Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change To List and Trade Shares of the First Trust Low Beta Income Fund of First Trust Exchange-Traded Fund VI, 68490-68494 [2013-27203]

Download as PDF 68490 Federal Register / Vol. 78, No. 220 / Thursday, November 14, 2013 / Notices TKELleY on DSK3SPTVN1PROD with NOTICES 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act,15 in general, and furthers the objectives of Section 6(b)(5),16 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Specifically, the Exchange believes that the proposed rule change supports the objectives of the Act by addressing an inconsistency in the scienter requirements between Rule 476(a)(8) on the one hand and Rule 4, Rule 6140— Equities, NYSE Rule 6140, and FINRA Rule 6140 on the other. Eliminating this inconsistency would provide member organizations with better notice of prohibited wash sale activities in the Exchange’s equities and options markets and promote transparency and clarity with respect to the Exchange’s rules, thereby facilitating FINRA’s enforcement of them. The proposed rule change also would achieve greater consistency between the Exchange’s options and equities rules that prohibit wash sale activity. Moreover, the proposed rule change would not result in any material diminution of the Exchange’s overall enforcement authority or any material change in surveillance of potentially problematic trading activity. The Exchange may still bring a disciplinary action in appropriate cases where a market participant engages in a significant amount of trades without change of beneficial ownership, even if such activity does not violate proposed Rule 6140(b)—Equities or proposed Rule 995NY(f) per se because the participant did not act with ‘‘purpose,’’ because Decision 10–13 (May 14, 2010) (firm violated just and equitable principles of trade in that it introduced prearranged or wash sales in the roundlot portion of a partial round lot order); In the Matter of Robert Cutter Matlock, Jr., NYSE Hearing Board Decision 06–19 (March 27, 2006) (Exchange need not prove scienter for violations of just and equitable principles of trade, but rather is required to show the respondent acted in bad faith or unethically); In the Matter of Mary Roy Wong, NYSE Hearing Board Decision 06–187 (February 13, 2007) (Exchange need not prove scienter for violations of just and equitable principles of trade, but rather is required to show the respondent acted in bad faith or unethically). 15 15 U.S.C. 78f(b). 16 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 19:20 Nov 13, 2013 Jkt 232001 such conduct could violate supervision rules, just and equitable principles of trade, or other Exchange rules prohibiting unethical conduct. As such, the Exchange’s rules would continue to protect investors and the public interest. 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 proposed rule change is not intended to address competitive issues, but rather to achieve greater consistency both within the Exchange’s rules and among Exchange, NYSE, and FINRA rules. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. All submissions should refer to File No. SR–NYSEMKT–2013–88. 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 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 No. SR–NYSEMKT– 2013–88 and should be submitted on or before December 5, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–27240 Filed 11–13–13; 8:45 am] BILLING CODE 8011–01–P 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 No. SR– NYSEMKT–2013–88 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. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70828; File No. SR– NASDAQ–2013–121] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change To List and Trade Shares of the First Trust Low Beta Income Fund of First Trust Exchange-Traded Fund VI November 7, 2013. I. Introduction On September 12, 2013, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission 17 17 E:\FR\FM\14NON1.SGM CFR 200.30–3(a)(12). 14NON1 Federal Register / Vol. 78, No. 220 / Thursday, November 14, 2013 / Notices (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the First Trust Low Beta Income ETF (‘‘Fund’’) under Nasdaq Rule 5735. The proposed rule change was published for comment in the Federal Register on September 26, 2013.3 The Commission received no comments on the proposed rule change. This order grants approval of the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade Shares of the Fund pursuant to Nasdaq Rule 5735, which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by First Trust ExchangeTraded Fund VI (‘‘Trust’’). The Trust is registered with the Commission as an investment company.4 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. (‘‘Distributor’’) will be the principal underwriter and distributor of the Fund’s Shares. Brown Brothers Harriman & Co. will act as the administrator, accounting agent, custodian and transfer agent to the Fund. The Exchange represents that the Adviser is not a broker-dealer, but is affiliated with the Distributor, a brokerdealer, 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 portfolio.5 The Exchange 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 70459 (Sept. 20, 2013), 78 FR 59394 (Sept. 26, 2013) (‘‘Notice’’). 4 The Trust has filed a registration statement on Form N–1A (‘‘Registration Statement’’) with the Commission. See Post-Effective Amendment No. 4 to Registration Statement on Form N–1A for the Trust, dated Jan. 16, 2013 (File Nos. 333–182308 and 811–22717). In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the Investment Company Act of 1940 (‘‘1940 Act’’). See Investment Company Act Release No. 28468 (Oct. 27, 2008) (File No. 812– 13477). 5 See Notice supra note 3, 78 FR at 59400. The Exchange states that 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 brokerdealer, it will implement a fire wall with respect to its relevant personnel and/or such broker-dealer affiliate, as applicable, regarding access to information concerning the composition and/or changes to the portfolio and will be subject to procedures designed to prevent the use and TKELleY on DSK3SPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 19:20 Nov 13, 2013 Jkt 232001 represents that the Shares will be subject to Nasdaq Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares.6 The Exchange represents that for initial and/or continued listing, the Fund must be in compliance with Rule 10A–3 under the Act.7 Principal Investments The Fund’s investment objective is to provide current income. The Fund will pursue its objective by investing in large-cap U.S. exchange-traded equity securities and by utilizing an ‘‘options strategy’’ consisting of buying U.S. exchange-traded put options on the Standard & Poor’s 500 Index (‘‘Index’’) and writing (selling) U.S. exchangetraded covered call options on the Index. In pursuing its investment objective, 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 options strategy in which it will write U.S. exchange-traded covered call options on the Index in order to seek additional cash flow in the form of premiums on the options. Those premiums may be distributed to shareholders on a monthly basis or used to purchase U.S. exchange-traded put options on the Index that seek to provide the Fund with downside protection, and which are expected to reduce the Fund’s price sensitivity to declining markets. The market value of the options 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 that the Fund will buy and/or 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’’) or are parties to a comprehensive dissemination of material non-public information regarding such portfolio. See id. 6 See id. at 59398. 7 See 17 CFR 240.10A–3. See also Notice, supra note 3, 78 FR at 59398. 8 The term ‘‘under normal market conditions’’ 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 objective. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 68491 surveillance sharing agreement with the Exchange.9 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,’’ and together with ADRs, ‘‘Depositary Receipts’’). The equity securities will be periodically rebalanced. The options portion of the portfolio will generally consist of (i) U.S. exchange-traded covered calls or covered call spreads on the Index that are written by the Fund and (ii) U.S. exchange-traded puts on the Index that are purchased by the Fund. The call options written by the Fund will typically be a laddered portfolio of oneweek, one-month, two-month, and three-month call options written at-themoney 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 on the Index and/or other indexes as described in Other Investments below) will generally be between 25% and 75% of the overall Fund. The put positions held by the Fund will generally average two to three months to expiration (calculated at the time of purchase) and will consist of out-of-the-money Index put options. A put option will give the Fund the right to sell the Index at a predetermined strike price to the writer of the put. The notional value of the put portfolio held by the Fund (including puts on the Index and/or other indexes as described in Other Investments below) will generally be between 10% and 75% of the overall Fund. Other Investments In addition to the options strategy described in Principal Investments above, 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, and forward contracts.10 The Fund may utilize such derivatives to enhance return, to hedge some of the risks of its investments in securities, as a substitute 9 A list of ISG members is available at www.isgportal.org. 10 To the extent practicable, the Fund will invest in swaps cleared through the facilities of a centralized clearing house. E:\FR\FM\14NON1.SGM 14NON1 TKELleY on DSK3SPTVN1PROD with NOTICES 68492 Federal Register / Vol. 78, No. 220 / Thursday, November 14, 2013 / Notices 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 and write U.S. exchangetraded options on single stocks included in the portfolio, on the Index, and/or on 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’s net assets 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 shortterm debt securities or cash equivalents or it may hold cash. During such periods, the Fund may not be able to achieve its investment objective. The Fund may adopt a defensive strategy when the Adviser believes securities in which the Fund normally invests have elevated risks due to political or economic factors and in other extraordinary circumstances. The use of temporary investments will not be a part of a principal investment strategy of the Fund. 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. Short-term debt securities are defined to include, without limitation, the following: (1) U.S. government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities; (2) certificates of deposit issued against funds deposited in a bank or savings and loan association; (3) bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions; (4) repurchase agreements,11 which involve purchases 11 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 VerDate Mar<15>2010 19:20 Nov 13, 2013 Jkt 232001 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 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. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. Additional information regarding the Trust, Fund, and Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings, disclosure policies, distributions and taxes, calculation of net asset value per share (‘‘NAV’’), availability of information, trading rules and halts, and surveillance procedures, among other things, can be found in the Notice or the Registration Statement, as applicable.12 the Board of Trustees of the Trust. The Adviser will review and monitor the creditworthiness of such institutions. The Adviser will monitor the value of the collateral at the time the transaction is entered into and at all times during the term of the repurchase agreement. 12 See Notice and Registration Statement, supra notes 3 and 4, respectively. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 III. Discussion and Commission’s Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 13 and the rules and regulations thereunder applicable to a national securities exchange.14 In particular, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,15 which requires, among other things, that the Exchange’s rules be 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, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Fund and the Shares must comply with the requirements of Nasdaq Rule 5735 to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,16 which sets forth Congress’s finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. Quotation and last sale information for the Shares 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.17 In addition, the Intraday Indicative Value (as defined in Nasdaq Rule 5735(c)(3)) will be based upon the current value of the components of the Disclosed Portfolio (as defined in Nasdaq Rule 5735(c)(2)), will be available on the NASDAQ OMX Information LLC proprietary index data service,18 and will be updated and 13 15 U.S.C. 78f. approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 15 15 U.S.C. 78f(b)(5). 16 15 U.S.C. 78k–1(a)(1)(C)(iii). 17 See Notice, supra note 3, 78 FR at 59398. 18 According to the Exchange, the NASDAQ OMX Global Index Data Service 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 exchange-traded funds. See id. at 59400. 14 In E:\FR\FM\14NON1.SGM 14NON1 Federal Register / Vol. 78, No. 220 / Thursday, November 14, 2013 / Notices widely disseminated and broadly displayed at least every 15 seconds during the Regular Market Session.19 On each business day, before commencement of trading in Shares in the Regular Market Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio, which will form the basis for the Fund’s calculation of NAV at the end of the business day.20 The NAV of the Fund will be determined once each business day, normally as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time).21 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.22 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.23 Intra-day, executable price quotations for 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.24 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.25 The Distributor’s Web site will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information.26 The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the Exchange will obtain a representation from the issuer of the Shares that the NAV will be calculated daily and that the NAV 19 See id. a daily basis, the Disclosed Portfolio will include for each portfolio security and other financial instrument of the Fund the following information: Ticker symbol (if applicable), name of security and financial instrument, number of shares (if applicable) and dollar value of securities and financial instruments held by 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. See id. at 59398. 21 See id. 22 See id. 23 See id. 24 See id. 25 See id. 26 See id. at 59400. TKELleY on DSK3SPTVN1PROD with NOTICES 20 On VerDate Mar<15>2010 19:20 Nov 13, 2013 Jkt 232001 and the Disclosed Portfolio will be made available to all market participants at the same time.27 In addition, a basket composition file, which includes the security names, amounts and share quantities, as applicable, required to be delivered in exchange for one Creation Unit of the Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of Nasdaq via the National Securities Clearing Corporation.28 Further, trading in the Shares will be subject to Nasdaq 5735(d)(2)(D), which sets forth circumstances under which trading in the Shares of the Fund may be halted.29 The Exchange may halt trading in the Shares if trading is not occurring in the securities or the financial instruments constituting the Disclosed Portfolio of the Fund or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.30 Further, the Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, non-public information regarding the actual components of the portfolio.31 The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees.32 The Exchange also states that the Adviser is affiliated with a broker-dealer and has implemented a firewall with respect to its broker-dealer affiliate regarding access to information concerning the composition of or changes to the portfolio.33 The Exchange states that the 27 See id. id. at 59398. 29 See id. at 59399. 30 See id. See also 5735(d)(2)(C) (providing additional considerations for the suspension of trading in or removal from listing of Managed Fund Shares on the Exchange). 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 also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. See Notice, supra note 3, 78 FR at 59399. 31 See Nasdaq Rule 5735(d)(2)(B)(ii). 32 See Notice, supra note 3, 78 FR at 59399. 33 See supra note 5 and accompanying text. An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). As a result, the Adviser and Sub-Adviser and their related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with 28 See PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 68493 Financial Industry Regulatory Authority (‘‘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 that the Fund will buy and write, with other markets and other entities that are members of the ISG, and that 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.34 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 ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.35 The Exchange further represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities.36 In support of this proposal, the Exchange has made representations, including: (1) The Shares will be subject to Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and 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. 34 See Notice, supra note 3, 78 FR at 59399. 35 See id. 36 See id. at 56399. E:\FR\FM\14NON1.SGM 14NON1 TKELleY on DSK3SPTVN1PROD with NOTICES 68494 Federal Register / Vol. 78, No. 220 / Thursday, November 14, 2013 / Notices detect violations of Exchange rules and applicable federal securities laws. (4) 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: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (c) how information regarding the Intraday Indicative Value is disseminated; (d) the risks involved in trading the Shares during the Pre-Market and Post-Market Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (e) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (5) For initial and continued listing, the Fund must be in compliance with Rule 10A–3 under the Exchange Act.37 (6) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. (7) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment); 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. (8) The equity securities in which the Fund will invest and the options that the Fund will buy and 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. (9) Under normal market conditions, the Fund will invest primarily in largecap U.S. exchange-traded equity securities. The Fund will also utilize an options strategy consisting of buying 37 17 38 15 CFR 240.10A–3. U.S.C. 78f(b)(5). VerDate Mar<15>2010 19:20 Nov 13, 2013 U.S. exchange-traded put options on the Index and writing U.S. exchange-traded covered call options on the Index. The market value of the options strategy may be up to 20% of the Fund’s overall net asset value. (10) In addition to the options strategy that is part of the Fund’s principal investment strategy, 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, and forward contracts. To the extent practicable, the Fund will invest in swaps cleared through the facilities of a centralized clearing house. (11) The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. This approval order is based on all of the Exchange’s representations and description of the Fund, including those set forth above and in the Notice. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 38 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,39 that the proposed rule change (SR–NASDAQ– 2013–121) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–27203 Filed 11–13–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70827; File No. SR–CBOE– 2013–105] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the CBSX Fees Schedule November 7, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 29, 2013, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ 39 15 40 17 Jkt 232001 PO 00000 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). Frm 00085 Fmt 4703 Sfmt 4703 or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Fees Schedule of its CBOE Stock Exchange (‘‘CBSX’’). The text of the proposed rule change is available on the Exchange’s Web site (https:// www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose CBSX proposes to amend its Fees Schedule to remove AAPL, BAC, GOOG, NOK, and SIRI (the ‘‘Removed Symbols’’) from its list of Select Symbols for whom transactions priced $1 or greater (all fees addressed in this filing relate to transactions priced $1 or greater) are assessed a fee of $0.0050 per share (for Maker executions) and provided a rebate of $0.0045 per share (for Taker executions). This means that the Removed Symbols will now fall into the ‘‘all other securities’’ category and fees and rebates applicable to ‘‘all other securities’’ will apply to the Removed Symbols, which are as follows (and are not being changed in this proposed rule change): 1 15 2 17 E:\FR\FM\14NON1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 14NON1

Agencies

[Federal Register Volume 78, Number 220 (Thursday, November 14, 2013)]
[Notices]
[Pages 68490-68494]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27203]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70828; File No. SR-NASDAQ-2013-121]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change To List and Trade Shares of 
the First Trust Low Beta Income Fund of First Trust Exchange-Traded 
Fund VI

November 7, 2013.

I. Introduction

    On September 12, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or 
the ``Exchange'') filed with the Securities and Exchange Commission

[[Page 68491]]

(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the First Trust Low Beta Income ETF (``Fund'') under 
Nasdaq Rule 5735. The proposed rule change was published for comment in 
the Federal Register on September 26, 2013.\3\ The Commission received 
no comments on the proposed rule change. This order grants approval of 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70459 (Sept. 20, 
2013), 78 FR 59394 (Sept. 26, 2013) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to Nasdaq Rule 5735, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Shares will be offered by First Trust 
Exchange-Traded Fund VI (``Trust''). The Trust is registered with the 
Commission as an investment company.\4\ The Fund is a series of the 
Trust.
---------------------------------------------------------------------------

    \4\ The Trust has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission. See Post-Effective 
Amendment No. 4 to Registration Statement on Form N-1A for the 
Trust, dated Jan. 16, 2013 (File Nos. 333-182308 and 811-22717). In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (``1940 Act''). See Investment Company Act Release No. 28468 
(Oct. 27, 2008) (File No. 812-13477).
---------------------------------------------------------------------------

    First Trust Advisors L.P. will be the investment adviser 
(``Adviser'') to the Fund. First Trust Portfolios L.P. 
(``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. Brown Brothers Harriman & Co. will act as the 
administrator, accounting agent, custodian and transfer agent to the 
Fund.
    The Exchange represents that the Adviser is not a broker-dealer, 
but is affiliated with the Distributor, 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 portfolio.\5\ The Exchange represents that the Shares 
will be subject to Nasdaq Rule 5735, which sets forth the initial and 
continued listing criteria applicable to Managed Fund Shares.\6\ The 
Exchange represents that for initial and/or continued listing, the Fund 
must be in compliance with Rule 10A-3 under the Act.\7\
---------------------------------------------------------------------------

    \5\ See Notice supra note 3, 78 FR at 59400. The Exchange states 
that 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. See id.
    \6\ See id. at 59398.
    \7\ See 17 CFR 240.10A-3. See also Notice, supra note 3, 78 FR 
at 59398.
---------------------------------------------------------------------------

Principal Investments

    The Fund's investment objective is to provide current income. The 
Fund will pursue its objective by investing in large-cap U.S. exchange-
traded equity securities and by utilizing an ``options strategy'' 
consisting of buying U.S. exchange-traded put options on the Standard & 
Poor's 500 Index (``Index'') and writing (selling) U.S. exchange-traded 
covered call options on the Index.
    In pursuing its investment objective, 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 options 
strategy in which it will write U.S. exchange-traded covered call 
options on the Index in order to seek additional cash flow in the form 
of premiums on the options. Those premiums may be distributed to 
shareholders on a monthly basis or used to purchase U.S. exchange-
traded put options on the Index that seek to provide the Fund with 
downside protection, and which are expected to reduce the Fund's price 
sensitivity to declining markets. The market value of the options 
strategy may be up to 20% of the Fund's overall net asset value.
---------------------------------------------------------------------------

    \8\ The term ``under normal market conditions'' 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 
objective.
---------------------------------------------------------------------------

    The equity securities in which the Fund will invest and the options 
that the Fund will buy and/or 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'') or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.\9\
---------------------------------------------------------------------------

    \9\ 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,'' and 
together with ADRs, ``Depositary Receipts''). The equity securities 
will be periodically rebalanced.
    The options portion of the portfolio will generally consist of (i) 
U.S. exchange-traded covered calls or covered call spreads on the Index 
that are written by the Fund and (ii) U.S. exchange-traded puts on the 
Index that are purchased by the Fund. The call options written by the 
Fund will typically be a laddered portfolio of one-week, one-month, 
two-month, and three-month call options 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 on 
the Index and/or other indexes as described in Other Investments below) 
will generally be between 25% and 75% of the overall Fund.
    The put positions held by the Fund will generally average two to 
three months to expiration (calculated at the time of purchase) and 
will consist of out-of-the-money Index put options. A put option will 
give the Fund the right to sell the Index at a predetermined strike 
price to the writer of the put. The notional value of the put portfolio 
held by the Fund (including puts on the Index and/or other indexes as 
described in Other Investments below) will generally be between 10% and 
75% of the overall Fund.

Other Investments

    In addition to the options strategy described in Principal 
Investments above, 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, and forward contracts.\10\ The Fund may 
utilize such derivatives to enhance return, to hedge some of the risks 
of its investments in securities, as a substitute

[[Page 68492]]

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 and write U.S. exchange-traded options on single stocks 
included in the portfolio, on the Index, and/or on other equity 
indexes. The Fund may also write covered call spreads on the Index and/
or other equity indexes.
---------------------------------------------------------------------------

    \10\ 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's net assets 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 objective. 
The Fund may adopt a defensive strategy when the Adviser believes 
securities in which the Fund normally invests have elevated risks due 
to political or economic factors and in other extraordinary 
circumstances. The use of temporary investments will not be a part of a 
principal investment strategy of the Fund.
    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. 
Short-term debt securities are defined to include, without limitation, 
the following: (1) U.S. government securities, including bills, notes, 
and bonds differing as to maturity and rates of interest, which are 
either issued or guaranteed by the U.S. Treasury or by U.S. government 
agencies or instrumentalities; (2) certificates of deposit issued 
against funds deposited in a bank or savings and loan association; (3) 
bankers' acceptances, which are short-term credit instruments used to 
finance commercial transactions; (4) repurchase agreements,\11\ which 
involve purchases of debt securities; (5) bank time deposits, which are 
monies kept on deposit with banks or savings and loan associations for 
a stated period of time at a fixed rate of interest; and (6) commercial 
paper, which is short-term unsecured promissory notes. 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.
---------------------------------------------------------------------------

    \11\ 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. 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 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.
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
    Additional information regarding the Trust, Fund, and Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions and taxes, calculation of net asset value per share 
(``NAV''), availability of information, trading rules and halts, and 
surveillance procedures, among other things, can be found in the Notice 
or the Registration Statement, as applicable.\12\
---------------------------------------------------------------------------

    \12\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \13\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\14\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\15\ which requires, among other things, that the 
Exchange's rules be 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, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission notes that the Fund and the Shares must comply with the 
requirements of Nasdaq Rule 5735 to be listed and traded on the 
Exchange.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\16\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last 
sale information for the Shares 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.\17\ In 
addition, the Intraday Indicative Value (as defined in Nasdaq Rule 
5735(c)(3)) will be based upon the current value of the components of 
the Disclosed Portfolio (as defined in Nasdaq Rule 5735(c)(2)), will be 
available on the NASDAQ OMX Information LLC proprietary index data 
service,\18\ and will be updated and

[[Page 68493]]

widely disseminated and broadly displayed at least every 15 seconds 
during the Regular Market Session.\19\ On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio, which will form the basis for the Fund's calculation of NAV 
at the end of the business day.\20\ The NAV of the Fund will be 
determined once each business day, normally as of the close of trading 
on the New York Stock Exchange (normally 4:00 p.m. Eastern time).\21\ 
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.\22\ 
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.\23\ Intra-day, executable price 
quotations for 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.\24\ 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.\25\ The Distributor's Web site will 
include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.\26\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \17\ See Notice, supra note 3, 78 FR at 59398.
    \18\ According to the Exchange, the NASDAQ OMX Global Index Data 
Service 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 exchange-traded 
funds. See id. at 59400.
    \19\ See id.
    \20\ On a daily basis, the Disclosed Portfolio will include for 
each portfolio security and other financial instrument of the Fund 
the following information: Ticker symbol (if applicable), name of 
security and financial instrument, number of shares (if applicable) 
and dollar value of securities and financial instruments held by 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. See id. at 59398.
    \21\ See id.
    \22\ See id.
    \23\ See id.
    \24\ See id.
    \25\ See id.
    \26\ See id. at 59400.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV will be 
calculated daily and that the NAV and the Disclosed Portfolio will be 
made available to all market participants at the same time.\27\ In 
addition, a basket composition file, which includes the security names, 
amounts and share quantities, as applicable, required to be delivered 
in exchange for one Creation Unit of the Shares, together with 
estimates and actual cash components, will be publicly disseminated 
daily prior to the opening of Nasdaq via the National Securities 
Clearing Corporation.\28\ Further, trading in the Shares will be 
subject to Nasdaq 5735(d)(2)(D), which sets forth circumstances under 
which trading in the Shares of the Fund may be halted.\29\ The Exchange 
may halt trading in the Shares if trading is not occurring in the 
securities or the financial instruments constituting the Disclosed 
Portfolio of the Fund or if other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\30\ Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or 
be subject to, procedures designed to prevent the use and dissemination 
of material, non-public information regarding the actual components of 
the portfolio.\31\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\32\ The Exchange also states that the Adviser is affiliated 
with a broker-dealer and has implemented a firewall with respect to its 
broker-dealer affiliate regarding access to information concerning the 
composition of or changes to the portfolio.\33\ The Exchange states 
that the Financial Industry Regulatory Authority (``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 that the Fund will buy and write, with 
other markets and other entities that are members of the ISG, and that 
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.\34\ 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 ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\35\
---------------------------------------------------------------------------

    \27\ See id.
    \28\ See id. at 59398.
    \29\ See id. at 59399.
    \30\ See id. See also 5735(d)(2)(C) (providing additional 
considerations for the suspension of trading in or removal from 
listing of Managed Fund Shares on the Exchange). 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 
also may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
See Notice, supra note 3, 78 FR at 59399.
    \31\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \32\ See Notice, supra note 3, 78 FR at 59399.
    \33\ See supra note 5 and accompanying text. An investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and Sub-Adviser and their related personnel are subject to 
the provisions of Rule 204A-1 under the Advisers Act relating to 
codes of ethics. This Rule requires investment advisers to adopt a 
code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
    \34\ See Notice, supra note 3, 78 FR at 59399.
    \35\ See id.
---------------------------------------------------------------------------

    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity 
securities.\36\ In support of this proposal, the Exchange has made 
representations, including:
---------------------------------------------------------------------------

    \36\ See id. at 56399.
---------------------------------------------------------------------------

    (1) The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by both 
Nasdaq and FINRA on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws, and that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and

[[Page 68494]]

detect violations of Exchange rules and applicable federal securities 
laws.
    (4) 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: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how information regarding 
the Intraday Indicative Value is disseminated; (d) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (f) trading 
information.
    (5) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Exchange Act.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment); 
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.
    (8) The equity securities in which the Fund will invest and the 
options that the Fund will buy and 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.
    (9) Under normal market conditions, the Fund will invest primarily 
in large-cap U.S. exchange-traded equity securities. The Fund will also 
utilize an options strategy consisting of buying U.S. exchange-traded 
put options on the Index and writing U.S. exchange-traded covered call 
options on the Index. The market value of the options strategy may be 
up to 20% of the Fund's overall net asset value.
    (10) In addition to the options strategy that is part of the Fund's 
principal investment strategy, 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, and forward contracts. To the 
extent practicable, the Fund will invest in swaps cleared through the 
facilities of a centralized clearing house.
    (11) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
    This approval order is based on all of the Exchange's 
representations and description of the Fund, including those set forth 
above and in the Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \38\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \38\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change (SR-NASDAQ-2013-121) be, and it 
hereby is, approved.
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    \39\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27203 Filed 11-13-13; 8:45 am]
BILLING CODE 8011-01-P
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