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 Global Tactical Commodity Strategy Fund of First Trust Exchange-Traded Fund VII, 53799-53807 [2013-21184]

Download as PDF Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices of the Act 20 and Rule 19b–4(f)(6) 21 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–BX– 2013–050 and should be submitted on or before September 20, 2013. 53799 (‘‘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 https:// nasdaq.cchwallstreet.com/, at Nasdaq’s principal office, and at the Commission’s Public Reference Room. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. Electronic Comments BILLING CODE 8011–01–P 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 and discussed any comments it received on 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. SECURITIES AND EXCHANGE COMMISSION A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change IV. Solicitation of Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2013–050 on the subject line. Paper Comments tkelley on DSK3SPTVN1PROD with NOTICES • 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–BX–2013–050. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be 20 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 21 17 VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 [FR Doc. 2013–21230 Filed 8–29–13; 8:45 am] [Release No. 34–70253; File No. SR– NASDAQ–2013–107] 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 Global Tactical Commodity Strategy Fund of First Trust Exchange-Traded Fund VII August 26, 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 August 16, 2013, The NASDAQ Stock Market LLC (‘‘Exchange’’ or ‘‘Nasdaq’’) 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 the selfregulatory organization. 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 Global Tactical Commodity Strategy Fund (the ‘‘Fund’’) of First Trust Exchange-Traded Fund VII (the ‘‘Trust’’) under Nasdaq Rule 5735 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 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 3 on the Exchange.4 The Fund will be an actively managed exchangetraded fund (‘‘ETF’’). The Shares will be 3 A Managed Fund Share is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment adviser consistent with its investment objectives and policies. In contrast, an open-end investment company that issues Index Fund Shares, listed and traded on the Exchange under Nasdaq Rule 5705, seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. 4 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. 66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR–NASDAQ–2012–004) (order approving listing and trading of WisdomTree Emerging Markets Corporate Bond Fund). 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 No. 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). The Exchange believes the proposed rule change raises no significant issues not previously addressed in those prior Commission orders. E:\FR\FM\30AUN1.SGM 30AUN1 53800 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices tkelley on DSK3SPTVN1PROD with NOTICES offered by the Trust, which was established as a Massachusetts business trust on November 6, 2012.5 The Trust is registered with the Commission as an investment company and has filed a registration statement on Form N–1A (‘‘Registration Statement’’) with the Commission.6 The Fund is a series of the Trust. With respect to the futures contracts held indirectly through a wholly-owned subsidiary controlled by the Fund and organized under the laws of the Cayman Islands (referred to herein as the ‘‘First Trust Subsidiary’’), not more than 10% of the weight 7 of such futures contracts in the aggregate shall consist of instruments whose principal trading market is not a member of the Intermarket Surveillance Group (‘‘ISG’’) or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. First Trust Advisors L.P. will be the investment adviser (‘‘Adviser’’) to the Fund. First Trust Portfolios L.P. (the ‘‘Distributor’’) will be the principal underwriter and distributor of the Fund’s Shares. Brown Brothers Harriman & Co. (‘‘BBH’’) will act as the administrator, accounting agent, custodian (‘‘Custodian’’) and transfer agent to the Fund. Paragraph (g) of Rule 5735 provides that if the investment adviser to the investment company issuing Managed Fund Shares is affiliated with a brokerdealer, such investment adviser shall erect a ‘‘fire wall’’ between the investment adviser and the brokerdealer with respect to access to information concerning the composition and/or changes to such investment company portfolio.8 In addition, 5 The Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act (the ‘‘Exemptive Order’’). 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 an international or global portfolio, the Trust’s application for exemptive relief under the 1940 Act states that the Fund will comply with the federal securities laws in accepting securities for deposits and satisfying redemptions with redemption securities, including that the securities accepted for deposits and the securities used to satisfy redemption requests are sold in transactions that would be exempt from registration under the Securities Act of 1933 (15 U.S.C. 77a). 6 See Registration Statement on Form N–1A for the Trust, dated November 13, 2012 (File Nos. 333– 184918 and 811–22767). The descriptions of the Fund and the Shares contained herein are based, in part, on information in the Registration Statement. 7 To be calculated as the value of the contract divided by the total absolute notional value of the First Trust Subsidiary’s futures contracts. 8 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 VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 paragraph (g) further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding the open-end fund’s portfolio. Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with the establishment of a ‘‘fire wall’’ between the investment adviser and the broker-dealer reflects the applicable open-end fund’s portfolio, not an underlying benchmark index, as is the case with index-based funds. The Adviser is not a brokerdealer, although it is affiliated with the Distributor, a broker-dealer. The Adviser has implemented a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement a fire wall with respect to its relevant personnel and/or such broker-dealer affiliate, if applicable, regarding access to information concerning the composition and/or changes to the portfolio and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolio. The Fund does not currently intend to use a sub-adviser. First Trust Global Tactical Commodity Strategy Fund According to the Registration Statement, the Fund’s investment objective will be to provide total return by providing investors with commodity exposure while seeking a relatively stable risk profile. The Fund will pursue 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 00075 Fmt 4703 Sfmt 4703 its objective by seeking to invest through a wholly-owned subsidiary in a broadly diversified portfolio comprised principally of commodity futures contracts. Principal Investments Fund’s Investments The Fund will be an actively managed ETF that will seek to achieve attractive risk adjusted returns by investing in exchange-traded commodity futures contracts and exchange-traded commodity linked instruments 9 (collectively, ‘‘Commodities’’) through the First Trust Subsidiary. The Fund will seek to gain exposure to the futures markets through investments in the First Trust Subsidiary. The Fund’s investment in the First Trust Subsidiary may not exceed 25% of the Fund’s total assets. The remainder of the Fund’s assets will primarily be invested in: (1) Short-term investment grade fixed income securities that include U.S. government and agency securities,10 sovereign debt obligations of non-U.S. countries, and repurchase agreements; 11 (2) money market instruments; 12 (3) ETFs and other investment companies 9 Exchange-traded commodity linked instruments include: (1) ETFs that provide exposure to commodities as would be listed under Nasdaq Rules 5705 and 5735; and (2) pooled investment vehicles that invest primarily in commodities and commodity-related instruments as would be listed under Nasdaq Rules 5710 and 5711. Such pooled investment vehicles are commonly referred to as ‘‘exchange traded funds’’ but they are not registered as investment companies because of the nature of their underlying investments. 10 Such securities will include securities that are issued or guaranteed by the U.S. Treasury, by various agencies of the U.S. government, or by various instrumentalities, which have been established or sponsored by the U.S. government. U.S. Treasury obligations are backed by the ‘‘full faith and credit’’ of the U.S. government. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the U.S. government. 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 Fund’s Board of Trustees (the ‘‘Board’’). The Adviser will review and monitor the creditworthiness of such institutions. The Adviser will monitor the value of the collateral at the time the transaction is entered into and at all times during the term of the repurchase agreement. 12 For the Fund’s purposes, money market instruments will include: Short-term, high-quality securities issued or guaranteed by non-U.S. governments, agencies and instrumentalities; nonconvertible corporate debt securities with remaining maturities of not more than 397 days that satisfy ratings requirements under Rule 2a–7 of the 1940 Act; money market mutual funds; and deposits and other obligations of U.S. and non-U.S. banks and financial institutions. As a related matter, according to the Registration Statement, the Fund may invest in shares of money market mutual funds to the extent permitted by the 1940 Act. E:\FR\FM\30AUN1.SGM 30AUN1 53801 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices registered under the 1940 Act; and (4) cash and other cash equivalents. The Fund will not invest directly in Commodities. The Fund expects to exclusively gain exposure to these investments by investing in the First Trust Subsidiary. The Fund will use the fixed-income securities as investments and to collateralize the First Trust Subsidiary’s commodity exposure on a day-to-day basis. The Fund may also invest directly in ETFs 13 and other investment companies, including exchange-traded closed-end funds that provide exposure to commodities, equity securities and fixed income securities to the extent permitted under the 1940 Act.14 The Fund’s investment in the First Trust Subsidiary will be designed to help the Fund achieve exposure to commodity returns in a manner consistent with the federal tax requirements applicable to the Fund Commodity tkelley on DSK3SPTVN1PROD with NOTICES Cattle, Live/Choice Average ...... Cocoa ......................................... Cotton/1–1/16″ ........................... Feeder Cattle ............................. Coffee ‘C’/Colombian ................. Soybeans/No. 2 Yellow .............. Soybean Meal/48% Protein ....... Soybean Oil/Crude ..................... Corn/No. 2 Yellow ...................... Wheat/No. 2 Hard Winter .......... Wheat/No. 2 Soft Red ................ Sugar #11/World Raw ................ Hogs, Lean/Average Iowa/S Minn. Crude Oil, WTI/Global Spot ....... Crude Oil, Brent/Global Spot ..... NY Harb ULSD .......................... Gas-Oil-Petroleum ..................... Natural Gas, Henry Hub ............ Gasoline, Blendstock (RBOB) ... Gold ............................................ Silver .......................................... Platinum ..................................... Copper High Grade/Scrap No. 2 Wire. Aluminum, LME Primary 3 Month Rolling Forward. 20:54 Aug 29, 2013 First Trust Subsidiary’s Investments The First Trust Subsidiary will seek to make investments generally in Commodities while managing volatility, as measured by annualized standard deviation, to a more consistent range than statistically weighted commodity indices. The investment weightings of the underlying Commodities held by the First Trust Subsidiary will be rebalanced in an attempt to stabilize risk levels. The dynamic weighting process will result in a disciplined, systematic investment process which will be keyed off of the Adviser’s volatility forecasting process. The First Trust Subsidiary will be advised by the Adviser.15 The Fund’s investment in the First Trust Subsidiary is intended to provide the Fund with exposure to commodity markets within Bloomberg exchange code 16 Exchange name 17 the limits of current federal income tax laws applicable to investment companies such as the Fund, which limit the ability of investment companies to invest directly in the derivative instruments. The First Trust Subsidiary will have the same investment objective as the Fund, but unlike the Fund, it may invest without limitation in Commodities. The First Trust Subsidiary’s investments will provide the Fund with exposure to domestic and international markets. The First Trust Subsidiary may have both long and short positions in Commodities. However, for a given Commodity the First Trust Subsidiary will have a net long exposure. The First Trust Subsidiary will initially consider investing in futures contracts set forth in the following table. The table also provides each instrument’s trading hours, exchange and ticker symbol. The table is subject to change. Trading hours (E.T.) Contract ticker (generic Bloomberg ticker) CME NYB NYB CME NYB CBT CBT CBT CBT KCB CBT NYB CME Chicago Mercantile Exchange ... ICE Futures Exchange ............... ICE Futures Exchange ............... Chicago Mercantile Exchange ... ICE Futures Exchange ............... Chicago Board of Trade ............ Chicago Board of Trade ............ Chicago Board of Trade ............ Chicago Board of Trade ............ Kansas City Board of Trade ...... Chicago Board of Trade ............ ICE Futures Exchange ............... Chicago Mercantile Exchange ... 18:00–17:00 04:00–14:00 21:00–14:30 18:00–17:00 03:30–14:00 20:00–14:15 20:00–14:15 20:00–14:15 20:00–14:15 20:00–14:15 20:00–14:15 02:30–14:00 18:00–17:00 ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... LC CC CT FC KC S SM BO C KW W SB LH NYM ICE NYM ICE NYM NYM CMX CMX NYM CMX New York Mercantile Exchange ICE Futures Exchange ............... New York Mercantile Exchange ICE Futures Exchange ............... New York Mercantile Exchange New York Mercantile Exchange COMEX ...................................... COMEX ...................................... New York Mercantile Exchange COMEX ...................................... 18:00–17:15 20:00–18:00 18:00–17:15 20:00–18:00 18:00–17:15 18:00–17:15 18:00–17:15 18:00–17:15 18:00–17:15 18:00–17:15 ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... ............................... CL CO HO QS NG XB GC SI PL HG LME London Metal Exchange ............ 15:00–14:45 ............................... LA 13 As described in the Registration Statement, an ETF is an investment company registered under the 1940 Act that holds a portfolio of securities. Many ETFs are designed to track the performance of a securities index, including industry, sector, country and region indexes. ETFs included in the Fund will be listed and traded in the U.S. on registered exchanges. The Fund may invest in the securities of ETFs in excess of the limits imposed under the 1940 Act pursuant to exemptive orders obtained by other ETFs and their sponsors from the Commission. The ETFs in which the Fund may invest include Index Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 5735). While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged or inverse leveraged (e.g., 2X or –3X) ETFs. 14 The equity securities (including shares of ETFs and closed-end funds) in which the Fund may invest will be limited to securities that trade in VerDate Mar<15>2010 and other regulated investment companies. Jkt 229001 markets that are members of the ISG, which includes all U.S. national securities exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. 15 The First Trust Subsidiary will not be registered under the 1940 Act and will not be directly subject to its investor protections, except as noted in the Registration Statement. However, the First Trust Subsidiary will be wholly-owned and controlled by the Fund and will be advised by the Adviser. Therefore, the Fund’s ownership and control of the First Trust Subsidiary will prevent the First Trust Subsidiary from taking action contrary to the interests of the Fund or its shareholders. The Board will have oversight responsibility for the investment activities of the Fund, including its expected investment in the First Trust Subsidiary, and the Fund’s role as the sole shareholder of the First Trust Subsidiary. The Adviser will receive no additional compensation for managing the assets of the First Trust Subsidiary. The First Trust Subsidiary will also enter into PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 separate contracts for the provision of custody, transfer agency, and accounting agent services with the same or with affiliates of the same service providers that provide those services to the Fund. 16 The exchange codes listed are Bloomberg shorthand codes for the corresponding exchanges. The New York Board of Trade is currently owned by the ICE Futures Exchange; Bloomberg continues to use NYB as its shorthand code for certain contracts formerly traded on the New York Board of Trade. 17 All of the exchanges are ISG members except for the London Metal Exchange (‘‘LME’’). The LME falls under the jurisdiction of the United Kingdom Financial Conduct Authority (‘‘FCA’’). The FCA is responsible for ensuring the financial stability of the exchange members’ businesses, whereas the LME is largely responsible for the oversight of dayto-day exchange activity, including conducting the arbitration proceedings under the LME arbitration regulations. E:\FR\FM\30AUN1.SGM 30AUN1 53802 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices Commodity Lead, LME Primary 3 Month Rolling Forward. Nickel, LME Primary 3 Month Rolling Forward. Tin, LME Primary 3 Month Rolling Forward. Zinc, LME Primary 3 Month Rolling Forward. Bloomberg exchange code 16 Trading hours (E.T.) LME London Metal Exchange ............ 15:00–14:45 ............................... LL LME London Metal Exchange ............ 15:00–14:45 ............................... LN LME London Metal Exchange ............ 15:00–14:45 ............................... LT LME London Metal Exchange ............ 15:00–14:45 ............................... LX As U.S. and London exchanges list additional contracts, as currently listed contracts on those exchanges gain sufficient liquidity or as other exchanges list sufficiently liquid contracts, the Adviser will include those contracts in the list of possible investments of the First Trust Subsidiary. The list of commodities futures and commodities markets considered for investment can and will change over time. Commodities Regulation The Commodity Futures Trading Commission (‘‘CFTC’’) has recently adopted substantial amendments to CFTC Rule 4.5 relating to the permissible exemptions and conditions for reliance on exemptions from registration as a commodity pool operator. As a result of the instruments that will be indirectly held by the Fund, the Adviser has registered as a commodity pool operator 18 and is also a member of the National Futures Association (‘‘NFA’’). The Fund and the First Trust Subsidiary are subject to regulation by the CFTC and NFA and additional disclosure, reporting and recordkeeping rules imposed upon commodity pools. tkelley on DSK3SPTVN1PROD with NOTICES Other Investments The Fund may invest in certificates of deposit issued against funds deposited in a bank or savings and loan association. In addition, the Fund may invest in bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions. The Fund may invest in 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. In addition, the Fund may invest in commercial paper, which are short-term unsecured promissory notes, including master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending 18 As defined in Section 1a(11) of the Commodity Exchange Act. VerDate Mar<15>2010 20:54 Aug 29, 2013 Contract ticker (generic Bloomberg ticker) Exchange name 17 Jkt 229001 arrangements between the Fund and a corporation. The Fund may invest in commercial paper only if it has received the highest rating from at least one nationally recognized statistical rating organization or, if unrated, judged by the Adviser to be of comparable quality. Investment Restrictions According to the Registration Statement, the Fund may not invest more than 25% of the value of its total assets in securities of issuers in any one industry or group of industries. This restriction will not apply to obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, or securities of other investment companies.19 The First Trust Subsidiary’s shares will be offered only to the Fund and the Fund will not sell shares of the First Trust Subsidiary to other investors. The Fund and the First Trust Subsidiary will not invest in any non-U.S. equity securities (other than shares of the First Trust Subsidiary). The Fund will not purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act. Pursuant to the Exemptive Order, the Fund will not invest directly in options contracts, futures contracts or swap agreements, however, this restriction will not apply to the First Trust Subsidiary. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser and master demand notes.20 19 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). 20 In reaching liquidity decisions, the Adviser may consider the following factors: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; and the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.21 The Fund intends to qualify for and to elect to be treated as a separate regulated investment company under SubChapter M of the Internal Revenue Code.22 Under the 1940 Act, the Fund’s investment in investment companies will be limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company, (ii) 5% of the Fund’s total assets with respect to any one investment company, and (iii) 10% of the security, the method of soliciting offers, and the mechanics of transfer). 21 The Commission has stated that long-standing Commission guidelines have required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), FN 34. See also Investment Company Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); Investment Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N–1A). A fund’s portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund. See Investment Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the Securities Act of 1933). 22 26 U.S.C. 851. E:\FR\FM\30AUN1.SGM 30AUN1 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices tkelley on DSK3SPTVN1PROD with NOTICES of the Fund’s total assets with respect to investment companies in the aggregate. The Fund’s and the First Trust Subsidiary’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. Net Asset Value According to the Registration Statement, the Fund’s net asset value (‘‘NAV’’) will be determined as of the close of trading (normally 4:00 p.m., Eastern time (‘‘E.T.’’)) on each day the New York Stock Exchange (‘‘NYSE’’) is open for business. NAV will be calculated for the Fund by taking the market price of the Fund’s total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing such amount by the total number of Shares outstanding. The result, rounded to the nearest cent, will be the NAV per Share. All valuations will be subject to review by the Board or its delegate. The Fund’s and the First Trust Subsidiary’s investments will be valued at market value or, in the absence of market value with respect to any investment, at fair value in accordance with valuation procedures adopted by the Board and in accordance with the 1940 Act. Portfolio securities traded on more than one securities exchange will be valued at the last sale price or, if so disseminated by an exchange, the official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market will be valued at their closing bid prices. Short-term investments that mature in less than 60 days when purchased will be valued at cost adjusted for amortization of premiums and accretion of discounts. Exchange-traded futures contracts will be valued at the closing price in the market where such contracts are principally traded. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board or its delegate at fair value. The use of fair value pricing by the Fund will be governed by valuation procedures adopted by the Board and in accordance with the provisions of the 1940 Act. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s net asset value or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security’s ‘‘fair value.’’ As a general principle, the current ‘‘fair value’’ of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. The use of fair value prices by the Fund generally results in the prices used by the Fund that may differ from current market quotations or official closing prices on the applicable exchange. A variety of factors may be considered in determining the fair value of such securities. Creation and Redemption of Shares The Trust will issue and sell Shares of the Fund only in Creation Unit aggregations, and only in aggregations of 50,000 Shares, on a continuous basis through the Distributor, without a sales load, at the NAV next determined after receipt, on any business day, of an order in proper form. The consideration for purchase of Creation Unit aggregations of the Fund may consist of (i) cash in lieu of all or a portion of the Deposit Securities, as defined below, and/or (ii) a designated portfolio of securities determined by the Adviser that generally will conform to the holdings of the Fund consistent with its investment objective (the ‘‘Deposit Securities’’) per each Creation Unit aggregation and generally an amount of cash (the ‘‘Cash Component’’) computed as described below. Together, the Deposit Securities and the Cash Component (including the cash in lieu amount) will constitute the ‘‘Fund Deposit,’’ which will represent the minimum initial and subsequent investment amount for a Creation Unit aggregation of the Fund. The consideration for redemption of Creation Unit aggregations of the Fund may consist of (i) cash in lieu of all or a portion of the Fund Securities as defined below, and/or (ii) a designated portfolio of securities determined by the Adviser that generally will conform to the holdings of the Fund consistent with its investment objective per each Creation Unit aggregation (‘‘Fund Securities’’) and generally a Cash Component, as described below. The Cash Component is sometimes also referred to as the Balancing Amount. The Cash Component will PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 53803 serve the function of compensating for any differences between the NAV per Creation Unit aggregation and the Deposit Amount (as defined below). For example, for a creation the Cash Component will be an amount equal to the difference between the NAV of Fund Shares (per Creation Unit aggregation) and the ‘‘Deposit Amount’’—an amount equal to the market value of the Deposit Securities and/or cash in lieu of all or a portion of the Deposit Securities. If the Cash Component is a positive number (i.e., the NAV per Creation Unit aggregation exceeds the Deposit Amount), the Authorized Participant (defined below) will deliver the Cash Component. If the Cash Component is a negative number (i.e., the NAV per Creation Unit aggregation is less than the Deposit Amount), the Authorized Participant will receive the Cash Component. The Custodian, through the National Securities Clearing Corporation (‘‘NSCC’’), will make available on each business day, prior to the opening of business of the NYSE (currently 9:30 a.m., E.T.), the list of the names and the quantity of each Deposit Security to be included in the current Fund Deposit (based on information at the end of the previous business day). Such Fund Deposit will be applicable, subject to any adjustments as described below, in order to effect creations of Creation Unit aggregations of the Fund until such time as the next-announced composition of the Deposit Securities is made available. The identity and quantity of the Deposit Securities required for a Fund Deposit for the Shares may change as rebalancing adjustments and corporate action events are reflected within the Fund from time to time by the Adviser consistent with the investment objective of the Fund. In addition, the Trust will reserve the right to permit or require the substitution of an amount of cash, i.e., a ‘‘cash in lieu’’ amount, to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or which might not be eligible for trading by an Authorized Participant or the investor for which it is acting or other relevant reason. In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Fund Deposit, the Custodian, through the NSCC, will also make available on each business day, the estimated Cash Component, effective through and including the previous business day, per Creation Unit aggregation of the Fund. According to the Registration Statement, to be eligible to place orders with respect to creations and E:\FR\FM\30AUN1.SGM 30AUN1 53804 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices redemptions of Creation Units, an entity must be (i) a ‘‘Participating Party,’’ i.e., a broker-dealer or other participant in the clearing process through the continuous net settlement system of the NSCC or (ii) a Depository Trust Company (‘‘DTC’’) Participant (a ‘‘DTC Participant’’). In addition, each Participating Party or DTC Participant (each, an ‘‘Authorized Participant’’) must execute an agreement that has been agreed to by the Distributor and the Custodian with respect to purchases and redemptions of Creation Units. All orders to create Creation Unit aggregations must be received by the transfer agent no later than the closing time of the regular trading session on the NYSE (ordinarily 4:00 p.m., E.T.) in each case on the date such order is placed in order for creations of Creation Unit aggregations to be effected based on the NAV of Shares of the Fund as next determined on such date after receipt of the order in proper form. In order to redeem Creation Units of the Fund, an Authorized Participant must submit an order to redeem for one or more Creation Units. All such orders must be received by the Fund’s transfer agent in proper form no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m. E.T.) in order to receive that day’s closing NAV per Share. tkelley on DSK3SPTVN1PROD with NOTICES Availability of Information The Fund’s Web site (www.ftportfolios.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Web site will include the Share’s ticker, Cusip and exchange information along with additional quantitative information updated on a daily basis, including, for the Fund: (1) Daily trading value, the prior business day’s reported NAV and closing price, mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’) 23 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 23 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 the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 Session 24 on the Exchange, the Fund will disclose on its Web site the identities and quantities of the portfolio of securities, Commodities and other assets (the ‘‘Disclosed Portfolio’’ as defined in Nasdaq Rule 5735(c)(2)) held by the Fund and the First Trust Subsidiary that will form the basis for the Fund’s calculation of NAV at the end of the business day.25 The Disclosed Portfolio will include, as applicable, the names, quantity, percentage weighting and market value of securities, Commodities and other assets held by the Fund and the First Trust Subsidiary 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(c)(3) as the ‘‘Intraday Indicative Value,’’ that reflects an estimated intraday value of the Fund’s portfolio (including the First Trust Subsidiary’s portfolio), will be disseminated. Moreover, the Intraday Indicative Value, available on the NASDAQ OMX Information LLC proprietary index data service 26 will be based upon the current value for the components of the Disclosed Portfolio and will be updated and widely disseminated by one or more major market data vendors and broadly displayed at least every 15 seconds during the Regular Market Session. The dissemination of the Intraday Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. Intra-day, executable price quotations on the securities, Commodities and other assets held by the Fund and the First Trust Subsidiary, will be available 24 See Nasdaq Rule 4120(b)(4) (describing the three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. to 8 p.m. E.T.). 25 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. 26 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. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 from major broker-dealer firms or on the exchange on which they are traded, as applicable. Intra-day price information will also be available through subscription services, such as Bloomberg, Markit and Thomson Reuters, which can be accessed by Authorized Participants and other investors. Investors will also be able to obtain the Fund’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N– CSR and Form N–SAR, filed twice a year. The Fund’s SAI and Shareholder Reports will be available free upon request from the Fund, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Information regarding market price and volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. The previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last sale information for the Shares will be available via Nasdaq proprietary quote and trade services, as well as in accordance with the Unlisted Trading Privileges and the Consolidated Tape Association plans for the Shares and any underlying exchange-traded products. Additional information regarding the Fund and the Shares, including investment strategies, risks, creation and redemption procedures, fees, Fund holdings disclosure policies, distributions and taxes will be included in the Registration Statement. All terms relating to the Fund that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement. Initial and Continued Listing The Shares will be subject to Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. The Exchange represents that, for initial and/or continued listing, the Fund and the First Trust Subsidiary must be in compliance with Rule 10A–3 27 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 27 See E:\FR\FM\30AUN1.SGM 17 CFR 240.10A–3. 30AUN1 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices will be made available to all market participants at the same time. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. Nasdaq will halt trading in the Shares under the conditions specified in Nasdaq Rules 4120 and 4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities, Commodities and other assets constituting the Disclosed Portfolio of the Fund and the First Trust Subsidiary; 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. tkelley on DSK3SPTVN1PROD with NOTICES 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 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum price variation for quoting and entry of orders in Managed Fund Shares traded on the Exchange is $0.01. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and also the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.28 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, 28 FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and in the Commodities and other exchange-traded securities and instruments held by the Fund and the First Trust Subsidiary with other markets and other entities that are members of the ISG 29 and FINRA may obtain trading information regarding trading in the Shares and in the Commodities and other exchangetraded securities and instruments held by the Fund and the First Trust Subsidiary from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and in the Commodities and other exchange-traded securities and instruments held by the Fund and the First Trust Subsidiary from markets and other entities that are members of ISG, which includes securities and futures exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, with respect to the futures contracts held indirectly through the First Trust Subsidiary, not more than 10% of the weight 30 of such futures contracts in the aggregate shall consist of instruments whose principal trading market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) Nasdaq Rule 2111A, 29 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. 30 To be calculated as the value of the contract divided by the total absolute notional value of the First Trust Subsidiary’s futures contracts. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 53805 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 in general and Section 6(b)(5) of the Act in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Nasdaq Rule 5735. The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and also FINRA on behalf of the Exchange, which are designed to E:\FR\FM\30AUN1.SGM 30AUN1 tkelley on DSK3SPTVN1PROD with NOTICES 53806 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices detect violations of Exchange rules and applicable federal securities laws. The Adviser is affiliated with a broker-dealer and has implemented a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the Fund’s portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 further requires that personnel who make decisions on the open-end fund’s portfolio composition must be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding the open-end fund’s portfolio. The Fund’s and the First Trust Subsidiary’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. FINRA may obtain information via ISG from other exchanges that are members of ISG. In addition, the Exchange may obtain information regarding trading in the Shares and in the Commodities and other exchange-traded securities and instruments held by the Fund and the First Trust Subsidiary from markets and other entities that are members of ISG, which includes securities and futures exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement. With respect to the futures contracts held indirectly through the First Trust Subsidiary, not more than 10% of the weight 31 of such futures contracts in the aggregate shall consist of instruments whose principal trading market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. The Fund will invest up to 25% of its total assets in the First Trust Subsidiary. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities and master demand notes. The Fund will not invest directly in Commodities and the Fund expects to exclusively gain exposure to these investments by investing in the First Trust Subsidiary. The Fund will use the fixed-income securities as investments and to collateralize the First Trust Subsidiary’s commodity exposure on a day-to-day basis. The Fund may also invest directly in ETFs and other investment companies, including exchange-traded closed-end funds, that provide exposure to commodities, equity securities and fixed income securities to the extent 31 To be calculated as the value of the contract divided by the total absolute notional value of the First Trust Subsidiary’s futures contracts. VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 permitted under the 1940 Act. The Fund and the First Trust Subsidiary will not invest in any non-U.S. equity securities (other than shares of the First Trust Subsidiary). The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Moreover, the Intraday Indicative Value, available on the NASDAQ OMX Information LLC proprietary index data service will be widely disseminated by one or more major market data vendors 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 of the Fund and the First Trust Subsidiary that will form the basis for the Fund’s calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information for the Shares will be available via Nasdaq proprietary quote and trade services, as well as in accordance with the Unlisted Trading Privileges and the Consolidated Tape Association plans for the Shares and any underlying exchange-traded products. Intra-day price information will be available through subscription services, such as Bloomberg, Markit and Thomson Reuters, which can be accessed by Authorized Participants and other investors. The Fund’s Web site will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Trading in Shares of the Fund will be halted under the conditions specified in Nasdaq Rules 4120 and 4121 or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 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, FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and in the Commodities and other exchange-traded securities and instruments held by the Fund and the First Trust Subsidiary with other markets and other entities that are members of the ISG and FINRA may obtain trading information regarding trading in the Shares and in the Commodities and other exchangetraded securities and instruments held by the Fund and the First Trust Subsidiary from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and in the Commodities and other exchange-traded securities and instruments held by the Fund and the First Trust Subsidiary from markets and other entities that are members of ISG, which includes securities and futures exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement. Furthermore, as noted above, investors will have ready access to information regarding the Fund’s holdings, the Intraday Indicative Value, the Disclosed Portfolio, and quotation and last sale information for the Shares. For the above reasons, Nasdaq believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of activelymanaged exchange-traded fund that will enhance competition among market participants, to the benefit of investors and the marketplace. E:\FR\FM\30AUN1.SGM 30AUN1 Federal Register / Vol. 78, No. 169 / Friday, August 30, 2013 / Notices 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: available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 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–2013–107 and should be submitted on or before September 20, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–21184 Filed 8–29–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70256; File No. SR–BYX– 2013–029] • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2013–107 on the subject line. Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Registration and Continuing Education Fees for BATS Y-Exchange, Inc. Paper Comments: tkelley on DSK3SPTVN1PROD with NOTICES Electronic Comments August 26, 2013. • 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–2013–107. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be VerDate Mar<15>2010 18:00 Aug 29, 2013 Jkt 229001 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 16, 2013, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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 the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to 32 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 1 15 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 53807 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 The Exchange filed a proposal to amend Rule 2.5, entitled ‘‘Restrictions,’’ to include the Regulatory Fees that will be charged to certain registered persons at the Exchange for the proficiency examination and continuing education (‘‘CE’’) requirements under the Rule. Changes to Exchange fees pursuant to this proposal are effective upon filing. The text of the proposed rule change is available at the Exchange’s Web site at https://www.batstrading.com, at the principal office of the Exchange, 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, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to add Interpretation and Policy .01(j) to Rule 2.5 to include the examination fee that will be charged to individuals that choose to complete the Proprietary Traders Qualification Examination (‘‘Series 56’’). Specifically, the Exchange is proposing to add a $195 examination fee for this examination. The Exchange also proposes to add Interpretation and Policy .02(f) to Rule 2.5 to include a $60 session fee for those individuals that must complete the S501 Series 56 Proprietary Trader Continuing Education Program (‘‘S501’’). Examination Fee Recently, the Exchange amended Interpretation and Policy .01(f) to Rule 2.5 to include the registration and qualification requirements for persons registered as Proprietary Traders with E:\FR\FM\30AUN1.SGM 30AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 169 (Friday, August 30, 2013)]
[Notices]
[Pages 53799-53807]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21184]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70253; File No. SR-NASDAQ-2013-107]

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 Global Tactical Commodity
Strategy Fund of First Trust Exchange-Traded Fund VII

August 26, 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 August 16, 2013, The NASDAQ Stock Market LLC (``Exchange'' or
``Nasdaq'') 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 the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

Nasdaq proposes to list and trade the shares of the First Trust
Global Tactical Commodity Strategy Fund (the ``Fund'') of First Trust
Exchange-Traded Fund VII (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 https://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, NASDAQ included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASDAQ has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \3\ on the Exchange.\4\ The Fund will be an
actively managed exchange-traded fund (``ETF''). The Shares will be

[[Page 53800]]

offered by the Trust, which was established as a Massachusetts business
trust on November 6, 2012.\5\ The Trust is registered with the
Commission as an investment company and has filed a registration
statement on Form N-1A (``Registration Statement'') with the
Commission.\6\ The Fund is a series of the Trust. With respect to the
futures contracts held indirectly through a wholly-owned subsidiary
controlled by the Fund and organized under the laws of the Cayman
Islands (referred to herein as the ``First Trust Subsidiary''), not
more than 10% of the weight \7\ of such futures contracts in the
aggregate shall consist of instruments whose principal trading market
is not a member of the Intermarket Surveillance Group (``ISG'') or is a
market with which the Exchange does not have a comprehensive
surveillance sharing agreement.
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\3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
\4\ 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. 66489 (February 29, 2012), 77 FR 13379
(March 6, 2012) (SR-NASDAQ-2012-004) (order approving listing and
trading of WisdomTree Emerging Markets Corporate Bond Fund).
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 No. 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). The Exchange
believes the proposed rule change raises no significant issues not
previously addressed in those prior Commission orders.
\5\ The Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act (the ``Exemptive
Order''). 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 an
international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that the Fund will comply
with the federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the
securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933 (15 U.S.C. 77a).
\6\ See Registration Statement on Form N-1A for the Trust, dated
November 13, 2012 (File Nos. 333-184918 and 811-22767). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement.
\7\ To be calculated as the value of the contract divided by the
total absolute notional value of the First Trust Subsidiary's
futures contracts.
---------------------------------------------------------------------------

First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. Brown Brothers Harriman & Co. (``BBH'') will act as
the administrator, accounting agent, custodian (``Custodian'') and
transfer agent to the Fund.
Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\8\ In addition, paragraph
(g) further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the open-end fund's portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with
the establishment of a ``fire wall'' between the investment adviser and
the broker-dealer reflects the applicable open-end fund's portfolio,
not an underlying benchmark index, as is the case with index-based
funds. The Adviser is not a broker-dealer, although it is affiliated
with the Distributor, a broker-dealer. The Adviser has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. In the event (a) the Adviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to its relevant personnel and/or
such broker-dealer affiliate, if applicable, regarding access to
information concerning the composition and/or changes to the portfolio
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund does not currently intend to use a sub-adviser.
---------------------------------------------------------------------------

\8\ 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.
---------------------------------------------------------------------------

First Trust Global Tactical Commodity Strategy Fund
According to the Registration Statement, the Fund's investment
objective will be to provide total return by providing investors with
commodity exposure while seeking a relatively stable risk profile. The
Fund will pursue its objective by seeking to invest through a wholly-
owned subsidiary in a broadly diversified portfolio comprised
principally of commodity futures contracts.
Principal Investments
Fund's Investments
The Fund will be an actively managed ETF that will seek to achieve
attractive risk adjusted returns by investing in exchange-traded
commodity futures contracts and exchange-traded commodity linked
instruments \9\ (collectively, ``Commodities'') through the First Trust
Subsidiary. The Fund will seek to gain exposure to the futures markets
through investments in the First Trust Subsidiary. The Fund's
investment in the First Trust Subsidiary may not exceed 25% of the
Fund's total assets. The remainder of the Fund's assets will primarily
be invested in: (1) Short-term investment grade fixed income securities
that include U.S. government and agency securities,\10\ sovereign debt
obligations of non-U.S. countries, and repurchase agreements; \11\ (2)
money market instruments; \12\ (3) ETFs and other investment companies

[[Page 53801]]

registered under the 1940 Act; and (4) cash and other cash equivalents.
---------------------------------------------------------------------------

\9\ Exchange-traded commodity linked instruments include: (1)
ETFs that provide exposure to commodities as would be listed under
Nasdaq Rules 5705 and 5735; and (2) pooled investment vehicles that
invest primarily in commodities and commodity-related instruments as
would be listed under Nasdaq Rules 5710 and 5711. Such pooled
investment vehicles are commonly referred to as ``exchange traded
funds'' but they are not registered as investment companies because
of the nature of their underlying investments.
\10\ Such securities will include securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S.
government, or by various instrumentalities, which have been
established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the ``full faith and credit'' of the U.S.
government. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed
by the full faith and credit of the U.S. government.
\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 Fund's Board of Trustees
(the ``Board''). The Adviser will review and monitor the
creditworthiness of such institutions. The Adviser will monitor the
value of the collateral at the time the transaction is entered into
and at all times during the term of the repurchase agreement.
\12\ For the Fund's purposes, money market instruments will
include: Short-term, high-quality securities issued or guaranteed by
non-U.S. governments, agencies and instrumentalities; non-
convertible corporate debt securities with remaining maturities of
not more than 397 days that satisfy ratings requirements under Rule
2a-7 of the 1940 Act; money market mutual funds; and deposits and
other obligations of U.S. and non-U.S. banks and financial
institutions. As a related matter, according to the Registration
Statement, the Fund may invest in shares of money market mutual
funds to the extent permitted by the 1940 Act.
---------------------------------------------------------------------------

The Fund will not invest directly in Commodities. The Fund expects
to exclusively gain exposure to these investments by investing in the
First Trust Subsidiary.
The Fund will use the fixed-income securities as investments and to
collateralize the First Trust Subsidiary's commodity exposure on a day-
to-day basis. The Fund may also invest directly in ETFs \13\ and other
investment companies, including exchange-traded closed-end funds that
provide exposure to commodities, equity securities and fixed income
securities to the extent permitted under the 1940 Act.\14\
---------------------------------------------------------------------------

\13\ As described in the Registration Statement, an ETF is an
investment company registered under the 1940 Act that holds a
portfolio of securities. Many ETFs are designed to track the
performance of a securities index, including industry, sector,
country and region indexes. ETFs included in the Fund will be listed
and traded in the U.S. on registered exchanges. The Fund may invest
in the securities of ETFs in excess of the limits imposed under the
1940 Act pursuant to exemptive orders obtained by other ETFs and
their sponsors from the Commission. The ETFs in which the Fund may
invest include Index Fund Shares (as described in Nasdaq Rule 5705),
Portfolio Depositary Receipts (as described in Nasdaq Rule 5705),
and Managed Fund Shares (as described in Nasdaq Rule 5735). While
the Fund may invest in inverse ETFs, the Fund will not invest in
leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
\14\ The equity securities (including shares of ETFs and closed-
end funds) in which the Fund may invest will be limited to
securities that trade in markets that are members of the ISG, which
includes all U.S. national securities exchanges, or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------

The Fund's investment in the First Trust Subsidiary will be
designed to help the Fund achieve exposure to commodity returns in a
manner consistent with the federal tax requirements applicable to the
Fund and other regulated investment companies.
First Trust Subsidiary's Investments
The First Trust Subsidiary will seek to make investments generally
in Commodities while managing volatility, as measured by annualized
standard deviation, to a more consistent range than statistically
weighted commodity indices. The investment weightings of the underlying
Commodities held by the First Trust Subsidiary will be rebalanced in an
attempt to stabilize risk levels. The dynamic weighting process will
result in a disciplined, systematic investment process which will be
keyed off of the Adviser's volatility forecasting process.
The First Trust Subsidiary will be advised by the Adviser.\15\ The
Fund's investment in the First Trust Subsidiary is intended to provide
the Fund with exposure to commodity markets within the limits of
current federal income tax laws applicable to investment companies such
as the Fund, which limit the ability of investment companies to invest
directly in the derivative instruments. The First Trust Subsidiary will
have the same investment objective as the Fund, but unlike the Fund, it
may invest without limitation in Commodities. The First Trust
Subsidiary's investments will provide the Fund with exposure to
domestic and international markets.
---------------------------------------------------------------------------

\15\ The First Trust Subsidiary will not be registered under the
1940 Act and will not be directly subject to its investor
protections, except as noted in the Registration Statement. However,
the First Trust Subsidiary will be wholly-owned and controlled by
the Fund and will be advised by the Adviser. Therefore, the Fund's
ownership and control of the First Trust Subsidiary will prevent the
First Trust Subsidiary from taking action contrary to the interests
of the Fund or its shareholders. The Board will have oversight
responsibility for the investment activities of the Fund, including
its expected investment in the First Trust Subsidiary, and the
Fund's role as the sole shareholder of the First Trust Subsidiary.
The Adviser will receive no additional compensation for managing the
assets of the First Trust Subsidiary. The First Trust Subsidiary
will also enter into separate contracts for the provision of
custody, transfer agency, and accounting agent services with the
same or with affiliates of the same service providers that provide
those services to the Fund.
\16\ The exchange codes listed are Bloomberg shorthand codes for
the corresponding exchanges. The New York Board of Trade is
currently owned by the ICE Futures Exchange; Bloomberg continues to
use NYB as its shorthand code for certain contracts formerly traded
on the New York Board of Trade.
\17\ All of the exchanges are ISG members except for the London
Metal Exchange (``LME''). The LME falls under the jurisdiction of
the United Kingdom Financial Conduct Authority (``FCA''). The FCA is
responsible for ensuring the financial stability of the exchange
members' businesses, whereas the LME is largely responsible for the
oversight of day-to-day exchange activity, including conducting the
arbitration proceedings under the LME arbitration regulations.
---------------------------------------------------------------------------

The First Trust Subsidiary may have both long and short positions
in Commodities. However, for a given Commodity the First Trust
Subsidiary will have a net long exposure. The First Trust Subsidiary
will initially consider investing in futures contracts set forth in the
following table. The table also provides each instrument's trading
hours, exchange and ticker symbol. The table is subject to change.

----------------------------------------------------------------------------------------------------------------
Bloomberg
Commodity exchange code Exchange name Trading hours Contract ticker (generic
\16\ \17\ (E.T.) Bloomberg ticker)
----------------------------------------------------------------------------------------------------------------
Cattle, Live/Choice Average.. CME Chicago 18:00-17:00.... LC
Mercantile
Exchange.
Cocoa........................ NYB ICE Futures 04:00-14:00.... CC
Exchange.
Cotton/1-1/16''.............. NYB ICE Futures 21:00-14:30.... CT
Exchange.
Feeder Cattle................ CME Chicago 18:00-17:00.... FC
Mercantile
Exchange.
Coffee `C'/Colombian......... NYB ICE Futures 03:30-14:00.... KC
Exchange.
Soybeans/No. 2 Yellow........ CBT Chicago Board 20:00-14:15.... S
of Trade.
Soybean Meal/48% Protein..... CBT Chicago Board 20:00-14:15.... SM
of Trade.
Soybean Oil/Crude............ CBT Chicago Board 20:00-14:15.... BO
of Trade.
Corn/No. 2 Yellow............ CBT Chicago Board 20:00-14:15.... C
of Trade.
Wheat/No. 2 Hard Winter...... KCB Kansas City 20:00-14:15.... KW
Board of Trade.
Wheat/No. 2 Soft Red......... CBT Chicago Board 20:00-14:15.... W
of Trade.
Sugar 11/World Raw.. NYB ICE Futures 02:30-14:00.... SB
Exchange.
Hogs, Lean/Average Iowa/S CME Chicago 18:00-17:00.... LH
Minn. Mercantile
Exchange.
Crude Oil, WTI/Global Spot... NYM New York 18:00-17:15.... CL
Mercantile
Exchange.
Crude Oil, Brent/Global Spot. ICE ICE Futures 20:00-18:00.... CO
Exchange.
NY Harb ULSD................. NYM New York 18:00-17:15.... HO
Mercantile
Exchange.
Gas-Oil-Petroleum............ ICE ICE Futures 20:00-18:00.... QS
Exchange.
Natural Gas, Henry Hub....... NYM New York 18:00-17:15.... NG
Mercantile
Exchange.
Gasoline, Blendstock (RBOB).. NYM New York 18:00-17:15.... XB
Mercantile
Exchange.
Gold......................... CMX COMEX.......... 18:00-17:15.... GC
Silver....................... CMX COMEX.......... 18:00-17:15.... SI
Platinum..................... NYM New York 18:00-17:15.... PL
Mercantile
Exchange.
Copper High Grade/Scrap No. 2 CMX COMEX.......... 18:00-17:15.... HG
Wire.
Aluminum, LME Primary 3 Month LME London Metal 15:00-14:45.... LA
Rolling Forward. Exchange.

[[Page 53802]]

Lead, LME Primary 3 Month LME London Metal 15:00-14:45.... LL
Rolling Forward. Exchange.
Nickel, LME Primary 3 Month LME London Metal 15:00-14:45.... LN
Rolling Forward. Exchange.
Tin, LME Primary 3 Month LME London Metal 15:00-14:45.... LT
Rolling Forward. Exchange.
Zinc, LME Primary 3 Month LME London Metal 15:00-14:45.... LX
Rolling Forward. Exchange.
----------------------------------------------------------------------------------------------------------------

As U.S. and London exchanges list additional contracts, as
currently listed contracts on those exchanges gain sufficient liquidity
or as other exchanges list sufficiently liquid contracts, the Adviser
will include those contracts in the list of possible investments of the
First Trust Subsidiary. The list of commodities futures and commodities
markets considered for investment can and will change over time.
Commodities Regulation
The Commodity Futures Trading Commission (``CFTC'') has recently
adopted substantial amendments to CFTC Rule 4.5 relating to the
permissible exemptions and conditions for reliance on exemptions from
registration as a commodity pool operator. As a result of the
instruments that will be indirectly held by the Fund, the Adviser has
registered as a commodity pool operator \18\ and is also a member of
the National Futures Association (``NFA''). The Fund and the First
Trust Subsidiary are subject to regulation by the CFTC and NFA and
additional disclosure, reporting and recordkeeping rules imposed upon
commodity pools.
---------------------------------------------------------------------------

\18\ As defined in Section 1a(11) of the Commodity Exchange Act.
---------------------------------------------------------------------------

Other Investments
The Fund may invest in certificates of deposit issued against funds
deposited in a bank or savings and loan association. In addition, the
Fund may invest in bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions.
The Fund may invest in 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. In addition, the Fund may invest
in commercial paper, which are short-term unsecured promissory notes,
including master demand notes issued by corporations to finance their
current operations. Master demand notes are direct lending arrangements
between the Fund and a corporation. The Fund may invest in commercial
paper only if it has received the highest rating from at least one
nationally recognized statistical rating organization or, if unrated,
judged by the Adviser to be of comparable quality.
Investment Restrictions
According to the Registration Statement, the Fund may not invest
more than 25% of the value of its total assets in securities of issuers
in any one industry or group of industries. This restriction will not
apply to obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or securities of other investment
companies.\19\
---------------------------------------------------------------------------

\19\ 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 First Trust Subsidiary's shares will be offered only to the
Fund and the Fund will not sell shares of the First Trust Subsidiary to
other investors. The Fund and the First Trust Subsidiary will not
invest in any non-U.S. equity securities (other than shares of the
First Trust Subsidiary). The Fund will not purchase securities of open-
end or closed-end investment companies except in compliance with the
1940 Act.
Pursuant to the Exemptive Order, the Fund will not invest directly
in options contracts, futures contracts or swap agreements, however,
this restriction will not apply to the First Trust Subsidiary.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser and
master demand notes.\20\ The Fund will monitor its portfolio liquidity
on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity if, through a change in values, net assets, or other
circumstances, more than 15% of the Fund's net assets are held in
illiquid securities. Illiquid securities include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.\21\
---------------------------------------------------------------------------

\20\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
\21\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), FN 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
---------------------------------------------------------------------------

The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company under SubChapter M of the
Internal Revenue Code.\22\
---------------------------------------------------------------------------

\22\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Under the 1940 Act, the Fund's investment in investment companies
will be limited to, subject to certain exceptions: (i) 3% of the total
outstanding voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect to any one investment company, and
(iii) 10%

[[Page 53803]]

of the Fund's total assets with respect to investment companies in the
aggregate.
The Fund's and the First Trust Subsidiary's investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
Net Asset Value
According to the Registration Statement, the Fund's net asset value
(``NAV'') will be determined as of the close of trading (normally 4:00
p.m., Eastern time (``E.T.'')) on each day the New York Stock Exchange
(``NYSE'') is open for business. NAV will be calculated for the Fund by
taking the market price of the Fund's total assets, including interest
or dividends accrued but not yet collected, less all liabilities, and
dividing such amount by the total number of Shares outstanding. The
result, rounded to the nearest cent, will be the NAV per Share. All
valuations will be subject to review by the Board or its delegate.
The Fund's and the First Trust Subsidiary's investments will be
valued at market value or, in the absence of market value with respect
to any investment, at fair value in accordance with valuation
procedures adopted by the Board and in accordance with the 1940 Act.
Portfolio securities traded on more than one securities exchange will
be valued at the last sale price or, if so disseminated by an exchange,
the official closing price, as applicable, on the business day as of
which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio
securities traded in the over-the-counter market will be valued at
their closing bid prices. Short-term investments that mature in less
than 60 days when purchased will be valued at cost adjusted for
amortization of premiums and accretion of discounts.
Exchange-traded futures contracts will be valued at the closing
price in the market where such contracts are principally traded.
Certain securities may not be able to be priced by pre-established
pricing methods. Such securities may be valued by the Board or its
delegate at fair value. The use of fair value pricing by the Fund will
be governed by valuation procedures adopted by the Board and in
accordance with the provisions of the 1940 Act. These securities
generally include, but are not limited to, restricted securities
(securities which may not be publicly sold without registration under
the Securities Act of 1933) for which a pricing service is unable to
provide a market price; securities whose trading has been formally
suspended; a security whose market price is not available from a pre-
established pricing source; a security with respect to which an event
has occurred that is likely to materially affect the value of the
security after the market has closed but before the calculation of the
Fund's net asset value or make it difficult or impossible to obtain a
reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's ``fair value.'' As
a general principle, the current ``fair value'' of a security would
appear to be the amount which the owner might reasonably expect to
receive for the security upon its current sale. The use of fair value
prices by the Fund generally results in the prices used by the Fund
that may differ from current market quotations or official closing
prices on the applicable exchange. A variety of factors may be
considered in determining the fair value of such securities.
Creation and Redemption of Shares
The Trust will issue and sell Shares of the Fund only in Creation
Unit aggregations, and only in aggregations of 50,000 Shares, on a
continuous basis through the Distributor, without a sales load, at the
NAV next determined after receipt, on any business day, of an order in
proper form.
The consideration for purchase of Creation Unit aggregations of the
Fund may consist of (i) cash in lieu of all or a portion of the Deposit
Securities, as defined below, and/or (ii) a designated portfolio of
securities determined by the Adviser that generally will conform to the
holdings of the Fund consistent with its investment objective (the
``Deposit Securities'') per each Creation Unit aggregation and
generally an amount of cash (the ``Cash Component'') computed as
described below. Together, the Deposit Securities and the Cash
Component (including the cash in lieu amount) will constitute the
``Fund Deposit,'' which will represent the minimum initial and
subsequent investment amount for a Creation Unit aggregation of the
Fund.
The consideration for redemption of Creation Unit aggregations of
the Fund may consist of (i) cash in lieu of all or a portion of the
Fund Securities as defined below, and/or (ii) a designated portfolio of
securities determined by the Adviser that generally will conform to the
holdings of the Fund consistent with its investment objective per each
Creation Unit aggregation (``Fund Securities'') and generally a Cash
Component, as described below.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component will serve the function of compensating for
any differences between the NAV per Creation Unit aggregation and the
Deposit Amount (as defined below). For example, for a creation the Cash
Component will be an amount equal to the difference between the NAV of
Fund Shares (per Creation Unit aggregation) and the ``Deposit
Amount''--an amount equal to the market value of the Deposit Securities
and/or cash in lieu of all or a portion of the Deposit Securities. If
the Cash Component is a positive number (i.e., the NAV per Creation
Unit aggregation exceeds the Deposit Amount), the Authorized
Participant (defined below) will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit
aggregation is less than the Deposit Amount), the Authorized
Participant will receive the Cash Component.
The Custodian, through the National Securities Clearing Corporation
(``NSCC''), will make available on each business day, prior to the
opening of business of the NYSE (currently 9:30 a.m., E.T.), the list
of the names and the quantity of each Deposit Security to be included
in the current Fund Deposit (based on information at the end of the
previous business day). Such Fund Deposit will be applicable, subject
to any adjustments as described below, in order to effect creations of
Creation Unit aggregations of the Fund until such time as the next-
announced composition of the Deposit Securities is made available.
The identity and quantity of the Deposit Securities required for a
Fund Deposit for the Shares may change as rebalancing adjustments and
corporate action events are reflected within the Fund from time to time
by the Adviser consistent with the investment objective of the Fund. In
addition, the Trust will reserve the right to permit or require the
substitution of an amount of cash, i.e., a ``cash in lieu'' amount, to
be added to the Cash Component to replace any Deposit Security that may
not be available in sufficient quantity for delivery or which might not
be eligible for trading by an Authorized Participant or the investor
for which it is acting or other relevant reason.
In addition to the list of names and numbers of securities
constituting the current Deposit Securities of a Fund Deposit, the
Custodian, through the NSCC, will also make available on each business
day, the estimated Cash Component, effective through and including the
previous business day, per Creation Unit aggregation of the Fund.
According to the Registration Statement, to be eligible to place
orders with respect to creations and

[[Page 53804]]

redemptions of Creation Units, an entity must be (i) a ``Participating
Party,'' i.e., a broker-dealer or other participant in the clearing
process through the continuous net settlement system of the NSCC or
(ii) a Depository Trust Company (``DTC'') Participant (a ``DTC
Participant''). In addition, each Participating Party or DTC
Participant (each, an ``Authorized Participant'') must execute an
agreement that has been agreed to by the Distributor and the Custodian
with respect to purchases and redemptions of Creation Units.
All orders to create Creation Unit aggregations must be received by
the transfer agent no later than the closing time of the regular
trading session on the NYSE (ordinarily 4:00 p.m., E.T.) in each case
on the date such order is placed in order for creations of Creation
Unit aggregations to be effected based on the NAV of Shares of the Fund
as next determined on such date after receipt of the order in proper
form.
In order to redeem Creation Units of the Fund, an Authorized
Participant must submit an order to redeem for one or more Creation
Units. All such orders must be received by the Fund's transfer agent in
proper form no later than the close of regular trading on the NYSE
(ordinarily 4:00 p.m. E.T.) in order to receive that day's closing NAV
per Share.
Availability of Information
The Fund's Web site (www.ftportfolios.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Web site
will include the Share's ticker, Cusip and exchange information along
with additional quantitative information updated on a daily basis,
including, for the Fund: (1) Daily trading value, the prior business
day's reported NAV and closing price, mid-point of the bid/ask spread
at the time of calculation of such NAV (the ``Bid/Ask Price'') \23\ 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 \24\ on the
Exchange, the Fund will disclose on its Web site the identities and
quantities of the portfolio of securities, Commodities and other assets
(the ``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held
by the Fund and the First Trust Subsidiary that will form the basis for
the Fund's calculation of NAV at the end of the business day.\25\ The
Disclosed Portfolio will include, as applicable, the names, quantity,
percentage weighting and market value of securities, Commodities and
other assets held by the Fund and the First Trust Subsidiary and the
characteristics of such assets. The Web site and information will be
publicly available at no charge.
---------------------------------------------------------------------------

\23\ 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 the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\24\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m.
to 8 p.m. E.T.).
\25\ 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.
---------------------------------------------------------------------------

In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's portfolio (including the First
Trust Subsidiary's portfolio), will be disseminated. Moreover, the
Intraday Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service \26\ will be based upon the current
value for the components of the Disclosed Portfolio and will be updated
and widely disseminated by one or more major market data vendors and
broadly displayed at least every 15 seconds during the Regular Market
Session.
---------------------------------------------------------------------------

\26\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
---------------------------------------------------------------------------

The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
Intra-day, executable price quotations on the securities,
Commodities and other assets held by the Fund and the First Trust
Subsidiary, will be available from major broker-dealer firms or on the
exchange on which they are traded, as applicable. Intra-day price
information will also be available through subscription services, such
as Bloomberg, Markit and Thomson Reuters, which can be accessed by
Authorized Participants and other investors.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's Shareholder Reports, and
its Form N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Fund,
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. The previous
day's closing price and trading volume information for the Shares will
be published daily in the financial section of newspapers. Quotation
and last sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares and any underlying exchange-traded products.
Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and redemption procedures, fees,
Fund holdings disclosure policies, distributions and taxes will be
included in the Registration Statement. All terms relating to the Fund
that are referred to, but not defined in, this proposed rule change are
defined in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund and the First Trust Subsidiary must be in compliance
with Rule 10A-3 \27\ 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

[[Page 53805]]

will be made available to all market participants at the same time.
---------------------------------------------------------------------------

\27\ 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,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
Trading may be halted because of market conditions or for reasons that,
in the view of the Exchange, make trading in the Shares inadvisable.
These may include: (1) The extent to which trading is not occurring in
the securities, Commodities and other assets constituting the Disclosed
Portfolio of the Fund and the First Trust Subsidiary; 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 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules
to facilitate transactions in the Shares during all trading sessions.
As provided in Nasdaq Rule 5735(b)(3), the minimum price variation for
quoting and entry of orders in Managed Fund Shares traded on the
Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\28\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
---------------------------------------------------------------------------

\28\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and in the Commodities and other
exchange-traded securities and instruments held by the Fund and the
First Trust Subsidiary with other markets and other entities that are
members of the ISG \29\ and FINRA may obtain trading information
regarding trading in the Shares and in the Commodities and other
exchange-traded securities and instruments held by the Fund and the
First Trust Subsidiary from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and in the Commodities and other exchange-traded securities and
instruments held by the Fund and the First Trust Subsidiary from
markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

\29\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------

In addition, with respect to the futures contracts held indirectly
through the First Trust Subsidiary, not more than 10% of the weight
\30\ of such futures contracts in the aggregate shall consist of
instruments whose principal trading market is not a member of ISG or is
a market with which the Exchange does not have a comprehensive
surveillance sharing agreement. In addition, the Exchange also has a
general policy prohibiting the distribution of material, non-public
information by its employees.
---------------------------------------------------------------------------

\30\ To be calculated as the value of the contract divided by
the total absolute notional value of the First Trust Subsidiary's
futures contracts.
---------------------------------------------------------------------------

Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value is disseminated; (4) the risks involved
in trading the Shares during the Pre-Market and Post-Market Sessions
when an updated Intraday Indicative Value will not be calculated or
publicly disseminated; (5) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
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 in general and Section 6(b)(5) of the Act in particular in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and in general, to protect
investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the Shares will be subject to the
existing trading surveillances, administered by both Nasdaq and also
FINRA on behalf of the Exchange, which are designed to

[[Page 53806]]

detect violations of Exchange rules and applicable federal securities
laws. The Adviser is affiliated with a broker-dealer and has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the Fund's portfolio. In addition, paragraph (g) of Nasdaq
Rule 5735 further requires that personnel who make decisions on the
open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material, non-public
information regarding the open-end fund's portfolio. The Fund's and the
First Trust Subsidiary's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. FINRA
may obtain information via ISG from other exchanges that are members of
ISG. In addition, the Exchange may obtain information regarding trading
in the Shares and in the Commodities and other exchange-traded
securities and instruments held by the Fund and the First Trust
Subsidiary from markets and other entities that are members of ISG,
which includes securities and futures exchanges, or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
With respect to the futures contracts held indirectly through the First
Trust Subsidiary, not more than 10% of the weight \31\ of such futures
contracts in the aggregate shall consist of instruments whose principal
trading market is not a member of the ISG or is a market with which the
Exchange does not have a comprehensive surveillance sharing agreement.
The Fund will invest up to 25% of its total assets in the First Trust
Subsidiary. The Fund may hold up to an aggregate amount of 15% of its
net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities and master demand notes.
The Fund will not invest directly in Commodities and the Fund expects
to exclusively gain exposure to these investments by investing in the
First Trust Subsidiary. The Fund will use the fixed-income securities
as investments and to collateralize the First Trust Subsidiary's
commodity exposure on a day-to-day basis. The Fund may also invest
directly in ETFs and other investment companies, including exchange-
traded closed-end funds, that provide exposure to commodities, equity
securities and fixed income securities to the extent permitted under
the 1940 Act. The Fund and the First Trust Subsidiary will not invest
in any non-U.S. equity securities (other than shares of the First Trust
Subsidiary).
---------------------------------------------------------------------------

\31\ To be calculated as the value of the contract divided by
the total absolute notional value of the First Trust Subsidiary's
futures contracts.
---------------------------------------------------------------------------

The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Intraday
Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service will be widely disseminated by one or
more major market data vendors 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 of the Fund
and the First Trust Subsidiary that will form the basis for the Fund's
calculation of NAV at the end of the business day. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares and any underlying exchange-traded products. Intra-day
price information will be available through subscription services, such
as Bloomberg, Markit and Thomson Reuters, which can be accessed by
Authorized Participants and other investors.
The Fund's Web site will include a form of the prospectus for the
Fund and additional data relating to NAV and other applicable
quantitative information. Trading in Shares of the Fund will be halted
under the conditions specified in Nasdaq Rules 4120 and 4121 or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances
under which Shares of the Fund may be halted. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and in the Commodities and other exchange-traded securities and
instruments held by the Fund and the First Trust Subsidiary with other
markets and other entities that are members of the ISG and FINRA may
obtain trading information regarding trading in the Shares and in the
Commodities and other exchange-traded securities and instruments held
by the Fund and the First Trust Subsidiary from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and in the Commodities and other exchange-traded
securities and instruments held by the Fund and the First Trust
Subsidiary from markets and other entities that are members of ISG,
which includes securities and futures exchanges, or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
Furthermore, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.

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

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.

[[Page 53807]]

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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2013-107 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-2013-107. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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-2013-107 and should
be submitted on or before September 20, 2013.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21184 Filed 8-29-13; 8:45 am]
BILLING CODE 8011-01-P

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