Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the Shares of the PowerShares High Income Downside Hedged Portfolio a series of the PowerShares Actively Managed Exchange-Traded Fund Trust, 46631-46640 [2015-19125]
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Federal Register / Vol. 80, No. 150 / Wednesday, August 5, 2015 / Notices
references in Sections 4 (Fees) and 12
(Application and Annual Fees for
Member Firms with Statutorily
Disqualified Individuals) of Schedule A
to the FINRA By-Laws to reflect the
renumbering of the Rule 9640 Series as
the 9520 Series pursuant to SR–NASD–
97–28.7
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date for the proposed
rule change will be August 24, 2015, to
coincide with the implementation date
of FINRA Rule 0190.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,8 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes the
proposed rule change will provide
greater clarity to members and the
public regarding FINRA’s rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change brings clarity and
consistency to FINRA rules without
adding any burden on firms.
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.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 9 and Rule 19b–
4(f)(6) thereunder.10
7 See Securities Exchange Act Release No. 38908
(August 7, 1997), 62 FR 43385 (August 13, 1997)
(Order Approving File No. SR–NASD–97–28).
8 15 U.S.C. 78o–3(b)(6).
9 15 U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(6).
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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–
FINRA–2015–027 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2015–027. 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
offices of FINRA. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
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submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2015–027, and should be submitted on
or before August 26, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–19130 Filed 8–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75555; File No. SR–
NASDAQ–2015–085]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change
Relating to the Listing and Trading of
the Shares of the PowerShares High
Income Downside Hedged Portfolio a
series of the PowerShares Actively
Managed Exchange-Traded Fund Trust
July 30, 2015.
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 July 28,
2015, 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 and II below, which Items have
been prepared by Nasdaq. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to list and trade the
common shares of beneficial interest of
the PowerShares High Income
Downside Hedged Portfolio (the
‘‘Fund’’), a series of the PowerShares
Actively Managed Exchange-Traded
Fund Trust (the ‘‘Trust’’), under Nasdaq
Rule 5735 (‘‘Rule 5735’’). The common
shares of beneficial interest of the Fund
are referred to herein as the ‘‘Shares.’’
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 80, No. 150 / Wednesday, August 5, 2015 / Notices
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
asabaliauskas on DSK5VPTVN1PROD with NOTICES
1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under Rule
5735, which rule governs the listing and
trading of Managed Fund Shares 3 on
the Exchange.4 The Shares will be
offered by the Fund, which will be an
actively managed exchange-traded fund
3 A ‘‘Managed Fund Share’’ is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues Index
Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
domestic stock index, fixed income securities index
or combination thereof.
4 The Commission approved Nasdaq Rule 5735
(formerly Nasdaq Rule 4420(o)) 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, e.g., Securities
Exchange Act Release Nos. 69464 (April 26, 2013),
78 FR 25774 (May 2, 2013) (SR–NASDAQ–2013–
036) (order approving listing and trading of First
Trust Senior Loan Fund); and 66489 (February 29,
2012), 77 FR 13379 (March 6, 2012) (SR–NASDAQ–
2012–004) (order approving listing and trading of
WisdomTree Emerging Markets Corporate Bond
Fund). Additionally, the Commission has
previously approved the listing and trading of a
number of actively-managed funds on NYSE Arca,
Inc. pursuant to Rule 8.600 of that exchange. See,
e.g., Securities Exchange Act Release No. 68870
(February 8, 2013), 78 FR 11245 (February 15, 2013)
(SR–NYSEArca-2012–139) (order approving listing
and trading of First Trust Preferred Securities and
Income ETF). Moreover, the Commission previously
approved the listing and trading of other actively
managed funds within the PowerShares family of
ETFs. See, e.g., Securities Exchange Act Release
Nos. 68158 (November 5, 2012), 77 FR 67412
(November 9, 2012) (SR–NYSEArca-2012–101)
(order approving listing and trading of PowerShares
S&P 500 Downside Hedged Portfolio) and 69915
(July 2, 2013), 78 FR 41145 (July 9, 2013) (SR–
NYSEArca-2013–56) (order approving listing of
PowerShares China A-Share Portfolio). The
Exchange believes the proposed rule change raises
no significant issues not previously addressed in
those prior Commission orders.
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(‘‘ETF’’) and a series of the Trust. The
Trust was established as a Delaware
statutory trust on November 6, 2007.
The Trust is registered with the
Commission as an open-end
management investment company and
has filed a post-effective amendment to
its registration statement on Form N–1A
(the ‘‘Registration Statement’’) with the
Commission to register the Fund and its
Shares under the 1940 Act and the
Securities Act of 1933.5 Invesco
PowerShares Capital Management LLC
will serve as the investment adviser (the
‘‘Adviser’’) to the Fund. Invesco
Distributors, Inc. (the ‘‘Distributor’’) will
serve as the principal underwriter and
distributor of the Fund’s Shares. The
Bank of New York Mellon will act as the
administrator, accounting agent,
custodian (the ‘‘Custodian’’) and
transfer agent for the Fund.
Paragraph (g) of Rule 5735 provides
that, if the investment adviser to an
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’s portfolio.6 In addition,
paragraph (g) of Rule 5735 further
requires that personnel who make
decisions on such investment
company’s portfolio composition must
be subject to procedures designed to
5 See Registration Statement for the Trust, filed on
April 13, 2015 (File Nos. 333–147622 and 811–
22148). In addition, the Commission has issued an
order granting certain exemptive relief to the Trust
under the1940 Act. See Investment Company Act
Release No. 28171 (February 27, 2008) (File No.
812–13386) (‘‘Exemptive Order’’).
6 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with the
Advisers Act and Rule 204A–1 thereunder. 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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Sfmt 4703
prevent the use and dissemination of
material, non-public information
regarding the investment company’s
portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i), which
applies to index-based funds and
requires ‘‘fire-walls’’ between affiliated
broker-dealers and investment advisers
regarding the index-based fund’s
underlying benchmark index. Rule
5735(g), however, applies to the
establishment of a ‘‘fire wall’’ between
affiliated investment advisers and the
broker-dealers with respect to the
investment company’s portfolio and not
with respect to an underlying
benchmark index, as is the case with
index-based funds. The Adviser is itself
not a broker-dealer, but it is affiliated
with the Distributor, a broker-dealer.
The Adviser has therefore implemented
a fire wall between itself and the
Distributor with respect to the access of
information concerning the composition
and/or changes to the Fund’s portfolio.
In the event (a) the Adviser becomes
newly affiliated with a different brokerdealer (or becomes a registered brokerdealer), or (b) any new adviser or subadviser to the Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire
wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, if applicable, regarding access
to information concerning the
composition and/or changes to the
Fund’s 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.
Description of the Fund
The Fund will be an actively managed
ETF, and its investment objective will
be to seek to achieve high income and
positive total returns. The Fund will
seek to achieve its investment objective
by using a quantitative, rules-based
investment methodology designed to
provide returns that exceed the
performance of the S&P High Income
VEQTOR Index (the ‘‘Benchmark’’).7 As
7 The Fund’s Benchmark allocates between equity
securities and CBOE Volatility Index futures. The
Commission has previously approved listing and
trading of exchange traded products with Chicago
Board Options Exchange (‘‘CBOE’’) volatility index
futures as components of benchmarks. See, e.g.,
Securities Exchange Act Release No. 68158
(November 5, 2012), 77 FR 67412 (November 9,
2012) (SR–NYSEArca-2012–101) (order approving
listing and trading of PowerShares S&P 500
Downside Hedged Portfolio); Securities Exchange
Act Release Nos. 65134 (August 15, 2011), 76 FR
52034 (August 19, 2011) (SR–NYSEArca-2011–23)
(order approving listing of ProShares Short VIX
Short-Term Futures ETF, ProShares Short VIX MidTerm Futures ETF, ProShares Ultra VIX Short-Term
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described below, the Fund will seek to
gain exposure to the securities
contained in the equity component of
the Benchmark and CBOE Volatility
Index (‘‘VIX Index’’) related instruments
(‘‘VIX Index Related Instruments,’’ as
defined below).
asabaliauskas on DSK5VPTVN1PROD with NOTICES
The Benchmark, the VIX Index and the
S&P 500 VIX Short Term Futures Index
The Benchmark, using strategy
allocation rules developed by Standard
& Poor’s (‘‘S&P’’),8 is composed of two
types of components: An equity
component, represented by the
constituents of the S&P High Income
Equity Composite Index (‘‘Equity
Component Index’’), and a volatility
component, represented by the S&P 500
VIX Short Term Futures Index (‘‘VIX
Futures Index’’). The Benchmark
allocates its constituents between the
two components in any given amount
from time to time based on the level of
volatility in the market.
The Equity Component Index is
composed of 150 high yield securities
that meet certain size, liquidity and
listing exchange criteria as determined
by S&P. This component is comprised of
the following four sub-components: (i)
Preferred stocks, (ii) units of master
limited partnerships (‘‘MLPs’’), (iii) real
estate investment trusts (‘‘REITs’’), and
(iv) a portfolio of global securities
engaged in the real estate industry
(‘‘global property securities’’) and/or
global securities that pay high dividends
(‘‘global dividend securities’’ which,
collectively with global property
securities, are ‘‘Global Equities’’).
The VIX Index is a theoretical
calculation and cannot be traded. The
VIX Index is a benchmark index
designed to measure the market price of
volatility in large cap U.S. stocks over
30 days in the future, and is calculated
based on the prices of certain put and
call options on the S&P 500® Index. The
VIX Index measures the premium paid
by investors for certain options linked to
the S&P 500® Index. During periods of
market instability, the implied level of
volatility of the S&P 500® Index
typically increases and, consequently,
the prices of options linked to the S&P
500® Index typically increase (assuming
Futures ETF, ProShares Ultra VIX Mid-Term
Futures ETF, ProShares UltraShort VIX Short-Term
Futures ETF, and ProShares UltraShort VIX MidTerm Futures ETF); and 63610 (December 27, 2010),
76 FR 199 (January 3, 2011) (SR–NYSEArca-2010–
101 [sic]) (order approving listing of ProShares VIX
Short-Term Futures ETF and ProShares VIX MidTerm Futures ETF).
8 S&P is a division of the McGraw-Hill
Companies, Inc. S&P is not a broker-dealer and has
implemented procedures designed to prevent the
use and dissemination of material, non-public
information regarding the Benchmark.
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Jkt 235001
all other relevant factors remain
constant or have negligible changes).
This, in turn, causes the level of the VIX
Index to increase. The VIX Index
historically has had negative
correlations to the S&P 500® Index.
Because the level of the VIX Index may
increase in times of uncertainty, the VIX
Index is known as the ‘‘fear gauge’’ of
the broad U.S. equities market.
The VIX Futures Index utilizes the
prices of the first and second month
futures contracts based on the VIX
Index, replicating a position that rolls
the nearest month VIX futures contracts
to the next month VIX futures contracts
on a daily basis in equal fractional
amounts. The Benchmark’s allocation to
its volatility component serves as an
implied volatility hedge, as volatility
historically tends to correlate negatively
to the performance of the equity markets
(i.e., rapid declines in the performance
of the equity markets generally are
associated with particularly high
volatility in such markets).
On any Business Day (as defined
below), the Benchmark allocates
between its equity and volatility
components based on a combination of
realized volatility and implied volatility
trend decision variables. The allocation
to the VIX Futures Index generally
increases when realized volatility and
implied volatility are higher, and
decreases when realized volatility and
implied volatility are lower. While
allocations are reviewed daily, these
allocations may change on a less
frequent basis.
The U.S. Index Committee (the
‘‘Committee’’) of S&P maintains the
Benchmark. The Committee meets
monthly. At each meeting, the
Committee reviews pending corporate
actions that may affect Benchmark
constituents, statistics comparing the
composition of the Benchmark to the
market, companies that are being
considered as candidates for addition to
the Benchmark, and any significant
market events. In addition, the
Committee may revise the Benchmark’s
policy covering rules for selecting
companies, treatment of dividends,
share counts, or other matters.
Principal Investment Strategies of the
Fund
The Fund’s investment strategy is
similar to the rules-based allocation
methodology of its Benchmark.
Therefore, the allocation among the
Fund’s investments generally will tend
to approximate the allocation between
the equity and volatility components of
the Benchmark. However, the Fund
seeks returns that exceed the returns of
the Benchmark; accordingly, the Fund
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46633
can have a higher or lower exposure to
either component (or any respective
sub-component) of the Benchmark at
any time.9
In pursuing its investment objective,
under normal market conditions,10 the
Fund will invest substantially all of its
assets in (i) an equity sleeve that
generally corresponds to the Equity
Component Index, represented by a
combination of 150 high yield securities
that includes preferred stocks, MLPs,
REITs, and Global Equities, each of
which will be listed either on a U.S.
securities exchange or a member
exchange of the Intermarket
Surveillance Group (‘‘ISG’’); 11 and (ii) a
volatility sleeve, represented by
instruments relating to the VIX Index
and consisting of futures contracts on
the VIX Index and options on those
futures contracts. During periods of low
volatility, a greater portion of the Fund’s
assets will be invested in equity
securities, and during periods of
increased volatility, a greater portion of
the Fund’s assets will be invested in
VIX Index Related Instruments (as
defined below). Any U.S. security
invested by the Fund must be listed on
a national securities exchange, and any
non-U.S. security must be listed on a
member exchange of the ISG.
Additionally, the Fund may invest in
ETFs and exchange-traded notes
(‘‘ETNs’’) that are listed on U.S.
securities exchanges that provide
exposure to the components of the
Equity Component Index, as well as
ETFs and ETNs that provide exposure to
the VIX Index (these instruments,
collectively with VIX Index futures
contracts and options on those futures
contracts, are termed the ‘‘VIX Index
Related Instruments’’).
9 The Fund will be ‘‘non-diversified’’ under the
1940 Act and therefore may invest more of its assets
in fewer issuers than ‘‘diversified’’ funds. The
diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80a–5).
10 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 objective.
11 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
Other Investments of the Fund
The Fund may invest its remaining
assets in U.S. government securities,
high-quality money market instruments,
cash and cash equivalents to provide
liquidity and to collateralize its
investments in derivative instruments.
These instruments in which the Fund
may invest include: (i) Short-term
obligations issued by the U.S.
Government; 12 (ii) short-term negotiable
obligations of commercial banks, fixed
time deposits and bankers’ acceptances
of U.S. and foreign banks and similar
institutions; 13 (iii) commercial paper
rated at the date of purchase ‘‘Prime-1’’
by Moody’s Investors Service, Inc. or
‘‘A–1+’’ or ‘‘A–1’’ by S&P or, if unrated,
of comparable quality, as the Adviser of
the Fund determines, and (iv) money
market mutual funds, including
affiliated money market funds.
In addition, the Fund’s investment in
securities of other investment
companies (including money market
funds) may exceed the limits permitted
under the 1940 Act, in accordance with
certain terms and conditions set forth in
a Commission exemptive order issued to
the Trust pursuant to Section 12(d)(1)(J)
of the 1940 Act.14
The Fund may enter into repurchase
agreements, which are agreements
pursuant to which securities are
acquired by the Fund from a third party
with the understanding that they will be
repurchased by the seller at a fixed price
on an agreed date. These agreements
may be made with respect to any of the
portfolio securities in which the Fund is
authorized to invest. Repurchase
agreements may be characterized as
loans secured by the underlying
securities. The Fund may enter into
repurchase agreements with (i) member
banks of the Federal Reserve System
having total assets in excess of $500
million and (ii) securities dealers
(‘‘Qualified Institutions’’). The Adviser
will monitor the continued
creditworthiness of Qualified
Institutions.
The Fund may enter into reverse
repurchase agreements, which involve
12 The Fund may invest in U.S. government
obligations. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities
include bills, notes and bonds issued by the U.S.
Treasury, as well as ‘‘stripped’’ or ‘‘zero coupon’’
U.S. Treasury obligations representing future
interest or principal payments on U.S. Treasury
notes or bonds.
13 Time deposits are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Banker’s
acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with
international transactions.
14 Investment Company Act Release No. 30238
(October 23, 2012) (File No. 812–13820).
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the sale of securities with an agreement
to repurchase the securities at an
agreed-upon price, date, and interest
payment and have the characteristics of
borrowing. The securities purchased
with the funds obtained from the
agreement and securities collateralizing
the agreement will have maturity dates
no later than the repayment date.
The Fund may purchase exchangelisted warrants. However, the Fund does
not expect to enter into swap
agreements, including credit default
swaps, but may do so if such
investments are in the best interests of
the Fund’s shareholders.
Investment Restrictions of the Fund
The Fund may not concentrate its
investments (i.e., invest more than 25%
of the value of its net assets) in
securities of issuers in any one industry
or group of industries. This restriction
will not apply to obligations issued or
guaranteed by the U.S. government, its
agencies or instrumentalities.15
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities or other illiquid assets
(calculated at the time of investment),
including Rule 144A securities. The
Fund will monitor its portfolio liquidity
on an ongoing basis to determine
whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid securities or other illiquid
assets. Illiquid securities and other
illiquid assets include those subject to
contractual or other restrictions on
resale and other instruments or assets
that lack readily available markets as
determined in accordance with
Commission staff guidance.16
15 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).
16 Long-standing Commission guidelines have
required open-end funds to hold no more than 15%
of their net assets in illiquid securities and other
illiquid assets. See Investment Company Act
Release No. 28193 (March 11, 2008), 73 FR 14618
(March 18, 2008), FN 34. See also Investment
Company Act Release Nos. 5847 (October 21, 1969),
35 FR 19989 (December 31, 1970) (Statement
Regarding ‘‘Restricted Securities’’); and 18612
(March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N–1A). A fund’s
portfolio security is illiquid if it cannot be disposed
of in the ordinary course of business within seven
days at approximately the value ascribed to it by
the fund. See Investment Company Act Release
Nos. 14983 (March 12, 1986), 51 FR 9773 (March
21, 1986) (adopting amendments to Rule 2a-7 under
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The Fund intends to qualify for and
to elect to be treated as a regulated
investment company under Subchapter
M of the Internal Revenue Code.17
As a result of the instruments that the
Fund will hold, the Fund will be subject
to regulation by the Commodity Futures
Trading Commission and the National
Futures Association (‘‘NFA’’) as a
commodity pool, and thus must comply
with additional disclosure, reporting,
and recordkeeping rules imposed upon
commodity pools.18
The Fund’s investments will be
consistent with the Fund’s investment
objective. Additionally, the Fund may
engage in frequent and active trading of
portfolio securities to achieve its
investment objective. The Fund may
utilize instruments or investment
techniques that have a leveraging effect
on the Fund. This effective leverage
occurs when the Fund’s market
exposure exceeds the amounts actually
invested. Any instance of effective
leverage will be covered in accordance
with guidance promulgated by the
Commission and its staff.19 The Fund
does not presently intend to engage in
any form of borrowing for investment
purposes, and will not be operated as a
‘‘leveraged ETF,’’ i.e., it will not be
operated in a manner designed to seek
a multiple of the performance of an
underlying reference index. The Fund
will not use futures for speculative
purposes, nor will the Fund invest in
OTC equities or enter into futures
contracts that are not traded on a U.S.
exchange.
Net Asset Value
The Fund’s administrator will
calculate the Fund’s net asset value
(‘‘NAV’’) per Share as of the close of
regular trading (normally 4:00 p.m.,
Eastern time (‘‘E.T.’’)) on each day the
New York Stock Exchange (‘‘NYSE’’) is
open for business (a ‘‘Business Day’’).
NAV per Share will be calculated for the
Fund by deducting all of the Fund’s
liabilities from the total value of its
assets and dividing the result by the
number of Shares outstanding, rounding
to the nearest cent. All valuations will
be subject to review by the Board of
Trustees of the Trust (‘‘Board’’) or its
delegate.
the 1940 Act); and 17452 (April 23, 1990), 55 FR
17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
17 26 U.S.C. 851.
18 The Exchange represents that the Adviser has
previously registered as a commodity pool operator
and commodity trading advisor and also is a
member of the NFA.
19 In re Securities Trading Practices of Investment
Companies, Investment Company Act Release No.
10666 (April 18, 1979), 44 FR 25128 (April 27,
1979).
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In determining NAV, expenses will be
accrued and applied daily and securities
and other assets for which market
quotations are readily available will be
valued at market value. Securities listed
or traded on an exchange (including
high yield Global Equities, preferred
stocks, MLPs, REITs and warrants) will
be valued at the last sale price or official
closing price that day as of the close of
the exchange on which such securities
primarily trade. Shares of open-end
registered investment companies (i.e.,
mutual funds) will be valued at net asset
value; shares of exchange-traded
investment companies (i.e., ETFs) and
ETNs will be valued at the last sale
price or official closing price on the
exchange on which they primarily trade.
Futures contracts are valued as of the
final settlement price on the exchange
on which they trade. Options will be
valued at the closing price (and, if no
closing price is available, at the mean of
the last bid/ask quotations) from the
exchange where such instruments
principally trade. U.S. government
securities will be valued at the mean
price provided by a third party vendor.
Illiquid securities, as well as cash and
cash equivalents, money market funds,
repurchase agreements (including
reverse repurchase agreements) and
other short-term obligations (including
corporate commercial paper, negotiable
short-term obligations of commercial
banks, fixed time deposits, bankers
acceptances and similar securities) will
each be valued in accordance with the
Trust’s valuation policies and
procedures, which have been approved
by the Trust’s Board.
The NAV for the Fund will be
calculated and disseminated daily. If an
asset’s market price is not readily
available, the asset will be valued using
pricing provided from independent
pricing services or by another method
that the Adviser, in its judgment,
believes will better reflect the asset’s fair
value in accordance with the Trust’s
valuation policies and procedures
approved by the Trust’s Board and with
the 1940 Act. Fair value pricing
involves subjective judgments and it is
possible that a fair value determination
for an asset may be materially different
than the value that could be realized
upon the sale of the asset.
Creation and Redemption of Shares
The Trust will issue Shares of the
Fund at NAV only with authorized
participants (‘‘APs’’) and only in
aggregations of 50,000 shares (each
aggregation is called a ‘‘Creation Unit’’)
or multiples thereof, on a continuous
basis through the Distributor, without a
sales load, at the NAV next determined
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after receipt, on any Business Day, of an
order in proper form.
The consideration an AP must
provide for purchase of Creation Unit
aggregations of the Fund may consist of
(i) cash, in lieu of all or a portion of the
Deposit Securities, as defined below, in
an amount calculated based on the NAV
per Share, multiplied by the number of
Shares representing a Creation Unit
(‘‘Deposit Cash’’), plus fixed and
variable transaction fees; or (ii) an ‘‘inkind’’ deposit of a designated portfolio
of securities determined by the Adviser
that generally will conform to the
holdings of the Fund consistent with its
investment objective (the ‘‘Deposit
Securities’’) per each Creation Unit
aggregation and generally an amount of
cash (the ‘‘Cash Component’’) computed
as described below.
Together, the Deposit Securities and
the Cash Component (including the cash
in lieu amount) will constitute the
‘‘Fund Deposit,’’ which will represent
the minimum initial and subsequent
investment amount for a Creation Unit
aggregation of the Fund. The Cash
Component is sometimes also referred
to as the Balancing Amount. The Cash
Component will serve the function of
compensating for any differences
between the NAV per Creation Unit
aggregation and the Deposit Amount (as
defined below). For example, for a
creation the Cash Component will be an
amount equal to the difference between
the NAV of Fund Shares (per Creation
Unit aggregation) and the ‘‘Deposit
Amount’’—an amount equal to the
market value of the Deposit Securities
and/or cash in lieu of all or a portion of
the Deposit Securities. If the Cash
Component is a positive number (i.e.,
the NAV per Creation Unit aggregation
exceeds the Deposit Amount), the AP
will deliver the Cash Component. If the
Cash Component is a negative number
(i.e., the NAV per Creation Unit
aggregation is less than the Deposit
Amount), the AP will receive the Cash
Component.
Shares may be redeemed only in
Creation Unit aggregations at their NAV
next determined after receipt of a
redemption request in proper form by
the Fund through the Custodian and
only on a Business Day. The Fund will
not redeem Shares in amounts less than
Creation Unit Aggregations. APs must
accumulate enough Shares in the
secondary market to constitute a
Creation Unit Aggregation in order to
have such Shares redeemed by the
Trust. The redemption proceeds for a
Creation Unit Aggregation generally
consist of (i) cash, in lieu of all or a
portion of the Fund Securities as
defined below, in an amount calculated
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46635
based on the NAV per Share, multiplied
by the number of Shares representing a
Creation Unit, less any redemption
transaction fees; or (ii) a designated
portfolio of securities determined by the
Adviser that generally will conform to
the holdings of the Fund consistent with
its investment objective per each
Creation Unit aggregation (‘‘Fund
Securities’’)—as announced on the
Business Day of the request for
redemption received in proper form—
plus or minus 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, less any redemption
transaction fees. In the event that the
Fund Securities have a value greater
than the NAV of the Shares, a
compensating Cash Component
payment equal to the difference is
required to be made by or through an
AP by the redeeming shareholder.
Creation Units of the Fund generally
will be sold partially in cash and
partially in-kind. However, the Fund
also reserves the right to permit or
require Creation Units to be issued
principally in-kind or principally for
cash. At all times, the Trust reserves the
right to permit or require the
substitution of Deposit Cash—i.e., a
‘‘cash in lieu’’ amount—to be added to
the Cash Component to replace any
Deposit Security that may not be
available in sufficient quantity for
delivery, or that may not be eligible for
transfer or which might not be eligible
for trading by an AP or the investor for
which it is acting or other relevant
reason.20
To the extent that the Fund permits
Creation Units to be issued principally
or partially in-kind, the Custodian,
through the National Securities Clearing
Corporation (‘‘NSCC’’), will make
available on each Business Day, prior to
the opening of business of the NYSE
(currently 9:30 a.m., E.T.), the list of the
names and the quantity of each Deposit
Security to be included in the current
Fund Deposit (based on information at
the end of the previous Business Day),
plus any estimated Cash Component, for
the Fund. Such Fund Deposit will be
applicable, subject to any adjustments
as described below, to effect creations of
Creation Units of the Fund until such
time as the next-announced
composition of the Deposit Securities is
made available. Information on the
specific names and holdings in a Fund
20 Such substitutions of certain Deposit Securities
are termed ‘‘custom orders.’’ On any given Business
Day, if the Fund accepts a custom order, the
Adviser represents that the Fund will accept similar
custom orders from all other APs on the same basis.
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Deposit also will be available at
www.pstrader.net.
To the extent that the Fund permits
Creation Units to be redeemed in-kind,
the Custodian, through the NSCC, will
make available on each Business Day,
prior to the opening of business of
NYSE (currently 9:30 a.m., E.T.), the
identity of the Fund Securities 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 that are
applicable to creations of Creation Unit
aggregations.
When applicable, during times that
the Fund permits in-kind creations, the
identity and quantity of the Deposit
Securities required for a Fund Deposit
for the Shares may change as
rebalancing adjustments and corporate
action events occur and are reflected
within the Fund from time to time by
the Adviser, consistent with the
investment objective of the Fund.
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 NSCC or (ii)
a Depository Trust Company (‘‘DTC’’)
Participant (a ‘‘DTC Participant’’). In
addition, each Participating Party or
DTC Participant (each, an AP) must
execute an agreement that has been
agreed to by the Distributor and the
Custodian with respect to purchases and
redemptions of Creation Units.
All orders to create Creation Unit
aggregations must be received by the
transfer agent no later than the closing
time of the regular trading session on
the NYSE (ordinarily 4:00 p.m., E.T.) in
each case on the date such order is
placed in order for creations of Creation
Unit aggregations to be effected based
on the NAV of Shares of the Fund as
next determined on such date after
receipt of the order in proper form.
In order to redeem Creation Units of
the Fund, an AP must submit an order
to redeem for one or more Creation
Units. All such orders must be received
by the Fund’s transfer agent in proper
form no later than the close of regular
trading on the NYSE (ordinarily 4:00
p.m. E.T.) in order to receive that day’s
closing NAV per Share.
The right of redemption may be
suspended or the date of payment
postponed (i) for any period during
which the NYSE is closed (other than
customary weekend and holiday
closings); (ii) for any period during
which trading on the NYSE is
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16:54 Aug 04, 2015
Jkt 235001
suspended or restricted; (iii) for any
period during which an emergency
exists as a result of which disposal of
the Shares of the Fund or determination
of the Fund’s NAV is not reasonably
practicable; or (iv) in such other
circumstances as is permitted by the
Commission.
APs may be required to pay an
administrative fee and a variable
transaction fee for purchasing or
redeeming Creation Units. Creation and
redemption transactions for the Fund
are subject to a fixed administrative fee
of $500, payable to the Custodian,
irrespective of the size of the order. In
addition to the fixed administrative fee,
the Custodian may impose an additional
variable transaction fee of up to four
times the fixed administrative fee. This
additional administrative fee may be
incurred for administration and
settlement of (i) in-kind creations and
redemptions effected outside the normal
Clearing Process, and (ii) cash creations
and redemptions. Finally, to the extent
the Fund permits or requires APs to
substitute cash in lieu of Deposit
Securities, the Adviser may set
additional variable fees separate from
the fees already described that are also
payable to the Fund up to 2%. These
cash-in-lieu fees will be negotiated
between the Adviser and the AP and are
charged to offset the transaction cost to
the Fund of buying (or selling) those
particular Deposit Securities, to cover
spreads and slippage costs and to
protect existing shareholders against
sudden movements in the prices of the
portfolio investments due to market
events. From time to time, the Adviser,
in its sole discretion, may adjust the
Fund’s variable transaction fees or
reimburse APs for all or a portion of the
creation or redemption transaction fees.
Availability of Information
The Fund’s Web site
(www.invescopowershares.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 Fund’s Web
site will include the ticker symbol for
the Shares, CUSIP and exchange
information, along with additional
quantitative information updated on a
daily basis, including, for the Fund: (1)
daily trading volume, the prior Business
Day’s reported NAV, closing price and
mid-point of the bid/ask spread at the
time of calculation of such NAV (the
‘‘Bid/Ask Price’’),21 and a calculation of
21 The Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
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Fmt 4703
Sfmt 4703
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 the
most recently completed calendar year
and each of the four most recently
completed calendar quarters since that
year (or the life of the Fund if shorter).
On each Business Day, before
commencement of trading in Shares in
the Regular Market Session 22 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’’ as such
term is defined in Rule 5735(c)(2)) held
by the Fund that will form the basis for
the Fund’s calculation of NAV at the
end of the Business Day.23 In addition
to disclosing the identities and
quantities of the portfolio of securities
and other assets in the Disclosed
Portfolio, the Fund also will disclose on
a daily basis on its Web site the
following information, as applicable to
the type of holding: ticker symbol,
CUSIP number or other identifier, if
any; a description of the holding
(including the type of holding), the
identity of the security or other asset or
instrument underlying the holding, if
any; for options, the option strike price;
quantity held (as measured by, for
example, par value, notional value or
number of shares, contracts or units);
maturity date, if any; coupon rate, if
any; effective date, if any; market value
of the holding; and percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge. In
addition, to the extent the Fund permits
full or partial creations in-kind, a basket
composition file, which will include the
security names and share quantities to
deliver (along with requisite cash in
lieu) in exchange for Shares, together
with estimates and actual Cash
Components, will be publicly
disseminated daily prior to the opening
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
22 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m. E.T.; (2)
Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. E.T.).
23 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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of the Exchange via the NSCC and at
www.pstrader.net. The basket will
represent the equity component of the
Shares of the Fund.
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 24 will be
based upon the current value for the
components of the Disclosed Portfolio
and will be updated and widely
disseminated by one or more major
market data vendors and broadly
displayed at least every 15 seconds
during the Regular Market Session.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and will provide a close estimate of that
value throughout the trading day.
Intra-day, executable price quotations
on the securities and other assets held
by the Fund, as well as closing price
information, will be available from
major broker-dealer firms or on the
exchange on which they are traded, as
applicable. Intra-day and closing price
information on the securities and other
assets held by the Fund also will be
available through subscription services,
such as Bloomberg, Markit and
Thomson Reuters, which can be
accessed by APs and other investors.
Investors also will be able to obtain
the Fund’s Statement of Additional
Information (‘‘SAI’’), the Fund’s
Shareholder Reports, and its Trust’s
Form N–CSR and Form N–SAR, each of
which is filed twice a year, except the
SAI, which is filed at least annually.
The Fund’s SAI and Shareholder
Reports will be available free upon
request from the Trust, 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 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.
Information regarding the previous
24 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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Jkt 235001
day’s closing price and trading volume
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.
Quotation and last sale information for
any U.S. exchange-traded instruments
will be available via the quote and trade
service of their respective primary
exchanges, as well as in accordance
with the Unlisted Trading Privileges
and the Consolidated Tape Association
plans. Quotation and last sale
information for any non-U.S. exchangelisted securities will be available from
the foreign exchanges on which such
securities trade as well as from major
market data vendors. Pricing
information for any futures contracts or
options will be available via the quote
and trade service of their respective
primary exchanges. Pricing information
related to U.S. government securities,
money market mutual funds,
commercial paper, repurchase and
reverse repurchase agreements and
other short-term investments held by
the Fund will be available through
publicly available quotation services,
such as Bloomberg, Markit and
Thomson Reuters.
Additional information regarding the
Fund and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions and taxes, will be included
in the Registration Statement.
Initial and Continued Listing of the
Fund’s Shares
The Shares will conform to the initial
and continued listing criteria applicable
to Managed Fund Shares, as set forth
under Rule 5735. The Exchange
represents that, for initial and/or
continued listing, the Fund will be in
compliance with Rule 10A–3 25 under
the Exchange 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 of the Fund’s Shares
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
25 See
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46637
halt or suspend trading in the Shares of
the Fund. Nasdaq will halt trading in
the Shares under the conditions
specified in Nasdaq Rules 4120 and
4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and
(12). Trading also 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. E.T. The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions. As
provided in 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 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.26 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
all relevant parties for all relevant
trading violations. FINRA, on behalf of
26 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 Exchange, will communicate as
needed regarding trading in the Shares
and other exchange-traded securities
(including the equity component
securities, ETFs, ETNs and warrants)
and instruments (including futures
contracts and options) held by the Fund
with other markets and other entities
that are members of the ISG, and FINRA
may obtain trading information
regarding trading in the Shares and
other exchange-traded securities
(including the equity component
securities, ETFs, ETNs and warrants)
and instruments (including futures
contracts and options) held by the Fund
from such markets and other entities.
In addition, the Exchange may obtain
information regarding trading in the
Shares and other exchange-traded
securities (including the equity
component securities, ETFs, ETNs and
warrants) and instruments (including
futures contracts and options) held by
the Fund from markets and other
entities that are members of ISG, which
includes securities and futures
exchanges, or with which the Exchange
has in place a comprehensive
surveillance sharing agreement.
In addition, with regard to the Fund’s
investments in futures contracts and
options, such instruments shall have
their principal trading market be a
member of ISG or a market with which
the Exchange has 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 and the Disclosed
Portfolio 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 purchasing
Shares from the Fund for resale to
investors deliver a prospectus to
VerDate Sep<11>2014
16:54 Aug 04, 2015
Jkt 235001
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Fund for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Exchange Act.
Additionally, the Information Circular
will reference that the Fund is subject
to various fees and expenses. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
calculation time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’s Web site.
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the
Exchange Act in general, and Section
6(b)(5) 27 of the Exchange Act in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in Rule 5735. 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
deter and detect violations of Exchange
rules and applicable federal securities
laws and are adequate to properly
monitor trading in the Shares in all
trading sessions. The Adviser is
affiliated with a broker-dealer and has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
27 15
PO 00000
U.S.C. 78(f)(b)(5).
Frm 00101
Fmt 4703
Fund’s portfolio. In addition, paragraph
(g) of Rule 5735 further requires that
personnel who make decisions on an
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.
FINRA may obtain information via
ISG from other exchanges that are
members of ISG. In addition, the
Exchange may obtain information
regarding trading in the Shares and
other exchange-traded securities
(including the equity component
securities, ETFs, ETNs and warrants)
and instruments (including futures
contracts and options) held by the Fund
from markets and other entities that are
members of ISG, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. The Fund will limit its
investments in illiquid securities or
other illiquid assets to an aggregate
amount of 15% of its net assets
(calculated at the time of investment).
The holdings of the Fund will be
comprised primarily of securities
included in the Equity Component
Index, VIX Index Related Instruments,
U.S. government securities, money
market instruments, cash and cash
equivalents. The Fund will invest in
U.S. government securities, money
market instruments, cash and cash
equivalents to provide liquidity and to
collateralize its investments in
derivative instruments. The Fund also
may invest directly in ETFs and ETNs.
The Fund will not invest in OTC
equities or enter into futures contracts
that are not traded on a U.S. exchange.
The Fund will not use futures for
speculative purposes, and its
investments will be consistent with the
Fund’s investment objective.
Additionally, the Fund may engage in
frequent and active trading of portfolio
securities to achieve its investment
objective. In pursuing its investment
objective, the Fund may utilize
instruments or investment techniques
that have a leveraging effect on the
Fund. This effective leverage occurs
when the Fund’s market exposure
exceeds the amounts actually invested.
Any instance of effective leverage will
be covered in accordance with guidance
promulgated by the Commission and its
staff.28 The Fund does not presently
intend to engage in any form of
borrowing for investment purposes, and
will not be operated as a ‘‘leveraged
ETF,’’ i.e., it will not be operated in a
manner designed to seek a multiple of
28 See
Sfmt 4703
E:\FR\FM\05AUN1.SGM
FN 18 [sic], supra.
05AUN1
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 150 / Wednesday, August 5, 2015 / Notices
the performance of an underlying
reference index. The Fund does not
expect to enter into swap agreements,
including credit default swaps, but may
do so if such investments are in the best
interests of the Fund’s shareholders.
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 every day that
the Fund is traded, and that the NAV
and the Disclosed Portfolio will be made
available to all market participants at
the same time. In addition, a large
amount of information will be publicly
available regarding the Fund and the
Shares, thereby promoting market
transparency. Moreover, the Intraday
Indicative Value, available on the
NASDAQ OMX Information LLC
proprietary index data service, will be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s
Regular Market Session. On each
Business Day, before commencement of
trading in Shares in the Regular Market
Session on the Exchange, the Fund will
disclose on its Web site the Disclosed
Portfolio of the Fund that will form the
basis for the Fund’s calculation of NAV
at the end of the Business Day.
Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services, and quotation and last-sale
information for the Shares will be
available via Nasdaq proprietary quote
and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the Consolidated Tape
Association plans for the Shares.
Quotation and last sale information for
any U.S. exchange-traded instruments
also be available via the quote and trade
service of their respective primary
exchanges, as well as in accordance
with the Unlisted Trading Privileges
and the Consolidated Tape Association
plans. Quotation and last sale
information for any non-U.S. exchangelisted securities will be available from
the foreign exchanges on which such
securities trade as well as from major
market data vendors. Pricing
information for any futures contracts or
options will be available via the quote
and trade service of their respective
primary exchanges. Pricing information
related to U.S. government securities,
money market mutual funds,
commercial paper, repurchase and
reverse repurchase agreements and
VerDate Sep<11>2014
16:54 Aug 04, 2015
Jkt 235001
other short-term investments held by
the Fund will be available through
publicly available quotation services,
such as Bloomberg, Markit and
Thomson Reuters. Intra-day and closing
price information will be available
through subscription services, such as
Bloomberg, Markit and Thomson
Reuters, which can be accessed by APs
and other investors.
The Fund’s Web site will include a
form of the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information. Moreover, 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. Trading in Shares of
the Fund will be halted under the
conditions specified in Nasdaq Rules
4120 and 4121 or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and trading in
the Shares will be subject to Rule
5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Exchange 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 Exchange Act.
The Exchange believes that the
proposed rule change 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.
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
46639
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
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 Exchange consents, the Commission
will:
(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–2015–085 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–085. 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
E:\FR\FM\05AUN1.SGM
05AUN1
46640
Federal Register / Vol. 80, No. 150 / Wednesday, August 5, 2015 / Notices
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 will also 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–2015–085 and should be
submitted on or before August 26, 2015.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.29
the FIX and OUCH trading
telecommunication protocols. The
Exchange will implement the proposed
new fees on August 3, 2015.
The text of the proposed rule change
is below; proposed new language is
italicized; proposed deletions are in
brackets.
*
*
*
*
*
7015. Access Services
(a) No change.
(b) Financial Information Exchange
(FIX).
Ports
FIX Trading Port ................
FIX Port for Services Other
than Trading.
[FR Doc. 2015–19125 Filed 8–4–15; 8:45 am]
REMOTE MULTI-CAST ITCH WAVE
PORTS
BILLING CODE 8011–01–P
Description
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75557; File No. SR–
NASDAQ–2015–086]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
NASDAQ Rule 7015(b) and (g) To
Modify Port Fees
July 30, 2015.
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 July 20,
2015, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
NASDAQ Rule 7015(b) and (g) to
modify the port fees charged to
members and non-members for ports
used to enter orders into Nasdaq
systems, in connection with the use of
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
16:54 Aug 04, 2015
$575[50]/port/
month.
$500/port/
month.
(c)–(f) No change.
(g) Other Port Fees.
Robert W. Errett,
Deputy Secretary.
VerDate Sep<11>2014
Price
Jkt 235001
Installation
fee
Recurring
monthly fee
assessed for each OUCH port. A onetime installation fee of $5,000 is
assessed subscribers for each Dedicated
OUCH Port Server subscription.
(h)–(i) No change.
*
*
*
*
*
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
NASDAQ is proposing to amend
MITCH Wave
NASDAQ Rules 7015 (b) and (g) to
Port at
Secaucus, NJ
$2,500
$7,500 modify the monthly fee it charges for
ports used to enter orders in the
MITCH Wave
NASDAQ Market Center for the trading
Port at
of equities, in connection with the use
Weehawken,
NJ ..................
2,500
7,500 of FIX and OUCH trading
MITCH Wave
telecommunication protocols.3
Port at
The enhanced ports will use fieldMahwah, NJ ..
5,000
12,500 programmable gate array (‘‘FPGA’’)
technology, which is a hardwareThe following port fees shall apply in delivery mechanism and an upgrade to
connection with the use of other trading the existing software and software-andtelecommunication protocols:
hardware based mechanisms. By taking
• $575[50] per month for each port
advantage of hardware parallelism,
® data
pair, other than Multicast ITCH
FPGA technology is capable of
feed pairs, for which the fee is $1,000
processing more data packets during
per month for software-based
peak market conditions without the
TotalView-ITCH or $2,500 per month
introduction of variable queuing
for combined software- and hardwarelatency. In other words, the upgrade to
based TotalView-ITCH, and TCP ITCH
FPGA will improve the predictability of
data feed pairs, for which the fee is $750
the telecommunications ports and
per month.
thereby add value to the user
• An additional $200 per month for
experience.
each port used for entering orders or
The Exchange is offering new
quotes over the Internet.
technology and pricing in order to keep
• An additional $600 per month for
pace with changes in the industry and
each port used for market data delivery
over the Internet.
3
Dedicated OUCH Port Infrastructure
The Dedicated OUCH Port
Infrastructure subscription allows a
member firm to assign up to 30 of its
OUCH ports to a dedicated server
infrastructure for its exclusive use. A
Dedicated OUCH Port Infrastructure
subscription is available to a member
firm for a fee of $5,000 per month,
which is in addition to the standard fees
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
In April 2015, the Exchange increased the
charges assessed under Rules 7015(b) and (g) to the
levels proposed herein in light of the FPGA
hardware upgrade. See Securities Exchange Act
Release No. 74829 (April 29, 2015), 80 FR 25745
(May 5, 2015) (SR–NASDAQ–2015–042). The
upgrade to FPGA hardware was delayed, however,
and the Exchange reverted the fees to their original
levels with retroactive application. See Securities
Exchange Act Release No. 75366 (July 6, 2015), 80
FR 39827 (July 10, 2015) (SR–NASDAQ–2015–067).
The Exchange is now confident that the FPGA
hardware will be installed by the August 3, 2015
implementation date proposed by this filing.
E:\FR\FM\05AUN1.SGM
05AUN1
]]>Agencies
[Federal Register Volume 80, Number 150 (Wednesday, August 5, 2015)]
[Notices]
[Pages 46631-46640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19125]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75555; File No. SR-NASDAQ-2015-085]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the PowerShares High Income Downside Hedged
Portfolio a series of the PowerShares Actively Managed Exchange-Traded
Fund Trust
July 30, 2015.
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 July 28, 2015, 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
and II below, which Items have been prepared by Nasdaq. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to list and trade the common shares of beneficial
interest of the PowerShares High Income Downside Hedged Portfolio (the
``Fund''), a series of the PowerShares Actively Managed Exchange-Traded
Fund Trust (the ``Trust''), under Nasdaq Rule 5735 (``Rule 5735''). The
common shares of beneficial interest of the Fund are referred to herein
as the ``Shares.''
The text of the proposed rule change is available at https://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.
[[Page 46632]]
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 Rule 5735, which rule governs the listing and trading of Managed
Fund Shares \3\ on the Exchange.\4\ The Shares will be offered by the
Fund, which will be an actively managed exchange-traded fund (``ETF'')
and a series of the Trust. The Trust was established as a Delaware
statutory trust on November 6, 2007. The Trust is registered with the
Commission as an open-end management investment company and has filed a
post-effective amendment to its registration statement on Form N-1A
(the ``Registration Statement'') with the Commission to register the
Fund and its Shares under the 1940 Act and the Securities Act of
1933.\5\ Invesco PowerShares Capital Management LLC will serve as the
investment adviser (the ``Adviser'') to the Fund. Invesco Distributors,
Inc. (the ``Distributor'') will serve as the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon will act
as the administrator, accounting agent, custodian (the ``Custodian'')
and transfer agent for the Fund.
---------------------------------------------------------------------------
\3\ A ``Managed Fund Share'' is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
\4\ The Commission approved Nasdaq Rule 5735 (formerly Nasdaq
Rule 4420(o)) 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,
e.g., Securities Exchange Act Release Nos. 69464 (April 26, 2013),
78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order approving
listing and trading of First Trust Senior Loan Fund); and 66489
(February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-
004) (order approving listing and trading of WisdomTree Emerging
Markets Corporate Bond Fund). Additionally, the Commission has
previously approved the listing and trading of a number of actively-
managed funds on NYSE Arca, Inc. pursuant to Rule 8.600 of that
exchange. See, e.g., Securities Exchange Act Release No. 68870
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (order approving listing and trading of First Trust
Preferred Securities and Income ETF). Moreover, the Commission
previously approved the listing and trading of other actively
managed funds within the PowerShares family of ETFs. See, e.g.,
Securities Exchange Act Release Nos. 68158 (November 5, 2012), 77 FR
67412 (November 9, 2012) (SR-NYSEArca-2012-101) (order approving
listing and trading of PowerShares S&P 500 Downside Hedged
Portfolio) and 69915 (July 2, 2013), 78 FR 41145 (July 9, 2013) (SR-
NYSEArca-2013-56) (order approving listing of PowerShares China A-
Share Portfolio). The Exchange believes the proposed rule change
raises no significant issues not previously addressed in those prior
Commission orders.
\5\ See Registration Statement for the Trust, filed on April 13,
2015 (File Nos. 333-147622 and 811-22148). In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the1940 Act. See Investment Company Act Release No.
28171 (February 27, 2008) (File No. 812-13386) (``Exemptive
Order'').
---------------------------------------------------------------------------
Paragraph (g) of Rule 5735 provides that, if the investment adviser
to an 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's portfolio.\6\ In addition, paragraph (g) of Rule
5735 further requires that personnel who make decisions on such
investment company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material,
non-public information regarding the investment company's portfolio.
Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i), which applies
to index-based funds and requires ``fire-walls'' between affiliated
broker-dealers and investment advisers regarding the index-based fund's
underlying benchmark index. Rule 5735(g), however, applies to the
establishment of a ``fire wall'' between affiliated investment advisers
and the broker-dealers with respect to the investment company's
portfolio and not with respect to an underlying benchmark index, as is
the case with index-based funds. The Adviser is itself not a broker-
dealer, but it is affiliated with the Distributor, a broker-dealer. The
Adviser has therefore implemented a fire wall between itself and the
Distributor with respect to the access of information concerning the
composition and/or changes to the Fund's portfolio. In the event (a)
the Adviser becomes newly affiliated with a different broker-dealer (or
becomes a registered broker-dealer), or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes affiliated
with a broker-dealer, it will implement a fire wall with respect to its
relevant personnel and/or such broker-dealer affiliate, if applicable,
regarding access to information concerning the composition and/or
changes to the Fund's 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.
---------------------------------------------------------------------------
\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with the Advisers Act and Rule 204A-1
thereunder. 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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Description of the Fund
The Fund will be an actively managed ETF, and its investment
objective will be to seek to achieve high income and positive total
returns. The Fund will seek to achieve its investment objective by
using a quantitative, rules-based investment methodology designed to
provide returns that exceed the performance of the S&P High Income
VEQTOR Index (the ``Benchmark'').\7\ As
[[Page 46633]]
described below, the Fund will seek to gain exposure to the securities
contained in the equity component of the Benchmark and CBOE Volatility
Index (``VIX Index'') related instruments (``VIX Index Related
Instruments,'' as defined below).
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\7\ The Fund's Benchmark allocates between equity securities and
CBOE Volatility Index futures. The Commission has previously
approved listing and trading of exchange traded products with
Chicago Board Options Exchange (``CBOE'') volatility index futures
as components of benchmarks. See, e.g., Securities Exchange Act
Release No. 68158 (November 5, 2012), 77 FR 67412 (November 9, 2012)
(SR-NYSEArca-2012-101) (order approving listing and trading of
PowerShares S&P 500 Downside Hedged Portfolio); Securities Exchange
Act Release Nos. 65134 (August 15, 2011), 76 FR 52034 (August 19,
2011) (SR-NYSEArca-2011-23) (order approving listing of ProShares
Short VIX Short-Term Futures ETF, ProShares Short VIX Mid-Term
Futures ETF, ProShares Ultra VIX Short-Term Futures ETF, ProShares
Ultra VIX Mid-Term Futures ETF, ProShares UltraShort VIX Short-Term
Futures ETF, and ProShares UltraShort VIX Mid-Term Futures ETF); and
63610 (December 27, 2010), 76 FR 199 (January 3, 2011) (SR-NYSEArca-
2010-101 [sic]) (order approving listing of ProShares VIX Short-Term
Futures ETF and ProShares VIX Mid-Term Futures ETF).
---------------------------------------------------------------------------
The Benchmark, the VIX Index and the S&P 500 VIX Short Term Futures
Index
The Benchmark, using strategy allocation rules developed by
Standard & Poor's (``S&P''),\8\ is composed of two types of components:
An equity component, represented by the constituents of the S&P High
Income Equity Composite Index (``Equity Component Index''), and a
volatility component, represented by the S&P 500 VIX Short Term Futures
Index (``VIX Futures Index''). The Benchmark allocates its constituents
between the two components in any given amount from time to time based
on the level of volatility in the market.
---------------------------------------------------------------------------
\8\ S&P is a division of the McGraw-Hill Companies, Inc. S&P is
not a broker-dealer and has implemented procedures designed to
prevent the use and dissemination of material, non-public
information regarding the Benchmark.
---------------------------------------------------------------------------
The Equity Component Index is composed of 150 high yield securities
that meet certain size, liquidity and listing exchange criteria as
determined by S&P. This component is comprised of the following four
sub-components: (i) Preferred stocks, (ii) units of master limited
partnerships (``MLPs''), (iii) real estate investment trusts
(``REITs''), and (iv) a portfolio of global securities engaged in the
real estate industry (``global property securities'') and/or global
securities that pay high dividends (``global dividend securities''
which, collectively with global property securities, are ``Global
Equities'').
The VIX Index is a theoretical calculation and cannot be traded.
The VIX Index is a benchmark index designed to measure the market price
of volatility in large cap U.S. stocks over 30 days in the future, and
is calculated based on the prices of certain put and call options on
the S&P 500[supreg] Index. The VIX Index measures the premium paid by
investors for certain options linked to the S&P 500[supreg] Index.
During periods of market instability, the implied level of volatility
of the S&P 500[supreg] Index typically increases and, consequently, the
prices of options linked to the S&P 500[supreg] Index typically
increase (assuming all other relevant factors remain constant or have
negligible changes). This, in turn, causes the level of the VIX Index
to increase. The VIX Index historically has had negative correlations
to the S&P 500[supreg] Index. Because the level of the VIX Index may
increase in times of uncertainty, the VIX Index is known as the ``fear
gauge'' of the broad U.S. equities market.
The VIX Futures Index utilizes the prices of the first and second
month futures contracts based on the VIX Index, replicating a position
that rolls the nearest month VIX futures contracts to the next month
VIX futures contracts on a daily basis in equal fractional amounts. The
Benchmark's allocation to its volatility component serves as an implied
volatility hedge, as volatility historically tends to correlate
negatively to the performance of the equity markets (i.e., rapid
declines in the performance of the equity markets generally are
associated with particularly high volatility in such markets).
On any Business Day (as defined below), the Benchmark allocates
between its equity and volatility components based on a combination of
realized volatility and implied volatility trend decision variables.
The allocation to the VIX Futures Index generally increases when
realized volatility and implied volatility are higher, and decreases
when realized volatility and implied volatility are lower. While
allocations are reviewed daily, these allocations may change on a less
frequent basis.
The U.S. Index Committee (the ``Committee'') of S&P maintains the
Benchmark. The Committee meets monthly. At each meeting, the Committee
reviews pending corporate actions that may affect Benchmark
constituents, statistics comparing the composition of the Benchmark to
the market, companies that are being considered as candidates for
addition to the Benchmark, and any significant market events. In
addition, the Committee may revise the Benchmark's policy covering
rules for selecting companies, treatment of dividends, share counts, or
other matters.
Principal Investment Strategies of the Fund
The Fund's investment strategy is similar to the rules-based
allocation methodology of its Benchmark. Therefore, the allocation
among the Fund's investments generally will tend to approximate the
allocation between the equity and volatility components of the
Benchmark. However, the Fund seeks returns that exceed the returns of
the Benchmark; accordingly, the Fund can have a higher or lower
exposure to either component (or any respective sub-component) of the
Benchmark at any time.\9\
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\9\ The Fund will be ``non-diversified'' under the 1940 Act and
therefore may invest more of its assets in fewer issuers than
``diversified'' funds. The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
---------------------------------------------------------------------------
In pursuing its investment objective, under normal market
conditions,\10\ the Fund will invest substantially all of its assets in
(i) an equity sleeve that generally corresponds to the Equity Component
Index, represented by a combination of 150 high yield securities that
includes preferred stocks, MLPs, REITs, and Global Equities, each of
which will be listed either on a U.S. securities exchange or a member
exchange of the Intermarket Surveillance Group (``ISG''); \11\ and (ii)
a volatility sleeve, represented by instruments relating to the VIX
Index and consisting of futures contracts on the VIX Index and options
on those futures contracts. During periods of low volatility, a greater
portion of the Fund's assets will be invested in equity securities, and
during periods of increased volatility, a greater portion of the Fund's
assets will be invested in VIX Index Related Instruments (as defined
below). Any U.S. security invested by the Fund must be listed on a
national securities exchange, and any non-U.S. security must be listed
on a member exchange of the ISG.
---------------------------------------------------------------------------
\10\ 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 objective.
\11\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
Additionally, the Fund may invest in ETFs and exchange-traded notes
(``ETNs'') that are listed on U.S. securities exchanges that provide
exposure to the components of the Equity Component Index, as well as
ETFs and ETNs that provide exposure to the VIX Index (these
instruments, collectively with VIX Index futures contracts and options
on those futures contracts, are termed the ``VIX Index Related
Instruments'').
[[Page 46634]]
Other Investments of the Fund
The Fund may invest its remaining assets in U.S. government
securities, high-quality money market instruments, cash and cash
equivalents to provide liquidity and to collateralize its investments
in derivative instruments. These instruments in which the Fund may
invest include: (i) Short-term obligations issued by the U.S.
Government; \12\ (ii) short-term negotiable obligations of commercial
banks, fixed time deposits and bankers' acceptances of U.S. and foreign
banks and similar institutions; \13\ (iii) commercial paper rated at
the date of purchase ``Prime-1'' by Moody's Investors Service, Inc. or
``A-1+'' or ``A-1'' by S&P or, if unrated, of comparable quality, as
the Adviser of the Fund determines, and (iv) money market mutual funds,
including affiliated money market funds.
---------------------------------------------------------------------------
\12\ The Fund may invest in U.S. government obligations.
Obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities include bills, notes and bonds issued
by the U.S. Treasury, as well as ``stripped'' or ``zero coupon''
U.S. Treasury obligations representing future interest or principal
payments on U.S. Treasury notes or bonds.
\13\ Time deposits are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates. Banker's acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with
international transactions.
---------------------------------------------------------------------------
In addition, the Fund's investment in securities of other
investment companies (including money market funds) may exceed the
limits permitted under the 1940 Act, in accordance with certain terms
and conditions set forth in a Commission exemptive order issued to the
Trust pursuant to Section 12(d)(1)(J) of the 1940 Act.\14\
---------------------------------------------------------------------------
\14\ Investment Company Act Release No. 30238 (October 23, 2012)
(File No. 812-13820).
---------------------------------------------------------------------------
The Fund may enter into repurchase agreements, which are agreements
pursuant to which securities are acquired by the Fund from a third
party with the understanding that they will be repurchased by the
seller at a fixed price on an agreed date. These agreements may be made
with respect to any of the portfolio securities in which the Fund is
authorized to invest. Repurchase agreements may be characterized as
loans secured by the underlying securities. The Fund may enter into
repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii)
securities dealers (``Qualified Institutions''). The Adviser will
monitor the continued creditworthiness of Qualified Institutions.
The Fund may enter into reverse repurchase agreements, which
involve the sale of securities with an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment and have
the characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
The Fund may purchase exchange-listed warrants. However, the Fund
does not expect to enter into swap agreements, including credit default
swaps, but may do so if such investments are in the best interests of
the Fund's shareholders.
Investment Restrictions of the Fund
The Fund may not concentrate its investments (i.e., invest more
than 25% of the value of its net assets) in securities of issuers in
any one industry or group of industries. This restriction will not
apply to obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.\15\
---------------------------------------------------------------------------
\15\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities or other illiquid assets (calculated at
the time of investment), including Rule 144A securities. The Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities or other illiquid assets.
Illiquid securities and other illiquid assets include those subject to
contractual or other restrictions on resale and other instruments or
assets that lack readily available markets as determined in accordance
with Commission staff guidance.\16\
---------------------------------------------------------------------------
\16\ Long-standing Commission guidelines have required open-end
funds to hold no more than 15% of their net assets in illiquid
securities and other illiquid assets. See Investment Company Act
Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), FN
34. See also Investment Company Act Release Nos. 5847 (October 21,
1969), 35 FR 19989 (December 31, 1970) (Statement Regarding
``Restricted Securities''); and 18612 (March 12, 1992), 57 FR 9828
(March 20, 1992) (Revisions of Guidelines to Form N-1A). A fund's
portfolio security is illiquid if it cannot be disposed of in the
ordinary course of business within seven days at approximately the
value ascribed to it by the fund. See Investment Company Act Release
Nos. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); and 17452 (April 23,
1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the
Securities Act of 1933).
---------------------------------------------------------------------------
The Fund intends to qualify for and to elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\17\
---------------------------------------------------------------------------
\17\ 26 U.S.C. 851.
---------------------------------------------------------------------------
As a result of the instruments that the Fund will hold, the Fund
will be subject to regulation by the Commodity Futures Trading
Commission and the National Futures Association (``NFA'') as a
commodity pool, and thus must comply with additional disclosure,
reporting, and recordkeeping rules imposed upon commodity pools.\18\
---------------------------------------------------------------------------
\18\ The Exchange represents that the Adviser has previously
registered as a commodity pool operator and commodity trading
advisor and also is a member of the NFA.
---------------------------------------------------------------------------
The Fund's investments will be consistent with the Fund's
investment objective. Additionally, the Fund may engage in frequent and
active trading of portfolio securities to achieve its investment
objective. The Fund may utilize instruments or investment techniques
that have a leveraging effect on the Fund. This effective leverage
occurs when the Fund's market exposure exceeds the amounts actually
invested. Any instance of effective leverage will be covered in
accordance with guidance promulgated by the Commission and its
staff.\19\ The Fund does not presently intend to engage in any form of
borrowing for investment purposes, and will not be operated as a
``leveraged ETF,'' i.e., it will not be operated in a manner designed
to seek a multiple of the performance of an underlying reference index.
The Fund will not use futures for speculative purposes, nor will the
Fund invest in OTC equities or enter into futures contracts that are
not traded on a U.S. exchange.
---------------------------------------------------------------------------
\19\ In re Securities Trading Practices of Investment Companies,
Investment Company Act Release No. 10666 (April 18, 1979), 44 FR
25128 (April 27, 1979).
---------------------------------------------------------------------------
Net Asset Value
The Fund's administrator will calculate the Fund's net asset value
(``NAV'') per Share as of the close of regular trading (normally 4:00
p.m., Eastern time (``E.T.'')) on each day the New York Stock Exchange
(``NYSE'') is open for business (a ``Business Day''). NAV per Share
will be calculated for the Fund by deducting all of the Fund's
liabilities from the total value of its assets and dividing the result
by the number of Shares outstanding, rounding to the nearest cent. All
valuations will be subject to review by the Board of Trustees of the
Trust (``Board'') or its delegate.
[[Page 46635]]
In determining NAV, expenses will be accrued and applied daily and
securities and other assets for which market quotations are readily
available will be valued at market value. Securities listed or traded
on an exchange (including high yield Global Equities, preferred stocks,
MLPs, REITs and warrants) will be valued at the last sale price or
official closing price that day as of the close of the exchange on
which such securities primarily trade. Shares of open-end registered
investment companies (i.e., mutual funds) will be valued at net asset
value; shares of exchange-traded investment companies (i.e., ETFs) and
ETNs will be valued at the last sale price or official closing price on
the exchange on which they primarily trade. Futures contracts are
valued as of the final settlement price on the exchange on which they
trade. Options will be valued at the closing price (and, if no closing
price is available, at the mean of the last bid/ask quotations) from
the exchange where such instruments principally trade. U.S. government
securities will be valued at the mean price provided by a third party
vendor. Illiquid securities, as well as cash and cash equivalents,
money market funds, repurchase agreements (including reverse repurchase
agreements) and other short-term obligations (including corporate
commercial paper, negotiable short-term obligations of commercial
banks, fixed time deposits, bankers acceptances and similar securities)
will each be valued in accordance with the Trust's valuation policies
and procedures, which have been approved by the Trust's Board.
The NAV for the Fund will be calculated and disseminated daily. If
an asset's market price is not readily available, the asset will be
valued using pricing provided from independent pricing services or by
another method that the Adviser, in its judgment, believes will better
reflect the asset's fair value in accordance with the Trust's valuation
policies and procedures approved by the Trust's Board and with the 1940
Act. Fair value pricing involves subjective judgments and it is
possible that a fair value determination for an asset may be materially
different than the value that could be realized upon the sale of the
asset.
Creation and Redemption of Shares
The Trust will issue Shares of the Fund at NAV only with authorized
participants (``APs'') and only in aggregations of 50,000 shares (each
aggregation is called a ``Creation Unit'') or multiples thereof, on a
continuous basis through the Distributor, without a sales load, at the
NAV next determined after receipt, on any Business Day, of an order in
proper form.
The consideration an AP must provide for purchase of Creation Unit
aggregations of the Fund may consist of (i) cash, in lieu of all or a
portion of the Deposit Securities, as defined below, in an amount
calculated based on the NAV per Share, multiplied by the number of
Shares representing a Creation Unit (``Deposit Cash''), plus fixed and
variable transaction fees; or (ii) an ``in-kind'' deposit of a
designated portfolio of securities determined by the Adviser that
generally will conform to the holdings of the Fund consistent with its
investment objective (the ``Deposit Securities'') per each Creation
Unit aggregation and generally an amount of cash (the ``Cash
Component'') computed as described below.
Together, the Deposit Securities and the Cash Component (including
the cash in lieu amount) will constitute the ``Fund Deposit,'' which
will represent the minimum initial and subsequent investment amount for
a Creation Unit aggregation of the Fund. The Cash Component is
sometimes also referred to as the Balancing Amount. The Cash Component
will serve the function of compensating for any differences between the
NAV per Creation Unit aggregation and the Deposit Amount (as defined
below). For example, for a creation the Cash Component will be an
amount equal to the difference between the NAV of Fund Shares (per
Creation Unit aggregation) and the ``Deposit Amount''--an amount equal
to the market value of the Deposit Securities and/or cash in lieu of
all or a portion of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit aggregation exceeds
the Deposit Amount), the AP will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit
aggregation is less than the Deposit Amount), the AP will receive the
Cash Component.
Shares may be redeemed only in Creation Unit aggregations at their
NAV next determined after receipt of a redemption request in proper
form by the Fund through the Custodian and only on a Business Day. The
Fund will not redeem Shares in amounts less than Creation Unit
Aggregations. APs must accumulate enough Shares in the secondary market
to constitute a Creation Unit Aggregation in order to have such Shares
redeemed by the Trust. The redemption proceeds for a Creation Unit
Aggregation generally consist of (i) cash, in lieu of all or a portion
of the Fund Securities as defined below, in an amount calculated based
on the NAV per Share, multiplied by the number of Shares representing a
Creation Unit, less any redemption transaction fees; or (ii) a
designated portfolio of securities determined by the Adviser that
generally will conform to the holdings of the Fund consistent with its
investment objective per each Creation Unit aggregation (``Fund
Securities'')--as announced on the Business Day of the request for
redemption received in proper form-- plus or minus 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, less any redemption transaction fees. In
the event that the Fund Securities have a value greater than the NAV of
the Shares, a compensating Cash Component payment equal to the
difference is required to be made by or through an AP by the redeeming
shareholder.
Creation Units of the Fund generally will be sold partially in cash
and partially in-kind. However, the Fund also reserves the right to
permit or require Creation Units to be issued principally in-kind or
principally for cash. At all times, the Trust reserves the right to
permit or require the substitution of Deposit Cash--i.e., a ``cash in
lieu'' amount--to be added to the Cash Component to replace any Deposit
Security that may not be available in sufficient quantity for delivery,
or that may not be eligible for transfer or which might not be eligible
for trading by an AP or the investor for which it is acting or other
relevant reason.\20\
---------------------------------------------------------------------------
\20\ Such substitutions of certain Deposit Securities are termed
``custom orders.'' On any given Business Day, if the Fund accepts a
custom order, the Adviser represents that the Fund will accept
similar custom orders from all other APs on the same basis.
---------------------------------------------------------------------------
To the extent that the Fund permits Creation Units to be issued
principally or partially in-kind, the Custodian, through the National
Securities Clearing Corporation (``NSCC''), will make available on each
Business Day, prior to the opening of business of the NYSE (currently
9:30 a.m., E.T.), the list of the names and the quantity of each
Deposit Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day), plus any
estimated Cash Component, for the Fund. Such Fund Deposit will be
applicable, subject to any adjustments as described below, to effect
creations of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities is made available.
Information on the specific names and holdings in a Fund
[[Page 46636]]
Deposit also will be available at www.pstrader.net.
To the extent that the Fund permits Creation Units to be redeemed
in-kind, the Custodian, through the NSCC, will make available on each
Business Day, prior to the opening of business of NYSE (currently 9:30
a.m., E.T.), the identity of the Fund Securities 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 that are
applicable to creations of Creation Unit aggregations.
When applicable, during times that the Fund permits in-kind
creations, the identity and quantity of the Deposit Securities required
for a Fund Deposit for the Shares may change as rebalancing adjustments
and corporate action events occur and are reflected within the Fund
from time to time by the Adviser, consistent with the investment
objective of the Fund.
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 NSCC or
(ii) a Depository Trust Company (``DTC'') Participant (a ``DTC
Participant''). In addition, each Participating Party or DTC
Participant (each, an AP) must execute an agreement that has been
agreed to by the Distributor and the Custodian with respect to
purchases and redemptions of Creation Units.
All orders to create Creation Unit aggregations must be received by
the transfer agent no later than the closing time of the regular
trading session on the NYSE (ordinarily 4:00 p.m., E.T.) in each case
on the date such order is placed in order for creations of Creation
Unit aggregations to be effected based on the NAV of Shares of the Fund
as next determined on such date after receipt of the order in proper
form.
In order to redeem Creation Units of the Fund, an AP must submit an
order to redeem for one or more Creation Units. All such orders must be
received by the Fund's transfer agent in proper form no later than the
close of regular trading on the NYSE (ordinarily 4:00 p.m. E.T.) in
order to receive that day's closing NAV per Share.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other
than customary weekend and holiday closings); (ii) for any period
during which trading on the NYSE is suspended or restricted; (iii) for
any period during which an emergency exists as a result of which
disposal of the Shares of the Fund or determination of the Fund's NAV
is not reasonably practicable; or (iv) in such other circumstances as
is permitted by the Commission.
APs may be required to pay an administrative fee and a variable
transaction fee for purchasing or redeeming Creation Units. Creation
and redemption transactions for the Fund are subject to a fixed
administrative fee of $500, payable to the Custodian, irrespective of
the size of the order. In addition to the fixed administrative fee, the
Custodian may impose an additional variable transaction fee of up to
four times the fixed administrative fee. This additional administrative
fee may be incurred for administration and settlement of (i) in-kind
creations and redemptions effected outside the normal Clearing Process,
and (ii) cash creations and redemptions. Finally, to the extent the
Fund permits or requires APs to substitute cash in lieu of Deposit
Securities, the Adviser may set additional variable fees separate from
the fees already described that are also payable to the Fund up to 2%.
These cash-in-lieu fees will be negotiated between the Adviser and the
AP and are charged to offset the transaction cost to the Fund of buying
(or selling) those particular Deposit Securities, to cover spreads and
slippage costs and to protect existing shareholders against sudden
movements in the prices of the portfolio investments due to market
events. From time to time, the Adviser, in its sole discretion, may
adjust the Fund's variable transaction fees or reimburse APs for all or
a portion of the creation or redemption transaction fees.
Availability of Information
The Fund's Web site (www.invescopowershares.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
Fund's Web site will include the ticker symbol for the Shares, CUSIP
and exchange information, along with additional quantitative
information updated on a daily basis, including, for the Fund: (1)
daily trading volume, the prior Business Day's reported NAV, closing
price and mid-point of the bid/ask spread at the time of calculation of
such NAV (the ``Bid/Ask Price''),\21\ 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 the most recently completed calendar year and each of the
four most recently completed calendar quarters since that year (or the
life of the Fund if shorter). On each Business Day, before commencement
of trading in Shares in the Regular Market Session \22\ 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'' as such term is defined in Rule 5735(c)(2))
held by the Fund that will form the basis for the Fund's calculation of
NAV at the end of the Business Day.\23\ In addition to disclosing the
identities and quantities of the portfolio of securities and other
assets in the Disclosed Portfolio, the Fund also will disclose on a
daily basis on its Web site the following information, as applicable to
the type of holding: ticker symbol, CUSIP number or other identifier,
if any; a description of the holding (including the type of holding),
the identity of the security or other asset or instrument underlying
the holding, if any; for options, the option strike price; quantity
held (as measured by, for example, par value, notional value or number
of shares, contracts or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge. In addition,
to the extent the Fund permits full or partial creations in-kind, a
basket composition file, which will include the security names and
share quantities to deliver (along with requisite cash in lieu) in
exchange for Shares, together with estimates and actual Cash
Components, will be publicly disseminated daily prior to the opening
[[Page 46637]]
of the Exchange via the NSCC and at www.pstrader.net. The basket will
represent the equity component of the Shares of the Fund.
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\21\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\22\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m.
to 8 p.m. E.T.).
\23\ 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 \24\ will be based upon
the current value for the components of the Disclosed Portfolio and
will be updated and widely disseminated by one or more major market
data vendors and broadly displayed at least every 15 seconds during the
Regular Market Session.
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\24\ 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, as well as closing price information, will be
available from major broker-dealer firms or on the exchange on which
they are traded, as applicable. Intra-day and closing price information
on the securities and other assets held by the Fund also will be
available through subscription services, such as Bloomberg, Markit and
Thomson Reuters, which can be accessed by APs and other investors.
Investors also will be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's Shareholder Reports, and
its Trust's Form N-CSR and Form N-SAR, each of which is filed twice a
year, except the SAI, which is filed at least annually. The Fund's SAI
and Shareholder Reports will be available free upon request from the
Trust, 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 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. Information regarding the previous day's closing price and
trading volume 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. Quotation
and last sale information for any U.S. exchange-traded instruments will
be available via the quote and trade service of their respective
primary exchanges, as well as in accordance with the Unlisted Trading
Privileges and the Consolidated Tape Association plans. Quotation and
last sale information for any non-U.S. exchange-listed securities will
be available from the foreign exchanges on which such securities trade
as well as from major market data vendors. Pricing information for any
futures contracts or options will be available via the quote and trade
service of their respective primary exchanges. Pricing information
related to U.S. government securities, money market mutual funds,
commercial paper, repurchase and reverse repurchase agreements and
other short-term investments held by the Fund will be available through
publicly available quotation services, such as Bloomberg, Markit and
Thomson Reuters.
Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, distributions and taxes, will
be included in the Registration Statement.
Initial and Continued Listing of the Fund's Shares
The Shares will conform to the initial and continued listing
criteria applicable to Managed Fund Shares, as set forth under Rule
5735. The Exchange represents that, for initial and/or continued
listing, the Fund will be in compliance with Rule 10A-3 \25\ under the
Exchange 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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\25\ See 17 CFR 240.10A-3.
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Trading Halts of the Fund's Shares
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Nasdaq will halt trading in the
Shares under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
Trading also 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. E.T. The Exchange has appropriate rules
to facilitate transactions in the Shares during all trading sessions.
As provided in 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
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.\26\ 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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\26\ 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
[[Page 46638]]
the Exchange, will communicate as needed regarding trading in the
Shares and other exchange-traded securities (including the equity
component securities, ETFs, ETNs and warrants) and instruments
(including futures contracts and options) held by the Fund with other
markets and other entities that are members of the ISG, and FINRA may
obtain trading information regarding trading in the Shares and other
exchange-traded securities (including the equity component securities,
ETFs, ETNs and warrants) and instruments (including futures contracts
and options) held by the Fund from such markets and other entities.
In addition, the Exchange may obtain information regarding trading
in the Shares and other exchange-traded securities (including the
equity component securities, ETFs, ETNs and warrants) and instruments
(including futures contracts and options) held by the Fund from markets
and other entities that are members of ISG, which includes securities
and futures exchanges, or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
In addition, with regard to the Fund's investments in futures
contracts and options, such instruments shall have their principal
trading market be a member of ISG or a market with which the Exchange
has 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 and the Disclosed Portfolio 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 purchasing Shares from the Fund for resale to
investors deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Exchange Act.
Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses. The Information Circular will
also disclose the trading hours of the Shares of the Fund and the
applicable NAV calculation time for the Shares. The Information
Circular will disclose that information about the Shares of the Fund
will be publicly available on the Fund's Web site.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Exchange Act in general, and Section 6(b)(5) \27\ of the
Exchange Act in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to, and perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest.
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\27\ 15 U.S.C. 78(f)(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 Rule 5735. 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 deter and detect violations of
Exchange rules and applicable federal securities laws and are adequate
to properly monitor trading in the Shares in all trading sessions. The
Adviser is affiliated with a broker-dealer and has implemented a fire
wall with respect to its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, paragraph (g) of Rule 5735 further requires
that personnel who make decisions on an 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.
FINRA may obtain information via ISG from other exchanges that are
members of ISG. In addition, the Exchange may obtain information
regarding trading in the Shares and other exchange-traded securities
(including the equity component securities, ETFs, ETNs and warrants)
and instruments (including futures contracts and options) held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. The Fund
will limit its investments in illiquid securities or other illiquid
assets to an aggregate amount of 15% of its net assets (calculated at
the time of investment). The holdings of the Fund will be comprised
primarily of securities included in the Equity Component Index, VIX
Index Related Instruments, U.S. government securities, money market
instruments, cash and cash equivalents. The Fund will invest in U.S.
government securities, money market instruments, cash and cash
equivalents to provide liquidity and to collateralize its investments
in derivative instruments. The Fund also may invest directly in ETFs
and ETNs. The Fund will not invest in OTC equities or enter into
futures contracts that are not traded on a U.S. exchange.
The Fund will not use futures for speculative purposes, and its
investments will be consistent with the Fund's investment objective.
Additionally, the Fund may engage in frequent and active trading of
portfolio securities to achieve its investment objective. In pursuing
its investment objective, the Fund may utilize instruments or
investment techniques that have a leveraging effect on the Fund. This
effective leverage occurs when the Fund's market exposure exceeds the
amounts actually invested. Any instance of effective leverage will be
covered in accordance with guidance promulgated by the Commission and
its staff.\28\ The Fund does not presently intend to engage in any form
of borrowing for investment purposes, and will not be operated as a
``leveraged ETF,'' i.e., it will not be operated in a manner designed
to seek a multiple of
[[Page 46639]]
the performance of an underlying reference index. The Fund does not
expect to enter into swap agreements, including credit default swaps,
but may do so if such investments are in the best interests of the
Fund's shareholders.
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\28\ See FN 18 [sic], supra.
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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 every day that
the Fund is traded, and that the NAV and the Disclosed Portfolio will
be made available to all market participants at the same time. In
addition, a large amount of information will be publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service, will be
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Exchange's Regular Market Session. On each
Business Day, before commencement of trading in Shares in the Regular
Market Session on the Exchange, the Fund will disclose on its Web site
the Disclosed Portfolio of the Fund that will form the basis for the
Fund's calculation of NAV at the end of the Business Day. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last-sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares. Quotation and last sale information for any U.S.
exchange-traded instruments also be available via the quote and trade
service of their respective primary exchanges, as well as in accordance
with the Unlisted Trading Privileges and the Consolidated Tape
Association plans. Quotation and last sale information for any non-U.S.
exchange-listed securities will be available from the foreign exchanges
on which such securities trade as well as from major market data
vendors. Pricing information for any futures contracts or options will
be available via the quote and trade service of their respective
primary exchanges. Pricing information related to U.S. government
securities, money market mutual funds, commercial paper, repurchase and
reverse repurchase agreements and other short-term investments held by
the Fund will be available through publicly available quotation
services, such as Bloomberg, Markit and Thomson Reuters. Intra-day and
closing price information will be available through subscription
services, such as Bloomberg, Markit and Thomson Reuters, which can be
accessed by APs and other investors.
The Fund's Web site will include a form of the prospectus for the
Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, 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. Trading in Shares of the Fund will be halted under
the conditions specified in Nasdaq Rules 4120 and 4121 or because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Rule 5735(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the Intraday Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Exchange
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 Exchange Act. The Exchange
believes that the proposed rule change 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.
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 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 Exchange consents, the Commission will:
(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-2015-085 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-085. 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
[[Page 46640]]
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 will also 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-2015-085 and should be submitted on or before
August 26, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19125 Filed 8-4-15; 8:45 am]
BILLING CODE 8011-01-P
