (``RIC'') under Subchapter M of the
Internal Revenue Code of 1986, as amended.
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
\5\ The Commission has issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 30029 (April 10, 2012) (File No.
812-13795) (the ``Exemptive Relief''). In addition, the Commission
has issued no-action relief, upon which the Trust may rely,
pertaining to the Fund's ability to invest in derivatives
notwithstanding certain representations in the application for the
Exemptive Relief. See Commission No-Action Letter (December 6,
2012).
\6\ See Post-Effective Amendment No. 104 to Registration
Statement on Form N-1A for the Trust, dated January 29, 2015 (File
Nos. 333-174332 and 811-22559). The descriptions of the Fund and the
Shares contained herein are based, in part, on information in the
Registration Statement.
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First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon Corporation (``BNY'')
will act as the administrator, accounting agent, custodian and transfer
agent to the Fund.
Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition, paragraph
(g) further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the open-end fund's portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with
the establishment of a ``fire wall'' between the investment adviser and
the broker-dealer reflects the applicable open-end fund's portfolio,
not an underlying benchmark index, as is the case with index-based
funds. The Adviser is not a broker-dealer, although it is affiliated
with the Distributor, a broker-dealer. The Adviser has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. In addition, personnel who make decisions on the Fund's
portfolio composition will be subject to procedures designed to prevent
the use and dissemination of material non-public information regarding
the Fund's portfolio. In the event (a) the Adviser becomes, or becomes
newly affiliated with, a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with
another broker-dealer, it will implement a fire wall with respect to
its relevant personnel and/or such broker-dealer affiliate, as
applicable, regarding access to information concerning the composition
and/or changes to the portfolio and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio. The Fund does not currently
intend to use a sub-adviser.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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First Trust Strategic Floating Rate ETF
The investment objective of the Fund will be to seek current
income. To achieve its objective, the Fund will invest, under normal
market
[[Page 11511]]
conditions,\8\ at least 80% of its net assets in a portfolio of the
following types of floating-rate\9\ debt instruments issued by U.S. and
non-U.S. public- and private-sector entities: floating-rate
corporate\10\ and government bonds and notes; floating-rate agency
securities;\11\ floating-rate instruments of non-U.S. issuers;
floating-rate privately-issued securities;\12\ floating-rate asset-
backed securities;\13\ floating-rate mortgage-backed securities;\14\
floating-rate loans;\15\ and investment companies\16\ (including
investment companies advised by the Adviser) that invest primarily in
the foregoing types of debt instruments\17\ (collectively, ``Floating
Rate Debt Instruments'').
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\8\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the fixed income markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. For temporary
defensive purposes, during the initial invest-up period and during
periods of high cash inflows or outflows, the Fund may depart from
its principal investment strategies; for example, it may hold a
higher than normal proportion of its assets in cash. During such
periods, the Fund may not be able to achieve its investment
objective. The Fund may adopt a defensive strategy when the Adviser
believes securities in which the Fund normally invests have elevated
risks due to political or economic factors and in other
extraordinary circumstances.
\9\ For the avoidance of doubt, the term ``floating-rate'' shall
also include similar terms, such as ``variable-rate'' and
``adjustable-rate.''
\10\ The Adviser expects that, under normal market conditions,
generally, for a corporate bond to be considered as an eligible
investment, after taking into account such an investment, at least
75% of the Fund's net assets that are invested in floating-rate
corporate bonds and, as described below, fixed-rate corporate bonds
(in the aggregate), will be comprised of corporate bonds that have,
at the time of original issuance, $100 million or more par amount
outstanding.
\11\ ``Agency securities'' for these purposes generally includes
securities issued by the following entities: Government National
Mortgage Association (Ginnie Mae), Federal National Mortgage
Association (Fannie Mae), Federal Home Loan Banks (FHLBanks),
Federal Home Loan Mortgage Corporation (Freddie Mac), Farm Credit
System (FCS) Farm Credit Banks (FCBanks), Student Loan Marketing
Association (Sallie Mae), Resolution Funding Corporation (REFCORP),
Financing Corporation (FICO), and the Farm Credit System (FCS)
Financial Assistance Corporation (FAC). Agency securities can
include, but are not limited to, mortgage-backed securities.
\12\ ``Privately-issued securities'' for these purposes
generally includes Rule 144A securities other than mortgage-backed
Rule 144A securities. Under normal market conditions, privately-
issued securities will have, at the time of original issuance, $100
million or more principal amount outstanding to be considered
eligible investments.
\13\ Asset-backed securities are securities that are backed by a
pool of assets. The Fund currently intends to invest in asset-backed
securities that are consumer asset-backed securities.
\14\ Mortgage-backed securities, which are securities that
directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, will consist
of: (1) residential mortgage-backed securities (``RMBS''); (2)
commercial mortgage-backed securities (``CMBS''); (3) stripped
mortgage-backed securities (``SMBS''), which are mortgage-backed
securities where mortgage payments are divided between paying the
loan's principal and paying the loan's interest; (4) collateralized
mortgage obligations (``CMOs'') and real estate mortgage investment
conduits (``REMICs''), which are mortgage-backed securities that are
divided into multiple classes, with each class being entitled to a
different share of the principal and interest payments received from
the pool of underlying assets.
\15\ The floating-rate loans in which the Fund will invest will
represent amounts borrowed by companies or other entities from banks
and other lenders and a significant portion of such floating-rate
loans may be rated below investment grade or unrated. Floating-rate
loans held by the Fund may be senior or subordinate obligations of
the borrower and may or may not be secured by collateral. First lien
senior secured floating-rate loans are referred to herein as
``senior loans.'' Floating-rate loans that are not senior loans
(i.e., unsecured floating-rate loans and secured floating-rate loans
that are not first lien floating-rate loans) are referred to herein
as ``junior loans.'' The Fund will generally invest in floating-rate
loans that the Adviser deems to be liquid with readily available
prices; notwithstanding the foregoing, the Fund may invest in
floating-rate loans that are deemed illiquid so long as the Fund
complies with the 15% limitation on investments of its net assets in
illiquid assets described below under ``Investment Restrictions.''
\16\ The Fund currently anticipates investing only in registered
open-end investment companies that are listed and traded in the U.S.
on registered exchanges (i.e., other ETFs). An ETF is an investment
company registered under the 1940 Act that holds a portfolio of
securities. Many ETFs are designed to track the performance of a
securities index, including industry, sector, country and region
indexes. The Fund may invest in the securities of ETFs in excess of
the limits imposed under the 1940 Act pursuant to exemptive orders
obtained by other ETFs and their sponsors from the Commission. In
addition, the Fund may invest in the securities of certain
investment companies in excess of the limits imposed under the 1940
Act pursuant to an exemptive order obtained by the Trust and the
Adviser from the Commission. See Investment Company Act Release No.
30377 (February 5, 2013) (File No. 812-13895). The ETFs in which the
Fund may invest include Index Fund Shares (as described in Nasdaq
Rule 5705), Portfolio Depository Receipts (as described in Nasdaq
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule
5735). While the Fund may invest in inverse ETFs, the Fund will not
invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
\17\ The liquidity of a security, especially in the case of
asset-backed and mortgage-backed securities, will be a substantial
factor in the Fund's security selection process. Consistent with the
discussion below under ``Investment Restrictions,'' the Fund will
not purchase any Floating Rate Debt Instruments (including asset-
backed securities and mortgage-backed securities) that, in the
Adviser's opinion, are illiquid if, as a result, more than 15% of
the value of the Fund's net assets will be invested in illiquid
assets.
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At least 65% of the Fund's net assets will be invested in Floating
Rate Debt Instruments that are, at the time of purchase, investment
grade. To be considered ``investment grade,'' under normal market
conditions, rated Floating Rate Debt Instruments will carry, at the
time of purchase, a rating in the highest four rating categories of at
least one nationally recognized statistical ratings organization
(``NRSRO'') (e.g., BBB- or higher by Standard & Poor's Ratings Services
(``S&P''), and/or Fitch Ratings (``Fitch''), or Baa3 or higher by
Moody's Investors Service, Inc. (``Moody's'').\18\ For unrated
securities to be considered ``investment grade,'' under normal market
conditions, such securities will be determined, at the time of
purchase, to be of comparable quality\19\ by the Adviser. The Fund may
invest up to 35% of its net assets in securities that are, at the time
of investment, rated below investment grade by each NRSRO rating such
securities (or securities that are unrated and determined by the
Adviser to be of comparable quality), commonly referred to as ``high
yield'' or ``junk'' bonds. If, subsequent to purchase by the Fund, a
security held by the Fund experiences a decline in credit quality and
falls below investment grade, the Fund may continue to hold the
security, and it will not cause the Fund to violate the 35% investment
limitation; however, the security will be taken into account for
purposes of determining whether purchases of additional securities will
cause the Fund to violate such limitation.
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\18\ For the avoidance of doubt, if a security is rated by
multiple NRSROs and receives different ratings, the Fund will treat
the security as being rated in the highest rating category received
from an NRSRO.
\19\ Comparable quality of unrated securities will be determined
by the Adviser based on fundamental credit analysis of the unrated
security and comparable NRSRO-rated securities. On a best efforts
basis, the Adviser will attempt to make a rating determination based
on publicly available data. In making a ``comparable quality''
determination, the Adviser may consider, for example, whether the
issuer of the security has issued other rated securities, the nature
and provisions of the relevant security, whether the obligations
under the relevant security are guaranteed by another entity and the
rating of such guarantor (if any), relevant cash flows,
macroeconomic analysis, and/or sector or industry analysis.
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The Fund will limit its investments in asset-backed securities
(excluding agency mortgage-backed securities) and non-agency mortgage-
backed securities (in the aggregate) to 20% of its net assets.\20\ In
addition, the Fund will limit its investments in junior loans to 20% of
its net assets.
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\20\ For the avoidance of doubt, there is no limitation on the
Fund's investments in agency mortgage-backed securities.
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The Fund will hold debt securities (including, in the aggregate,
Floating Rate Debt Instruments and the fixed-rate debt securities
described below) of at least 13 non-affiliated issuers.
[[Page 11512]]
Other Investments
Under normal market conditions, the Fund will invest primarily in
the Floating Rate Debt Instruments described above to meet its
investment objective. In addition, the Fund may invest up to 20% of its
net assets in the following types of fixed-rate debt securities:
corporate\21\ and government bonds and notes; agency securities;\22\
instruments of non-U.S. issuers in developed markets; privately-issued
securities;\23\ asset-backed securities;\24\ mortgage-backed
securities;\25\ municipal bonds; money market securities;\26\ and
investment companies\27\ (including investment companies advised by the
Adviser) that invest primarily in the foregoing types of debt
securities.
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\21\ See footnote 10 above.
\22\ See footnote 11 above.
\23\ See footnote 12 above.
\24\ See footnote 13 above.
\25\ See footnote 14 above.
\26\ ``Money market securities'' for these purposes generally
includes: 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; commercial paper (both asset-backed and non-
asset-backed); and deposits and other obligations of U.S. and non-
U.S. banks and financial institutions.
\27\ See footnote 16 above.
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Further, to pursue its investment objective, the Fund may invest up
to 20% of the value of its net assets in exchange-listed options on
U.S. Treasury securities, exchange-listed options on U.S. Treasury
futures contracts and exchange-listed U.S. Treasury futures
contracts.\28\ The use of these derivative transactions may allow the
Fund to obtain net long or short exposures to selected interest rates.
These derivatives may also be used to hedge risks, including interest
rate risks and credit risks, associated with the Fund's portfolio
investments. The Fund's investments in derivative instruments will be
consistent with the Fund's investment objective and the 1940 Act and
will not be used to seek to achieve a multiple or inverse multiple of
an index.
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\28\ At least 90% of the Fund's net assets that are invested in
exchange-traded derivative instruments will be invested in
instruments that trade in markets that are members of the
Intermarket Surveillance Group (``ISG'') (see footnote 40 below) or
are parties to a comprehensive surveillance sharing agreement with
the Exchange.
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Investment Restrictions
The Fund will not invest 25% or more of the value of its total
assets in securities of issuers in any one industry. This restriction
does not apply to (a) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities or (b) securities of
other investment companies.\29\
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\29\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser.\30\ 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 assets. Illiquid assets 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.\31\
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\30\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
\31\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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The Fund will not invest in non-U.S. equity securities.
Creation and Redemption of Shares
The Fund will issue and redeem Shares on a continuous basis at net
asset value (``NAV'') \32\ only in large blocks of Shares (``Creation
Units'') in transactions with authorized participants, generally
including broker-dealers and large institutional investors
(``Authorized Participants''). Creation Units generally will consist of
50,000 Shares, although this may change from time to time. Creation
Units, however, are not expected to consist of less than 50,000 Shares.
As described in the Registration Statement and consistent with the
Exemptive Relief, the Fund will issue and redeem Creation Units in
exchange for an in-kind portfolio of instruments and/or cash in lieu of
such instruments (the ``Creation Basket''). In addition, if there is a
difference between the NAV attributable to a Creation Unit and the
market value of the Creation Basket exchanged for the Creation Unit,
the party conveying instruments with the lower value will pay to the
other an amount in cash equal to the difference (referred to as the
``Cash Component'').
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\32\ 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
(the ``NAV Calculation Time''). NAV per Share will be calculated by
dividing the Fund's net assets by the number of Fund Shares
outstanding. For more information regarding the valuation of Fund
investments in calculating the Fund's NAV, see the Registration
Statement.
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Creations and redemptions must be made by or through an Authorized
Participant that has executed an agreement that has been agreed to by
the Distributor and BNY with respect to creations and redemptions of
Creation Units. All standard orders to create Creation Units must be
received by the transfer agent no later than the closing time of the
regular trading session on the New York Stock Exchange (ordinarily 4:00
p.m., Eastern Time) (the ``Closing Time'') in each case on the date
such order is placed in order for the creation of Creation Units to be
effected based on the NAV of Shares as next determined on such date
after receipt of the order in proper form. Shares may be redeemed only
in Creation Units at their NAV next determined after receipt not later
than the Closing Time of a redemption request in proper form by the
Fund through the transfer agent and only on a business day.
The Fund's custodian, through the National Securities Clearing
Corporation, will make available on each business day, prior to the
opening of business of the Exchange, the list of the names and
quantities of the instruments comprising the Creation Basket, as well
as the estimated Cash Component (if any), for that day. The published
Creation Basket will apply until a new Creation Basket is announced on
the following business day prior to commencement of trading in the
Shares.
[[Page 11513]]
Net Asset Value
The Fund's NAV will be determined as of the close of trading
(normally 4:00 p.m., Eastern Time) on each day the New York Stock
Exchange is open for business. NAV will be calculated for the Fund by
taking the market price of the Fund's total assets, including interest
or dividends accrued but not yet collected, less all liabilities, and
dividing such amount by the total number of Shares outstanding. The
result, rounded to the nearest cent, will be the NAV per Share. All
valuations will be subject to review by the Board of Trustees of the
Trust (``Trust Board'') or its delegate.
The Fund's investments will be valued daily at market value or, in
the absence of market value with respect to any investment, at fair
value, in each case in accordance with valuation procedures (which may
be revised from time to time) adopted by the Trust Board (the
``Valuation Procedures'') and in accordance with the 1940 Act. A market
valuation generally means a valuation (i) obtained from an exchange, an
independent pricing service (``Pricing Service''), or a major market
maker (or dealer) or (ii) based on a price quotation or other
equivalent indication of value supplied by an exchange, a Pricing
Service, or a major market maker (or dealer). The information
summarized below is based on the Valuation Procedures as currently in
effect; however, as noted above, the Valuation Procedures are amended
from time to time and, therefore, such information is subject to
change.
Certain securities, including Floating Rate Debt Instruments, in
which the Fund may invest will not be listed on any securities exchange
or board of trade. Such securities will typically be bought and sold by
institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary
market, although typically no formal market makers will exist. Certain
securities, particularly debt securities, will have few or no trades,
or trade infrequently, and information regarding a specific security
may not be widely available or may be incomplete. Accordingly,
determinations of the fair value of debt securities may be based on
infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role
in valuation of debt securities than for other types of securities.
Typically, Floating Rate Debt Instruments and other debt securities in
which the Fund may invest (other than those described below) will be
valued using information provided by a Pricing Service. Debt securities
having a remaining maturity of 60 days or less when purchased will be
valued at cost adjusted for amortization of premiums and accretion of
discounts, provided the Adviser's pricing committee (the ``Pricing
Committee'') has determined that the use of amortized cost is an
appropriate reflection of fair value given market and issuer-specific
conditions existing at the time of the determination. Overnight
repurchase agreements will be valued at cost and term repurchase
agreements (i.e., those whose maturity exceeds seven days) will be
valued at the average of the bid quotations obtained daily from at
least two recognized dealers.
Asset-backed and mortgage-backed securities will generally be
valued by using a Pricing Service. If a Pricing Service does not cover
a particular asset-backed or mortgage-backed security, or discontinues
covering a particular asset-backed or mortgage-backed security, the
security will be priced using broker quotes generally provided by
brokers that make or participate in markets in the security. To derive
values, Pricing Services and broker-dealers may use matrix pricing and
valuation models, as well as recent market transactions for the same or
similar assets. As it deems appropriate, the Pricing Committee may
determine that a Pricing Service price does not represent an accurate
value of an asset-backed or mortgage-backed security, based on broker
quotes it receives, a recent trade in the security by the Fund,
information from a portfolio manager, or other market information. In
the event that the Pricing Committee determines that the Pricing
Service price is unreliable or inaccurate based on such other
information, broker quotes may be used. Additionally, if the Pricing
Committee determines that the price of an asset-backed or mortgage-
backed security obtained from a Pricing Service and available broker
quotes is unreliable or inaccurate due to market conditions or other
reasons, or if a Pricing Service price or broker quote is unavailable,
the security will be valued using fair value pricing, as described
below.
Equity securities listed on any exchange other than the Exchange
will be valued at the last sale price on the exchange on which they are
principally traded on the business day as of which such value is being
determined. Equity securities listed on the Exchange will be valued at
the official closing price on the business day as of which such value
is being determined. If there has been no sale on such day, or no
official closing price in the case of securities traded on the
Exchange, the securities will be valued using fair value pricing, as
described below. Equity securities traded on more than one securities
exchange will be valued at the last sale price or official closing
price, as applicable, on the business day as of which such value is
being determined at the close of the exchange representing the
principal market for such securities.
Exchange-traded options and futures contracts will be valued at the
closing price in the market where such contracts are principally
traded.
Certain securities, including Floating Rate Debt Instruments, in
which the Fund will invest will not be able to be priced by pre-
established pricing methods. Such securities may be valued by the Trust
Board or its delegate at fair value. The use of fair value pricing by
the Fund will be governed by the Valuation Procedures and conducted in
accordance with the provisions of the 1940 Act. Valuing the Fund's
securities using fair value pricing will result in using prices for
those securities that may differ from current market valuations or
official closing prices on the applicable exchange.
Availability of Information
The Fund's Web site (www.ftportfolios.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Web site
will include the Shares' ticker, CUSIP and exchange information along
with additional quantitative information updated on a daily basis,
including, for the Fund: (1) Daily trading volume, the prior business
day's reported NAV and closing price, mid-point of the bid/ask spread
at the time of calculation of such NAV (the ``Bid/Ask Price''),\33\ and
a calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Regular Market Session \34\ on the
Exchange, the Fund
[[Page 11514]]
will disclose on its Web site the identities and quantities of the
portfolio of securities, and other assets (the ``Disclosed Portfolio''
as defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\35\ The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Fund will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding), the identity of the security
or other asset or instrument underlying the holding, if any; for
options, the option strike price; quantity held (as measured by, for
example, par value, notional value or number of shares, contracts or
units); maturity date, if any; coupon rate, if any; effective date, if
any; market value of the holding; and percentage weighting of the
holding in the Fund's portfolio. The Web site information will be
publicly available at no charge.
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\33\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\34\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m., Eastern Time).
\35\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's Disclosed Portfolio, will be
disseminated. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service,\36\ will be
based upon the current value for the components of the Disclosed
Portfolio and will be updated and widely disseminated by one or more
major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. The Intraday Indicative
Value will be based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. Premiums and discounts between the Intraday
Indicative Value and the market price may occur. This should not be
viewed as a ``real time'' update of the NAV per Share of the Fund,
which is calculated only once a day.
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\36\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
---------------------------------------------------------------------------
The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's annual and semi-annual
reports (together, ``Shareholder Reports''), and its Form N-CSR and
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Fund, and those documents
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded
from the Commission's Web site at www.sec.gov. 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.
Quotation and last sale information for the Shares will be available
via Nasdaq proprietary quote and trade services, as well as in
accordance with the Unlisted Trading Privileges and the Consolidated
Tape Association (``CTA'') plans for the Shares. Quotation and last
sale information for the other ETFs in which the Fund will invest will
be available via the quote and trade services of their respective
primary exchanges, as well as in accordance with the Unlisted Trading
Privileges and the CTA plans, as applicable. Quotation and last sale
information for exchange-traded options will be available via the
Options Price Reporting Authority. Intraday executable price quotations
on Floating Rate Debt Instruments and other assets not traded on an
exchange will be available from major broker-dealer firms or market
data vendors, as well as from automated quotation systems, published or
other public sources, or online information services. Additionally, the
Trade Reporting and Compliance Engine (``TRACE'') of the Financial
Industry Regulatory Authority (``FINRA'') will be a source of price
information for corporate bonds, privately-issued securities, mortgage-
backed securities and asset-backed securities to the extent
transactions in such securities are reported to TRACE.\37\ For
exchange-traded assets, intraday pricing information will be available
directly from the applicable listing exchange.
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\37\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year.
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Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and redemption procedures, fees,
Fund holdings disclosure policies, distributions and taxes will be
included in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 \38\ under the
Act. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. 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.
---------------------------------------------------------------------------
\38\ See 17 CFR 240.10A-3.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Nasdaq will halt trading in the
Shares under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
Trading may be halted because of market conditions or for reasons that,
in the view of the Exchange, make trading in the Shares inadvisable.
These may include: (1) The extent to which trading is not occurring in
the securities and/or the other assets constituting the Disclosed
Portfolio of the Fund; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
5735(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules
[[Page 11515]]
governing the trading of equity securities. Nasdaq will allow trading
in the Shares from 4:00 a.m. until 8:00 p.m., Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in Nasdaq Rule 5735(b)(3), the
minimum price variation for quoting and entry of orders in Managed Fund
Shares traded on the Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities
laws.\39\ The Exchange represents that these procedures 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.
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\39\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund with other markets and other entities that
are members of ISG,\40\ and FINRA may obtain trading information
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. Moreover,
FINRA, on behalf of the Exchange, will be able to access, as needed,
trade information for certain Floating Rate Debt Instruments and other
debt securities held by the Fund reported to FINRA's TRACE.
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\40\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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All of the Fund's net assets that are invested in exchange-traded
equity securities will be invested in securities that trade in markets
that are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange. At least 90% of the Fund's net
assets that are invested in exchange-traded derivative instruments will
be invested in instruments that trade in markets that are members of
ISG or are parties to a comprehensive surveillance sharing agreement
with the Exchange.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
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: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value is disseminated; (4) the risks involved
in trading the Shares during the Pre-Market and Post-Market Sessions
when an updated Intraday Indicative Value will not be calculated or
publicly disseminated; (5) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information. The Information Circular will also discuss any exemptive,
no-action and interpretive relief granted by the Commission from any
rules under the Act.
Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act in general and Section 6(b)(5) of the Act in particular in
that it is 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, and to remove impediments to and perfect
the mechanism of a free and open market and, in general, to protect
investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the Shares will be subject to the
existing trading surveillances, administered by both Nasdaq and also
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities laws.
The Adviser is not a broker-dealer, although it is affiliated with
the Distributor, a broker-dealer, and is required to implement a ``fire
wall'' with respect to such broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material non-public information regarding
the open-end fund's portfolio.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund with other markets and other entities that
are members of ISG, and FINRA may obtain trading information regarding
trading in the Shares and the exchange-traded securities and
instruments held by the Fund from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. Moreover,
FINRA, on behalf of the Exchange, will be able to access, as needed,
trade information for certain
[[Page 11516]]
Floating Rate Debt Instruments and other debt securities held by the
Fund reported to FINRA's TRACE.
All of the Fund's net assets that are invested in exchange-traded
equity securities will be invested in securities that trade in markets
that are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange. At least 90% of the Fund's net
assets that are invested in exchange-traded derivative instruments will
be invested in instruments that trade in markets that are members of
ISG or are parties to a comprehensive surveillance sharing agreement
with the Exchange.
The investment objective of the Fund will be to seek current
income. To achieve its objective, the Fund will invest, under normal
market conditions, at least 80% of its net assets in a portfolio of
Floating Rate Debt Instruments. In addition, the Fund may invest up to
20% of its net assets in certain fixed-rate debt securities. The Fund
may invest up to 20% of the value of its net assets in exchange-listed
options on U.S. Treasury securities, exchange-listed options on U.S.
Treasury futures contracts and exchange-listed U.S. Treasury futures
contracts. The Fund's investments in derivative instruments will be
consistent with the Fund's investment objective and the 1940 Act and
will not be used to seek to achieve a multiple or inverse multiple of
an index. At least 65% of the Fund's net assets will be invested in
Floating Rate Debt Instruments that are, at the time of purchase,
investment grade. The Fund will limit its investments in asset-backed
securities (excluding agency mortgage-backed securities) and non-agency
mortgage-backed securities (in the aggregate) to 20% of its net assets.
In addition, the Fund will limit its investments in junior loans to 20%
of its net assets. The Fund may hold up to an aggregate amount of 15%
of its net assets in illiquid assets (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser. 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 assets. Illiquid
assets 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.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
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, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Intraday
Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service, will be widely disseminated by one or
more major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. On each business day, before
commencement of trading in Shares in the Regular Market Session on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. 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, and quotation and last sale information for the
Shares will be available via Nasdaq proprietary quote and trade
services, as well as in accordance with the Unlisted Trading Privileges
and the CTA plans for the Shares. Quotation and last sale information
for the other ETFs in which the Fund will invest will be available via
the quote and trade services of their respective primary exchanges, as
well as in accordance with the Unlisted Trading Privileges and the CTA
plans, as applicable. Quotation and last sale information for exchange-
traded options will be available via the Options Price Reporting
Authority. Intraday executable price quotations on Floating Rate Debt
Instruments and other assets not traded on an exchange will be
available from major broker-dealer firms or market data vendors, as
well as from automated quotation systems, published or other public
sources, or online information services. Additionally, FINRA's TRACE
will be a source of price information for corporate bonds, privately-
issued securities, mortgage-backed securities and asset-backed
securities to the extent transactions in such securities are reported
to TRACE. For exchange-traded assets, intraday pricing information will
be available directly from the applicable listing exchange.
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. Trading in Shares of the Fund will be halted
under the conditions specified in Nasdaq Rules 4120 and 4121 or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances
under which Shares of the Fund may be halted. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The Fund's investments will be valued daily at market value or, in
the absence of market value with respect to any investment, at fair
value, in each case in accordance with the Valuation Procedures and the
1940 Act.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and the exchange-traded securities and instruments held by the Fund
with other markets and other entities that are members of ISG, and
FINRA may obtain trading information regarding trading in the Shares
and the exchange-traded securities and instruments held by the Fund
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares and in the exchange-
traded securities and instruments held by the Fund from markets and
other entities that are members of ISG, which includes securities and
futures exchanges, or with which the Exchange has in place a
comprehensive surveillance sharing agreement. Furthermore, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
[[Page 11517]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2015-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-011. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2015-011, and should
be submitted on or before March 24, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-04334 Filed 3-2-15; 8:45 am]
BILLING CODE 8011-01-P
