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 AltShares Long/Short High Yield Fund of ETFis Series Trust I, 51632-51638 [2015-20937]
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Federal Register / Vol. 80, No. 164 / Tuesday, August 25, 2015 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75738 ; File No. SR–
NASDAQ–2015–095]
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 AltShares Long/Short
High Yield Fund of ETFis Series Trust
I
August 19, 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 August 7,
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
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
shares of the AltShares Long/Short High
Yield Fund (the ‘‘Fund’’) of ETFis Series
Trust I (the ‘‘Trust’’) under Nasdaq Rule
5735 (‘‘Managed Fund Shares’’).3 The
shares of the Funds are collectively
referred to herein as the ‘‘Shares.’’ The
text of the proposed rule change is
available at http://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
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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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008), 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). The Exchange believes the
proposed rule change raises no significant issues
not previously addressed in prior Commission
orders.
2 17
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1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund
Shares 4 on the Exchange. The Fund will
be an actively-managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust, which was
established as a Delaware series trust on
September 20, 2012.5 The Trust is
registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.6 The Fund is a series of
the Trust.
Description of the Shares and the Fund
Etfis Capital LLC is the investment
adviser (‘‘Adviser’’) to the Fund.
Bramshill Investments, LLC is the
investment sub-adviser to the Fund (the
‘‘Sub-Adviser’’). The Sub-Adviser is
responsible for daily portfolio
management and all investment
decisions for the Fund. ETF Distributors
LLC (the ‘‘Distributor’’) will be the
principal underwriter and distributor of
the Fund’s Shares. The Bank of New
York Mellon Corporation (‘‘BNY’’) will
act as the administrator, accounting
agent, custodian and transfer agent to
the Fund.
Paragraph (g) of Rule 5735 provides
that if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940, as amended (15 U.S.C. 80a–1) (the ‘‘1940
Act’’) organized as an open-end investment
company or similar entity that invests in a portfolio
of securities selected by its investment adviser
consistent with its investment objectives and
policies. In contrast, an open-end investment
company that issues Index Fund Shares, listed and
traded on the Exchange under Nasdaq Rule 5705,
seeks to provide investment results that correspond
generally to the price and yield performance of a
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
5 The Commission has issued an order, upon
which the Trust may rely (the ‘‘Exemptive Order’’),
granting certain exemptive relief to the investment
adviser to the Fund under the 1940 Act. See
Investment Company Act Release No. 30607 (July
23, 2013) (File No. 812–14080).
6 See Post-Effective Amendment No. 40/41 to
Form N–1A Registration Statement for the Trust,
dated May 4, 2015 (File Nos. 333–187668 and 811–
22819) (the ‘‘Registration Statement’’). The
description of the Fund and the Shares contained
herein is based, in part, on information in the
Registration Statement.
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investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
paragraph (g) further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material, nonpublic information
regarding the open-end fund’s portfolio.
Rule 5735(g) is similar to Nasdaq Rule
5705(b)(5)(A)(i); however, paragraph (g)
in connection with the establishment of
a ‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not a brokerdealer, although it is affiliated with the
Distributor, a broker-dealer. The Adviser
has implemented a fire wall with
respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio. The SubAdviser is not a broker-dealer and is not
affiliated with a broker-dealer. In the
event (a) the Adviser or the Sub-Adviser
becomes newly affiliated with a brokerdealer 8 or registers as a broker-dealer, or
(b) any new adviser or new sub-adviser
is a registered broker-dealer or is or
becomes affiliated with a broker-dealer,
it will implement a fire wall with
respect to its relevant personnel and/or
such broker-dealer affiliate, as
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser, the Sub-Adviser and each such
party’s 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 applicable
federal securities laws as defined in Rule 204A–
1(e)(4). Accordingly, procedures designed to
prevent the communication and misuse of
nonpublic information by an investment adviser
must be consistent with Rule 204A–1 under the
Advisers Act. In addition, Rule 206(4)–7 under the
Advisers Act makes it unlawful for an investment
adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
8 In the case of the Adviser, which is already
affiliated with a broker-dealer and has implemented
a fire wall with respect to such affiliated brokerdealer, this refers to a new affiliation with an
additional broker-dealer.
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applicable, regarding access to
information concerning the composition
and/or changes to the Fund portfolio
and will be subject to procedures
designed to prevent the use and
dissemination of material nonpublic
information regarding such portfolio.
Investment Objective
The Fund’s investment objective is to
seek current income and capital
appreciation with reduced volatility
over time.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Principal Investments
The Fund will seek to achieve its
investment objective primarily by
investing in a portfolio of ‘‘high yield’’
debt securities of U.S. companies.
Under normal market conditions,9 the
Fund will hold long positions in high
yield debt securities selected because
the Sub-Adviser believes they are likely
to outperform the market over time or
increase in value in the near term (the
‘‘Long Position’’), and will hold short
positions in high yield debt securities
selected because the Sub-Adviser
believes they are likely to lose value in
the near or longer term (the ‘‘Short
Position’’).
The Fund will not have any portfolio
maturity limitation and may invest its
assets in instruments with short-term,
medium-term or long-term maturities.
Issuers of securities in which the Fund
expects to invest will include large and
medium capitalization companies, and
may include small capitalization
companies. The Sub-Adviser expects
the Fund’s investment portfolio to
include up to 200 different securities
positions with a target portfolio net
exposure (the market value of the Long
Position minus the market value of the
Short Position) of between ¥20% and
100%.
In selecting securities for the Fund’s
portfolio, the Sub-Adviser generally will
analyze debt securities included in the
Bloomberg USD Corporate High Yield
Bond Index (the ‘‘Bloomberg High Yield
Index’’). While the Fund may invest
directly in high yield debt securities, the
9 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 fixed income or other 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 manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance. In periods of extreme
market disturbance, the Fund may take temporary
defensive positions, by overweighting its portfolio
in cash/cash-like instruments; however, to the
extent possible, the Adviser would continue to seek
to achieve the Fund’s investment objectives.
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Sub-Adviser may also implement the
Fund’s strategy by investing in
exchange-traded pools (which will
consist of exchange-traded funds,10
exchange-traded notes,11 or closed-end
funds, and each of which will be listed
for trading on a U.S. exchange) (‘‘ETPs’’)
that invest a significant portion of their
portfolios in high yield debt instruments
(‘‘High Yield ETPs’’).
Positions in high-yield debt securities
also may include foreign debt securities
traded on U.S. or foreign exchanges or
in U.S. or foreign over-the-counter
markets, which may be denominated in
foreign currencies. (Any currency
hedging will be accomplished by taking
long or short positions in ETPs.)
‘‘High yield debt securities’’ generally
include debt securities that are rated
lower than ‘‘BBB¥’’ by Standard &
Poor’s Ratings Group or ‘‘Baa3’’ by
Moody’s Investors Service, Inc. or at a
similar level by another nationally
recognized statistical rating
organization, or are unrated but are
deemed to be of comparable quality by
the Sub-Adviser. These securities
consist of senior and subordinated
corporate debt obligations (bonds,
debentures, notes and commercial
paper). The Fund may invest in the
foregoing corporate debt obligations,
senior bank loans (including through
loan assignments and loan
participations), preferred stocks,
municipal bonds, convertible bonds and
convertible preferred stocks.12 The
Fund will not invest in other types of
high-yield debt securities, such as assetbacked securities. The Fund will not be
limited to investing in high-yield
securities, so any of the securities listed
may also be investment grade. The Fund
may invest in U.S. treasuries.
The Fund
As a result of its trading strategy, the
Fund expects to engage in frequent
portfolio transactions that will likely
result in higher portfolio turnover than
other similar investment companies.
Portfolio turnover is a ratio that
indicates how often the securities in an
investment company’s portfolio change
during a year. A higher portfolio
turnover rate indicates a greater number
Nasdaq Rules 5705.
Nasdaq Rules 5710.
12 Convertible bonds and convertible preferred
stocks in which the Fund invests, and the equity
securities into which these securities may be
converted, and also preferred stocks (nonconvertible) in which the Fund invests, generally
will be exchange-traded. The Sub-Adviser’s current
expectation is that at least 80% of these securities
will be exchange-traded. At least 90% of these
exchange-traded securities will be traded on
exchanges that are Intermarket Surveillance Group
(‘‘ISG’’) members.
51633
of changes, and a lower portfolio
turnover rate indicates a smaller number
of changes. Under normal
circumstances, the anticipated annual
portfolio turnover rate for the Fund is
expected to be greater than 100%.
Other Investments
The Fund may invest in other types
of investments, as set forth in this
section. In addition to investing in High
Yield ETPs as discussed under Principal
Investments, the Fund could invest in
other fixed-income ETPs—but will not
invest in leveraged ETPs. Due to legal
limitations, the Fund will be prevented
from purchasing more than 3% of an
ETF’s outstanding shares unless: (i) The
ETF or the Fund has received an order
for exemptive relief from the 3%
limitation from the Commission that is
applicable to the Fund; and (ii) the ETF
and the Fund take appropriate steps to
comply with any conditions in such
order. The Fund may invest in
warrants.13
In certain adverse market, economic,
political, or other conditions, the Fund
may temporarily depart from its normal
investment policies and strategy,
provided that the alternative is
consistent with the Fund’s investment
objective and is in the best interest of
the Fund. At such times, the Fund may
invest in cash or cash equivalents, such
as money market instruments,14 and to
the extent permitted by applicable law
and the Fund’s investment restrictions,
the Fund may invest in shares of money
market mutual funds. Under such
circumstances, the Fund may invest up
to 100% of its assets in these
investments and may do so for extended
periods of time. Under normal
circumstances, however, the Fund may
also hold money market instruments
and/or shares of money market mutual
funds for various reasons including to
provide for funds awaiting investment,
to accumulate cash for anticipated
purchases of portfolio securities, to
allow for shareholder redemptions and
to provide for the Fund’s operating
expenses.
The Fund anticipates investing
entirely in fully liquid assets, but it has
the flexibility to invest up to 15% of its
net assets in illiquid securities and other
10 See
11 See
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13 Warrants in which the Fund invests, and the
equity securities into which these warrants may be
converted, generally will be exchange-traded. The
Sub-Adviser’s current expectation is that at least
80% of these securities will be exchange-traded. At
least 90% of these exchange-traded securities will
be traded on exchanges that are ISG members.
14 The money market instruments in which the
Fund may invest are short-term (less than one-year)
notes issued by (i) the U.S. government, (ii) an
agency of the U.S. government, or (iii) a U.S.
corporation.
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illiquid assets.15 Under the supervision
of the Board of Trustees of the Trust (the
‘‘Trust Board’’), the Sub-Adviser will
determine the liquidity of the Fund’s
investments, and through reports from
the Sub-Adviser, the Trust Board
monitors investments in illiquid
instruments. In determining the
liquidity of the Fund’s investments, the
Sub-Adviser may consider various
factors including: (i) The frequency of
trades and quotations; (ii) the number of
dealers and prospective purchasers in
the marketplace; (iii) dealer
undertakings to make a market; (iv) the
nature of the security (including any
demand or tender features); and (v) the
nature of the marketplace for trades
(including the ability to assign or offset
the Fund’s rights and obligations
relating to the investment). If through a
change in values, net assets, or other
circumstances, the Fund were in a
position where more than 15% of its net
assets were invested in illiquid
securities or other illiquid assets, it
would seek to take appropriate steps to
protect liquidity. In keeping with the
foregoing focus on liquidity, the Fund
will generally seek to invest in highyield debt securities, bank loans, and
other debt issuances that the SubAdviser deems to be liquid, with readily
available prices. The Fund will only
invest in bank loans that have a par
amount outstanding of U.S. $100
million or greater at the time the loan is
originally issued. The Fund will not
enter into a long or short position in
high yield debt securities with a par
amount outstanding of less than U.S.
$100 million at the time of issuance of
such high yield debt securities, if upon
establishing such position, the total
value of such positions would represent
fifty percent or greater of the Fund’s net
assets.
The Fund may not invest more than
25% of the value of its total assets in
15 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), FN 34.
See also Investment Company Act Release No. 5847
(October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
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Jkt 235001
securities of issuers in any particular
industry.16
The Fund’s investments (including
investments in ETPs) will not be
utilized to seek to achieve a leveraged
return on the Fund’s net assets. The
Fund will not invest in futures
contracts, will not invest in options,
will not invest in swaps, and will not
invest in other derivative instruments.
The Shares
The Fund will issue and redeem
Shares only in Creation Units, through
the Distributor, without a sales load (but
subject to transaction fees), at the net
asset value (‘‘NAV’’) next determined
after receipt of an order in proper form,
on a continuous basis every day except
weekends and specified holidays,
pursuant to the terms of the agreement
executed with each Authorized
Participant (as defined below). The NAV
of the Fund will be determined once
each business day, normally as of the
close of regular trading on the NYSE,
generally, 4:00 p.m. Eastern time.17
Creation Unit sizes will be 25,000
Shares per Creation Unit.
The consideration for purchase of a
Creation Unit will consist of either (i) an
in-kind deposit of a designated portfolio
of securities (the ‘‘Deposit Securities’’)
for each Creation Unit constituting a
substantial replication, or a
representation, of the securities
included in the Fund’s portfolio and an
amount of cash (the ‘‘Cash Component’’)
computed as described below or (ii)
cash totaling the NAV of the Creation
Unit (‘‘Deposit Cash’’). The ‘‘Cash
Component’’ will be an amount equal to
the difference between the NAV of the
shares (per Creation Unit) and the
market value of the Deposit Securities.
The Fund may also effect a portion of
an otherwise in-kind creation or
redemption for cash, in accordance with
the Exemptive Order.
As applicable, (i) the Deposit
Securities and the Cash Component,
together, or (ii) the Deposit Cash, will
constitute the ‘‘Fund Deposit,’’ which
will represent the minimum initial and
subsequent investment amount for a
Creation Unit of the Fund. If the Cash
Component is a positive number (i.e.,
16 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).
17 NAV per Share will be calculated by dividing
the Fund’s net assets by the number of Fund Shares
outstanding. For more information regarding the
valuation of Fund investments in calculating the
Fund’s NAV, see ‘‘Net Asset Value’’ below and see
‘‘Determination of Net Asset Value’’ in the
Registration Statement.
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the NAV per Creation Unit exceeds the
market value of the Deposit Securities),
the Cash Component will be such
positive amount. If the Cash Component
is a negative number (i.e., the NAV per
Creation Unit is less than the market
value of the Deposit Securities), the
Cash Component will be such negative
amount and the creator will be entitled
to receive cash from the Fund in an
amount equal to the Cash Component.
The Cash Component will serve the
function of compensating for any
difference between the NAV per
Creation Unit and the market value of
the Deposit Securities.
To be eligible to place orders with
respect to creations and redemptions of
Creation Units, an entity must be (i) a
‘‘Participating Party,’’ i.e., a brokerdealer or other participant in the
clearing process through the Continuous
Net Settlement System of the National
Securities Clearing Corporation
(‘‘NSCC’’) or (ii) a Depository Trust
Company (‘‘DTC’’) Participant (a ‘‘DTC
Participant’’). In addition, each
Participating Party or DTC Participant
(each, an ‘‘Authorized Participant’’)
must execute an agreement that has
been agreed to by the Distributor and
the Fund Administrator, BNY, with
respect to purchases and redemptions of
Creation Units.
BNY, through the NSCC, will make
available on each business day,
immediately prior to the opening of
business on the Exchange’s Regular
Market Session (currently 9:30 a.m.
Eastern time), the list of the names and
the required number of shares of each
Deposit Security to be included in the
current Fund Deposit (based on
information at the end of the previous
business day) for the Fund. Such Fund
Deposit, subject to any relevant
adjustments, will be applicable in order
to effect purchases of Creation Units of
the Fund until such time as the next
announced composition of the Deposit
Securities is made available.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through BNY and only on a business
day.
With respect to the Fund, BNY,
through the NSCC, will make available
immediately prior to the opening of
business on the Exchange (9:30 a.m.
Eastern time) on each business day, the
list of the names and share quantities of
the Fund’s portfolio securities (‘‘Fund
Securities’’) 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
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may not be identical to Deposit
Securities.
Unless cash redemptions are available
or specified for the Fund, the
redemption proceeds for a Creation Unit
will consist of Fund Securities as
announced by BNY on the business day
of the request for redemption received
in proper form plus cash in an amount
equal to the difference between the NAV
of the Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities (the ‘‘Cash Redemption
Amount’’), less a fixed redemption
transaction fee and any applicable
additional variable charge as set forth in
the Registration Statement. In the event
that the Fund Securities have a value
greater than the NAV of the Shares, a
compensating cash payment equal to the
differential will be required to be made
by or through an Authorized Participant
by the redeeming shareholder.
Notwithstanding the foregoing, at the
Trust’s discretion, an Authorized
Participant may receive the
corresponding cash value of the
securities in lieu of one or more Fund
Securities.
The creation order and redemption
order cut off time for the Fund is
expected to be 3:00 p.m. Eastern time.
On days when the Exchange closes
earlier than normal and in the case of
custom orders, the Fund may require
orders for Creation Units to be placed
earlier in the day.
Net Asset Value
The NAV per Share for the Fund will
be computed by dividing the value of
the net assets of the Fund (i.e., the value
of its total assets less total liabilities) by
the total number of Shares outstanding,
rounded to the nearest cent. Expenses
and fees, including the management
fees, will be accrued daily and taken
into account for purposes of
determining NAV. The NAV of the Fund
will be calculated by BNY and
determined at the close of regular
trading on the NYSE (ordinarily 4:00
p.m. Eastern time) on each day that such
exchange is open. In calculating the
Fund’s NAV per Share, investments will
generally be valued by using market
valuations. A market valuation generally
means a valuation (i) obtained from an
exchange, a pricing service, or a major
market maker (or dealer) or (ii) based on
a price quotation or other equivalent
indication of value supplied by an
exchange, a pricing service, or a major
market maker (or dealer).18
18 Under normal market conditions, the Fund will
obtain pricing information on all of its assets from
these sources.
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ETPs, exchange-traded fixed income
securities, exchange-traded convertible
securities, exchange-traded warrants
and any other exchange traded
securities will be valued at the official
closing price on their principal
exchange or board of trade, or lacking
any current reported sale at the time of
valuation, at the mean between the most
recent bid and asked quotations on the
principal exchange or board of trade.
Portfolio securities traded on more than
one securities exchange will be valued
at the last sale price or official closing
price, as applicable, on the business day
as of which such value is being
determined at the close of the exchange
representing the principal market for
such securities. Fixed-income securities
traded over-the-counter (including high
yield fixed-income securities and
money market instruments); warrants
traded over-the-counter; and convertible
securities traded over-the-counter will
be valued at the mean between the most
recent available bid and asked
quotations provided by parties that
make a market in the instrument. If
recent bid and asked quotations are not
available, these securities will be valued
in accordance with the Fund’s fair
valuation procedures. Money market
instruments with maturities of less than
60 days will be valued at amortized
cost. Shares of mutual funds that are not
exchange-listed will be valued at their
net asset value.
Notwithstanding the foregoing, in
determining the value of any security or
asset, the Fund may use a valuation
provided by a pricing vendor employed
by the Trust and approved by the Trust
Board. The pricing vendor may base
such valuations upon dealer quotes, by
analyzing the listed market, by utilizing
matrix pricing, by analyzing market
correlations and pricing and/or
employing sensitivity analysis.
The Adviser may use various pricing
services, or discontinue the use of any
pricing service, as approved by the
Trust Board from time to time. A price
obtained from a pricing service based on
such pricing service’s valuation matrix
may be considered a market valuation.
Any assets or liabilities denominated in
currencies other than the U.S. dollar
will be converted into U.S. dollars at the
current market rates on the date of
valuation as quoted by one or more
sources.
In the event that current market
valuations are not readily available or
such valuations do not reflect current
market value, the Trust’s procedures
require the Adviser’s Pricing Committee
to determine a security’s fair value in
accordance with the Fund’s fair value
pricing procedures, which are approved
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
51635
by the Trust Board and consistent with
the 1940 Act.19 In determining such
value the Adviser’s Pricing Committee
may consider, among other things, (i)
price comparisons among multiple
sources, (ii) a review of corporate
actions and news events, and (iii) a
review of relevant financial indicators.
In these cases, the Fund’s NAV may
reflect certain portfolio securities’ fair
values rather than their market prices.
Fair value pricing involves subjective
judgments and it is possible that the fair
value determination for a security is
materially different than the value that
could be realized upon the sale of the
security.
Availability of Information
The Fund’s Web site, which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The prior
business day’s reported NAV, mid-point
of the bid/ask spread at the time of
calculation of such NAV (the ‘‘Bid/Ask
Price’’),20 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV; (2) data in chart
format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters; and (3) daily trading volume.
On each business day, before
commencement of trading in Shares in
the Regular Market Session 21 on the
Exchange, the Trust will disclose on its
Web site the identities and quantities of
the portfolio of securities and other
19 The Valuation Committee of the Trust Board
will be responsible for the oversight of the pricing
procedures of the Fund and the valuation of the
Fund’s portfolio. The Valuation Committee has
delegated day-to-day pricing responsibilities to the
Adviser’s Pricing Committee, which will be
composed of officers of the Adviser. The Pricing
Committee will be responsible for the valuation and
revaluation of any portfolio investments for which
market quotations or prices are not readily
available. The Trust and the Adviser have
implemented procedures designed to prevent the
use and dissemination of material, nonpublic
information regarding valuation and revaluation of
any portfolio investments.
20 The Bid/Ask Price of the Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of such Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
21 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 7 a.m. to 9:30 a.m. Eastern
time; (2) Regular Market Session from 9:30 a.m. to
4 p.m. or 4:15 p.m. Eastern time; and (3) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m.
Eastern time).
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
assets (the ‘‘Disclosed Portfolio’’) held
by the Fund that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.22
On a daily basis, the Fund will
disclose for each portfolio security and
other asset of the Fund the following
information on the Fund’s Web site (if
applicable): Name, ticker symbol, CUSIP
number or other identifier, if any; type
of holding (such as ‘‘bond’’, ‘‘note’’,
‘‘preferred stock’’, ‘‘ETP’’, ‘‘mutual
fund’’); quantity held (as measured by,
for example, number of shares, contracts
or units); maturity date, if any; coupon
rate, if any; effective date, if any; market
value of the holding; and the percentage
weighting of the holdings in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
In addition, for the Fund, an
estimated value, defined in Rule 5735 as
the ‘‘Intraday Indicative Value,’’ that
reflects an estimated intraday value of
the Fund’s portfolio, will be
disseminated. Moreover, the Intraday
Indicative Value, available on the
NASDAQ OMX Information LLC
proprietary index data service,23 will be
based upon the current value for the
components of the Disclosed Portfolio
and will be updated and widely
disseminated and broadly displayed at
least every 15 seconds during the
Regular Market Session. In addition,
during hours when the local markets for
foreign securities in the Fund’s portfolio
are closed, the Intraday Indicative Value
will be updated at least every 15
seconds during the Regular Market
Session to reflect currency exchange
fluctuations.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and to provide a close estimate of that
value throughout the trading day.
Investors will also be able to obtain
the Fund’s Statement of Additional
22 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.
23 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.
VerDate Sep<11>2014
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Jkt 235001
Information (‘‘SAI’’), the Fund’s
Shareholder Reports, and its Form
N–CSR and Form N–SAR, filed twice a
year. The Fund’s SAI and Shareholder
Reports will be available from the Fund
free upon request, 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.
Intra-day, executable price quotations
on the high yield debt securities, bank
loans, warrants, other fixed-income and
convertible securities, including cash
and cash equivalents, ETPs and other
assets held by the Fund are available
from major broker-dealer firms or on the
exchange on which they are traded, if
applicable. The foregoing, intra-day
price information is available through
subscription services, such as
Bloomberg and Thomson Reuters,
which can be accessed by Authorized
Participants and other investors. The
previous day’s closing price and trading
volume information for the exchangetraded securities held by the Fund will
be published daily in the financial
section of newspapers. Quotation and
last sale information for the exchangetraded securities held by the Fund will
be available via UTP Level 1, as well as
Nasdaq proprietary quote and trade
services.
Information regarding market price
and volume of the Shares is and will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. The previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information for
the Shares will be available via UTP
Level 1, as well as Nasdaq proprietary
quote and trade services.
Initial and Continued Listing
The Shares will be subject to Rule
5735, which sets forth the initial and
continued listing criteria applicable to
Managed Fund Shares. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 24 under
the Act. A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
24 See
PO 00000
17 CFR 240.10A–3.
Frm 00106
Fmt 4703
Sfmt 4703
Trading Halts and Trading Pauses
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. Nasdaq will halt or pause
trading in the Shares under the
conditions specified in Nasdaq Rules
4120 and 4121, including the trading
pauses under Nasdaq Rules 4120(a)(11)
and (12). Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the Shares inadvisable. These
may include: (1) The extent to which
trading is not occurring in the securities
and/or the financial instruments
constituting the Disclosed Portfolio of
the Fund; or (2) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
governing the trading of equity
securities. Nasdaq will allow trading in
the Shares from 7:00 a.m. until 8:00
p.m. Eastern time. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in Nasdaq
Rule 5735(b)(3), the minimum price
variation for quoting and entry of orders
in Managed Fund Shares traded on the
Exchange is $0.01.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by both Nasdaq and also
the Financial Industry Regulatory
Authority (‘‘FINRA’’) on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.25 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.
25 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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asabaliauskas on DSK5VPTVN1PROD with NOTICES
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. In addition, the
Exchange may obtain information from
the Trade Reporting and Compliance
Engine (‘‘TRACE’’), which is the FINRAdeveloped vehicle that facilitates
mandatory reporting of over-the-counter
secondary market transactions in
eligible fixed income securities.26
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares or other exchangetraded securities with other markets and
other entities that are ISG members, and
FINRA, on behalf of the Exchange, may
obtain trading information regarding
trading in the Shares; exchange-traded
fixed income securities; exchangetraded warrants; exchange-traded
convertible securities; ETPs; or other
exchange-traded securities from such
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in the Shares;
exchange-traded warrants; exchangetraded fixed-income securities;
exchange-traded convertible securities;
ETPs; or other exchange-traded
securities from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.27 FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities, including corporate
debt securities and money market
instruments, held by the Fund reported
to FINRA’s TRACE.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, nonpublic
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 and by
26 All broker/dealers who are FINRA member
firms have an obligation to report transactions in
corporate bonds to TRACE.
27 For a list of the current members of ISG, see
www.isgportal.org.
VerDate Sep<11>2014
17:10 Aug 24, 2015
Jkt 235001
whom 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 deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Fund for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
Additionally, the Information Circular
will reference that the Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
Calculation Time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’ Web site.
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act 28
in general and Section 6(b)(5) of the
Act 29 in particular in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in Nasdaq Rule 5735. The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on
Nasdaq during all trading sessions and
to deter and detect violations of
Exchange rules and the applicable
28 15
29 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(5).
Frm 00107
Fmt 4703
Sfmt 4703
51637
federal securities laws. The Adviser is
affiliated with a broker-dealer and has
implemented a ‘‘fire wall’’ with respect
to such broker-dealer regarding access to
information concerning the composition
and/or changes to the Fund’s portfolio.
In addition, as noted above, investors
will have ready access to information
regarding the Fund’s holdings, the
Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale
information for the Shares. The
Exchange may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. The Fund’s
portfolio holdings will be disclosed on
its Web site daily after the close of
trading on the Exchange and prior to the
opening of trading on the Exchange the
following day. Moreover, the Intraday
Indicative Value, available on the
NASDAQ OMX Information LLC
proprietary index data service will be
widely disseminated and broadly
displayed at least every 15 seconds
during the Regular Market Session. On
each business day, before
commencement of trading in Shares in
the Regular Market Session on the
Exchange, the Fund will disclose on its
Web site the Disclosed Portfolio that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day. Information regarding
market price and trading volume of the
Shares is and will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services, and
quotation and last sale information for
the Shares will be available via UTP
Level 1, as well as Nasdaq proprietary
quote and trade services. Intra-day,
executable price quotations on the high
yield debt securities, bank loans, other
fixed-income and convertible securities,
including cash and cash equivalents,
ETPs and other assets held by the Fund
are available from major broker-dealer
firms or on the exchange on which they
are traded, if applicable. The foregoing
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intra-day price information is available
through subscription services, such as
Bloomberg and Thomson Reuters,
which can be accessed by Authorized
Participants and other investors.
The Web site for the Fund will
include a form of the prospectus for the
Fund and additional data relating to
NAV and other applicable quantitative
information. Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in Nasdaq Rule 4120(a)(11)
have been reached or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and trading in
the Shares will be subject to Nasdaq
Rule 5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of activelymanaged exchange-traded fund that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
VerDate Sep<11>2014
17:10 Aug 24, 2015
Jkt 235001
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 self-regulatory organization
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.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2015–095 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–095. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
Frm 00108
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–20937 Filed 8–24–15; 8:45 am]
IV. Solicitation of Comments
PO 00000
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–2015–095 and should be
submitted on or before September 15,
2015.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75730; File No. SR–NSCC–
2015–802]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Amendment No. 1 and No Objection to
Advance Notice Filing, as Modified by
Amendment No. 1, to Establish a
Prefunded Liquidity Program As Part
of NSCC’s Liquidity Risk Management
August 19, 2015.
On June 26, 2015, National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–NSCC–2015–802 (‘‘Advance
Notice’’) pursuant to Section 806(e)(1) of
the Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Payment,
Clearing and Settlement Supervision
Act’’) 1 and Rule 19b–4(n)(1)(i) 2 under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) to establish a
‘‘Prefunded Liquidity Program’’ through
the private placement of unsecured
30 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1). The Financial Stability
Oversight Council designated NSCC a systemically
important financial market utility on July 18, 2012.
See Financial Stability Oversight Council 2012
Annual Report, Appendix A, http://
www.treasury.gov/initiatives/fsoc/Documents/
2012%20Annual%20Report.pdf. Therefore, NSCC
is required to comply with the Clearing Supervision
Act and file advance notices with the Commission.
See 12 U.S.C. 5465(e).
2 17 CFR 240.19b–4(n)(1)(i).
1 12
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[Federal Register Volume 80, Number 164 (Tuesday, August 25, 2015)]
[Notices]
[Pages 51632-51638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20937]
[[Page 51632]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75738 ; File No. SR-NASDAQ-2015-095]
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 AltShares Long/Short High Yield Fund of
ETFis Series Trust I
August 19, 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 August 7, 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 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 shares of the AltShares Long/
Short High Yield Fund (the ``Fund'') of ETFis Series Trust I (the
``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\ The
shares of the Funds are collectively referred to herein as the
``Shares.'' The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June
20, 2008) (SR-NASDAQ-2008-039). The Exchange believes the proposed
rule change raises no significant issues not previously addressed in
prior Commission orders.
---------------------------------------------------------------------------
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust, which was established as a Delaware series trust on
September 20, 2012.\5\ The Trust is registered with the Commission as
an investment company and has filed a registration statement on Form N-
1A (``Registration Statement'') with the Commission.\6\ The Fund is a
series of the Trust.
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940, as amended (15 U.S.C. 80a-1) (the ``1940 Act'')
organized as an open-end investment company or similar entity that
invests in a portfolio of securities selected by its investment
adviser consistent with its investment objectives and policies. In
contrast, an open-end investment company that issues Index Fund
Shares, listed and traded on the Exchange under Nasdaq Rule 5705,
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
\5\ The Commission has issued an order, upon which the Trust may
rely (the ``Exemptive Order''), granting certain exemptive relief to
the investment adviser to the Fund under the 1940 Act. See
Investment Company Act Release No. 30607 (July 23, 2013) (File No.
812-14080).
\6\ See Post-Effective Amendment No. 40/41 to Form N-1A
Registration Statement for the Trust, dated May 4, 2015 (File Nos.
333-187668 and 811-22819) (the ``Registration Statement''). The
description of the Fund and the Shares contained herein is based, in
part, on information in the Registration Statement.
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Description of the Shares and the Fund
Etfis Capital LLC is the investment adviser (``Adviser'') to the
Fund. Bramshill Investments, LLC is the investment sub-adviser to the
Fund (the ``Sub-Adviser''). The Sub-Adviser is responsible for daily
portfolio management and all investment decisions for the Fund. ETF
Distributors LLC (the ``Distributor'') will be the principal
underwriter and distributor of the Fund's Shares. The Bank of New York
Mellon Corporation (``BNY'') will act as the administrator, accounting
agent, custodian and transfer agent to the Fund.
Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition, paragraph
(g) further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, nonpublic information
regarding the open-end fund's portfolio. Rule 5735(g) is similar to
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with
the establishment of a ``fire wall'' between the investment adviser and
the broker-dealer reflects the applicable open-end fund's portfolio,
not an underlying benchmark index, as is the case with index-based
funds. The Adviser is not a broker-dealer, although it is affiliated
with the Distributor, a broker-dealer. The Adviser has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. The Sub-Adviser is not a broker-dealer and is not affiliated
with a broker-dealer. In the event (a) the Adviser or the Sub-Adviser
becomes newly affiliated with a broker-dealer \8\ or registers as a
broker-dealer, or (b) any new adviser or new sub-adviser is a
registered broker-dealer or is or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant
personnel and/or such broker-dealer affiliate, as
[[Page 51633]]
applicable, regarding access to information concerning the composition
and/or changes to the Fund portfolio and will be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding such portfolio.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser, the Sub-Adviser and each such
party's 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 applicable federal securities laws as defined in
Rule 204A-1(e)(4). Accordingly, procedures designed to prevent the
communication and misuse of nonpublic information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
\8\ In the case of the Adviser, which is already affiliated with
a broker-dealer and has implemented a fire wall with respect to such
affiliated broker-dealer, this refers to a new affiliation with an
additional broker-dealer.
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Investment Objective
The Fund's investment objective is to seek current income and
capital appreciation with reduced volatility over time.
Principal Investments
The Fund will seek to achieve its investment objective primarily by
investing in a portfolio of ``high yield'' debt securities of U.S.
companies.
Under normal market conditions,\9\ the Fund will hold long
positions in high yield debt securities selected because the Sub-
Adviser believes they are likely to outperform the market over time or
increase in value in the near term (the ``Long Position''), and will
hold short positions in high yield debt securities selected because the
Sub-Adviser believes they are likely to lose value in the near or
longer term (the ``Short Position'').
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\9\ 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 fixed income or other securities
markets or the financial markets generally; operational issues
causing dissemination of inaccurate market information; or force
majeure type events such as systems failure, natural or man-made
disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance. In periods
of extreme market disturbance, the Fund may take temporary defensive
positions, by overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the Adviser would
continue to seek to achieve the Fund's investment objectives.
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The Fund will not have any portfolio maturity limitation and may
invest its assets in instruments with short-term, medium-term or long-
term maturities. Issuers of securities in which the Fund expects to
invest will include large and medium capitalization companies, and may
include small capitalization companies. The Sub-Adviser expects the
Fund's investment portfolio to include up to 200 different securities
positions with a target portfolio net exposure (the market value of the
Long Position minus the market value of the Short Position) of between
-20% and 100%.
In selecting securities for the Fund's portfolio, the Sub-Adviser
generally will analyze debt securities included in the Bloomberg USD
Corporate High Yield Bond Index (the ``Bloomberg High Yield Index'').
While the Fund may invest directly in high yield debt securities, the
Sub-Adviser may also implement the Fund's strategy by investing in
exchange-traded pools (which will consist of exchange-traded funds,\10\
exchange-traded notes,\11\ or closed-end funds, and each of which will
be listed for trading on a U.S. exchange) (``ETPs'') that invest a
significant portion of their portfolios in high yield debt instruments
(``High Yield ETPs'').
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\10\ See Nasdaq Rules 5705.
\11\ See Nasdaq Rules 5710.
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Positions in high-yield debt securities also may include foreign
debt securities traded on U.S. or foreign exchanges or in U.S. or
foreign over-the-counter markets, which may be denominated in foreign
currencies. (Any currency hedging will be accomplished by taking long
or short positions in ETPs.)
``High yield debt securities'' generally include debt securities
that are rated lower than ``BBB-'' by Standard & Poor's Ratings Group
or ``Baa3'' by Moody's Investors Service, Inc. or at a similar level by
another nationally recognized statistical rating organization, or are
unrated but are deemed to be of comparable quality by the Sub-Adviser.
These securities consist of senior and subordinated corporate debt
obligations (bonds, debentures, notes and commercial paper). The Fund
may invest in the foregoing corporate debt obligations, senior bank
loans (including through loan assignments and loan participations),
preferred stocks, municipal bonds, convertible bonds and convertible
preferred stocks.\12\ The Fund will not invest in other types of high-
yield debt securities, such as asset-backed securities. The Fund will
not be limited to investing in high-yield securities, so any of the
securities listed may also be investment grade. The Fund may invest in
U.S. treasuries.
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\12\ Convertible bonds and convertible preferred stocks in which
the Fund invests, and the equity securities into which these
securities may be converted, and also preferred stocks (non-
convertible) in which the Fund invests, generally will be exchange-
traded. The Sub-Adviser's current expectation is that at least 80%
of these securities will be exchange-traded. At least 90% of these
exchange-traded securities will be traded on exchanges that are
Intermarket Surveillance Group (``ISG'') members.
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The Fund
As a result of its trading strategy, the Fund expects to engage in
frequent portfolio transactions that will likely result in higher
portfolio turnover than other similar investment companies. Portfolio
turnover is a ratio that indicates how often the securities in an
investment company's portfolio change during a year. A higher portfolio
turnover rate indicates a greater number of changes, and a lower
portfolio turnover rate indicates a smaller number of changes. Under
normal circumstances, the anticipated annual portfolio turnover rate
for the Fund is expected to be greater than 100%.
Other Investments
The Fund may invest in other types of investments, as set forth in
this section. In addition to investing in High Yield ETPs as discussed
under Principal Investments, the Fund could invest in other fixed-
income ETPs--but will not invest in leveraged ETPs. Due to legal
limitations, the Fund will be prevented from purchasing more than 3% of
an ETF's outstanding shares unless: (i) The ETF or the Fund has
received an order for exemptive relief from the 3% limitation from the
Commission that is applicable to the Fund; and (ii) the ETF and the
Fund take appropriate steps to comply with any conditions in such
order. The Fund may invest in warrants.\13\
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\13\ Warrants in which the Fund invests, and the equity
securities into which these warrants may be converted, generally
will be exchange-traded. The Sub-Adviser's current expectation is
that at least 80% of these securities will be exchange-traded. At
least 90% of these exchange-traded securities will be traded on
exchanges that are ISG members.
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In certain adverse market, economic, political, or other
conditions, the Fund may temporarily depart from its normal investment
policies and strategy, provided that the alternative is consistent with
the Fund's investment objective and is in the best interest of the
Fund. At such times, the Fund may invest in cash or cash equivalents,
such as money market instruments,\14\ and to the extent permitted by
applicable law and the Fund's investment restrictions, the Fund may
invest in shares of money market mutual funds. Under such
circumstances, the Fund may invest up to 100% of its assets in these
investments and may do so for extended periods of time. Under normal
circumstances, however, the Fund may also hold money market instruments
and/or shares of money market mutual funds for various reasons
including to provide for funds awaiting investment, to accumulate cash
for anticipated purchases of portfolio securities, to allow for
shareholder redemptions and to provide for the Fund's operating
expenses.
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\14\ The money market instruments in which the Fund may invest
are short-term (less than one-year) notes issued by (i) the U.S.
government, (ii) an agency of the U.S. government, or (iii) a U.S.
corporation.
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The Fund anticipates investing entirely in fully liquid assets, but
it has the flexibility to invest up to 15% of its net assets in
illiquid securities and other
[[Page 51634]]
illiquid assets.\15\ Under the supervision of the Board of Trustees of
the Trust (the ``Trust Board''), the Sub-Adviser will determine the
liquidity of the Fund's investments, and through reports from the Sub-
Adviser, the Trust Board monitors investments in illiquid instruments.
In determining the liquidity of the Fund's investments, the Sub-Adviser
may consider various factors including: (i) The frequency of trades and
quotations; (ii) the number of dealers and prospective purchasers in
the marketplace; (iii) dealer undertakings to make a market; (iv) the
nature of the security (including any demand or tender features); and
(v) the nature of the marketplace for trades (including the ability to
assign or offset the Fund's rights and obligations relating to the
investment). If through a change in values, net assets, or other
circumstances, the Fund were in a position where more than 15% of its
net assets were invested in illiquid securities or other illiquid
assets, it would seek to take appropriate steps to protect liquidity.
In keeping with the foregoing focus on liquidity, the Fund will
generally seek to invest in high-yield debt securities, bank loans, and
other debt issuances that the Sub-Adviser deems to be liquid, with
readily available prices. The Fund will only invest in bank loans that
have a par amount outstanding of U.S. $100 million or greater at the
time the loan is originally issued. The Fund will not enter into a long
or short position in high yield debt securities with a par amount
outstanding of less than U.S. $100 million at the time of issuance of
such high yield debt securities, if upon establishing such position,
the total value of such positions would represent fifty percent or
greater of the Fund's net assets.
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\15\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), FN 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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The Fund may not invest more than 25% of the value of its total
assets in securities of issuers in any particular industry.\16\
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\16\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund's investments (including investments in ETPs) will not be
utilized to seek to achieve a leveraged return on the Fund's net
assets. The Fund will not invest in futures contracts, will not invest
in options, will not invest in swaps, and will not invest in other
derivative instruments.
The Shares
The Fund will issue and redeem Shares only in Creation Units,
through the Distributor, without a sales load (but subject to
transaction fees), at the net asset value (``NAV'') next determined
after receipt of an order in proper form, on a continuous basis every
day except weekends and specified holidays, pursuant to the terms of
the agreement executed with each Authorized Participant (as defined
below). The NAV of the Fund will be determined once each business day,
normally as of the close of regular trading on the NYSE, generally,
4:00 p.m. Eastern time.\17\ Creation Unit sizes will be 25,000 Shares
per Creation Unit.
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\17\ NAV per Share will be calculated by dividing the Fund's net
assets by the number of Fund Shares outstanding. For more
information regarding the valuation of Fund investments in
calculating the Fund's NAV, see ``Net Asset Value'' below and see
``Determination of Net Asset Value'' in the Registration Statement.
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The consideration for purchase of a Creation Unit will consist of
either (i) an in-kind deposit of a designated portfolio of securities
(the ``Deposit Securities'') for each Creation Unit constituting a
substantial replication, or a representation, of the securities
included in the Fund's portfolio and an amount of cash (the ``Cash
Component'') computed as described below or (ii) cash totaling the NAV
of the Creation Unit (``Deposit Cash''). The ``Cash Component'' will be
an amount equal to the difference between the NAV of the shares (per
Creation Unit) and the market value of the Deposit Securities. The Fund
may also effect a portion of an otherwise in-kind creation or
redemption for cash, in accordance with the Exemptive Order.
As applicable, (i) the Deposit Securities and the Cash Component,
together, or (ii) the Deposit Cash, will constitute the ``Fund
Deposit,'' which will represent the minimum initial and subsequent
investment amount for a Creation Unit of the Fund. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit exceeds
the market value of the Deposit Securities), the Cash Component will be
such positive amount. If the Cash Component is a negative number (i.e.,
the NAV per Creation Unit is less than the market value of the Deposit
Securities), the Cash Component will be such negative amount and the
creator will be entitled to receive cash from the Fund in an amount
equal to the Cash Component. The Cash Component will serve the function
of compensating for any difference between the NAV per Creation Unit
and the market value of the Deposit Securities.
To be eligible to place orders with respect to creations and
redemptions of Creation Units, an entity must be (i) a ``Participating
Party,'' i.e., a broker-dealer or other participant in the clearing
process through the Continuous Net Settlement System of the National
Securities Clearing Corporation (``NSCC'') or (ii) a Depository Trust
Company (``DTC'') Participant (a ``DTC Participant''). In addition,
each Participating Party or DTC Participant (each, an ``Authorized
Participant'') must execute an agreement that has been agreed to by the
Distributor and the Fund Administrator, BNY, with respect to purchases
and redemptions of Creation Units.
BNY, through the NSCC, will make available on each business day,
immediately prior to the opening of business on the Exchange's Regular
Market Session (currently 9:30 a.m. Eastern time), the list of the
names and the required number of shares of each Deposit Security to be
included in the current Fund Deposit (based on information at the end
of the previous business day) for the Fund. Such Fund Deposit, subject
to any relevant adjustments, will be applicable in order to effect
purchases of Creation Units of the Fund until such time as the next
announced composition of the Deposit Securities is made available.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through BNY and only on a business day.
With respect to the Fund, BNY, through the NSCC, will make
available immediately prior to the opening of business on the Exchange
(9:30 a.m. Eastern time) on each business day, the list of the names
and share quantities of the Fund's portfolio securities (``Fund
Securities'') 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
[[Page 51635]]
may not be identical to Deposit Securities.
Unless cash redemptions are available or specified for the Fund,
the redemption proceeds for a Creation Unit will consist of Fund
Securities as announced by BNY on the business day of the request for
redemption received in proper form plus cash in an amount equal to the
difference between the NAV of the Shares being redeemed, as next
determined after a receipt of a request in proper form, and the value
of the Fund Securities (the ``Cash Redemption Amount''), less a fixed
redemption transaction fee and any applicable additional variable
charge as set forth in the Registration Statement. In the event that
the Fund Securities have a value greater than the NAV of the Shares, a
compensating cash payment equal to the differential will be required to
be made by or through an Authorized Participant by the redeeming
shareholder. Notwithstanding the foregoing, at the Trust's discretion,
an Authorized Participant may receive the corresponding cash value of
the securities in lieu of one or more Fund Securities.
The creation order and redemption order cut off time for the Fund
is expected to be 3:00 p.m. Eastern time. On days when the Exchange
closes earlier than normal and in the case of custom orders, the Fund
may require orders for Creation Units to be placed earlier in the day.
Net Asset Value
The NAV per Share for the Fund will be computed by dividing the
value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of Shares
outstanding, rounded to the nearest cent. Expenses and fees, including
the management fees, will be accrued daily and taken into account for
purposes of determining NAV. The NAV of the Fund will be calculated by
BNY and determined at the close of regular trading on the NYSE
(ordinarily 4:00 p.m. Eastern time) on each day that such exchange is
open. In calculating the Fund's NAV per Share, investments will
generally be valued by using market valuations. A market valuation
generally means a valuation (i) obtained from an exchange, a pricing
service, or a major market maker (or dealer) or (ii) based on a price
quotation or other equivalent indication of value supplied by an
exchange, a pricing service, or a major market maker (or dealer).\18\
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\18\ Under normal market conditions, the Fund will obtain
pricing information on all of its assets from these sources.
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ETPs, exchange-traded fixed income securities, exchange-traded
convertible securities, exchange-traded warrants and any other exchange
traded securities will be valued at the official closing price on their
principal exchange or board of trade, or lacking any current reported
sale at the time of valuation, at the mean between the most recent bid
and asked quotations on the principal exchange or board of trade.
Portfolio securities traded on more than one securities exchange will
be valued at the last sale price or official closing price, as
applicable, on the business day as of which such value is being
determined at the close of the exchange representing the principal
market for such securities. Fixed-income securities traded over-the-
counter (including high yield fixed-income securities and money market
instruments); warrants traded over-the-counter; and convertible
securities traded over-the-counter will be valued at the mean between
the most recent available bid and asked quotations provided by parties
that make a market in the instrument. If recent bid and asked
quotations are not available, these securities will be valued in
accordance with the Fund's fair valuation procedures. Money market
instruments with maturities of less than 60 days will be valued at
amortized cost. Shares of mutual funds that are not exchange-listed
will be valued at their net asset value.
Notwithstanding the foregoing, in determining the value of any
security or asset, the Fund may use a valuation provided by a pricing
vendor employed by the Trust and approved by the Trust Board. The
pricing vendor may base such valuations upon dealer quotes, by
analyzing the listed market, by utilizing matrix pricing, by analyzing
market correlations and pricing and/or employing sensitivity analysis.
The Adviser may use various pricing services, or discontinue the
use of any pricing service, as approved by the Trust Board from time to
time. A price obtained from a pricing service based on such pricing
service's valuation matrix may be considered a market valuation. Any
assets or liabilities denominated in currencies other than the U.S.
dollar will be converted into U.S. dollars at the current market rates
on the date of valuation as quoted by one or more sources.
In the event that current market valuations are not readily
available or such valuations do not reflect current market value, the
Trust's procedures require the Adviser's Pricing Committee to determine
a security's fair value in accordance with the Fund's fair value
pricing procedures, which are approved by the Trust Board and
consistent with the 1940 Act.\19\ In determining such value the
Adviser's Pricing Committee may consider, among other things, (i) price
comparisons among multiple sources, (ii) a review of corporate actions
and news events, and (iii) a review of relevant financial indicators.
In these cases, the Fund's NAV may reflect certain portfolio
securities' fair values rather than their market prices. Fair value
pricing involves subjective judgments and it is possible that the fair
value determination for a security is materially different than the
value that could be realized upon the sale of the security.
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\19\ The Valuation Committee of the Trust Board will be
responsible for the oversight of the pricing procedures of the Fund
and the valuation of the Fund's portfolio. The Valuation Committee
has delegated day-to-day pricing responsibilities to the Adviser's
Pricing Committee, which will be composed of officers of the
Adviser. The Pricing Committee will be responsible for the valuation
and revaluation of any portfolio investments for which market
quotations or prices are not readily available. The Trust and the
Adviser have implemented procedures designed to prevent the use and
dissemination of material, nonpublic information regarding valuation
and revaluation of any portfolio investments.
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Availability of Information
The Fund's Web site, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Fund that may be downloaded. The Web site will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV; (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters; and (3) daily trading volume. On each
business day, before commencement of trading in Shares in the Regular
Market Session \21\ on the Exchange, the Trust will disclose on its Web
site the identities and quantities of the portfolio of securities and
other
[[Page 51636]]
assets (the ``Disclosed Portfolio'') held by the Fund that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\22\
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\20\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\21\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 7 a.m. to 9:30
a.m. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
\22\ 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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On a daily basis, the Fund will disclose for each portfolio
security and other asset of the Fund the following information on the
Fund's Web site (if applicable): Name, ticker symbol, CUSIP number or
other identifier, if any; type of holding (such as ``bond'', ``note'',
``preferred stock'', ``ETP'', ``mutual fund''); quantity held (as
measured by, for example, number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holdings in the Fund's portfolio. The Web site information will be
publicly available at no charge.
In addition, for the Fund, an estimated value, defined in Rule 5735
as the ``Intraday Indicative Value,'' that reflects an estimated
intraday value of the Fund's portfolio, will be disseminated. Moreover,
the Intraday Indicative Value, available on the NASDAQ OMX Information
LLC proprietary index data service,\23\ will be based upon the current
value for the components of the Disclosed Portfolio and will be updated
and widely disseminated and broadly displayed at least every 15 seconds
during the Regular Market Session. In addition, during hours when the
local markets for foreign securities in the Fund's portfolio are
closed, the Intraday Indicative Value will be updated at least every 15
seconds during the Regular Market Session to reflect currency exchange
fluctuations.
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\23\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and to provide a
close estimate of that value throughout the trading day.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's Shareholder Reports, and
its Form N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available from the Fund free upon request,
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.
Intra-day, executable price quotations on the high yield debt
securities, bank loans, warrants, other fixed-income and convertible
securities, including cash and cash equivalents, ETPs and other assets
held by the Fund are available from major broker-dealer firms or on the
exchange on which they are traded, if applicable. The foregoing, intra-
day price information is available through subscription services, such
as Bloomberg and Thomson Reuters, which can be accessed by Authorized
Participants and other investors. The previous day's closing price and
trading volume information for the exchange-traded securities held by
the Fund will be published daily in the financial section of
newspapers. Quotation and last sale information for the exchange-traded
securities held by the Fund will be available via UTP Level 1, as well
as Nasdaq proprietary quote and trade services.
Information regarding market price and volume of the Shares is and
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
Quotation and last sale information for the Shares will be available
via UTP Level 1, as well as Nasdaq proprietary quote and trade
services.
Initial and Continued Listing
The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 \24\ under the
Act. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
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\24\ See 17 CFR 240.10A-3.
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Trading Halts and Trading Pauses
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Nasdaq will halt or pause trading in
the Shares under the conditions specified in Nasdaq Rules 4120 and
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
constituting the Disclosed Portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Trading in the Shares also will be
subject to Rule 5735(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in the Shares
from 7:00 a.m. until 8:00 p.m. Eastern time. The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum
price variation for quoting and entry of orders in Managed Fund Shares
traded on the Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\25\ 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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\25\ 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.
[[Page 51637]]
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. In addition,
the Exchange may obtain information from the Trade Reporting and
Compliance Engine (``TRACE''), which is the FINRA-developed vehicle
that facilitates mandatory reporting of over-the-counter secondary
market transactions in eligible fixed income securities.\26\
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\26\ All broker/dealers who are FINRA member firms have an
obligation to report transactions in corporate bonds to TRACE.
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FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares or other exchange-traded securities
with other markets and other entities that are ISG members, and FINRA,
on behalf of the Exchange, may obtain trading information regarding
trading in the Shares; exchange-traded fixed income securities;
exchange-traded warrants; exchange-traded convertible securities; ETPs;
or other exchange-traded securities from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares; exchange-traded warrants; exchange-traded fixed-
income securities; exchange-traded convertible securities; ETPs; or
other exchange-traded securities from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\27\ FINRA, on behalf of
the Exchange, is able to access, as needed, trade information for
certain fixed income securities, including corporate debt securities
and money market instruments, held by the Fund reported to FINRA's
TRACE.
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\27\ For a list of the current members of ISG, see
www.isgportal.org.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, nonpublic 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 and by whom
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 deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund'
Web site.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\28\ 15 U.S.C. 78f.
\29\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on Nasdaq during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. The Adviser is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. In addition, as
noted above, investors will have ready access to information regarding
the Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares. The
Exchange may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The Fund's portfolio holdings
will be disclosed on its Web site daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day. Moreover, the Intraday Indicative Value, available on
the NASDAQ OMX Information LLC proprietary index data service will be
widely disseminated and broadly displayed at least every 15 seconds
during the Regular Market Session. On each business day, before
commencement of trading in Shares in the Regular Market Session on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares is and will be continually available on a
real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last sale information for
the Shares will be available via UTP Level 1, as well as Nasdaq
proprietary quote and trade services. Intra-day, executable price
quotations on the high yield debt securities, bank loans, other fixed-
income and convertible securities, including cash and cash equivalents,
ETPs and other assets held by the Fund are available from major broker-
dealer firms or on the exchange on which they are traded, if
applicable. The foregoing
[[Page 51638]]
intra-day price information is available through subscription services,
such as Bloomberg and Thomson Reuters, which can be accessed by
Authorized Participants and other investors.
The Web site for the Fund will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. Trading in Shares of the Fund will be halted
if the circuit breaker parameters in Nasdaq Rule 4120(a)(11) have been
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, and
trading in the Shares will be subject to Nasdaq Rule 5735(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted. In addition, as noted above, investors will have ready access
to information regarding the Fund's holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Intraday Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve or disapprove such proposed rule change; or (b)
institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2015-095 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-095. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
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 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-2015-095 and should
be submitted on or before September 15, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-20937 Filed 8-24-15; 8:45 am]
BILLING CODE 8011-01-P