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 High Yield Long/Short ETF of First Trust Exchange-Traded Fund IV, 2295-2302 [2013-00304]

Download as PDF Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 2295 NUCLEAR REGULATORY COMMISSION NUCLEAR REGULATORY COMMISSION SECURITIES AND EXCHANGE COMMISSION [Docket Nos. 50–445 and 50–446; NRC– 2012–0310] [Docket No. 55–23694–SP; ASLBP No. 13– 925–01–SP–BD01] [Release No. 34–68581; File No. SR– NASDAQ–2012–147] Consideration of Approval of Application Containing Sensitive Unclassified Non-Safeguards Information Regarding Proposed Energy Future Holdings Corporation Internal Restructuring Charlissa C. Smith; Establishment of Atomic Safety and Licensing Board 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 High Yield Long/Short ETF of First Trust Exchange-Traded Fund IV Pursuant to delegation by the Commission, see 37 FR 28,710 (Dec. 29, 1972), and the Commission’s regulations, see 10 CFR §§ 2.103(b), 2.300, 2.309, 2.313(a), 2.318, and 2.321, notice is hereby given that an Atomic Safety and Licensing Board (Board) is being established to preside over the following proceeding: Nuclear Regulatory Commission. AGENCY: Request for indirect license transfer; opportunity for hearing, to petition for leave to intervene, and to comment; order; correction. ACTION: Charlissa C. Smith, (Denial of Senior Reactor Operator License). This document corrects a notice appearing in the Federal Register on January 2, 2013 (78 FR 119). This action is necessary to correct an incorrect Docket ID. SUMMARY: FOR FURTHER INFORMATION CONTACT: Cindy Bladey, Chief, Rules, Announcements, and Directives Branch, Office of Administration, Nuclear Regulatory Commission, Washington, DC 20555–0001, telephone: 301–492– 3667; email: Cindy.Bladey@nrc.gov. On page 119 of Federal Register document 2012– 31527, published January 2, 2013 (78 FR 119–123), the heading is corrected to read ‘‘NRC–2012–0310.’’ Also on the same page, second column, in the first paragraph under the ADDRESSES section and in the first bullet under the ADDRESSES section, ‘‘NRC–2012–0301’’ is corrected to read ‘‘NRC–2012–0310.’’ Also on the same page, third column, in the first paragraph under the ‘‘Accessing Information’’ section and in the first bullet under the ‘‘Accessing Information’’ section, ‘‘NRC–2012– 0301’’ is corrected to read ‘‘NRC–2012– 0310.’’ On the same page, third column, in the first paragraph under the ‘‘Submitting Comments’’ section, ‘‘NRC–2012–0301’’ is corrected to read ‘‘NRC–2012–0310.’’ wreier-aviles on DSK5TPTVN1PROD with SUPPLEMENTARY INFORMATION: Dated at Rockville, Maryland, this 4th day of January 2013. For the Nuclear Regulatory Commission. Helen Chang, Acting Chief, Rules, Announcements, and Directives Branch, Division of Administrative Services, Office of Administration. This proceeding concerns a hearing request from Charlissa C. Smith, dated December 5, 2012, challenging a denial letter from the Office of Nuclear Reactor Regulation, Nuclear Regulatory Commission (NRC) dated November 15, 2012 notifying her that, following an administrative review, the NRC is in agreement with Region II’s decision of May 11, 2012 not to issue her a Senior Reactor Operator License for the Vogtle Power Station. The Board is comprised of the following administrative judges: Alan S. Rosenthal, Chair, Atomic Safety and Licensing Board Panel, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001. Ronald M. Spritzer, Atomic Safety and Licensing Board Panel, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001. Brian K. Hajek, Atomic Safety and Licensing Board Panel, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001. As provided in 10 CFR 2.302, all correspondence, documents, and other materials shall be filed in accordance with the NRC E-Filing rule, which the NRC promulgated in August 2007 (72 FR 49,139). Issued at Rockville, Maryland, this 4th day of January 2013. E. Roy Hawkens, Chief Administrative Judge, Atomic Safety and Licensing Board Panel. [FR Doc. 2013–00328 Filed 1–9–13; 8:45 am] BILLING CODE 7590–01–P January 4, 2013. 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 December 21, 2012, 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, II and III 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 shares of the First Trust High Yield Long/Short ETF (the ‘‘Fund’’) of First Trust Exchange-Traded Fund IV (the ‘‘Trust’’) under Nasdaq Rule 5735 (‘‘Managed Fund Shares’’). The shares of the Fund are collectively referred to herein as the ‘‘Shares.’’ The text of the proposed rule change is available at http:// 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. [FR Doc. 2013–00326 Filed 1–9–13; 8:45 am] BILLING CODE 7590–01–P 1 15 2 17 VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 PO 00000 Frm 00045 Fmt 4703 Sfmt 4703 E:\FR\FM\10JAN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 10JAN1 2296 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 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 on the Exchange.3 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. The Fund is registered with the Commission as an investment company and has filed a registration statement on Form N–1A (‘‘Registration Statement’’) with the Commission.4 Description of the Shares and the Fund First Trust Advisors L.P. is the investment adviser (‘‘Adviser’’) to the Fund. First Trust Portfolios L.P. (the ‘‘Distributor’’) is 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.5 wreier-aviles on DSK5TPTVN1PROD with 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). The Fund would not be the first actively-managed fund listed on the Exchange; see Securities Exchange Act Release No. 66175 (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). Additionally, the Commission has previously approved the listing and trading of a number of actively managed WisdomTree funds on NYSE Arca, Inc. pursuant to Rule 8.600 of that exchange. See, e.g., Securities Exchange Act Release Nos. 64643 (June 10, 2011), 76 FR 35062 (June 15, 2011) (SR–NYSEArca–2011– 21) (order approving listing and trading of WisdomTree Global Real Return Fund); 65458 (September 30, 2011), 76 FR 62112 (October 6, 2011) (SR–NYSE–Arca–2011–54) (order approving listing and trading of WisdomTree Dreyfus Australia and New Zealand Debt Fund); 66342 (February 7, 2012), 77 FR 7623 (February 13, 2012) (SR–NYSEArca–2011–82) (order approving listing and trading of WisdomTree Emerging Markets Inflation Protection Bond Fund); and 67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR– NYSEArca–2012–25) (order approving listing and trading of WisdomTree Brazil Bond Fund). The Exchange believes the proposed rule change raises no significant issues not previously addressed in those prior Commission orders. 4 See Post-Effective Amendment No. 6 to Registration Statement on Form N–1A for the Trust, dated October 11, 2012 (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. 5 The Commission has issued an order granting certain exemptive relief to the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a– 1) (‘‘1940 Act’’). See Investment Company Act Release No. 30029 (April 10, 2012) (File No. 812– VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 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.6 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 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 13795). In compliance with Nasdaq Rule 5735(b)(5), which applies to Managed Fund Shares based on a fixed income portfolio (including without limitation exchange-traded notes and senior loans) or a portfolio invested in a combination of equity securities and fixed income securities, 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 (15 U.S.C. 77a). 6 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. PO 00000 Frm 00046 Fmt 4703 Sfmt 4703 concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser becomes affiliated with a broker-dealer, it will implement a fire wall with respect to such broker-dealer 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 subadvisor. First Trust High Yield Long/Short ETF According to the Registration Statement, the Fund’s primary investment objective is to provide current income. The Fund has a secondary objective of capital appreciation. The Fund will pursue its objective by seeking to invest in a broadly diversified portfolio comprised principally of high yield debt securities. The Adviser will combine a fundamental credit selection process with top down relative value analysis when selecting investment opportunities. The Adviser believes that an evolving investment environment offers varying degrees of investment risk opportunities in the high yield, bank loan, and fixed income instrument markets. In order to capitalize on investments and effectively manage potential risk, the Adviser believes that the combination of thorough and continuous credit risk analysis, market evaluation, diversification and the ability to reallocate investments is critical to achieving higher risk-adjusted returns. Investments According to the Registration Statement, the Fund, under normal market conditions,7 will invest at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in high yield debt securities that are rated below investment grade at the time of purchase or unrated securities deemed by the Fund’s Adviser to be of comparable quality, commonly referred to as ‘‘junk’’ bonds. Such securities may include U.S. and 7 The term ‘‘under normal 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. E:\FR\FM\10JAN1.SGM 10JAN1 wreier-aviles on DSK5TPTVN1PROD with Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices non-U.S. corporate debt obligations, bank loans and convertible bonds. For purposes of determining whether a security is below investment-grade, the lowest available rating will be considered. At least 75% of the Fund’s net assets invested in high yield debt securities will be invested in issuers that have a minimum principal amount outstanding of $100 million or more with respect to U.S. corporate issuers and $200 million or more with respect to non-U.S. corporate issuers, and the portfolio, once fully invested, will include a minimum of 13 non-affiliated issuers.8 High yield debt may be issued by companies without long track records of sales and earnings, or by issuers that have questionable credit strength. High yield debt and comparable unrated debt securities: (a) Will likely have some quality and protective characteristics that, in the judgment of the rating agency evaluating the instrument, are outweighed by large uncertainties or major risk exposures to adverse conditions; and (b) are predominantly speculative with respect to the issuer’s capacity to pay dividends or interest and repay principal in accordance with the terms of the obligation. Many belowinvestment grade debt securities are subject to legal or contractual restrictions limiting the Fund’s ability to resell the securities to the general public. According to the Registration Statement, the Fund may invest in corporate debt securities issued by U.S. and non-U.S. companies of all kinds, including those with small, mid and large capitalizations. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their maturities and secured or unsecured status. Corporate debt may carry fixed or floating rates of interest. The Fund may invest up to 15% of its net assets in bank loans, which may also include loan interests that are not secured by any specific collateral of the borrower, loan interests that have a lower than first lien priority on collateral of the borrower, loans to foreign borrowers, loans in foreign currencies and other loans with characteristics that the Adviser believes qualify as bank loans. The Fund may invest in such loans by purchasing assignments or all or a portion of loans or loan participations from third parties. These loans are made by or issued to 8 If a downgrade occurs, the Adviser will consider what action, including the sale of such security, is in the best interest of the Fund and its shareholders. VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 corporations primarily to finance acquisitions, refinance existing debt, support organic growth, or pay out dividends, and are typically originated by large banks and are then syndicated out to institutional investors as well as to other banks. Bank loans typically bear interest at a floating rate although some loans pay a fixed rate. Due to their subordination in the borrower’s capital structure, unsecured and/or subordinated loans involve a higher degree of overall risk than senior bank loans of the same borrower. Unfunded contracts are commitments by lenders (such as the funds) to loan an amount in the future or that is due to be contractually funded in the future. The Fund will invest 85% or more of the portfolio in securities that the Adviser deems to be sufficiently liquid at the time of investment. The Fund may invest in non-income producing securities including defaulted securities and common stocks; 9 companies whose financial condition is troubled or uncertain and that may be involved in bankruptcy proceedings, reorganizations or financial restructurings. The Fund may also invest in investment grade 10 debt securities. The Fund does not have any portfolio maturity limitation and may invest its assets in securities with shortterm, medium-term or long-term maturities. The Fund will not invest more than 15% of the portfolio in such distressed securities, as determined at the time of the investment. Non-U.S. debt securities in which the Fund may invest include debt securities issued or guaranteed by companies organized under the laws of countries other than the United States (including emerging markets), debt securities issued or guaranteed by foreign, national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities and debt obligations of supranational governmental entities such as the World Bank or European Union. These debt securities may be U.S. dollar9 The equity securities in which the Fund may invest (including any that have converted from convertible debt) 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 and certain foreign exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. 10 According to the Adviser, ‘‘investment grade’’ means securities rated in the Baa/BBB categories or above by one or more nationally recognized securities rating organizations (‘‘NRSROs’’). 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. Rating categories may include subcategories or gradations indicating relative standing. PO 00000 Frm 00047 Fmt 4703 Sfmt 4703 2297 denominated or non-U.S. dollardenominated. Non-U.S. debt securities also include U.S. dollar-denominated debt obligations, such as ‘‘Yankee Dollar’’ obligations, of foreign issuers and of supra-national government entities. Yankee Dollar obligations are U.S. dollar-denominated obligations issued in the U.S. capital markets by foreign corporations, banks and governments. Foreign debt securities also may be traded on foreign securities exchanges or in over-the-counter capital markets. Under normal market conditions, up to 10% of the net assets of the Fund’s investment in foreign securities may be denominated in currencies other than the U.S. dollar. To the extent the Fund invests in such instruments, the value of the assets of the Fund as measured in U.S. dollars will be affected by changes in exchange rates. The Fund may invest in preferred securities and convertible securities. Preferred securities, which generally pay fixed or adjustable-rate dividends or interest to investors and have preference over common stock in the payment of dividends or interest and the liquidation of a company’s assets, which means that a company typically must pay dividends or interest on its preferred securities before paying any dividends on its common stock. Preferred securities are generally junior to all forms of the company’s debt, including both senior and subordinated debt. As part of its investment strategy, the Fund intends to maintain both long and short positions in securities under normal market conditions. The Fund will take long positions in securities that the Adviser believes in the aggregate to have the potential to outperform the Fund’s benchmark, the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index (the ‘‘Index’’). The Fund’s long positions may total up to 130% of the Fund’s Managed Assets. ‘‘Managed Assets’’ means the average daily gross asset value of the Fund (which includes the principal amount of any borrowings), minus the sum of the Fund’s liabilities. The Fund will take short positions in securities that the Adviser believes in the aggregate will underperform the Index. These securities may consist of securities included in the Index or other securities, including U.S. Treasury securities and/or corporate debt obligations that may be rated investment grade or non-investment grade, which the Adviser believes in the aggregate will underperform the Index. The Fund’s short positions may total up to 30% of the Fund’s Managed Assets. A ‘‘short sale’’ is a transaction in which E:\FR\FM\10JAN1.SGM 10JAN1 2298 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with the Fund sells a security that it does not own (and borrows the security to deliver it to the buyer) in anticipation that the market price of the security will decline. The proceeds received from the Fund’s short sales of securities will generally be used to purchase all or a portion of the Fund’s additional long positions in securities. The Fund will use short sales for investment and risk management purposes, including when the Adviser anticipates that the market price of securities will decline or in the aggregate will underperform the Index. Short sales are transactions in which the Fund sells a security or other instrument (such as an option, forward, futures or other derivative contract) that it does not own. Short selling allows the Fund to profit from a decline in market price to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully or partially, to implement its short selling strategy. If a security sold short increases in price, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. The Fund will have substantial short positions and must borrow those securities to make delivery to the buyer. Other Investments The Fund may invest in U.S. government securities. U.S. government securities include U.S. Treasury obligations and securities issued or guaranteed 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. The Fund may invest in U.S. agency mortgage-backed securities and collateralized mortgage securities issued by the Government National Mortgage Association (‘‘GNMA’’), the Federal National Mortgage Association (‘‘FNMA’’), and the Federal Home Loan Mortgage Corporation (‘‘FHLMC’’). Under normal market conditions, the Fund may invest up to 10% of its net assets in short-term debt securities and other cash equivalents, or it may hold cash. The percentage of the Fund invested in such holdings varies and depends on several factors, including market conditions. For temporary VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 defensive purposes and during periods of high cash inflows or outflows, the Fund may depart from its principal investment strategies and invest part or all of its assets in short-term debt securities or cash equivalents or it may hold cash. During such periods, the Fund may not be able to achieve its investment objective. The Fund may adopt a defensive strategy when the portfolio managers believe securities in which the Fund normally invests have elevated risks due to political or economic factors and in other extraordinary circumstances. Short-term debt securities are securities from issuers having a longterm debt rating of at least A by Standard & Poor’s Ratings Group (‘‘S&P Ratings’’), Moody’s Investors Service, Inc. (‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’) and having a maturity of one year or less. The use of temporary investments is not a part of a principal investment strategy of the Fund. Short-term debt securities are defined to include, without limitation, the following: (1) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (2) certificates of deposit issued against funds deposited in a bank or savings and loan association; (3) bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions; (4) repurchase agreements,11 which involve purchases of debt securities; (5) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; and (6) commercial paper, which is short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. The Fund may only invest in commercial paper rated A–2 or higher by S&P Ratings, Prime-2 or higher by Moody’s or F2 or higher by Fitch. The Fund intends to hedge its nonU.S. dollar holdings. Generally, the Fund’s currency exchange transactions will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the 11 According to the Registration Statement, the Fund intends to enter into repurchase agreements only with financial institutions and dealers believed by the Adviser to present minimal credit risks in accordance with criteria approved by the Board. The Adviser will review and monitor the creditworthiness of such institutions. The Adviser monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. PO 00000 Frm 00048 Fmt 4703 Sfmt 4703 currency exchange market. The cost of the Fund’s currency exchange transactions will generally be the difference between the bid and offer spot rate of the currency being purchased or sold. In order to protect against uncertainty in the level of future currency exchange rates, the Fund is authorized to enter into various currency exchange transactions. The Fund may invest up to 10% of its net assets in securities of other openend or closed-end investment companies, including ETFs 12 that invest primarily in securities of the types in which the Fund may invest directly. In addition, the Fund may invest a portion of its assets in pooled investment vehicles (other than investment companies) that invest primarily in securities of the types in which the Fund may invest directly. According to the Registration Statement, the Fund may invest in other investment companies to the extent permitted by the 1940 Act. The Fund may receive equity, warrants, corporate bonds and other such securities as a result of the restructuring of the debt of an issuer, or a reorganization of a bank loan or bond, or as part of a package of securities acquired together with a high yield bond or senior loan(s) of an issuer. Such investments will be subject to the Fund’s investment objectives and strategies as described above. 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. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including variable rate master demand notes and 144A securities from issues with less than $100 million original principal amount outstanding. The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of 12 As described in the Registration Statement, an ETF is an investment company registered under the 1940 Act that holds a portfolio of securities generally designed to track the performance of a securities index, including industry, sector, country and region indexes. Such ETFs all 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 such ETFs and their sponsors from the Commission. The ETFs in which the Fund may invest include Index Fund Shares and Portfolio Depositary Receipts (as described in NASDAQ Rule 5705); Managed Fund Shares (as described in Nasdaq Rule 5735), and closed-end funds. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X or 3X) ETFs. E:\FR\FM\10JAN1.SGM 10JAN1 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance. The Fund may not invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries. This restriction does not apply to obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or securities of other investment companies.13 The Fund may not, as to 75% of its total assets, (a) invest more than 5% of the value of its total assets in the securities of any one issuer or (b) hold more than 10% of the outstanding voting securities of that issuer (other than securities of other investment companies and obligations issued or guaranteed by the U.S. government or any agency or instrumentality thereof).14 Consistent with the exemptive order referenced in footnote 5, the Fund will not invest in options contracts, futures contracts or swap agreements. The Fund’s investments will be consistent with the investment objective and strategies described in the Registration Statement. The Fund will not invest to enhance leverage. The Shares The Fund will issue and redeem Shares on a continuous basis at net asset value (‘‘NAV’’) 15 only in large blocks of Shares (‘‘Creation Units’’) in transactions with Authorized Participants. Creation Units generally will consist of 50,000 Shares, though this may change from time to time. Creation Units are not expected to consist of less than 50,000 Shares. The wreier-aviles on DSK5TPTVN1PROD with 13 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). 14 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 15 The NAV of the Fund’s Shares generally is 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 is 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 Registration Statement. VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 Fund will issue and redeem Creation Units in exchange for a portfolio of high yield debt securities and other instruments closely approximating the holdings of the Fund or a designated basket of non-U.S. currency and/or an amount of U.S. cash. Once created, Shares of the Fund trade on the secondary market in amounts less than a Creation Unit. Creations and redemptions must be made by an Authorized Participant or through a firm that is either a member of the National Securities Clearing Corporation or a Depository Trust Company participant, and in each case, must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Unit aggregations. Additional information regarding the Shares and the Fund, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions and taxes is included in the Registration Statement. 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 additional quantitative information updated on a daily basis, including, for the Fund: (1) The prior business day’s reported NAV, mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’),16 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 17 on the Exchange, the Trust will disclose on its Web site the identities and quantities of the portfolio of securities and other assets (the ‘‘Disclosed Portfolio’’) held by the Fund that will form the basis for 16 The Bid/Ask Price of the Fund will be determined using the midpoint of the highest bid and the lowest offer on the Exchange as of the time of calculation of such Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. 17 See Nasdaq Rule 4120(b)(4) (describing the three trading sessions on the Exchange: (1) PreMarket Session from 7 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) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m. Eastern time). PO 00000 Frm 00049 Fmt 4703 Sfmt 4703 2299 the Fund’s calculation of NAV at the end of the business day.18 The Disclosed Portfolio will include, as applicable, the names, quantity, percentage weighting and market value of fixed income securities, and other assets held by the Fund and the characteristics of such assets. The Web site and information will be publicly available at no charge. In addition, for the Fund, an estimated value, defined in Rule 5735 as the ‘‘Intraday Indicative Value,’’ that reflects an estimated intraday value of the Fund’s portfolio, will be disseminated. Moreover, the Intraday Indicative Value, available on the NASDAQ OMX Information LLC proprietary index data service,19 will be based upon the current value for the components of the Disclosed Portfolio and will be updated and widely disseminated and broadly displayed at least every 15 seconds during the Regular Market Session. In addition, during hours when the markets for local debt in the Fund’s portfolio are closed, the Intraday Indicative Value will be updated at least every 15 seconds during the Regular Market Session to reflect currency exchange fluctuations. 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 to provide a close estimate of that value throughout the trading day. Intra-day, executable price quotations of the fixed income securities and other assets held by the Fund are available from major broker-dealer firms or on the exchange on which they are traded, if applicable. Intra-day price information is available through subscription services, such as Bloomberg and Thomson Reuters, which can be accessed by authorized participants and other investors. Information regarding market price and volume of the Shares is and will be continually available on a real-time 18 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 such 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. 19 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. E:\FR\FM\10JAN1.SGM 10JAN1 2300 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 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. Quotation and last sale information for the Shares will be available via UTP Level 1, as well as Nasdaq proprietary quote and trade services. 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 20 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. wreier-aviles on DSK5TPTVN1PROD with 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; for example, the Shares of the Fund will be halted if the ‘‘circuit breaker’’ parameters in Nasdaq Rule 4120(a)(11) are reached. 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 financial instruments comprising 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 governing the trading of equity securities. Nasdaq will allow trading in the Shares from 7:00 a.m. until 8:00 p.m. Eastern time. The Exchange has 20 See 17 CFR 240.10A–3. VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 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 Nasdaq believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on Nasdaq during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through Nasdaq will be subject to FINRA’s surveillance procedures for derivative products, including Managed Fund Shares.21 The Exchange may obtain information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges who are members or affiliates of the ISG.22 The Exchange prohibits 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 2310, 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. In addition, the Information Circular will advise members, prior to the commencement of trading, of the prospectus delivery requirements 21 FINRA surveils trading on Nasdaq pursuant to a regulatory services agreement. Nasdaq is responsible for FINRA’s performance under this regulatory services agreement. 22 For a list of the current members and affiliate members of ISG, see www.isgportal.com. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 applicable to the Fund. Members purchasing Shares from the Fund for resale to investors will deliver a prospectus to such investors. 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 23 in general and Section 6(b)(5) of the Act 24 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 a national market system. 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 believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on Nasdaq during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. The Adviser is affiliated with a broker-dealer and has implemented a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund’s portfolio. 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 Exchange 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 23 15 24 15 E:\FR\FM\10JAN1.SGM U.S.C. 78f. U.S.C. 78f(b)(5). 10JAN1 wreier-aviles on DSK5TPTVN1PROD with Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices agreement. Under normal circumstances, the Fund will invest at least 80% of its assets in high yield debt securities. The Fund’s exposure to any single issuer generally will be limited to 5% of the Fund’s assets. The Fund’s exposure to any single country (other than the United States) generally will be limited to 20% of the Fund’s assets. The Fund does not current intend to invest in emerging market countries. The Fund’s long positions may total up to 130% of the Fund’s Managed Assets. The Fund will take short positions in securities that the Adviser believes in the aggregate will underperform the Index. These securities may consist of securities included in the Index or other securities, including U.S. Treasury securities, which the Adviser believes in the aggregate will underperform the Index. The Fund’s short positions may total up to 30% of the Fund’s Managed Assets. 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 is publicly available regarding the Fund and the Shares, thereby promoting market transparency. The Fund’s portfolio holdings will be disclosed on its Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. Moreover, the Intraday Indicative Value, available on the NASDAQ OMX Information LLC proprietary index data service will be widely disseminated 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 is and 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 UTP Level 1, as well as Nasdaq proprietary quote and trade services. Intra-day, executable price quotations on high yield debt securities, as well as VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 derivative instruments are available from major broker-dealer firms. Intraday price information is available through subscription services, such as Bloomberg and Thomson Reuters, which can be accessed by authorized participants and other investors. 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. Trading in Shares of the Fund will be halted if the circuit breaker parameters in Nasdaq Rule 4120(a)(11) have been reached 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 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. B. Self-Regulatory Organization’s Statement on Burden on Competition Nasdaq 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. PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 2301 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 (i) as the Commission may designate up to 90 days of such date 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2012–147 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2012–147. 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 (http://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 E:\FR\FM\10JAN1.SGM 10JAN1 2302 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Section, 100 F Street NE., Washington, DC 20549, on official business days between 10:00 a.m. and 3:00 p.m. Copies of the 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–2012–147 and should be submitted on or before January 31, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00304 Filed 1–9–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68583; File No. SR–C2– 2012–038] Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Order Approving a Proposed Rule Change To Address the Authority To Cancel Orders When a Technical or Systems Issue Occurs and To Describe the Operation of Routing Service Error Accounts January 4, 2013. wreier-aviles on DSK5TPTVN1PROD with I. Introduction On November 8, 2012, the C2 Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘C2’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to (i) address the authority of the Exchange to cancel orders (or release routing-related orders) when a technical or systems issue occurs; and (ii) describe the operation of an Exchange error account(s) and routing broker error account(s), which may be used to liquidate unmatched executions that may occur in the provision of the Exchange’s routing service. The proposed rule change was published for comment in the Federal 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 15:22 Jan 09, 2013 Jkt 229001 Register on November 26, 2012.3 The Commission received no comment letters regarding the proposed rule change. This order approves the proposed rule change. II. Description of the Proposal In its proposal, the Exchange states that it operates a system of trading that allows automatic executions to occur electronically.4 As part of this infrastructure, the Exchange states that it automatically routes orders to other exchanges under certain circumstances. These routing services are provided in conjunction with one or more routing brokers that are not affiliated with the Exchange.5 Mechanically, when the Exchange receives an order from a Trading Permit Holder that is held in the Exchange system and determines to route an order to another exchange, the Exchange provides the routing broker with a corresponding order and instructions to route the order to another exchange. The routing broker then sends the corresponding order to the other exchange. In its proposal, C2 states that the Exchange may encounter situations that make it necessary to cancel orders (or release routing-related orders),6 and to resolve error positions that result from errors of the Exchange, routing brokers, or another exchange.7 Proposed Rule 6.47 (Order Cancellation/ Release) New C2 Rule 6.47 provides C2 with general authority to cancel orders as it deems to be necessary to maintain fair and orderly markets if a technical or systems issue occurs at the Exchange, a routing broker in connection with the routing service provided under C2 Rule 6.36, or another exchange to which an Exchange order has been routed. It also provides that a routing broker may only cancel orders being routed to another exchange based on the Exchange’s standing or specific instructions or as otherwise provided in the Exchange Rules. C2 will be required to provide notice of the cancellation to affected 3 Securities Exchange Act Release No. 68260 (November 19, 2012), 77 FR 70496 (November 26, 2012) (SR–C2–2012–038) (‘‘Notice’’). 4 See Notice, 77 FR at 70496. 5 See Notice, 77 FR at 70496–97 n.5, n.9, and accompanying text. 6 See Notice, 77 FR at 70497. For examples of some of the circumstances in which the Exchange may decide to cancel orders, see Notice, 77 FR at 70497–98. 7 See Notice, 77 FR at 70497. Specifically, new C2 Rule 6.37 defines ‘‘error positions’’ as ‘‘unmatched trade positions that may occur in connection with the routing service provided under Rule 6.36’’. For examples of some of the circumstances that may lead to error positions, see Notice, 77 FR at 70499. PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 Trading Permit Holders as soon as practicable.8 Paragraph (b) of the rule provides that the Exchange may also determine to release orders being held on the Exchange awaiting an away exchange execution as it deems to be necessary to maintain fair and orderly markets if a technical or systems issues occurs at the Exchange, a routing broker, or another exchange to which an order has been routed. Paragraph (c) of the rule provides that, for purposes of Rule 6.47, technical or system issues would include, without limitation, instances where the Exchange has not received confirmation of an execution (or cancellation) on another exchange from a routing broker within a response time interval designated by the Exchange, which interval may not be less than three (3) seconds. Proposed Rule 6.37 (Routing Service Error Accounts) New C2 Rule 6.37 provides that each routing broker shall maintain, in the name of the routing broker, one or more accounts for the purpose of liquidating error positions. In addition the Exchange may also maintain, in the name of the Exchange, one or more Exchange error accounts (‘‘Exchange Error Account’’) for the purposes of liquidating error positions, subject to the procedures prescribed in new C2 Rule 6.37. Paragraph (a) of the rule provides that errors to which the rule applies include any action or omission by the Exchange, a routing broker, or another exchange to which an Exchange order has been routed, that result in an unmatched trade position due to the execution of an order that is subject to the away market routing service and for which there is no corresponding order to pair with the execution (each a ‘‘routing error’’); and that such routing errors would include, without limitation, positions resulting from determinations by the Exchange to cancel or release an order pursuant to C2 Rule 6.47. Paragraph (b) of the rule provides that, generally, each routing broker will use its own error account to liquidate error positions. In certain circumstances, however, the Exchange may use an Exchange Error Account. In particular, in instances where the routing broker is unable to use its own error account (e.g., due to a technical, systems or other issue that prevents the routing broker from doing so) 9 or where the error is due to a technical or systems issue at the Exchange, the Exchange 8 See 9 See E:\FR\FM\10JAN1.SGM C2 Rule 6.47(a). Notice, 77 FR at 70498. 10JAN1

Agencies

[Federal Register Volume 78, Number 7 (Thursday, January 10, 2013)]
[Notices]
[Pages 2295-2302]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68581; File No. SR-NASDAQ-2012-147]


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 High Yield Long/Short ETF of 
First Trust Exchange-Traded Fund IV

January 4, 2013.
    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 December 21, 2012, 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, II 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the First Trust 
High Yield Long/Short ETF (the ``Fund'') of First Trust Exchange-Traded 
Fund IV (the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund 
Shares''). The shares of the Fund are collectively referred to herein 
as the ``Shares.''
    The text of the proposed rule change is available at http://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.

[[Page 2296]]

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 on the Exchange.\3\ 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. The Fund is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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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). The Fund would not be the first 
actively-managed fund listed on the Exchange; see Securities 
Exchange Act Release No. 66175 (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). 
Additionally, the Commission has previously approved the listing and 
trading of a number of actively managed WisdomTree funds on NYSE 
Arca, Inc. pursuant to Rule 8.600 of that exchange. See, e.g., 
Securities Exchange Act Release Nos. 64643 (June 10, 2011), 76 FR 
35062 (June 15, 2011) (SR-NYSEArca-2011-21) (order approving listing 
and trading of WisdomTree Global Real Return Fund); 65458 (September 
30, 2011), 76 FR 62112 (October 6, 2011) (SR-NYSE-Arca-2011-54) 
(order approving listing and trading of WisdomTree Dreyfus Australia 
and New Zealand Debt Fund); 66342 (February 7, 2012), 77 FR 7623 
(February 13, 2012) (SR-NYSEArca-2011-82) (order approving listing 
and trading of WisdomTree Emerging Markets Inflation Protection Bond 
Fund); and 67054 (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR-
NYSEArca-2012-25) (order approving listing and trading of WisdomTree 
Brazil Bond Fund). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
    \4\ See Post-Effective Amendment No. 6 to Registration Statement 
on Form N-1A for the Trust, dated October 11, 2012 (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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Description of the Shares and the Fund
    First Trust Advisors L.P. is the investment adviser (``Adviser'') 
to the Fund. First Trust Portfolios L.P. (the ``Distributor'') is 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.\5\
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    \5\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act 
Release No. 30029 (April 10, 2012) (File No. 812-13795). In 
compliance with Nasdaq Rule 5735(b)(5), which applies to Managed 
Fund Shares based on a fixed income portfolio (including without 
limitation exchange-traded notes and senior loans) or a portfolio 
invested in a combination of equity securities and fixed income 
securities, 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 (15 U.S.C. 77a).
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    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.\6\ 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 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 the event (a) the 
Adviser becomes newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to such broker-dealer 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-advisor.
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    \6\ 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 High Yield Long/Short ETF
    According to the Registration Statement, the Fund's primary 
investment objective is to provide current income. The Fund has a 
secondary objective of capital appreciation. The Fund will pursue its 
objective by seeking to invest in a broadly diversified portfolio 
comprised principally of high yield debt securities.
    The Adviser will combine a fundamental credit selection process 
with top down relative value analysis when selecting investment 
opportunities. The Adviser believes that an evolving investment 
environment offers varying degrees of investment risk opportunities in 
the high yield, bank loan, and fixed income instrument markets. In 
order to capitalize on investments and effectively manage potential 
risk, the Adviser believes that the combination of thorough and 
continuous credit risk analysis, market evaluation, diversification and 
the ability to reallocate investments is critical to achieving higher 
risk-adjusted returns.
Investments
    According to the Registration Statement, the Fund, under normal 
market conditions,\7\ will invest at least 80% of its net assets (plus 
the amount of any borrowing for investment purposes) in high yield debt 
securities that are rated below investment grade at the time of 
purchase or unrated securities deemed by the Fund's Adviser to be of 
comparable quality, commonly referred to as ``junk'' bonds. Such 
securities may include U.S. and

[[Page 2297]]

non-U.S. corporate debt obligations, bank loans and convertible bonds. 
For purposes of determining whether a security is below investment-
grade, the lowest available rating will be considered. At least 75% of 
the Fund's net assets invested in high yield debt securities will be 
invested in issuers that have a minimum principal amount outstanding of 
$100 million or more with respect to U.S. corporate issuers and $200 
million or more with respect to non-U.S. corporate issuers, and the 
portfolio, once fully invested, will include a minimum of 13 non-
affiliated issuers.\8\
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    \7\ The term ``under normal 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.
    \8\ If a downgrade occurs, the Adviser will consider what 
action, including the sale of such security, is in the best interest 
of the Fund and its shareholders.
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    High yield debt may be issued by companies without long track 
records of sales and earnings, or by issuers that have questionable 
credit strength. High yield debt and comparable unrated debt 
securities: (a) Will likely have some quality and protective 
characteristics that, in the judgment of the rating agency evaluating 
the instrument, are outweighed by large uncertainties or major risk 
exposures to adverse conditions; and (b) are predominantly speculative 
with respect to the issuer's capacity to pay dividends or interest and 
repay principal in accordance with the terms of the obligation. Many 
below-investment grade debt securities are subject to legal or 
contractual restrictions limiting the Fund's ability to resell the 
securities to the general public.
    According to the Registration Statement, the Fund may invest in 
corporate debt securities issued by U.S. and non-U.S. companies of all 
kinds, including those with small, mid and large capitalizations. 
Notes, bonds, debentures and commercial paper are the most common types 
of corporate debt securities, with the primary difference being their 
maturities and secured or unsecured status. Corporate debt may carry 
fixed or floating rates of interest.
    The Fund may invest up to 15% of its net assets in bank loans, 
which may also include loan interests that are not secured by any 
specific collateral of the borrower, loan interests that have a lower 
than first lien priority on collateral of the borrower, loans to 
foreign borrowers, loans in foreign currencies and other loans with 
characteristics that the Adviser believes qualify as bank loans. The 
Fund may invest in such loans by purchasing assignments or all or a 
portion of loans or loan participations from third parties. These loans 
are made by or issued to corporations primarily to finance 
acquisitions, refinance existing debt, support organic growth, or pay 
out dividends, and are typically originated by large banks and are then 
syndicated out to institutional investors as well as to other banks. 
Bank loans typically bear interest at a floating rate although some 
loans pay a fixed rate. Due to their subordination in the borrower's 
capital structure, unsecured and/or subordinated loans involve a higher 
degree of overall risk than senior bank loans of the same borrower. 
Unfunded contracts are commitments by lenders (such as the funds) to 
loan an amount in the future or that is due to be contractually funded 
in the future. The Fund will invest 85% or more of the portfolio in 
securities that the Adviser deems to be sufficiently liquid at the time 
of investment.
    The Fund may invest in non-income producing securities including 
defaulted securities and common stocks; \9\ companies whose financial 
condition is troubled or uncertain and that may be involved in 
bankruptcy proceedings, reorganizations or financial restructurings. 
The Fund may also invest in investment grade \10\ debt securities. The 
Fund does not have any portfolio maturity limitation and may invest its 
assets in securities with short-term, medium-term or long-term 
maturities. The Fund will not invest more than 15% of the portfolio in 
such distressed securities, as determined at the time of the 
investment.
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    \9\ The equity securities in which the Fund may invest 
(including any that have converted from convertible debt) 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 and certain foreign exchanges, or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
    \10\ According to the Adviser, ``investment grade'' means 
securities rated in the Baa/BBB categories or above by one or more 
nationally recognized securities rating organizations (``NRSROs''). 
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. Rating categories 
may include sub-categories or gradations indicating relative 
standing.
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    Non-U.S. debt securities in which the Fund may invest include debt 
securities issued or guaranteed by companies organized under the laws 
of countries other than the United States (including emerging markets), 
debt securities issued or guaranteed by foreign, national, provincial, 
state, municipal or other governments with taxing authority or by their 
agencies or instrumentalities and debt obligations of supranational 
governmental entities such as the World Bank or European Union. These 
debt securities may be U.S. dollar-denominated or non-U.S. dollar-
denominated. Non-U.S. debt securities also include U.S. dollar-
denominated debt obligations, such as ``Yankee Dollar'' obligations, of 
foreign issuers and of supra-national government entities. Yankee 
Dollar obligations are U.S. dollar-denominated obligations issued in 
the U.S. capital markets by foreign corporations, banks and 
governments. Foreign debt securities also may be traded on foreign 
securities exchanges or in over-the-counter capital markets. Under 
normal market conditions, up to 10% of the net assets of the Fund's 
investment in foreign securities may be denominated in currencies other 
than the U.S. dollar. To the extent the Fund invests in such 
instruments, the value of the assets of the Fund as measured in U.S. 
dollars will be affected by changes in exchange rates.
    The Fund may invest in preferred securities and convertible 
securities. Preferred securities, which generally pay fixed or 
adjustable-rate dividends or interest to investors and have preference 
over common stock in the payment of dividends or interest and the 
liquidation of a company's assets, which means that a company typically 
must pay dividends or interest on its preferred securities before 
paying any dividends on its common stock. Preferred securities are 
generally junior to all forms of the company's debt, including both 
senior and subordinated debt.
    As part of its investment strategy, the Fund intends to maintain 
both long and short positions in securities under normal market 
conditions. The Fund will take long positions in securities that the 
Adviser believes in the aggregate to have the potential to outperform 
the Fund's benchmark, the Bank of America Merrill Lynch U.S. High Yield 
Master II Constrained Index (the ``Index''). The Fund's long positions 
may total up to 130% of the Fund's Managed Assets. ``Managed Assets'' 
means the average daily gross asset value of the Fund (which includes 
the principal amount of any borrowings), minus the sum of the Fund's 
liabilities. The Fund will take short positions in securities that the 
Adviser believes in the aggregate will underperform the Index. These 
securities may consist of securities included in the Index or other 
securities, including U.S. Treasury securities and/or corporate debt 
obligations that may be rated investment grade or non-investment grade, 
which the Adviser believes in the aggregate will underperform the 
Index. The Fund's short positions may total up to 30% of the Fund's 
Managed Assets. A ``short sale'' is a transaction in which

[[Page 2298]]

the Fund sells a security that it does not own (and borrows the 
security to deliver it to the buyer) in anticipation that the market 
price of the security will decline. The proceeds received from the 
Fund's short sales of securities will generally be used to purchase all 
or a portion of the Fund's additional long positions in securities.
    The Fund will use short sales for investment and risk management 
purposes, including when the Adviser anticipates that the market price 
of securities will decline or in the aggregate will underperform the 
Index. Short sales are transactions in which the Fund sells a security 
or other instrument (such as an option, forward, futures or other 
derivative contract) that it does not own. Short selling allows the 
Fund to profit from a decline in market price to the extent such 
decline exceeds the transaction costs and the costs of borrowing the 
securities. In times of unusual or adverse market, economic, regulatory 
or political conditions, the Fund may not be able, fully or partially, 
to implement its short selling strategy. If a security sold short 
increases in price, the Fund may have to cover its short position at a 
higher price than the short sale price, resulting in a loss. The Fund 
will have substantial short positions and must borrow those securities 
to make delivery to the buyer.
Other Investments
    The Fund may invest in U.S. government securities. U.S. government 
securities include U.S. Treasury obligations and securities issued or 
guaranteed 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.
    The Fund may invest in U.S. agency mortgage-backed securities and 
collateralized mortgage securities issued by the Government National 
Mortgage Association (``GNMA''), the Federal National Mortgage 
Association (``FNMA''), and the Federal Home Loan Mortgage Corporation 
(``FHLMC'').
    Under normal market conditions, the Fund may invest up to 10% of 
its net assets in short-term debt securities and other cash 
equivalents, or it may hold cash. The percentage of the Fund invested 
in such holdings varies and depends on several factors, including 
market conditions. For temporary defensive purposes and during periods 
of high cash inflows or outflows, the Fund may depart from its 
principal investment strategies and invest part or all of its assets in 
short-term debt securities or cash equivalents or it may hold cash. 
During such periods, the Fund may not be able to achieve its investment 
objective. The Fund may adopt a defensive strategy when the portfolio 
managers believe securities in which the Fund normally invests have 
elevated risks due to political or economic factors and in other 
extraordinary circumstances.
    Short-term debt securities are securities from issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings Group 
(``S&P Ratings''), Moody's Investors Service, Inc. (``Moody's'') or 
Fitch, Inc. (``Fitch'') and having a maturity of one year or less. The 
use of temporary investments is not a part of a principal investment 
strategy of the Fund.
    Short-term debt securities are defined to include, without 
limitation, the following: (1) U.S. Government securities, including 
bills, notes and bonds differing as to maturity and rates of interest, 
which are either issued or guaranteed by the U.S. Treasury or by U.S. 
Government agencies or instrumentalities; (2) certificates of deposit 
issued against funds deposited in a bank or savings and loan 
association; (3) bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions; (4) repurchase 
agreements,\11\ which involve purchases of debt securities; (5) bank 
time deposits, which are monies kept on deposit with banks or savings 
and loan associations for a stated period of time at a fixed rate of 
interest; and (6) commercial paper, which is short-term unsecured 
promissory notes, including variable rate master demand notes issued by 
corporations to finance their current operations. The Fund may only 
invest in commercial paper rated A-2 or higher by S&P Ratings, Prime-2 
or higher by Moody's or F2 or higher by Fitch.
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    \11\ According to the Registration Statement, the Fund intends 
to enter into repurchase agreements only with financial institutions 
and dealers believed by the Adviser to present minimal credit risks 
in accordance with criteria approved by the Board. The Adviser will 
review and monitor the creditworthiness of such institutions. The 
Adviser monitors the value of the collateral at the time the action 
is entered into and at all times during the term of the repurchase 
agreement.
---------------------------------------------------------------------------

    The Fund intends to hedge its non-U.S. dollar holdings. Generally, 
the Fund's currency exchange transactions will be conducted on a spot 
(i.e., cash) basis at the spot rate prevailing in the currency exchange 
market. The cost of the Fund's currency exchange transactions will 
generally be the difference between the bid and offer spot rate of the 
currency being purchased or sold. In order to protect against 
uncertainty in the level of future currency exchange rates, the Fund is 
authorized to enter into various currency exchange transactions.
    The Fund may invest up to 10% of its net assets in securities of 
other open-end or closed-end investment companies, including ETFs \12\ 
that invest primarily in securities of the types in which the Fund may 
invest directly. In addition, the Fund may invest a portion of its 
assets in pooled investment vehicles (other than investment companies) 
that invest primarily in securities of the types in which the Fund may 
invest directly. According to the Registration Statement, the Fund may 
invest in other investment companies to the extent permitted by the 
1940 Act.
---------------------------------------------------------------------------

    \12\ As described in the Registration Statement, an ETF is an 
investment company registered under the 1940 Act that holds a 
portfolio of securities generally designed to track the performance 
of a securities index, including industry, sector, country and 
region indexes. Such ETFs all 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 such ETFs and their sponsors from the 
Commission. The ETFs in which the Fund may invest include Index Fund 
Shares and Portfolio Depositary Receipts (as described in NASDAQ 
Rule 5705); Managed Fund Shares (as described in Nasdaq Rule 5735), 
and closed-end funds. While the Fund may invest in inverse ETFs, the 
Fund will not invest in leveraged (e.g., 2X or 3X) ETFs.
---------------------------------------------------------------------------

    The Fund may receive equity, warrants, corporate bonds and other 
such securities as a result of the restructuring of the debt of an 
issuer, or a reorganization of a bank loan or bond, or as part of a 
package of securities acquired together with a high yield bond or 
senior loan(s) of an issuer. Such investments will be subject to the 
Fund's investment objectives and strategies as described above.
    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.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including variable rate master demand notes and 144A securities from 
issues with less than $100 million original principal amount 
outstanding. The Fund will monitor its portfolio liquidity on an 
ongoing basis to determine whether, in light of current circumstances, 
an adequate level of

[[Page 2299]]

liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid securities. Illiquid securities include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance. The Fund may not invest 25% 
or more of the value of its total assets in securities of issuers in 
any one industry or group of industries. This restriction does not 
apply to obligations issued or guaranteed by the U.S. Government, its 
agencies or instrumentalities, or securities of other investment 
companies.\13\
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    \13\ 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).
---------------------------------------------------------------------------

    The Fund may not, as to 75% of its total assets, (a) invest more 
than 5% of the value of its total assets in the securities of any one 
issuer or (b) hold more than 10% of the outstanding voting securities 
of that issuer (other than securities of other investment companies and 
obligations issued or guaranteed by the U.S. government or any agency 
or instrumentality thereof).\14\
---------------------------------------------------------------------------

    \14\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    Consistent with the exemptive order referenced in footnote 5, the 
Fund will not invest in options contracts, futures contracts or swap 
agreements. The Fund's investments will be consistent with the 
investment objective and strategies described in the Registration 
Statement. The Fund will not invest to enhance leverage.
The Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \15\ only in large blocks of Shares (``Creation 
Units'') in transactions with Authorized Participants. Creation Units 
generally will consist of 50,000 Shares, though this may change from 
time to time. Creation Units are not expected to consist of less than 
50,000 Shares. The Fund will issue and redeem Creation Units in 
exchange for a portfolio of high yield debt securities and other 
instruments closely approximating the holdings of the Fund or a 
designated basket of non-U.S. currency and/or an amount of U.S. cash. 
Once created, Shares of the Fund trade on the secondary market in 
amounts less than a Creation Unit.
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    \15\ The NAV of the Fund's Shares generally is 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 is 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 Registration Statement.
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    Creations and redemptions must be made by an Authorized Participant 
or through a firm that is either a member of the National Securities 
Clearing Corporation or a Depository Trust Company participant, and in 
each case, must have executed an agreement with the Distributor with 
respect to creations and redemptions of Creation Unit aggregations.
    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, distributions and taxes is 
included in the Registration Statement.
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 additional quantitative information updated on a daily 
basis, including, for the Fund: (1) The prior business day's reported 
NAV, mid-point of the bid/ask spread at the time of calculation of such 
NAV (the ``Bid/Ask Price''),\16\ 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 
\17\ on the Exchange, the Trust will disclose on its Web site the 
identities and quantities of the portfolio of securities and other 
assets (the ``Disclosed Portfolio'') held by the Fund that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\18\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting and market value of fixed income 
securities, and other assets held by the Fund and the characteristics 
of such assets. The Web site and information will be publicly available 
at no charge.
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    \16\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of such Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \17\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 7 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).
    \18\ 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 such 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.
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    In addition, for the Fund, an estimated value, defined in Rule 5735 
as the ``Intraday Indicative Value,'' that reflects an estimated 
intraday value of the Fund's portfolio, will be disseminated. Moreover, 
the Intraday Indicative Value, available on the NASDAQ OMX Information 
LLC proprietary index data service,\19\ will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated and broadly displayed at least every 15 seconds 
during the Regular Market Session. In addition, during hours when the 
markets for local debt in the Fund's portfolio are closed, the Intraday 
Indicative Value will be updated at least every 15 seconds during the 
Regular Market Session to reflect currency exchange fluctuations.
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    \19\ 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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    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 to provide a 
close estimate of that value throughout the trading day.
    Intra-day, executable price quotations of the fixed income 
securities and other assets held by the Fund are available from major 
broker-dealer firms or on the exchange on which they are traded, if 
applicable. Intra-day price information is available through 
subscription services, such as Bloomberg and Thomson Reuters, which can 
be accessed by authorized participants and other investors.
    Information regarding market price and volume of the Shares is and 
will be continually available on a real-time

[[Page 2300]]

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. Quotation and last sale information 
for the Shares will be available via UTP Level 1, as well as Nasdaq 
proprietary quote and trade services.
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 \20\ 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.
---------------------------------------------------------------------------

    \20\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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; 
for example, the Shares of the Fund will be halted if the ``circuit 
breaker'' parameters in Nasdaq Rule 4120(a)(11) are reached. 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 financial instruments comprising 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 governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 7:00 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
    Nasdaq believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on Nasdaq during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. Trading of the Shares through 
Nasdaq will be subject to FINRA's surveillance procedures for 
derivative products, including Managed Fund Shares.\21\ The Exchange 
may obtain information via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG.\22\ The 
Exchange prohibits the distribution of material non-public information 
by its employees.
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    \21\ FINRA surveils trading on Nasdaq pursuant to a regulatory 
services agreement. Nasdaq is responsible for FINRA's performance 
under this regulatory services agreement.
    \22\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

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 2310, 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.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. 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 \23\ in general and Section 6(b)(5) of the Act \24\ 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 a national market system.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on Nasdaq during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. The Adviser is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. 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 
Exchange 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

[[Page 2301]]

agreement. Under normal circumstances, the Fund will invest at least 
80% of its assets in high yield debt securities. The Fund's exposure to 
any single issuer generally will be limited to 5% of the Fund's assets. 
The Fund's exposure to any single country (other than the United 
States) generally will be limited to 20% of the Fund's assets. The Fund 
does not current intend to invest in emerging market countries. The 
Fund's long positions may total up to 130% of the Fund's Managed 
Assets. The Fund will take short positions in securities that the 
Adviser believes in the aggregate will underperform the Index. These 
securities may consist of securities included in the Index or other 
securities, including U.S. Treasury securities, which the Adviser 
believes in the aggregate will underperform the Index. The Fund's short 
positions may total up to 30% of the Fund's Managed Assets.
    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 is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The Fund's portfolio holdings 
will be disclosed on its Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. Moreover, the Intraday Indicative Value, available on 
the NASDAQ OMX Information LLC proprietary index data service will be 
widely disseminated 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 is and 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 UTP Level 1, as well as Nasdaq 
proprietary quote and trade services. Intra-day, executable price 
quotations on high yield debt securities, as well as derivative 
instruments are available from major broker-dealer firms. Intra-day 
price information is available through subscription services, such as 
Bloomberg and Thomson Reuters, which can be accessed by authorized 
participants and other investors.
    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. Trading in Shares of the Fund will be halted 
if the circuit breaker parameters in Nasdaq Rule 4120(a)(11) have been 
reached 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 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, 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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.

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 (i) as the Commission may 
designate up to 90 days of such date 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-147 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2012-147. 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 (http://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

[[Page 2302]]

provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549, on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the 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-2012-147 and should 
be submitted on or before January 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00304 Filed 1-9-13; 8:45 am]
BILLING CODE 8011-01-P