Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of the Shares of the iSectors Post-MPT Growth ETF of ETFis Series Trust I, 26281-26285 [2016-10153]
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srobinson on DSK5SPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices
any person who, if it were not directly
or indirectly controlled by the BDC,
would not be directly or indirectly
under the control of a person who
controls the BDC), or any person who is,
within the meaning of section 2(a)(3)(C)
of the Act, an affiliated person of such
person. Sections 2(a)(3)(C) defines an
‘‘affiliated person’’ of another person as
any person directly or indirectly
controlling, controlled by, or under
common control with, such other
person.
2. Rule 17d–1 under the Act generally
prohibits participation by a registered
investment company and an affiliated
person (as defined in section 2(a)(3) of
the Act) or principal underwriter for
that investment company, or an
affiliated person of such affiliated
person or principal underwriter, in any
‘‘joint enterprise or other joint
arrangement or profit-sharing plan,’’ as
defined in the rule, without prior
approval by the Commission by order
upon application. Although the
Commission has not adopted any rules
expressly under section 57(a)(4), section
57(i) provides that the rules (but not
section 17(d) itself) under section 17(d)
applicable to registered closed-end
investment companies (e.g., rule 17d–1)
are, in the interim, deemed to apply to
transactions subject to section 57(a).
3. As the investment adviser and
principal underwriter to the Company,
the Advisor and the Dealer Manager,
respectively, are subject to the
prohibitions of section 57(a)(4) as a
result of section 57(b)(2) of the Act.
Moreover, the Sponsor may be deemed
to control both the Advisor and the
Dealer Manager and the Advisor may be
deemed to control the Company within
the meaning of section 2(a)(9) of the
Act.1 Accordingly, the Company, the
Advisor, the Dealer Manager and the
Sponsor may be deemed to be affiliated
persons of each other under section
2(a)(3)(C) of the Act because they are
under common control of the Sponsor,
and thus the Advisor, the Dealer
Manager and the Sponsor would be
persons described in section 57(b)(2)
subject to the prohibitions of section
57(a)(4). The Distribution Fee
Reimbursement and the Dealer-Manager
Agreement Amendment (the ‘‘Proposed
Transactions’’) might be deemed a ‘‘joint
enterprise or other joint arrangement,’’
within the meaning of section 57(a)(4) of
the Act and rule 17d–1 thereunder.
Therefore, the Sponsor, the Advisor, the
Dealer Manager, and the Company may
be prohibited from engaging in the
Proposed Transactions as a result of the
prohibitions of section 57(a)(4) and rule
17d–1, without a grant of the Order of
the Commission.
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4. In passing upon applications under
rule 17d–1, the Commission considers
whether the company’s participation in
the joint transaction is consistent with
the provisions, policies, and purposes of
the Act and the extent to which such
participation is on a basis different from
or less advantageous than that of other
participants.
5. Applicants believe that the
representations and conditions set forth
in the application will ensure that the
Proposed Transactions are consistent
with the protection of the Company’s
Shareholders, including the Current
Common Shareholders (as herein
defined), and with the purposes
intended by the policies and provisions
of the Act. Applicants state that the
Company’s participation in the
Proposed Transactions will be
consistent with the provisions, policies,
and purposes of the Act and on a basis
that is not different from or less
advantageous than that of other
participants.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Company will ensure that total
Underwriting Compensation payable in
the Offering will not exceed 10% of the
gross proceeds of the Offering,
consistent with Conduct Rule 2310.
2. For the period of time in which the
Distribution Fee is payable, the Dealer
Manager will waive any annual
Distribution Fee payment to which it is
otherwise entitled in an amount
sufficient to ensure that the total return
experienced by the holders of the
Company’s Common Shares
immediately prior to the
implementation of the Dealer Manager
Agreement Amendment (the ‘‘Current
Common Shareholders’’) is not less than
the total return the Current Common
Shareholders would have experienced if
the Proposed Transactions had not
occurred and the Dealer Manager
Agreement had not been amended.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–10109 Filed 4–29–16; 8:45 am]
BILLING CODE 8011–01–P
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26281
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Order of Suspension of Trading; In the
Matter of Pineapple Express, Inc.
April 28, 2016.
It appears to the Securities and
Exchange Commission that the public
interest and the protection of investors
require a suspension of trading in the
securities of Pineapple Express, Inc.
(CIK No. 1654672) because of recent,
unusual and unexplained market
activity in the company’s stock that
raises concerns about the adequacy of
publicly-available information regarding
the company. Pineapple Express, Inc. is
a Wyoming corporation with its
principal place of business listed as Los
Angeles, California, with stock quoted
on OTC Link (previously ‘‘Pink Sheets’’)
operated by OTC Markets Group, Inc.
under the ticker symbol PNPL.
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
company.
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 company is
suspended for the period from 9:30 a.m.
EDT, on April 28, 2016, through 11:59
p.m. EDT, on May 11, 2016.
By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–10295 Filed 4–28–16; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77714; File No. SR–
NASDAQ–2016–028]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule
Change, as Modified by Amendment
No. 1 Thereto, Relating to the Listing
and Trading of the Shares of the
iSectors Post-MPT Growth ETF of
ETFis Series Trust I
April 26, 2016.
I. Introduction
On February 23, 2016, The NASDAQ
Stock Market LLC (‘‘Exchange’’ or
‘‘Nasdaq’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
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or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
iSectors Post-MPT Growth ETF
(‘‘Fund’’), a series of ETFis Series Trust
I (‘‘Trust’’), under Nasdaq Rule 5735.
The proposed rule change was
published for comment in the Federal
Register on March 11, 2016.3 On April
14, 2016, (a) the Exchange filed
Amendment No. 1 to the proposed rule
change,4 and (b) pursuant to Section
19(b)(2) of the Act,5 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.6 The Commission received
no comments on the proposed rule
change. This order grants approval of
the proposed rule change, as modified
by Amendment No. 1 thereto.
II. Exchange’s Description of the
Proposal
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 on the Exchange. The Fund will
be an actively managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust,7 which is
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77301
(Mar. 7, 2016), 81 FR 978 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange clarified
that: (a) all statements and representations made in
the proposal regarding the description of the
portfolio, limitations on portfolio holdings or
reference assets, or the applicability of Exchange
rules and surveillance procedures shall constitute
continued listing requirements for listing the Shares
on the Exchange; (b) the issuer will advise the
Exchange of any failure by the Fund to comply with
the continued listing requirements; (c) pursuant to
its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the
continued listing requirements; (d) if the Fund is
not in compliance with the applicable listing
requirements, the Exchange will commence
delisting procedures under the Nasdaq 5800 Series;
(e) the Fund will not invest in inverse or inverse
leveraged ETPs (as defined herein); and (f) no more
than 25% of the Fund’s holdings will be invested
in leveraged ETPs. Because Amendment No. 1 to
the proposed rule change does not materially alter
the substance of the proposed rule change or raise
novel regulatory issues, Amendment No. 1 is not
subject to notice and comment. Amendment No. 1
to the proposed rule change is available at: https://
www.sec.gov/comments/sr-nasdaq-2016–028/
nasdaq2016028-1.pdf.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 77623
(Apr. 14, 2016), 81 FR 23333 (Apr. 20, 2016).
7 According to the Exchange, the Commission has
issued an order, upon which the Trust may rely,
granting certain exemptive relief under the
Investment Company Act of 1940 (‘‘1940 Act’’). The
Exchange also states that, in compliance with
Nasdaq Rule 5735(b)(5), which applies to Managed
Fund Shares based on an international or global
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registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.8 The Fund will be a series
of the Trust.
Virtus ETF Advisers LLC will be the
investment adviser (‘‘Adviser’’) to the
Fund. iSectors, LLC will be the
investment sub-adviser (‘‘Sub-Adviser’’)
to the Fund. ETF Distributors LLC will
be the principal underwriter and
distributor of the Fund’s Shares. The
Bank of New York Mellon will act as the
administrator, accounting agent,
custodian, and transfer agent to the
Fund. The Exchange states that, while
the Adviser and Sub-Adviser are not
registered as broker-dealers,9 the
Adviser (but not the Sub-Adviser) is
affiliated with a broker-dealer. The
Exchange represents that the Adviser
has implemented a fire wall with
respect to that broker-dealer regarding
access to information concerning the
composition of, and changes to, the
portfolio, and personnel who make
decisions on the Fund’s portfolio
composition will be subject to
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the
portfolio.10
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategy, including the Fund’s portfolio
holdings and investment restrictions.11
portfolio, the Trust’s application for exemptive
relief under the 1940 Act states that the Fund will
comply with the federal securities laws in accepting
securities for deposits and satisfying redemptions
with redemption securities, including that the
securities accepted for deposits and the securities
used to satisfy redemption requests are sold in
transactions that would be exempt from registration
under the Securities Act of 1933. See Notice, supra
note 3, 81 FR at 12990.
8 See Notice, supra note 3, 81 FR at 12990. See
Registration Statement on Form N–1A for the Trust
filed on December 2, 2015 (File Nos. 333–187668
and 811–22819).
9 See Notice, supra note 3, 81 FR at 12990–12991.
10 The Exchange further represents that, in the
event (a) the Adviser or the Sub-Adviser registers
as a broker dealer or becomes newly affiliated with
a broker-dealer, or (b) any new adviser or subadviser is a registered broker-dealer or becomes
affiliated with another broker-dealer, it will
implement a fire wall with respect to its relevant
personnel or broker-dealer affiliate, as applicable,
regarding access to information concerning the
composition of, and changes to, the portfolio, and
will be subject to procedures designed to prevent
the use and dissemination of material, non-public
information regarding the portfolio. Id.
11 The Commission notes that additional
information regarding the Fund, the Trust, and the
Shares, including investment strategies, risks,
creation and redemption procedures, fees, portfolio
holdings disclosure policies, calculation of net asset
value (‘‘NAV’’), distributions, and taxes, among
other things, can be found in the Notice and the
Registration Statement, as applicable. See Notice
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A. Exchange’s Description of the Fund’s
Principal Investments
The Fund’s investment objective will
be to provide growth of capital, with a
secondary emphasis on capital
preservation, independent of individual
market conditions. The Fund will seek
to achieve its investment objective by
utilizing a long-only, tactically-managed
exposure to sectors of the U.S. equity
market and U.S. fixed income markets.
To obtain this exposure, the SubAdviser will invest, under normal
market conditions,12 the Fund’s assets
in: (1) ETFs,13 exchange-traded notes
(‘‘ETNs’’),14 and exchange-traded trusts
that hold commodities (‘‘ETTs’’) (ETFs,
ETNs, and ETTs, collectively,
‘‘ETPs’’); 15 (2) individually selected
U.S. exchange-traded common stocks
(when the Sub-Adviser determines that
investing in them would be more
efficient or otherwise advantageous to
do so); (3) money market funds; (4) U.S.
treasuries; 16 or (5) money market
and Registration Statement, supra notes 3 and 8,
respectively.
12 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 equity and 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 manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance. See Notice, supra note 3,
81 FR at 12991.
13 According to the Exchange, ETFs included in
the Fund will be listed and traded in the U.S. on
registered exchanges. 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. The ETFs in which the Fund may
invest include Index Fund Shares (as described in
Nasdaq Rule 5705), Portfolio Depositary Receipts
(as described in Nasdaq Rule 5705), and Managed
Fund Shares (as described in Nasdaq Rule 5735).
The shares of ETFs in which a Fund may invest will
be limited to securities that trade in markets that
are members of the Intermarket Surveillance Group
(‘‘ISG’’), which includes all U.S. national securities
exchanges, or are parties to a comprehensive
surveillance sharing agreement with the Exchange.
See infra note 15.
14 The ETNs are limited to those described in
Nasdaq Rule 5710.
15 The Fund may invest in the following ETPs:
Trust Certificates, Commodity-Based Trust Shares,
Currency Trust Shares, Commodity Index Trust
Shares, Commodity Futures Trust Shares,
Partnership Units, Trust Units, and Managed Trust
Securities (each as described in Nasdaq Rule 5711);
Paired Class Shares (as described in Nasdaq Rule
5713); Trust Issued Receipts (as described in
Nasdaq Rule 5720); and Exchange-Traded Managed
Fund Shares (as described in Nasdaq Rule 5745).
See Notice, supra note 3, at 12991. The Fund may
invest in leveraged ETPs (e.g., 2X or 3X), but will
not invest in inverse or inverse leveraged ETPs (e.g.,
–1X or –2X). In addition, no more than 25% of the
Fund’s holdings will be invested in leveraged ETPs.
See Amendment No. 1, supra note 4.
16 These securities will include securities that are
issued or guaranteed by the U.S. Treasury, by
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instruments. To the extent that the Fund
invests in ETPs or money market funds
to gain domestic exposure, the Fund is
considered, in part, a ‘‘fund of funds.’’ 17
B. Exchange’s Description of Other
Investments for the Fund
In order to seek its investment
objective, the Fund will not employ
other strategies outside of the abovedescribed ‘‘Principal Investments.’’ 18
C. Exchange’s Description of the Fund’s
Investment Restrictions
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According to the Exchange, under
normal market conditions, the Fund
anticipates investing its total assets in
shares of ETPs, individually selected
U.S. exchange-traded common stocks,
money market funds, U.S. treasuries, or
money market instruments.19 The Fund
will not purchase securities of open-end
investment companies except in
compliance with the 1940 Act. The
Fund will not use derivative
instruments, including options, swaps,
forwards, and futures contracts.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities and other illiquid
assets (calculated at the time of
investment). The Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid securities or other illiquid
assets. Illiquid securities and other
illiquid assets include securities subject
to contractual or other restrictions on
resale and other instruments that lack
readily available markets as determined
various agencies of the U.S. government, or by
various instrumentalities, which have been
established or sponsored by the U.S. government.
U.S. Treasury obligations are backed by the ‘‘full
faith and credit’’ of the U.S. government. Securities
issued or guaranteed by federal agencies and U.S.
government-sponsored instrumentalities may or
may not be backed by the full faith and credit of
the U.S. government. See Notice, supra note 3, 81
FR at 12991.
17 See id.
18 See id.
19 According to the Exchange, 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 these 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.
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in accordance with Commission staff
guidance.
The Exchange states that the Fund
intends to qualify for and to elect to be
treated as a separate regulated
investment company under Subchapter
M of the Internal Revenue Code. In
addition, under the 1940 Act, the
Fund’s investment in investment
companies will be limited to, subject to
certain exceptions: (i) 3% Of the total
outstanding voting stock of any one
investment company; (ii) 5% of the
Fund’s total assets with respect to any
one investment company; and (iii) 10%
of the Fund’s total assets with respect to
investment companies in the
aggregate.20
The Fund’s investments will be
consistent with its investment objective.
The Fund does not presently intend to
engage in any form of borrowing for
investment purposes, and it will not be
operated as a ‘‘leveraged ETF,’’ i.e., it
will not be operated in a manner
designed to seek a multiple of the
performance of an underlying reference
index.21
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal is
consistent with the Exchange Act and
the rules and regulations thereunder
applicable to a national securities
exchange.22 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1 thereto, is consistent with Section
6(b)(5) of the Exchange Act,23 which
requires, among other things, that the
Exchange’s rules be designed to promote
just and equitable principles of trade, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Commission also finds that the
proposal is consistent with Section
11A(a)(1)(C)(iii) of the Exchange Act,24
which sets forth the finding of Congress
that it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure the
availability to brokers, dealers, and
investors of information with respect to
quotations for, and transactions in,
securities. Quotation and last-sale
20 See
Notice, supra note 3, 81 FR at 12991.
at 12991–12992.
22 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78k–1(a)(1)(C)(iii).
21 Id.
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26283
information for the Shares and any
underlying ETPs 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 plans for
the Shares.25 On each business day,
before commencement of trading in
Shares in the Regular Market Session 26
on the Exchange, the Fund will disclose
on its Web site the identities and
quantities of the portfolio of securities
and other assets (‘‘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.27 In
addition, the Intraday Indicative Value,
available on the NASDAQ OMX
Information LLC proprietary index data
service 28 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.29 The Fund’s NAV will be
determined as of the close of trading on
the New York Stock Exchange
(ordinarily 4:00 p.m. E.T.) on each day
that the New York Stock Exchange is
25 See
Notice, supra note 3, 81 FR at 12993.
Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4:00 a.m. to 9:30 a.m. E.T.; (2)
Regular Market Session from 9:30 a.m. to 4:00 p.m.
or 4:15 p.m. E.T.; and (3) Post-Market Session from
4:00 p.m. or 4:15 p.m. to 8:00 p.m. E.T.).
27 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’’). Notwithstanding the
foregoing, portfolio trades that are executed prior to
the opening of the Exchange on any business day
may be booked and reflected in NAV on that
business day. 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. See
Notice, supra note 3, 81 FR at 12993. The daily
disclosure will include for each portfolio security
and other asset of the Fund the following
information on the Fund’s Web site (if applicable):
Ticker symbol, CUSIP number or other identifier, if
any; a description of the holding (including the type
of holding); the identity of the security, commodity,
index, or other asset or instrument underlying the
holding, if any; maturity date, if any; coupon rate,
if any; effective date, if any; market value of the
holding; and the percentage weighting of the
holdings in the Fund’s portfolio. The Web site
information will be publicly available at no charge.
See id.
28 Currently, the Nasdaq Global Index Data
Service (‘‘GIDS’’) is the Nasdaq global index data
feed service, offering real-time updates, daily
summary messages, and access to widely followed
indexes and Intraday Indicative Values for ETFs.
The Exchange represents that 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. See id.
29 See id.
26 See
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open.30 The Web site for the Fund will
include a form of the prospectus for the
Fund and additional data relating to
NAV and other applicable quantitative
information.31 Information regarding
market price and volume of the Shares
will be continually available on a realtime basis throughout the day on
brokers’ computer screens and other
electronic services. The previous day’s
closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers.32 Price information
regarding the ETPs, equity securities,
U.S. treasuries, money market
instruments, and money market funds
held by the Fund will be available
through the U.S. exchanges trading
these assets, in the case of exchangetraded securities, as well as automated
quotation systems, or published or other
public sources. Intra-day price
information for all assets held by the
Fund 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 Commission also believes that the
proposal to list and trade the Shares is
reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Exchange states that it will obtain a
30 According to the Exchange, the Fund’s
investments will be valued at market value (i.e., the
price at which a security is trading and could
presumably be purchased or sold) or, in the absence
of market value with respect to any investment, at
fair value in accordance with valuation procedures
adopted by the Trust’s Board (‘‘Board’’) and in
accordance with the 1940 Act. Common stocks and
equity securities (including shares of ETPs) will be
valued at the last sales price on that exchange.
Portfolio securities traded on more than one
securities exchange will be valued at the last sale
price or, if so disseminated by an exchange, the
official closing price, as applicable, at the close of
the exchange representing the principal exchange or
market for these securities on the business day as
of which the value is being determined. U.S.
treasuries are valued using quoted market prices,
and money market funds are valued at the net asset
value reported by the funds. Money market
instruments will typically be valued using
information provided by a third-party pricing
service. For all security types in which the Fund
may invest, the Fund’s primary pricing source is
Interactive Data Corp.; its secondary source is
Reuters; and its tertiary source is Bloomberg.
Certain securities may not be able to be priced by
pre-established pricing methods. These securities
may be valued by the Board or its delegate at fair
value. The use of fair value pricing by the Fund will
be governed by valuation procedures adopted by
the Board and in accordance with the provisions of
the 1940 Act. All valuations will be subject to
review by the Board or its delegate. See id. at 12992.
31 See id. at 12993.
32 See id.
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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.33 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). In addition, trading may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.34 Trading in the Shares also
will be subject to Nasdaq Rule
5735(d)(2)(D), which sets forth
additional circumstances under which
Shares of the Fund may be halted.35 The
Exchange states that it has a general
policy prohibiting the distribution of
material, non-public information by its
employees.36 In addition, the Exchange
states that, while the Adviser and SubAdviser are not registered as brokerdealers, the Adviser (but not the SubAdviser) is affiliated with a brokerdealer and has implemented a fire wall
with respect to that broker-dealer
regarding access to information
concerning the composition of, and
changes to, the portfolio.37 Further, the
33 See
id. at 12994.
Exchange may consider all relevant factors
in exercising its discretion to halt or suspend
trading in the Shares of the Fund. These may
include: (1) The extent to which trading is not
occurring in the securities and 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. See id.
35 See id.
36 See id.
37 See id. at 12990; see also supra note 10 and
accompanying text. The Exchange further
represents that an investment adviser to an openend fund is required to be registered under the
Investment Advisers Act of 1940 (‘‘Advisers Act’’).
As a result, the Adviser, the Sub-Adviser, and their
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
34 The
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Commission notes that the Reporting
Authority 38 that provides the Disclosed
Portfolio must implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the actual components of the
portfolio.39 The Exchange represents
that trading in the Shares will be subject
to the existing trading surveillances,
administered by both Nasdaq and the
Financial Industry Regulatory Authority
(‘‘FINRA’’), on behalf of the Exchange,
which are designed to detect violations
of Exchange rules and applicable federal
securities laws.40
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
governing the trading of equity
securities. In support of this proposal,
the Exchange has represented that:
(1) The Shares will be subject to
Nasdaq Rule 5735, which sets forth the
initial and continued listing criteria
applicable to Managed Fund Shares.
(2) Nasdaq’s surveillance procedures
are adequate to properly monitor
Exchange trading of the Shares in all
trading sessions and to detect and help
deter violations of Exchange rules and
applicable federal securities laws.
(3) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and other
exchange-traded securities and
instruments, including the common
stock and shares held by the Fund with
other markets and other entities that are
members of the ISG,41 and FINRA may
obtain trading information regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund from those markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund from markets and other
entities that are members of ISG,42 or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixedincome securities held by the Fund
under subparagraph (i) above. See Notice, supra
note 3, 81 FR at 12990–12991.
38 Nasdaq Rule 5730(c)(4) defines ‘‘Reporting
Authority.’’
39 See Nasdaq Rule 5735(d)(2)(B)(ii).
40 According to the Exchange, FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement, and the Exchange is responsible
for FINRA’s performance under this regulatory
services agreement. See Notice, supra note 3, 81 FR
at 12994.
41 For a list of the current members of ISG, see
www.isgportal.org.
42 Id.
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reported to FINRA’s Trade Reporting
and Compliance Engine.
(4) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(5) Prior to commencement of trading,
the Exchange will inform its members in
an Information Circular of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Circular will discuss the
following: (a) The procedures for
purchases and redemptions of Shares in
Creation Units (and that Shares are not
individually redeemable); (b) Nasdaq
Rule 2111A, which imposes suitability
obligations on Nasdaq members with
respect to recommending transactions in
the Shares to customers; (c) how
information regarding the Intraday
Indicative Value and Disclosed Portfolio
is disseminated; (d) the risks involved
in trading the Shares during the PreMarket and Post-Market Sessions when
an updated Intraday Indicative Value
will not be calculated or publicly
disseminated; (e) the requirement that
members deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(6) For initial and continued listing,
the Fund must be in compliance with
Rule 10A–3 under the Act.43
(7) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets.
(8) The Fund may invest in leveraged
ETPs (e.g., 2X or 3X), but will not invest
in inverse or inverse leveraged ETPs
(e.g., –1X or –2X). In addition, no more
than 25% of the Fund’s holdings will be
invested in leveraged ETPs.
(9) The Fund will not use derivative
instruments, including options, swaps,
forwards, and futures contracts.
(10) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
exchange.
The Exchange represents that all
statements and representations made in
the filing regarding (a) the description of
the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the
applicability of Exchange rules and
surveillance procedures shall constitute
continued listing requirements for
listing the Shares on the Exchange. In
addition, the issuer has represented to
the Exchange that it will advise the
Exchange of any failure by the Fund to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
43 See
17 CFR 240.10A–3.
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Jkt 238001
compliance with the continued listing
requirements.44 If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
the Nasdaq 5800 Series.
This approval order is based on all of
the Exchange’s representations,
including those set forth above, in the
Notice, and in Amendment No. 1 to the
proposed rule change. The Commission
notes that the Fund and the Shares must
comply with the requirements of
Nasdaq Rule 5735, including those set
forth in this proposed rule change, as
modified by Amendment No. 1 thereto,
to be listed and traded on the Exchange
on an initial and continuing basis.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1 thereto, is consistent with Section
6(b)(5) of the Act 45 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,46
that the proposed rule change (SR–
NASDAQ–2016–028), as modified by
Amendment No. 1 thereto, be, and it
hereby is, approved.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.47
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–10153 Filed 4–29–16; 8:45 am]
BILLING CODE 8011–01–P
44 The Commission notes that certain other
proposals for the listing and trading of Managed
Fund Shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 77499 (April 1, 2016), 81
FR 20428 (April 7, 2016) (SR–BATS–2016–04)
(approving a proposed rule change to list and trade
shares of the SPDR DoubleLine Short Duration
Total Return Tactical ETF), available at: https://
www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of the Fund’s
compliance with the continued listing
requirements. Therefore, the Commission does not
view ‘‘monitor’’ as a more or less stringent
obligation than ‘‘surveil’’ with respect to the
continued listing requirements.
45 15 U.S.C. 78f(b)(5).
46 15 U.S.C. 78s(b)(2).
47 17 CFR 200.30–3(a)(12).
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26285
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77715; File No. SR–
NASDAQ–2016–056]
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 PowerShares
Variable Rate Investment Grade
Portfolio, a Series of the PowerShares
Actively Managed Exchange-Traded
Fund Trust
April 26, 2016.
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 April 13
2016, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by Nasdaq. The
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 Substance of
the Proposed Rule Change
Nasdaq proposes to list and trade the
common shares of beneficial interest of
the PowerShares Variable Rate
Investment Grade Portfolio (the
‘‘Fund’’), a series of the PowerShares
Actively Managed Exchange-Traded
Fund Trust (the ‘‘Trust’’), under Nasdaq
Rule 5735 (‘‘Rule 5735’’). The common
shares of beneficial interest of the Fund
are 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.
1 15
2 17
E:\FR\FM\02MYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
02MYN1
]]>Agencies
[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26281-26285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10153]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77714; File No. SR-NASDAQ-2016-028]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, Relating to the Listing and Trading of the Shares of the
iSectors Post-MPT Growth ETF of ETFis Series Trust I
April 26, 2016.
I. Introduction
On February 23, 2016, The NASDAQ Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''
[[Page 26282]]
or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to list and trade shares (``Shares'') of the iSectors Post-MPT
Growth ETF (``Fund''), a series of ETFis Series Trust I (``Trust''),
under Nasdaq Rule 5735. The proposed rule change was published for
comment in the Federal Register on March 11, 2016.\3\ On April 14,
2016, (a) the Exchange filed Amendment No. 1 to the proposed rule
change,\4\ and (b) pursuant to Section 19(b)(2) of the Act,\5\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\6\ The Commission received no comments on the proposed rule
change. This order grants approval of the proposed rule change, as
modified by Amendment No. 1 thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 77301 (Mar. 7,
2016), 81 FR 978 (``Notice'').
\4\ In Amendment No. 1, the Exchange clarified that: (a) all
statements and representations made in the proposal regarding the
description of the portfolio, limitations on portfolio holdings or
reference assets, or the applicability of Exchange rules and
surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange; (b) the issuer
will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements; (c) pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements; (d) if the Fund
is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series; (e) the Fund will not invest in inverse or inverse leveraged
ETPs (as defined herein); and (f) no more than 25% of the Fund's
holdings will be invested in leveraged ETPs. Because Amendment No. 1
to the proposed rule change does not materially alter the substance
of the proposed rule change or raise novel regulatory issues,
Amendment No. 1 is not subject to notice and comment. Amendment No.
1 to the proposed rule change is available at: https://www.sec.gov/comments/sr-nasdaq-2016-028/nasdaq2016028-1.pdf.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 77623 (Apr. 14,
2016), 81 FR 23333 (Apr. 20, 2016).
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II. Exchange's Description of the Proposal
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 on the Exchange. The Fund will be an actively
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust,\7\ which is registered with the Commission as an investment
company and has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission.\8\ The Fund will be a
series of the Trust.
---------------------------------------------------------------------------
\7\ According to the Exchange, the Commission has issued an
order, upon which the Trust may rely, granting certain exemptive
relief under the Investment Company Act of 1940 (``1940 Act''). The
Exchange also states that, in compliance with Nasdaq Rule
5735(b)(5), which applies to Managed Fund Shares based on an
international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that the Fund will comply
with the federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the
securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933. See Notice, supra note 3, 81 FR at 12990.
\8\ See Notice, supra note 3, 81 FR at 12990. See Registration
Statement on Form N-1A for the Trust filed on December 2, 2015 (File
Nos. 333-187668 and 811-22819).
---------------------------------------------------------------------------
Virtus ETF Advisers LLC will be the investment adviser
(``Adviser'') to the Fund. iSectors, LLC will be the investment sub-
adviser (``Sub-Adviser'') to the Fund. ETF Distributors LLC will be the
principal underwriter and distributor of the Fund's Shares. The Bank of
New York Mellon will act as the administrator, accounting agent,
custodian, and transfer agent to the Fund. The Exchange states that,
while the Adviser and Sub-Adviser are not registered as broker-
dealers,\9\ the Adviser (but not the Sub-Adviser) is affiliated with a
broker-dealer. The Exchange represents that the Adviser has implemented
a fire wall with respect to that broker-dealer regarding access to
information concerning the composition of, and changes to, the
portfolio, and 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
portfolio.\10\
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\9\ See Notice, supra note 3, 81 FR at 12990-12991.
\10\ The Exchange further represents that, in the event (a) the
Adviser or the Sub-Adviser registers as a broker dealer 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 or broker-dealer affiliate, as applicable,
regarding access to information concerning the composition of, and
changes to, the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material, non-
public information regarding the portfolio. Id.
---------------------------------------------------------------------------
The Exchange has made the following representations and statements
in describing the Fund and its investment strategy, including the
Fund's portfolio holdings and investment restrictions.\11\
---------------------------------------------------------------------------
\11\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice and Registration Statement, supra notes 3 and
8, respectively.
---------------------------------------------------------------------------
A. Exchange's Description of the Fund's Principal Investments
The Fund's investment objective will be to provide growth of
capital, with a secondary emphasis on capital preservation, independent
of individual market conditions. The Fund will seek to achieve its
investment objective by utilizing a long-only, tactically-managed
exposure to sectors of the U.S. equity market and U.S. fixed income
markets. To obtain this exposure, the Sub-Adviser will invest, under
normal market conditions,\12\ the Fund's assets in: (1) ETFs,\13\
exchange-traded notes (``ETNs''),\14\ and exchange-traded trusts that
hold commodities (``ETTs'') (ETFs, ETNs, and ETTs, collectively,
``ETPs''); \15\ (2) individually selected U.S. exchange-traded common
stocks (when the Sub-Adviser determines that investing in them would be
more efficient or otherwise advantageous to do so); (3) money market
funds; (4) U.S. treasuries; \16\ or (5) money market
[[Page 26283]]
instruments. To the extent that the Fund invests in ETPs or money
market funds to gain domestic exposure, the Fund is considered, in
part, a ``fund of funds.'' \17\
---------------------------------------------------------------------------
\12\ 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 equity and 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. See Notice,
supra note 3, 81 FR at 12991.
\13\ According to the Exchange, ETFs included in the Fund will
be listed and traded in the U.S. on registered exchanges. 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. The ETFs in which the
Fund may invest include Index Fund Shares (as described in Nasdaq
Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule
5735). The shares of ETFs in which a Fund may invest will be limited
to securities that trade in markets that are members of the
Intermarket Surveillance Group (``ISG''), which includes all U.S.
national securities exchanges, or are parties to a comprehensive
surveillance sharing agreement with the Exchange. See infra note 15.
\14\ The ETNs are limited to those described in Nasdaq Rule
5710.
\15\ The Fund may invest in the following ETPs: Trust
Certificates, Commodity-Based Trust Shares, Currency Trust Shares,
Commodity Index Trust Shares, Commodity Futures Trust Shares,
Partnership Units, Trust Units, and Managed Trust Securities (each
as described in Nasdaq Rule 5711); Paired Class Shares (as described
in Nasdaq Rule 5713); Trust Issued Receipts (as described in Nasdaq
Rule 5720); and Exchange-Traded Managed Fund Shares (as described in
Nasdaq Rule 5745). See Notice, supra note 3, at 12991. The Fund may
invest in leveraged ETPs (e.g., 2X or 3X), but will not invest in
inverse or inverse leveraged ETPs (e.g., -1X or -2X). In addition,
no more than 25% of the Fund's holdings will be invested in
leveraged ETPs. See Amendment No. 1, supra note 4.
\16\ These securities will include securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S.
government, or by various instrumentalities, which have been
established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the ``full faith and credit'' of the U.S.
government. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed
by the full faith and credit of the U.S. government. See Notice,
supra note 3, 81 FR at 12991.
\17\ See id.
---------------------------------------------------------------------------
B. Exchange's Description of Other Investments for the Fund
In order to seek its investment objective, the Fund will not employ
other strategies outside of the above-described ``Principal
Investments.'' \18\
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
C. Exchange's Description of the Fund's Investment Restrictions
According to the Exchange, under normal market conditions, the Fund
anticipates investing its total assets in shares of ETPs, individually
selected U.S. exchange-traded common stocks, money market funds, U.S.
treasuries, or money market instruments.\19\ The Fund will not purchase
securities of open-end investment companies except in compliance with
the 1940 Act. The Fund will not use derivative instruments, including
options, swaps, forwards, and futures contracts.
---------------------------------------------------------------------------
\19\ According to the Exchange, 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 these 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.
---------------------------------------------------------------------------
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities and other illiquid assets (calculated at
the time of investment). The Fund will monitor its portfolio liquidity
on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity if, through a change in values, net assets, or other
circumstances, more than 15% of the Fund's net assets are held in
illiquid securities or other illiquid assets. Illiquid securities and
other 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 Exchange states that the Fund intends to qualify for and to
elect to be treated as a separate regulated investment company under
Subchapter M of the Internal Revenue Code. In addition, under the 1940
Act, the Fund's investment in investment companies will be limited to,
subject to certain exceptions: (i) 3% Of the total outstanding voting
stock of any one investment company; (ii) 5% of the Fund's total assets
with respect to any one investment company; and (iii) 10% of the Fund's
total assets with respect to investment companies in the aggregate.\20\
---------------------------------------------------------------------------
\20\ See Notice, supra note 3, 81 FR at 12991.
---------------------------------------------------------------------------
The Fund's investments will be consistent with its investment
objective. The Fund does not presently intend to engage in any form of
borrowing for investment purposes, and it will not be operated as a
``leveraged ETF,'' i.e., it will not be operated in a manner designed
to seek a multiple of the performance of an underlying reference
index.\21\
---------------------------------------------------------------------------
\21\ Id. at 12991-12992.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal is consistent with the Exchange Act and the rules and
regulations thereunder applicable to a national securities
exchange.\22\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Exchange Act,\23\ which requires, among other
things, that the Exchange's rules be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Exchange Act,\24\ which sets forth the
finding of Congress that it is in the public interest and appropriate
for the protection of investors and the maintenance of fair and orderly
markets to assure the availability to brokers, dealers, and investors
of information with respect to quotations for, and transactions in,
securities. Quotation and last-sale information for the Shares and any
underlying ETPs 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 plans for the
Shares.\25\ On each business day, before commencement of trading in
Shares in the Regular Market Session \26\ on the Exchange, the Fund
will disclose on its Web site the identities and quantities of the
portfolio of securities and other assets (``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.\27\ In addition, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service \28\ 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.\29\ The Fund's NAV will be
determined as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. E.T.) on each day that the New York Stock
Exchange is
[[Page 26284]]
open.\30\ The Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information.\31\ Information regarding market
price and volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services. The previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.\32\ Price information regarding the
ETPs, equity securities, U.S. treasuries, money market instruments, and
money market funds held by the Fund will be available through the U.S.
exchanges trading these assets, in the case of exchange-traded
securities, as well as automated quotation systems, or published or
other public sources. Intra-day price information for all assets held
by the Fund will also be available through subscription services, such
as Bloomberg, Markit, and Thomson Reuters, which can be accessed by
authorized participants and other investors.
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\24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\25\ See Notice, supra note 3, 81 FR at 12993.
\26\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to
9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00
p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4:00 p.m.
or 4:15 p.m. to 8:00 p.m. E.T.).
\27\ 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'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on that business day. 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. See Notice, supra note 3, 81 FR at
12993. The daily disclosure will include for each portfolio security
and other asset of the Fund the following information on the Fund's
Web site (if applicable): Ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type
of holding); the identity of the security, commodity, index, or
other asset or instrument underlying the holding, if any; maturity
date, if any; coupon rate, if any; effective date, if any; market
value of the holding; and the percentage weighting of the holdings
in the Fund's portfolio. The Web site information will be publicly
available at no charge. See id.
\28\ Currently, the Nasdaq Global Index Data Service (``GIDS'')
is the Nasdaq global index data feed service, offering real-time
updates, daily summary messages, and access to widely followed
indexes and Intraday Indicative Values for ETFs. The Exchange
represents that 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. See id.
\29\ See id.
\30\ According to the Exchange, the Fund's investments will be
valued at market value (i.e., the price at which a security is
trading and could presumably be purchased or sold) or, in the
absence of market value with respect to any investment, at fair
value in accordance with valuation procedures adopted by the Trust's
Board (``Board'') and in accordance with the 1940 Act. Common stocks
and equity securities (including shares of ETPs) will be valued at
the last sales price on that exchange. Portfolio securities traded
on more than one securities exchange will be valued at the last sale
price or, if so disseminated by an exchange, the official closing
price, as applicable, at the close of the exchange representing the
principal exchange or market for these securities on the business
day as of which the value is being determined. U.S. treasuries are
valued using quoted market prices, and money market funds are valued
at the net asset value reported by the funds. Money market
instruments will typically be valued using information provided by a
third-party pricing service. For all security types in which the
Fund may invest, the Fund's primary pricing source is Interactive
Data Corp.; its secondary source is Reuters; and its tertiary source
is Bloomberg. Certain securities may not be able to be priced by
pre-established pricing methods. These securities may be valued by
the Board or its delegate at fair value. The use of fair value
pricing by the Fund will be governed by valuation procedures adopted
by the Board and in accordance with the provisions of the 1940 Act.
All valuations will be subject to review by the Board or its
delegate. See id. at 12992.
\31\ See id. at 12993.
\32\ See id.
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The Commission also believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange states that it 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.\33\ 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). In addition, trading may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable.\34\ Trading in the Shares also
will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth
additional circumstances under which Shares of the Fund may be
halted.\35\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees.\36\ In addition, the Exchange states that, while the Adviser
and Sub-Adviser are not registered as broker-dealers, the Adviser (but
not the Sub-Adviser) is affiliated with a broker-dealer and has
implemented a fire wall with respect to that broker-dealer regarding
access to information concerning the composition of, and changes to,
the portfolio.\37\ Further, the Commission notes that the Reporting
Authority \38\ that provides the Disclosed Portfolio must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material, non-public information regarding the actual
components of the portfolio.\39\ The Exchange represents that trading
in the Shares will be subject to the existing trading surveillances,
administered by both Nasdaq and the Financial Industry Regulatory
Authority (``FINRA''), on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\40\
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\33\ See id. at 12994.
\34\ The Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares
of the Fund. These may include: (1) The extent to which trading is
not occurring in the securities and 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. See id.
\35\ See id.
\36\ See id.
\37\ See id. at 12990; see also supra note 10 and accompanying
text. The Exchange further represents that an investment adviser to
an open-end fund is required to be registered under the Investment
Advisers Act of 1940 (``Advisers Act''). As a result, the Adviser,
the Sub-Adviser, and their 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. See Notice, supra note 3, 81 FR at 12990-
12991.
\38\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
\39\ See Nasdaq Rule 5735(d)(2)(B)(ii).
\40\ According to the Exchange, FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement, and the
Exchange is responsible for FINRA's performance under this
regulatory services agreement. See Notice, supra note 3, 81 FR at
12994.
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Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. In support of this proposal, the Exchange
has represented that:
(1) The Shares will be subject to Nasdaq Rule 5735, which sets
forth the initial and continued listing criteria applicable to Managed
Fund Shares.
(2) Nasdaq's surveillance procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
detect and help deter violations of Exchange rules and applicable
federal securities laws.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and other exchange-traded securities
and instruments, including the common stock and shares held by the Fund
with other markets and other entities that are members of the ISG,\41\
and FINRA may obtain trading information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from those 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,\42\ or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed-income securities held by
the Fund
[[Page 26285]]
reported to FINRA's Trade Reporting and Compliance Engine.
---------------------------------------------------------------------------
\41\ For a list of the current members of ISG, see
www.isgportal.org.
\42\ Id.
---------------------------------------------------------------------------
(4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(5) Prior to commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (a) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how information regarding
the Intraday Indicative Value and Disclosed Portfolio is disseminated;
(d) 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; (e) the requirement that
members deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading information.
(6) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\43\
---------------------------------------------------------------------------
\43\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
(7) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets.
(8) The Fund may invest in leveraged ETPs (e.g., 2X or 3X), but
will not invest in inverse or inverse leveraged ETPs (e.g., -1X or -
2X). In addition, no more than 25% of the Fund's holdings will be
invested in leveraged ETPs.
(9) The Fund will not use derivative instruments, including
options, swaps, forwards, and futures contracts.
(10) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the exchange.
The Exchange represents that all statements and representations
made in the filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures shall
constitute continued listing requirements for listing the Shares on the
Exchange. In addition, the issuer has represented to the Exchange that
it will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements, and, pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements.\44\ If the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series.
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\44\ The Commission notes that certain other proposals for the
listing and trading of Managed Fund Shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (SR-BATS-2016-04)
(approving a proposed rule change to list and trade shares of the
SPDR DoubleLine Short Duration Total Return Tactical ETF), available
at: https://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the
context of this representation, it is the Commission's view that
``monitor'' and ``surveil'' both mean ongoing oversight of the
Fund's compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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This approval order is based on all of the Exchange's
representations, including those set forth above, in the Notice, and in
Amendment No. 1 to the proposed rule change. The Commission notes that
the Fund and the Shares must comply with the requirements of Nasdaq
Rule 5735, including those set forth in this proposed rule change, as
modified by Amendment No. 1 thereto, to be listed and traded on the
Exchange on an initial and continuing basis.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Act \45\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\45\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\46\ that the proposed rule change (SR-NASDAQ-2016-028),
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\46\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(12).
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10153 Filed 4-29-16; 8:45 am]
BILLING CODE 8011-01-P
