Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the Shares of the First Trust High Income Fund of First Trust Exchange-Traded Fund VI, 59402-59409 [2013-23421]
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Federal Register / Vol. 78, No. 187 / Thursday, September 26, 2013 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
positions and contemplates that porting
would take up to 2 days following the
default of a Clearing Member. After
taking into account the porting period,
the risk horizon for liquidation of
customer CDS portfolios would be
extended to 7 days. The increased
liquidation period used in determining
the initial margin requirement for
customer CDS positions will only apply
to the spread response, basis and
interest rate risk components of the
model.
The ICE Clear Europe CDS Risk
Policy, the CDS Risk Model Description
methodology document, CDS BackTesting Framework and CDS Default
Management Framework have been
updated to account for the
enhancements described above.
ICE Clear Europe believes that the
amendments are consistent with the
requirements of Section 17A of the Act 5
and the regulations thereunder
applicable to it, including the standards
under Rule 17Ad–22.6 In particular, ICE
Clear Europe believes the amendments
will enhance the clearinghouse’s margin
methodology by more accurately
addressing Specific Wrong-Way Risk
presented by index CDS positions of
Clearing Members. ICE Clear Europe
further believes that the amendments
will enhance the guaranty fund
calculation methodology, and adjust the
liquidation period for customer
positions used in calculating initial
margin for CDS. In ICE Clear Europe’s
view, the amendments will therefore
promote the prompt and accurate
clearance and settlement of securities
transactions, the safeguarding of
securities and funds in the custody or
control of ICE Clear Europe and the
protection of investors and the public
interest, within the meaning of Section
17A(b)(3)(F) of the Act.7 Furthermore,
ICE Clear Europe believes the revisions
will enhance ICE Clear Europe’s
financial resources, consistent with the
requirements of Rule 17Ad–22(b),8 by
requiring additional initial margin and
CDS Guaranty Fund contributions to
address Specific Wrong-Way Risk.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 9 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
5 15
U.S.C. 78q–1.
CFR 240.17Ad–22.
7 15 U.S.C. 78q–1(b)(3)(F).
8 17 CFR 240.17Ad–22(b).
9 15 U.S.C. 78s(b)(2)(C).
rules and regulations thereunder
applicable to such organization. Section
17A(b)(3)(F) of the Act 10 requires,
among other things, that the rules of a
clearing agency are designed to promote
the prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible, and in general,
to protect investors and the public
interest.
After careful review, the Commission
finds that the proposed rule change is
consistent with Section 17A the Act 11
and the rules thereunder applicable to
ICE Clear Europe. The Commission
believes the proposed enhancements to
ICE Clear Europe’s margin and guaranty
fund methodologies are designed to
promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, to assure the
safeguarding of securities and funds
which are in the custody or control of
ICE Clear Europe or for which it is
responsible, and in general, to protect
investors and the public interest, in
furtherance of Section 17A(b)(3)(F) of
the Act.12 In particular, the proposed
rules more accurately address Specific
Wrong-Way risk presented by the index
CDS positions of ICE Clear Europe’s
Clearing Members by requiring
additional CDS Guaranty Fund
contributions from those Clearing
Members that present Specific WrongWay Risk, up to a defined threshold,
and additional initial margin charges to
collateralize any Specific Wrong-Way
Risk presented in excess of this defined
threshold. The proposed amendments
also enhance the CDS Guaranty Fund
calculation methodology to cover the
uncollateralized losses that would result
from up to five single names—including
two Clearing Members and three other
single names—that would cause the
greatest losses upon default.
Additionally, the proposed rule change
would increase the liquidation period
from 5 to 7 days for calculation of the
spread response, basis, and interest rate
risk components of initial margin for
customer CDS positions to account for
situations where porting of customer
positions should fail during the 2-day
period following the default of a
Clearing Member.
6 17
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18:19 Sep 25, 2013
10 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1.
12 15 U.S.C. 78q–1(b)(3)(F).
11 15
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IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 13 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,14 that the
proposed rule change (SR–ICEEU–2013–
11) be, and hereby is, approved.15
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–23423 Filed 9–25–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70460; File No. SR–
NASDAQ–2013–122]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change
Relating to the Listing and Trading of
the Shares of the First Trust High
Income Fund of First Trust ExchangeTraded Fund VI
September 20, 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
September 12, 2013, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in in Items I, II, and
III below, which Items have been
prepared by Nasdaq. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Nasdaq proposes to list and trade the
shares of the First Trust High Income
ETF (the ‘‘Fund’’) of First Trust
Exchange-Traded Fund VI (the ‘‘Trust’’)
under Nasdaq Rule 5735 (‘‘Managed
13 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
15 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
14 15
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Federal Register / Vol. 78, No. 187 / Thursday, September 26, 2013 / Notices
Fund Shares’’).3 The shares of the Fund
are collectively referred to herein as the
‘‘Shares.’’
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below.
Nasdaq has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
tkelley on DSK3SPTVN1PROD with NOTICES
1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund
Shares 4 on the Exchange. The Fund will
be an actively-managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust, which was
established as a Massachusetts business
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008) 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). There are already multiple
actively-managed funds listed on the Exchange; see
Securities Exchange Act Release No. 66175
(February 29, 2012), 77 FR 13379 (March 6, 2012)
(SR–NASDAQ–2012–004) (order approving listing
and trading of WisdomTree Emerging Markets
Corporate Bond Fund). Additionally, the
Commission has previously approved the listing
and trading of a number of actively-managed
WisdomTree funds on NYSE Arca, Inc. pursuant to
Rule 8.600 of that exchange. See, e.g., Securities
Exchange Act Release 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.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues Index
Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
domestic stock index, fixed income securities index
or combination thereof.
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trust on June 4, 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.
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 and transfer agent to the
Fund.
Paragraph (g) of Rule 5735 provides
that if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
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.
5 The Commission has issued an order, upon
which the Trust may rely, granting certain
exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28468
(October 27, 2008) (File No. 812–13477).
6 See Post-Effective Amendment No. 3 to
Registration Statement on Form N–1A for the Trust,
dated January 16, 2013 (File Nos. 333–182308 and
811–22717). The descriptions of the Fund and the
Shares contained herein are based, in part, on
information in the Registration Statement.
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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59403
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, as applicable, regarding access
to information concerning the
composition and/or changes to the
portfolio and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio. The Fund does not currently
intend to use a sub adviser.
First Trust High Income ETF
Principal Investments
The Fund’s primary investment
objective is to provide current income
and its secondary investment objective
is to provide capital appreciation. The
Fund will pursue its objectives by
investing in large cap U.S. exchangetraded equity securities and by utilizing
an ‘‘option strategy’’ consisting of
writing (selling) U.S. exchange-traded
covered call options on the Standard &
Poor’s 500 Index (the ‘‘Index’’).
In pursuing its investment objectives,
under normal market conditions,8 the
Fund will invest primarily in large-cap
U.S. exchange-traded equity securities.
The Fund will also employ an option
strategy in which it will write U.S.
exchange-traded covered call options on
the Index in order to seek additional
8 The term ‘‘under normal market conditions’’ as
used herein includes, but is not limited to, the
absence of adverse market, economic, political or
other conditions, including extreme volatility or
trading halts in the securities markets or the
financial markets generally; operational issues
causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
In periods of extreme market disturbance, the Fund
may take temporary defensive positions, by
overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the
Adviser would continue to seek to achieve the
Fund’s investment objectives.
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cash flow (in the form of premiums on
the options) that may be distributed to
shareholders on a monthly basis. The
market value of the option strategy may
be up to 20% of the Fund’s overall net
asset value.
The equity securities in which the
Fund will invest and the options which
the Fund will write will be limited to
U.S. exchange-traded securities and
options, respectively, that trade in
markets that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
which includes all U.S. national
securities exchanges and certain foreign
exchanges, or are parties to a
comprehensive surveillance sharing
agreement with the Exchange. A list of
ISG members is available at
www.isgportal.org.
The equity securities held by the
Fund will be selected using a
mathematical optimization process
which attempts to tilt the Fund’s
common stock portfolio toward higher
dividend paying stocks. The equity
securities held by the Fund may include
non-U.S. securities that are listed on a
U.S. securities exchange in the form of
American Depositary Receipts (‘‘ADRs’’)
and Global Depositary Receipts
(‘‘GDRs’’) (collectively ‘‘Depositary
Receipts’’). The equity securities will be
periodically rebalanced.
The option portion of the portfolio
will generally consist of U.S. exchangetraded covered calls or covered call
spreads on the Index written by the
Fund. The call options written by the
Fund will typically be a laddered
portfolio of one week, one month, two
months and three months, and will
typically be written at-the-money to
slightly out-of-the-money. A call option
will give the holder the right to buy the
Index at a predetermined strike price
from the Fund. The notional value of
calls written (including calls and call
spreads written on the Index and/or
other indexes as described in Other
Investments below) will be generally
between 25% and 75% of the overall
Fund.
Other Investments
In addition to the option strategy
described in Principal Investments, the
Fund may invest up to 10% of the
market value of its net assets in futures,
options, options on futures, total return
swaps, credit default swaps 9 and
forward contracts. The Fund may utilize
such derivatives to enhance return, to
hedge some of the risks of its
investments in securities, as a substitute
9 To the extent practicable, the Fund will invest
in swaps cleared through the facilities of a
centralized clearing house.
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for a position in the underlying asset, to
reduce transaction costs, to maintain
full market exposure (which means to
adjust the characteristics of its
investments to more closely
approximate those of the markets in
which it invests), to manage cash flows
or to preserve capital. In attempting to
enhance returns and/or hedge risks, the
Fund may buy or write U.S. exchangetraded options on single stocks included
in the portfolio and/or on the Index
and/or other equity indexes. The Fund
may also write covered call spreads on
the Index and/or other equity indexes.
Under normal market conditions, the
Fund may invest up to 10% of its net
assets in short-term debt securities and
cash equivalents, or it may hold cash.
The percentage of the Fund invested in
such holdings will vary and will depend
on several factors, including market
conditions. For temporary defensive
purposes and during periods of high
cash inflows or outflows, the Fund may
depart from its principal investment
strategies and invest part or all of its
assets in short-term debt securities or
cash equivalents or it may hold cash.
During such periods, the Fund may not
be able to achieve its investment
objectives. The Fund may adopt a
defensive strategy when the Adviser
believes securities in which the Fund
normally invests have elevated risks due
to political or economic factors and in
other extraordinary circumstances.
Short-term debt securities are
securities from issuers having a longterm debt rating of at least A by
Standard & Poor’s Ratings Group (‘‘S&P
Ratings’’), Moody’s Investors Service,
Inc. (‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’)
and having a maturity of one year or
less. The use of temporary investments
will not be a part of a principal
investment strategy of the Fund.
Short-term debt securities are defined
to include, without limitation, the
following: (1) U.S. government
securities, including bills, notes and
bonds differing as to maturity and rates
of interest, which are either issued or
guaranteed by the U.S. Treasury or by
U.S. government agencies or
instrumentalities; (2) certificates of
deposit issued against funds deposited
in a bank or savings and loan
association; (3) bankers’ acceptances,
which are short-term credit instruments
used to finance commercial
transactions; (4) repurchase
agreements,10 which involve purchases
10 According to the Registration Statement, the
Fund intends to enter into repurchase agreements
only with financial institutions and dealers
believed by the Adviser to present minimal credit
risks in accordance with criteria approved by the
Board of Trustees of the Trust (‘‘Trust Board’’). The
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of debt securities; (5) bank time
deposits, which are monies kept on
deposit with banks or savings and loan
associations for a stated period of time
at a fixed rate of interest; and (6)
commercial paper, which is short-term
unsecured promissory notes. The Fund
may only invest in commercial paper
rated A–1 or higher by S&P Ratings,
Prime-1 or higher by Moody’s or F2 or
higher by Fitch.
The Fund intends to qualify each year
as a regulated investment company
(‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment). 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. The Fund may not invest 25%
or more of the value of its total assets
in securities of issuers in any one
industry or group of industries. This
restriction does not apply to obligations
issued or guaranteed by the U.S.
government, its agencies or
instrumentalities, or securities of other
investment companies.11
The Fund’s investments will be
consistent with the Fund’s investment
objectives and will not be used to
enhance leverage.
The Shares
The Fund will issue and redeem
Shares only in Creation Units at the net
asset value (‘‘NAV’’) 12 next determined
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.
11 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).
12 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange (‘‘NYSE’’), generally 4:00 p.m.
Eastern time (the ‘‘NAV Calculation Time’’). NAV
per Share will be calculated by dividing the Fund’s
net assets by the number of Fund Shares
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after receipt of an order on a continuous
basis every day except weekends and
specified holidays. The NAV of the
Fund will be determined once each
business day, normally as of the close of
trading of the NYSE, generally, 4:00
p.m. Eastern Time. Creation Unit sizes
will be 50,000 Shares per Creation Unit.
The Trust will issue and sell Shares of
the Fund only in Creation Units on a
continuous basis through the
Distributor, without a sales load (but
subject to transaction fees), at their NAV
per Share next determined after receipt
of an order, on any business day, in
proper form pursuant to the terms of the
Authorized Participant agreement (as
referred to below).
The consideration for purchase of a
Creation Unit generally will consist of
either (i) the in-kind deposit of a
designated portfolio of securities (the
‘‘Deposit Securities’’) per each Creation
Unit and the Cash Component (defined
below), computed as described below or
(ii) the cash value of all or a portion of
the Deposit Securities (‘‘Deposit Cash’’)
and the ‘‘Cash Component,’’ computed
as described below. The Fund may,
under certain circumstances, effect a
portion of creations and redemptions for
cash, rather than in-kind securities,
particularly for the put and call options
in which the Fund invests.
When accepting purchases of Creation
Units for cash, the Fund may incur
additional costs associated with the
acquisition of Deposit Securities that
would otherwise be provided by an inkind purchaser. Together, the Deposit
Securities or Deposit Cash, as
applicable, and the Cash Component
will constitute the ‘‘Fund Deposit,’’
which represents the minimum initial
and subsequent investment amount for
a Creation Unit of the Fund. The ‘‘Cash
Component’’ will be an amount equal to
the difference between the NAV of the
Shares (per Creation Unit) and the
market value of the Deposit Securities or
Deposit Cash, as applicable. If the Cash
Component is a positive number (i.e.,
the NAV per Creation Unit exceeds the
market value of the Deposit Securities or
Deposit Cash, as applicable), the Cash
Component will be such positive
amount. If the Cash Component is a
negative number (i.e., the NAV per
Creation Unit is less than the market
value of the Deposit Securities or
Deposit Cash, as applicable), the Cash
Component will be such negative
amount and the creator will be entitled
to receive cash in an amount equal to
the Cash Component. The Cash
outstanding. For more information regarding the
valuation of Fund investments in calculating the
Fund’s NAV, see Registration Statement.
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Component will serve the function of
compensating for any difference
between the NAV per Creation Unit and
the market value of the Deposit
Securities or Deposit Cash, as
applicable.
To be eligible to place orders with
respect to creations and redemptions of
Creation Units, an entity must be (i) a
‘‘Participating Party,’’ i.e., a brokerdealer or other participant in the
clearing process through the Continuous
Net Settlement System of the National
Securities Clearing Corporation
(‘‘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
BBH with respect to purchases and
redemptions of Creation Units.
BBH, through the NSCC, will make
available on each business day,
immediately prior to the opening of
business on the Exchange’s Regular
Market Session (currently 9:30 a.m.
Eastern time), the list of the names and
the required number of shares of each
Deposit Security and/or the required
amount of Deposit Cash, as applicable,
to be included in the current Fund
Deposit (based on information at the
end of the previous business day) for the
Fund. Such Fund Deposit, subject to
any relevant adjustments, will be
applicable in order to effect purchases
of Creation Units of the Fund until such
time as the next announced composition
of the Deposit Securities and/or the
required amount of Deposit Cash, as
applicable, is made available.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through BBH and only on a business
day.
With respect to the Fund, BBH,
through the NSCC, will make available
immediately prior to the opening of
business on the Exchange (9:30 a.m.
Eastern time) on each business day, the
list of the names and share quantities of
the Fund’s portfolio securities (‘‘Fund
Securities’’) and/or, if relevant, the
required cash value thereof that will be
applicable (subject to possible
amendment or correction) to
redemption requests received in proper
form on that day. Fund Securities
received on redemption may not be
identical to Deposit Securities.
Redemption proceeds for a Creation
Unit will be paid either in kind or in
cash or a combination thereof, as
determined by the Trust. With respect to
in kind redemptions of the Fund,
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59405
redemption proceeds for a Creation Unit
will consist of Fund Securities as
announced by BBH on the business day
of the request for redemption received
in proper form plus cash in an amount
equal to the difference between the NAV
of the Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities (the ‘‘Cash Redemption
Amount’’), less a fixed redemption
transaction fee and any applicable
additional variable charge as set forth in
the Registration Statement. In the event
that the Fund Securities have a value
greater than the NAV of the Shares, a
compensating cash payment equal to the
differential will be required to be made
by or through an Authorized Participant
by the redeeming shareholder.
Notwithstanding the foregoing, at the
Trust’s discretion, an Authorized
Participant may receive the
corresponding cash value of the
securities in lieu of one or more Fund
Securities.
The creation/redemption order cut off
time for the Fund is expected to be 4:00
p.m. Eastern time for purchases of
Shares. On days when the Exchange
closes earlier than normal and in the
case of custom orders, the Fund may
require orders for Creation Units to be
placed earlier in the day.
Net Asset Value
The NAV per Share for the Fund will
be computed by dividing the value of
the net assets of the Fund (i.e., the value
of its total assets less total liabilities) by
the total number of Shares outstanding,
rounded to the nearest cent. Expenses
and fees, including the management
fees, will be accrued daily and taken
into account for purposes of
determining NAV. The NAV of the Fund
will be calculated by BBH and
determined at the close of the regular
trading session on the NYSE (ordinarily
4:00 p.m. Eastern time) on each day that
such exchange is open. In calculating
the Fund’s NAV per Share, investments
will generally be valued by using market
valuations. A market valuation generally
means a valuation (i) obtained from an
exchange, a pricing service, or a major
market maker (or dealer) or (ii) based on
a price quotation or other equivalent
indication of value supplied by an
exchange, a pricing service, or a major
market maker (or dealer).
Portfolio securities listed on any
exchange other than the Exchange will
be valued at the last sale price on the
business day as of which such value is
being determined. Securities listed on
the Exchange will be valued at the
official closing price on the business
day as of which such value is being
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determined. If there has been no sale on
such day, or no official closing price in
the case of securities traded on the
Exchange, the securities will be valued
at the mean of the most recent bid and
ask prices on such day. Portfolio
securities traded on more than one
securities exchange will be valued at the
last sale price or official closing price,
as applicable, on the business day as of
which such value is being determined at
the close of the exchange representing
the principal market for such securities.
U.S. exchange-traded options and
futures contracts will be valued at the
closing price in the market where such
contracts are principally traded. Credit
default swaps will be valued using a
pricing service or, if the pricing service
does not provide a value, the Adviser’s
Pricing Committee will attempt to
obtain one or more quotes provided by
the selling dealer or financial institution
and will value the swaps accordingly.
Except as otherwise provided herein,
portfolio instruments traded in the overthe-counter market will be valued at
their closing bid prices.
The Adviser may use various pricing
services, or discontinue the use of any
pricing service, as approved by the
Trust Board from time to time. A price
obtained from a pricing service based on
such pricing service’s valuation matrix
may be considered a market valuation.
Any assets or liabilities denominated in
currencies other than the U.S. dollar
will be converted into U.S. dollars at the
current market rates on the date of
valuation as quoted by one or more
sources.
In the event that current market
valuations are not readily available or
such valuations do not reflect current
market value, the Trust’s procedures
require the Adviser’s Pricing Committee
to determine a security’s fair value if a
market price is not readily available.13
In determining such value the Adviser’s
Pricing Committee may consider, among
other things, (i) price comparisons
among multiple sources, (ii) a review of
corporate actions and news events, and
(iii) a review of relevant financial
indicators. In these cases, the Fund’s
NAV may reflect certain portfolio
13 The Valuation Committee of the Trust Board
will be responsible for the oversight of the pricing
procedures of the Fund and the valuation of the
Fund’s portfolio. The Valuation Committee has
delegated day-to-day pricing responsibilities to the
Adviser’s Pricing Committee, which will be
composed of officers of the Adviser. The Pricing
Committee will be responsible for the valuation and
revaluation of any portfolio investments for which
market quotations or prices are not readily
available. The Fund has implemented procedures
designed to prevent the use and dissemination of
material, non-public information regarding
valuation and revaluation of any portfolio
investments.
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securities’ fair values rather than their
market prices. Fair value pricing
involves subjective judgments and it is
possible that the fair value
determination for a security is
materially different than the value that
could be realized upon the sale of the
security.
Availability of Information
The Distributor’s Web site
(www.ftportfolios.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The prior
business day’s reported NAV, mid-point
of the bid/ask spread at the time of
calculation of such NAV (the ‘‘Bid/Ask
Price’’),14 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 15 on the
Exchange, the Fund will disclose on its
Web site the identities and quantities of
the portfolio of securities and other
assets (the ‘‘Disclosed Portfolio’’) held
by the Fund that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.16 On a daily
basis, the Disclosed Portfolio will
include each portfolio security and
other financial instruments of the Fund
with the following information on the
Fund’s Web site: Ticker symbol (if
applicable), name of security and
financial instrument, number of shares
(if applicable) and dollar value of
14 The Bid/Ask Price of the Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of such Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
15 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m. Eastern
time; (2) Regular Market Session from 9:30 a.m. to
4 p.m. or 4:15 p.m. Eastern time; and (3) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m.
Eastern time).
16 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.
PO 00000
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securities and financial instruments
held in the Fund, and percentage
weighting of the security and financial
instrument in the Fund. The Web site
information will be publicly available at
no charge.
In addition, for the Fund, an
estimated value, defined in Rule
5735(c)(3) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s portfolio,
will be disseminated. Moreover, the
Intraday Indicative Value, available on
the NASDAQ OMX Information LLC
proprietary index data service,17 will be
based upon the current value for the
components of the Disclosed Portfolio
and will be updated and widely
disseminated and broadly displayed at
least every 15 seconds during the
Regular Market Session. The Intraday
Indicative Value will be based on quotes
and closing prices from the securities’
local market and may not reflect events
that occur subsequent to the local
market’s close. Premiums and discounts
between the Intraday Indicative Value
and the market price may occur. This
should not be viewed as a ‘‘real time’’
update of the NAV per Share of the
Fund, which is calculated only once a
day.
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 and other assets held
by the Fund 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.
In addition, a basket composition file,
which includes the security names,
amounts and share quantities, as
applicable, required to be delivered in
exchange for the Fund’s Shares, together
with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
17 Currently, the NASDAQ OMX Global Index
Data Service (‘‘GIDS’’) is the NASDAQ OMX global
index data feed service, offering real-time updates,
daily summary messages, and access to widely
followed indexes and Intraday Indicative Values for
ETFs. GIDS provides investment professionals with
the daily information needed to track or trade
NASDAQ OMX indexes, listed ETFs, or third-party
partner indexes and ETFs.
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of Nasdaq via NSCC. The basket will
represent one Creation Unit of the Fund.
Investors will also be able to obtain
the Fund’s Statement of Additional
Information (‘‘SAI’’), the Fund’s annual
and semi-annual reports (together,
‘‘Shareholder Reports’’), and its Form
N–CSR and Form N–SAR, filed twice a
year. The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Fund, and those
documents and the Form N–CSR and
Form N–SAR may be viewed on-screen
or downloaded from the Commission’s
Web site at www.sec.gov. Information
regarding market price and volume of
the Shares will be continually available
on a real-time basis throughout the day
on brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information for
the Shares will be available via Nasdaq
proprietary quote and trade services, as
well as in accordance with the Unlisted
Trading Privileges and the Consolidated
Tape Association 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 is 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 must be in
compliance with Rule 10A–3 18 under
the Act. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
Trading Halts and Trading Pauses
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
18 See
17 CFR 240.10A–3.
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halt or suspend trading in the Shares of
the Fund. Nasdaq will halt or pause
trading in the Shares under the
conditions specified in Nasdaq Rules
4120 and 4121, including the trading
pauses under Nasdaq Rules 4120(a)(11)
and (12). Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the Shares inadvisable. These
may include: (1) The extent to which
trading is not occurring in the securities
and/or the financial instruments
constituting the Disclosed Portfolio of
the Fund; or (2) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
governing the trading of equity
securities. Nasdaq will allow trading in
the Shares from 4:00 a.m. until 8:00
p.m. Eastern time. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in Nasdaq
Rule 5735(b)(3), the minimum price
variation for quoting and entry of orders
in Managed Fund Shares traded on the
Exchange is $0.01.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by both Nasdaq and also
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.19 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
19 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.
PO 00000
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59407
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, in the equity
securities in which the Fund will invest,
and in the U.S. exchange-traded options
which the Fund will buy or write with
other markets and other entities that are
members of the ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.20
FINRA may obtain trading information
regarding trading in the Shares and in
such equity securities and U.S.
exchange-traded options from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares and in
such equity securities and U.S.
exchange-traded options from markets
and other entities that are members of
the ISG or with which the Exchange has
in place 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,
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
20 For a list of the current members of ISG, see
www.isgportal.org.
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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
Distributor’s Web site.
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act 21
in general and Section 6(b)(5) of the
Act 22 in particular in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in Nasdaq Rule 5735. The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on
Nasdaq during all trading sessions and
to deter and detect violations of
Exchange rules and the applicable
federal securities laws.
The equity securities in which the
Fund may invest and the options which
the Fund may buy or write will be
limited to U.S. exchange-traded
securities and options, respectively, that
trade in markets that are members of the
ISG, which includes all U.S. national
securities exchanges and certain foreign
exchanges, or are parties to a
comprehensive surveillance sharing
agreement with the Exchange. The
Exchange may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.
Under normal circumstances, the
Fund will invest primarily in large cap
U.S. exchange-traded equity securities.
21 15
22 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
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18:19 Sep 25, 2013
Jkt 229001
The Fund will also utilize an option
strategy consisting of writing U.S.
exchange-traded covered call options on
the Index. The market value of the
option strategy may be up to 20% of the
Fund’s overall net asset value. In
addition to such option strategy, the
Fund may invest no more than 10% of
the market value of its net assets in
futures, options, options on futures,
total return swaps, credit default swaps
and forward contracts. In attempting to
enhance returns and/or hedge risks, the
Fund may buy or write U.S. exchangetraded options on single stocks included
in the portfolio and/or on the Index
and/or other equity indexes. The Fund
may also write covered call spreads on
the Index and/or other equity indexes.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment). The Fund will monitor
its portfolio liquidity on an ongoing
basis to determine whether, in light of
current circumstances, an adequate
level of liquidity is being maintained,
and will consider taking appropriate
steps in order to maintain adequate
liquidity if, through a change in values,
net assets, or other circumstances, more
than 15% of the Fund’s net assets are
held in illiquid securities. Illiquid
securities include securities subject to
contractual or other restrictions on
resale and other instruments that lack
readily available markets as determined
in accordance with Commission staff
guidance.
The Adviser is not a broker-dealer,
but 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 investments will be
consistent with the Fund’s investment
objectives and will not be used to
enhance leverage.
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
PO 00000
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will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. The Intraday
Indicative Value, available on the
NASDAQ OMX Information LLC
proprietary index data service, will be
widely disseminated by one or more
major market data vendors and broadly
displayed at least every 15 seconds
during the Regular Market Session. On
each business day, before
commencement of trading in Shares in
the Regular Market Session on the
Exchange, the Fund will disclose on the
Distributor’s Web site the Disclosed
Portfolio that will form the basis for the
Fund’s calculation of NAV at the end of
the business day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information for the Shares will
also 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, executable price
quotations of the securities and other
assets held by the Fund will be available
from major broker-dealer firms or on the
exchange on which they are traded, if
applicable. Intra-day price information
will also be available through
subscription services, such as
Bloomberg, Markit and Thomson
Reuters, which can be accessed by
Authorized Participants and other
investors.
The Distributor’s Web site for the
Fund will include a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
Trading in Shares of the Fund will be
halted or paused under the conditions
specified in Nasdaq Rules 4120 and
4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable, and trading in
the Shares will be subject to Nasdaq
Rule 5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
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investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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.
tkelley on DSK3SPTVN1PROD with 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
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18:19 Sep 25, 2013
Jkt 229001
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–2013–122 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–2013–122. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2013–122, and should be
submitted on or before October 17,
2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–23421 Filed 9–25–13; 8:45 am]
BILLING CODE 8011–01–P
23 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00075
Fmt 4703
Sfmt 4703
59409
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of AcuNetx, Inc., Alliance
Pharmaceutical Corp., BBV Vietnam
SE.A. Acquisition Corp., Cash
Technologies, Inc., Conspiracy
Entertainment Holdings, Inc., Dematco,
Inc., and Interactive Systems
Worldwide, Inc.; Order of Suspension
of Trading
September 24, 2013.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of AcuNetx,
Inc. because it has not filed any periodic
reports since the period ended June 30,
2010.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Alliance
Pharmaceutical Corp. because it has not
filed any periodic reports since the
period ended March 31, 2010.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of BBV
Vietnam SE.A. Acquisition Corp.
because it has not filed any periodic
reports since the period ended
December 31, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Cash
Technologies, Inc. because it has not
filed any periodic reports since the
period ended February 28, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Conspiracy
Entertainment Holdings, Inc. because it
has not filed any periodic reports since
the period ended September 30, 2010.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Dematco,
Inc. because it has not filed any periodic
reports since the period ended August
31, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Interactive
Systems Worldwide, Inc. because it has
not filed any periodic reports since the
period ended March 31, 2008.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
E:\FR\FM\26SEN1.SGM
26SEN1
]]>Agencies
[Federal Register Volume 78, Number 187 (Thursday, September 26, 2013)]
[Notices]
[Pages 59402-59409]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23421]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70460; File No. SR-NASDAQ-2013-122]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the First Trust High Income Fund of First
Trust Exchange-Traded Fund VI
September 20, 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 September 12, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in in Items I,
II, and III below, which Items have been prepared by Nasdaq. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to list and trade the shares of the First Trust
High Income ETF (the ``Fund'') of First Trust Exchange-Traded Fund VI
(the ``Trust'') under Nasdaq Rule 5735 (``Managed
[[Page 59403]]
Fund Shares'').\3\ The shares of the Fund are collectively referred to
herein as the ``Shares.''
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\3\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008) 73 FR 35175 (June 20,
2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see Securities Exchange Act
Release No. 66175 (February 29, 2012), 77 FR 13379 (March 6, 2012)
(SR-NASDAQ-2012-004) (order approving listing and trading of
WisdomTree Emerging Markets Corporate Bond Fund). Additionally, the
Commission has previously approved the listing and trading of a
number of actively-managed WisdomTree funds on NYSE Arca, Inc.
pursuant to Rule 8.600 of that exchange. See, e.g., Securities
Exchange Act Release 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.
---------------------------------------------------------------------------
The text of the proposed rule change is available at https://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust, which was established as a Massachusetts business trust on
June 4, 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.
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
\5\ The Commission has issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28468 (October 27, 2008) (File
No. 812-13477).
\6\ See Post-Effective Amendment No. 3 to Registration Statement
on Form N-1A for the Trust, dated January 16, 2013 (File Nos. 333-
182308 and 811-22717). The descriptions of the Fund and the Shares
contained herein are based, in part, on information in the
Registration Statement.
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First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. Brown Brothers Harriman & Co. (``BBH'') will act as
the administrator, accounting agent, custodian and transfer agent to
the Fund.
Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition, paragraph
(g) further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the open-end fund's portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with
the establishment of a ``fire wall'' between the investment adviser and
the broker-dealer reflects the applicable open-end fund's portfolio,
not an underlying benchmark index, as is the case with index-based
funds. The Adviser is not a broker-dealer, although it is affiliated
with the Distributor, a broker-dealer. The Adviser has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. In 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, as applicable, regarding access to
information concerning the composition and/or changes to the portfolio
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund does not currently intend to use a sub adviser.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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First Trust High Income ETF
Principal Investments
The Fund's primary investment objective is to provide current
income and its secondary investment objective is to provide capital
appreciation. The Fund will pursue its objectives by investing in large
cap U.S. exchange-traded equity securities and by utilizing an ``option
strategy'' consisting of writing (selling) U.S. exchange-traded covered
call options on the Standard & Poor's 500 Index (the ``Index'').
In pursuing its investment objectives, under normal market
conditions,\8\ the Fund will invest primarily in large-cap U.S.
exchange-traded equity securities. The Fund will also employ an option
strategy in which it will write U.S. exchange-traded covered call
options on the Index in order to seek additional
[[Page 59404]]
cash flow (in the form of premiums on the options) that may be
distributed to shareholders on a monthly basis. The market value of the
option strategy may be up to 20% of the Fund's overall net asset value.
---------------------------------------------------------------------------
\8\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the securities markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. In periods of
extreme market disturbance, the Fund may take temporary defensive
positions, by overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the Adviser would
continue to seek to achieve the Fund's investment objectives.
---------------------------------------------------------------------------
The equity securities in which the Fund will invest and the options
which the Fund will write will be limited to U.S. exchange-traded
securities and options, respectively, that trade in markets that are
members of the Intermarket Surveillance Group (``ISG''), which includes
all U.S. national securities exchanges and certain foreign exchanges,
or are parties to a comprehensive surveillance sharing agreement with
the Exchange. A list of ISG members is available at www.isgportal.org.
The equity securities held by the Fund will be selected using a
mathematical optimization process which attempts to tilt the Fund's
common stock portfolio toward higher dividend paying stocks. The equity
securities held by the Fund may include non-U.S. securities that are
listed on a U.S. securities exchange in the form of American Depositary
Receipts (``ADRs'') and Global Depositary Receipts (``GDRs'')
(collectively ``Depositary Receipts''). The equity securities will be
periodically rebalanced.
The option portion of the portfolio will generally consist of U.S.
exchange-traded covered calls or covered call spreads on the Index
written by the Fund. The call options written by the Fund will
typically be a laddered portfolio of one week, one month, two months
and three months, and will typically be written at-the-money to
slightly out-of-the-money. A call option will give the holder the right
to buy the Index at a predetermined strike price from the Fund. The
notional value of calls written (including calls and call spreads
written on the Index and/or other indexes as described in Other
Investments below) will be generally between 25% and 75% of the overall
Fund.
Other Investments
In addition to the option strategy described in Principal
Investments, the Fund may invest up to 10% of the market value of its
net assets in futures, options, options on futures, total return swaps,
credit default swaps \9\ and forward contracts. The Fund may utilize
such derivatives to enhance return, to hedge some of the risks of its
investments in securities, as a substitute for a position in the
underlying asset, to reduce transaction costs, to maintain full market
exposure (which means to adjust the characteristics of its investments
to more closely approximate those of the markets in which it invests),
to manage cash flows or to preserve capital. In attempting to enhance
returns and/or hedge risks, the Fund may buy or write U.S. exchange-
traded options on single stocks included in the portfolio and/or on the
Index and/or other equity indexes. The Fund may also write covered call
spreads on the Index and/or other equity indexes.
---------------------------------------------------------------------------
\9\ To the extent practicable, the Fund will invest in swaps
cleared through the facilities of a centralized clearing house.
---------------------------------------------------------------------------
Under normal market conditions, the Fund may invest up to 10% of
its net assets in short-term debt securities and cash equivalents, or
it may hold cash. The percentage of the Fund invested in such holdings
will vary and will depend on several factors, including market
conditions. For temporary defensive purposes and during periods of high
cash inflows or outflows, the Fund may depart from its principal
investment strategies and invest part or all of its assets in short-
term debt securities or cash equivalents or it may hold cash. During
such periods, the Fund may not be able to achieve its investment
objectives. The Fund may adopt a defensive strategy when the Adviser
believes securities in which the Fund normally invests have elevated
risks due to political or economic factors and in other extraordinary
circumstances.
Short-term debt securities are securities from issuers having a
long-term debt rating of at least A by Standard & Poor's Ratings Group
(``S&P Ratings''), Moody's Investors Service, Inc. (``Moody's'') or
Fitch, Inc. (``Fitch'') and having a maturity of one year or less. The
use of temporary investments will not be a part of a principal
investment strategy of the Fund.
Short-term debt securities are defined to include, without
limitation, the following: (1) U.S. government securities, including
bills, notes and bonds differing as to maturity and rates of interest,
which are either issued or guaranteed by the U.S. Treasury or by U.S.
government agencies or instrumentalities; (2) certificates of deposit
issued against funds deposited in a bank or savings and loan
association; (3) bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions; (4) repurchase
agreements,\10\ which involve purchases of debt securities; (5) bank
time deposits, which are monies kept on deposit with banks or savings
and loan associations for a stated period of time at a fixed rate of
interest; and (6) commercial paper, which is short-term unsecured
promissory notes. The Fund may only invest in commercial paper rated A-
1 or higher by S&P Ratings, Prime-1 or higher by Moody's or F2 or
higher by Fitch.
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\10\ According to the Registration Statement, the Fund intends
to enter into repurchase agreements only with financial institutions
and dealers believed by the Adviser to present minimal credit risks
in accordance with criteria approved by the Board of Trustees of the
Trust (``Trust 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.
---------------------------------------------------------------------------
The Fund intends to qualify each year as a regulated investment
company (``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment).
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. The Fund may not invest 25%
or more of the value of its total assets in securities of issuers in
any one industry or group of industries. This restriction does not
apply to obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or securities of other investment
companies.\11\
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\11\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund's investments will be consistent with the Fund's
investment objectives and will not be used to enhance leverage.
The Shares
The Fund will issue and redeem Shares only in Creation Units at the
net asset value (``NAV'') \12\ next determined
[[Page 59405]]
after receipt of an order on a continuous basis every day except
weekends and specified holidays. The NAV of the Fund will be determined
once each business day, normally as of the close of trading of the
NYSE, generally, 4:00 p.m. Eastern Time. Creation Unit sizes will be
50,000 Shares per Creation Unit. The Trust will issue and sell Shares
of the Fund only in Creation Units on a continuous basis through the
Distributor, without a sales load (but subject to transaction fees), at
their NAV per Share next determined after receipt of an order, on any
business day, in proper form pursuant to the terms of the Authorized
Participant agreement (as referred to below).
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\12\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m.
Eastern time (the ``NAV Calculation Time''). NAV per Share will be
calculated by dividing the Fund's net assets by the number of Fund
Shares outstanding. For more information regarding the valuation of
Fund investments in calculating the Fund's NAV, see Registration
Statement.
---------------------------------------------------------------------------
The consideration for purchase of a Creation Unit generally will
consist of either (i) the in-kind deposit of a designated portfolio of
securities (the ``Deposit Securities'') per each Creation Unit and the
Cash Component (defined below), computed as described below or (ii) the
cash value of all or a portion of the Deposit Securities (``Deposit
Cash'') and the ``Cash Component,'' computed as described below. The
Fund may, under certain circumstances, effect a portion of creations
and redemptions for cash, rather than in-kind securities, particularly
for the put and call options in which the Fund invests.
When accepting purchases of Creation Units for cash, the Fund may
incur additional costs associated with the acquisition of Deposit
Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and
the Cash Component will constitute the ``Fund Deposit,'' which
represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund. The ``Cash Component'' will be an amount
equal to the difference between the NAV of the Shares (per Creation
Unit) and the market value of the Deposit Securities or Deposit Cash,
as applicable. If the Cash Component is a positive number (i.e., the
NAV per Creation Unit exceeds the market value of the Deposit
Securities or Deposit Cash, as applicable), the Cash Component will be
such positive amount. If the Cash Component is a negative number (i.e.,
the NAV per Creation Unit is less than the market value of the Deposit
Securities or Deposit Cash, as applicable), the Cash Component will be
such negative amount and the creator will be entitled to receive cash
in an amount equal to the Cash Component. The Cash Component will serve
the function of compensating for any difference between the NAV per
Creation Unit and the market value of the Deposit Securities or Deposit
Cash, as applicable.
To be eligible to place orders with respect to creations and
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 National
Securities Clearing Corporation (``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 BBH with respect to purchases and redemptions of
Creation Units.
BBH, through the NSCC, will make available on each business day,
immediately prior to the opening of business on the Exchange's Regular
Market Session (currently 9:30 a.m. Eastern time), the list of the
names and the required number of shares of each Deposit Security and/or
the required amount of Deposit Cash, as applicable, to be included in
the current Fund Deposit (based on information at the end of the
previous business day) for the Fund. Such Fund Deposit, subject to any
relevant adjustments, will be applicable in order to effect purchases
of Creation Units of the Fund until such time as the next announced
composition of the Deposit Securities and/or the required amount of
Deposit Cash, as applicable, is made available.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through BBH and only on a business day.
With respect to the Fund, BBH, through the NSCC, will make
available immediately prior to the opening of business on the Exchange
(9:30 a.m. Eastern time) on each business day, the list of the names
and share quantities of the Fund's portfolio securities (``Fund
Securities'') and/or, if relevant, the required cash value thereof that
will be applicable (subject to possible amendment or correction) to
redemption requests received in proper form on that day. Fund
Securities received on redemption may not be identical to Deposit
Securities.
Redemption proceeds for a Creation Unit will be paid either in kind
or in cash or a combination thereof, as determined by the Trust. With
respect to in kind redemptions of the Fund, redemption proceeds for a
Creation Unit will consist of Fund Securities as announced by BBH on
the business day of the request for redemption received in proper form
plus cash in an amount equal to the difference between the NAV of the
Shares being redeemed, as next determined after a receipt of a request
in proper form, and the value of the Fund Securities (the ``Cash
Redemption Amount''), less a fixed redemption transaction fee and any
applicable additional variable charge as set forth in the Registration
Statement. In the event that the Fund Securities have a value greater
than the NAV of the Shares, a compensating cash payment equal to the
differential will be required to be made by or through an Authorized
Participant by the redeeming shareholder. Notwithstanding the
foregoing, at the Trust's discretion, an Authorized Participant may
receive the corresponding cash value of the securities in lieu of one
or more Fund Securities.
The creation/redemption order cut off time for the Fund is expected
to be 4:00 p.m. Eastern time for purchases of Shares. On days when the
Exchange closes earlier than normal and in the case of custom orders,
the Fund may require orders for Creation Units to be placed earlier in
the day.
Net Asset Value
The NAV per Share for the Fund will be computed by dividing the
value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of Shares
outstanding, rounded to the nearest cent. Expenses and fees, including
the management fees, will be accrued daily and taken into account for
purposes of determining NAV. The NAV of the Fund will be calculated by
BBH and determined at the close of the regular trading session on the
NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange
is open. In calculating the Fund's NAV per Share, investments will
generally be valued by using market valuations. A market valuation
generally means a valuation (i) obtained from an exchange, a pricing
service, or a major market maker (or dealer) or (ii) based on a price
quotation or other equivalent indication of value supplied by an
exchange, a pricing service, or a major market maker (or dealer).
Portfolio securities listed on any exchange other than the Exchange
will be valued at the last sale price on the business day as of which
such value is being determined. Securities listed on the Exchange will
be valued at the official closing price on the business day as of which
such value is being
[[Page 59406]]
determined. If there has been no sale on such day, or no official
closing price in the case of securities traded on the Exchange, the
securities will be valued at the mean of the most recent bid and ask
prices on such day. Portfolio securities traded on more than one
securities exchange will be valued at the last sale price or official
closing price, as applicable, on the business day as of which such
value is being determined at the close of the exchange representing the
principal market for such securities.
U.S. exchange-traded options and futures contracts will be valued
at the closing price in the market where such contracts are principally
traded. Credit default swaps will be valued using a pricing service or,
if the pricing service does not provide a value, the Adviser's Pricing
Committee will attempt to obtain one or more quotes provided by the
selling dealer or financial institution and will value the swaps
accordingly. Except as otherwise provided herein, portfolio instruments
traded in the over-the-counter market will be valued at their closing
bid prices.
The Adviser may use various pricing services, or discontinue the
use of any pricing service, as approved by the Trust Board from time to
time. A price obtained from a pricing service based on such pricing
service's valuation matrix may be considered a market valuation. Any
assets or liabilities denominated in currencies other than the U.S.
dollar will be converted into U.S. dollars at the current market rates
on the date of valuation as quoted by one or more sources.
In the event that current market valuations are not readily
available or such valuations do not reflect current market value, the
Trust's procedures require the Adviser's Pricing Committee to determine
a security's fair value if a market price is not readily available.\13\
In determining such value the Adviser's Pricing Committee may consider,
among other things, (i) price comparisons among multiple sources, (ii)
a review of corporate actions and news events, and (iii) a review of
relevant financial indicators. In these cases, the Fund's NAV may
reflect certain portfolio securities' fair values rather than their
market prices. Fair value pricing involves subjective judgments and it
is possible that the fair value determination for a security is
materially different than the value that could be realized upon the
sale of the security.
---------------------------------------------------------------------------
\13\ The Valuation Committee of the Trust Board will be
responsible for the oversight of the pricing procedures of the Fund
and the valuation of the Fund's portfolio. The Valuation Committee
has delegated day-to-day pricing responsibilities to the Adviser's
Pricing Committee, which will be composed of officers of the
Adviser. The Pricing Committee will be responsible for the valuation
and revaluation of any portfolio investments for which market
quotations or prices are not readily available. The Fund has
implemented procedures designed to prevent the use and dissemination
of material, non-public information regarding valuation and
revaluation of any portfolio investments.
---------------------------------------------------------------------------
Availability of Information
The Distributor's Web site (www.ftportfolios.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for the Fund that may be downloaded. The Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund: (1) The prior business day's
reported NAV, mid-point of the bid/ask spread at the time of
calculation of such NAV (the ``Bid/Ask Price''),\14\ 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 \15\ on the Exchange, the Fund
will disclose on its Web site the identities and quantities of the
portfolio of securities and other assets (the ``Disclosed Portfolio'')
held by the Fund that will form the basis for the Fund's calculation of
NAV at the end of the business day.\16\ On a daily basis, the Disclosed
Portfolio will include each portfolio security and other financial
instruments of the Fund with the following information on the Fund's
Web site: Ticker symbol (if applicable), name of security and financial
instrument, number of shares (if applicable) and dollar value of
securities and financial instruments held in the Fund, and percentage
weighting of the security and financial instrument in the Fund. The Web
site information will be publicly available at no charge.
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\14\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\15\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
\16\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on such business day. Accordingly, the
Fund will be able to disclose at the beginning of the business day
the portfolio that will form the basis for the NAV calculation at
the end of the business day.
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In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's portfolio, will be disseminated.
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX
Information LLC proprietary index data service,\17\ will be based upon
the current value for the components of the Disclosed Portfolio and
will be updated and widely disseminated and broadly displayed at least
every 15 seconds during the Regular Market Session. The Intraday
Indicative Value will be based on quotes and closing prices from the
securities' local market and may not reflect events that occur
subsequent to the local market's close. Premiums and discounts between
the Intraday Indicative Value and the market price may occur. This
should not be viewed as a ``real time'' update of the NAV per Share of
the Fund, which is calculated only once a day.
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\17\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
Intra-day, executable price quotations on the securities and other
assets held by the Fund 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.
In addition, a basket composition file, which includes the security
names, amounts and share quantities, as applicable, required to be
delivered in exchange for the Fund's Shares, together with estimates
and actual cash components, will be publicly disseminated daily prior
to the opening
[[Page 59407]]
of Nasdaq via NSCC. The basket will represent one Creation Unit of the
Fund.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's annual and semi-annual
reports (together, ``Shareholder Reports''), and its Form N-CSR and
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Fund, and those documents
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded
from the Commission's Web site at www.sec.gov. Information regarding
market price and volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
published daily in the financial section of newspapers. Quotation and
last sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association 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 is 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 must be in compliance with Rule 10A-3 \18\ under the
Act. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
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\18\ See 17 CFR 240.10A-3.
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Trading Halts and Trading Pauses
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 or pause trading in
the Shares under the conditions specified in Nasdaq Rules 4120 and
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
constituting the Disclosed Portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Trading in the Shares also will be
subject to Rule 5735(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in the Shares
from 4:00 a.m. until 8:00 p.m. Eastern time. The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum
price variation for quoting and entry of orders in Managed Fund Shares
traded on the Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also 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.\19\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
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\19\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, in the equity securities in which the
Fund will invest, and in the U.S. exchange-traded options which the
Fund will buy or write with other markets and other entities that are
members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\20\ FINRA may obtain
trading information regarding trading in the Shares and in such equity
securities and U.S. exchange-traded options from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and in such equity securities and U.S. exchange-
traded options from markets and other entities that are members of the
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
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\20\ For a list of the current members of ISG, see
www.isgportal.org.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value is disseminated; (4) the risks involved
in trading the Shares during the Pre-Market and Post-Market Sessions
when an updated Intraday Indicative Value will not be calculated or
publicly disseminated; (5) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
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
[[Page 59408]]
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
Distributor's Web site.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act \21\ in general and Section 6(b)(5) of the Act \22\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\21\ 15 U.S.C. 78f.
\22\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on Nasdaq during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws.
The equity securities in which the Fund may invest and the options
which the Fund may buy or write will be limited to U.S. exchange-traded
securities and options, respectively, that trade in markets that are
members of the ISG, which includes all U.S. national securities
exchanges and certain foreign exchanges, or are parties to a
comprehensive surveillance sharing agreement with the Exchange. The
Exchange may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Under normal circumstances, the Fund will invest primarily in large
cap U.S. exchange-traded equity securities. The Fund will also utilize
an option strategy consisting of writing U.S. exchange-traded covered
call options on the Index. The market value of the option strategy may
be up to 20% of the Fund's overall net asset value. In addition to such
option strategy, the Fund may invest no more than 10% of the market
value of its net assets in futures, options, options on futures, total
return swaps, credit default swaps and forward contracts. In attempting
to enhance returns and/or hedge risks, the Fund may buy or write U.S.
exchange-traded options on single stocks included in the portfolio and/
or on the Index and/or other equity indexes. The Fund may also write
covered call spreads on the Index and/or other equity indexes.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment).
The Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an adequate level
of liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities. Illiquid securities include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.
The Adviser is not a broker-dealer, but 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 investments will be consistent with the Fund's
investment objectives and will not be used to enhance leverage.
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. The Intraday Indicative
Value, available on the NASDAQ OMX Information LLC proprietary index
data service, will be widely disseminated by one or more major market
data vendors and broadly displayed at least every 15 seconds during the
Regular Market Session. On each business day, before commencement of
trading in Shares in the Regular Market Session on the Exchange, the
Fund will disclose on the Distributor's Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information for the
Shares will also 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, executable price
quotations of the securities and other assets held by the Fund will be
available from major broker-dealer firms or on the exchange on which
they are traded, if applicable. Intra-day price information will also
be available through subscription services, such as Bloomberg, Markit
and Thomson Reuters, which can be accessed by Authorized Participants
and other investors.
The Distributor's Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. Trading in Shares of the Fund will
be halted or paused under the conditions specified in Nasdaq Rules 4120
and 4121, including the trading pauses under Nasdaq Rules 4120(a)(11)
and (12). Trading may be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to Nasdaq Rule
5735(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted. In addition, as noted above, investors will have
ready access to information regarding the Fund's holdings, the Intraday
Indicative Value, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect
[[Page 59409]]
investors and the public interest in that it will facilitate the
listing and trading of an additional type of actively-managed exchange-
traded product that will enhance competition among market participants,
to the benefit of investors and the marketplace. As noted above, the
Exchange has in place surveillance procedures relating to trading in
the Shares and may obtain information via ISG from other exchanges that
are members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (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-2013-122 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-2013-122. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2013-122, and should
be submitted on or before October 17, 2013.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23421 Filed 9-25-13; 8:45 am]
BILLING CODE 8011-01-P
