Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of the Shares of the PowerShares High Income Downside Hedged Portfolio, a Series of the PowerShares Actively Managed Exchange-Traded Fund Trust, 57414-57418 [2015-24060]
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Federal Register / Vol. 80, No. 184 / Wednesday, September 23, 2015 / Notices
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–CBOE–2015–078 and
should be submitted on or before
October 14, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Brent J. Fields,
Secretary.
[FR Doc. 2015–24063 Filed 9–22–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75936; File No. SR–
NASDAQ–2015–085])
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule
Change Relating to the Listing and
Trading of the Shares of the
PowerShares High Income Downside
Hedged Portfolio, a Series of the
PowerShares Actively Managed
Exchange-Traded Fund Trust
September 17, 2015.
I. Introduction
On July 28, 2015, The NASDAQ Stock
Market LLC (‘‘Nasdaq’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade common shares of
beneficial interest (‘‘Shares’’) of the
PowerShares High Income Downside
Hedged Portfolio (‘‘Fund’’), under
Nasdaq Rule 5735. The proposed rule
change was published for comment in
the Federal Register on August 5, 2015.3
The Commission received no comments
on the proposal. This order grants
approval of the proposed rule change.
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II. Description of the Proposal
The Exchange proposes to list and
trade the Shares of the Fund under Rule
5735, which governs the listing and
trading of Managed Fund Shares on the
Exchange. The Shares will be offered by
the Fund, which will be an actively
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 75555
(Jul. 30, 2015), 80 FR 46631 (‘‘Notice’’).
1 15
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managed exchange-traded fund (‘‘ETF’’)
and a series of the PowerShares Actively
Managed Exchange-Traded Fund Trust
(‘‘Trust’’). The Trust was established as
a Delaware statutory trust on November
6, 2007.4 Invesco PowerShares Capital
Management LLC will serve as the
investment adviser to the Fund
(‘‘Adviser’’).5 Invesco Distributors, Inc.
will serve as the principal underwriter
and distributor of the Fund’s Shares
(‘‘Distributor’’). The Bank of New York
Mellon will act as the administrator,
accounting agent, custodian, and
transfer agent for the Fund. The
Exchange has made the following
representations and statements in
describing the Fund and its investment
strategy, including the Fund’s portfolio
holdings and investment restrictions.6
A. The Exchange’s Description of the
Fund’s Investment Objective
According to the Exchange, the Fund
will be an actively managed ETF that
will seek to achieve high income and
positive total returns. The Fund will
seek to achieve its investment objective
by using a quantitative, rules-based
investment methodology designed to
provide returns that exceed the
4 The Trust is registered with the Commission as
an open-end management investment company and
has filed a post-effective amendment to its
registration statement on Form N–1A (‘‘Registration
Statement’’) with the Commission to register the
Fund and its Shares under the Investment Company
Act of 1940 (‘‘1940 Act’’) and the Securities Act of
1933. See Registration Statement for the Trust, filed
on April 13, 2015 (File Nos. 333–147622 and 811–
22148). In addition, the Commission has issued an
order granting certain exemptive relief to the Trust
under the 1940 Act. See Investment Company Act
Release No. 28171 (Feb. 27, 2008) (File No. 812–
13386).
5 The Exchange represents that the Adviser is
itself not a broker-dealer, but it is affiliated with the
Distributor, which is a broker-dealer. The Adviser
has therefore implemented a fire wall between itself
and the Distributor with respect to access to
information concerning the composition of or
changes to the Fund’s portfolio. The Exchange
further represents that in the event (a) the Adviser
becomes newly affiliated with a different brokerdealer (or becomes a registered broker-dealer), or (b)
any new adviser or sub-adviser to the Fund is a
registered broker-dealer or becomes affiliated with
a broker-dealer, the Advisor will implement a fire
wall with respect to its relevant personnel or
broker-dealer affiliate, as applicable, regarding
access to information concerning the composition
of or changes to the Fund’s portfolio and will be
subject to procedures designed to prevent the use
and dissemination of material, non-public
information regarding the portfolio. The Exchange
states that the Fund does not currently intend to use
a sub-adviser.
6 The Commission notes that additional
information regarding the Fund, the Trust, and the
Shares, including investment strategies, risks,
creation and redemption procedures, fees, portfolio
holdings disclosure policies, calculation of net asset
value (‘‘NAV’’), distributions, and taxes, among
other things, can be found in the Notice and the
Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 3 and 4,
respectively.
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performance of the S&P High Income
VEQTOR Index (‘‘Benchmark’’). The
Fund will seek to gain exposure to the
securities contained in the equity
component of the Benchmark and CBOE
Volatility Index (‘‘VIX Index’’) related
instruments (‘‘VIX Index Related
Instruments’’).7
The Exchange represents that the
Benchmark is composed of two types of
components: An equity component,
represented by the constituents of the
S&P High Income Equity Composite
Index (‘‘Equity Component Index’’), and
a volatility component, represented by
the S&P 500 VIX Short Term Futures
Index (‘‘VIX Futures Index’’). The
Benchmark allocates its constituents
between the two components in any
given amount from time to time based
on the level of volatility in the market.
The Exchange represents that the
Equity Component Index is composed of
150 high-yield securities that meet
certain size, liquidity, and listing
exchange criteria as determined by S&P.
This component comprises the
following four sub-components: (i)
Preferred stocks; (ii) units of master
limited partnerships (‘‘MLPs’’); (iii) real
estate investment trusts (‘‘REITs’’); and
(iv) a portfolio of global securities
engaged in the real estate industry
(‘‘global property securities’’) and global
securities that pay high dividends
(‘‘global dividend securities,’’ and
together with global property securities,
collectively ‘‘Global Equities’’).
The Exchange states that the VIX
Index is a theoretical calculation and
cannot be traded. The VIX Index is a
benchmark index designed to measure
the market price of volatility in large
cap U.S. stocks over 30 days in the
future, and is calculated based on the
prices of certain put and call options on
the S&P 500® Index. The VIX Index
measures the premium paid by investors
for certain options linked to the S&P
500® Index. During periods of market
instability, the implied level of volatility
of the S&P 500® Index typically
increases, and, consequently, the prices
of options linked to the S&P 500® Index
typically increase (assuming all other
relevant factors remain constant or have
negligible changes). This, in turn, causes
the level of the VIX Index to increase.
The VIX Index historically has had
negative correlations to the S&P 500®
Index.
The VIX Futures Index utilizes the
prices of the first- and second-month
futures contracts based on the VIX
7 The Exchange defines ‘‘VIX Index Related
Instruments’’ as ETFs and exchange-traded notes
(‘‘ETNs’’) that provide exposure to the VIX Index,
as well as VIX Index futures contracts and options
on those futures contracts.
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Index, replicating a position that rolls
the nearest-month VIX futures contracts
to the next-month VIX futures contracts
on a daily basis in equal fractional
amounts. The Benchmark’s allocation to
its volatility component serves as an
implied volatility hedge, as volatility
historically tends to correlate negatively
to the performance of the equity markets
(i.e., rapid declines in the performance
of the equity markets generally are
associated with particularly high
volatility in those markets).
On any day the New York Stock
Exchange (‘‘NYSE’’) is open for business
(‘‘Business Day’’), the Benchmark
allocates its equity and volatility
components based on a combination of
realized volatility and implied volatility
trend decision variables. The allocation
to the VIX Futures Index generally
increases when realized volatility and
implied volatility are higher, and
decreases when realized volatility and
implied volatility are lower. While
allocations are reviewed daily, they may
change on a less frequent basis.
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B. The Exchange’s Description of the
Fund’s Principal Investments
According to the Exchange, the
Fund’s investment strategy is similar to
the rules-based allocation methodology
of its Benchmark. Therefore, the
allocation among the Fund’s
investments generally will tend to
approximate the allocation between the
equity and volatility components of the
Benchmark. However, the Fund seeks
returns that exceed the returns of the
Benchmark; accordingly, the Fund can
have a higher or lower exposure to
either component (or any respective
sub-component) of the Benchmark at
any time.8
The Exchange represents that, in
pursuing its investment objective, under
normal market conditions,9 the Fund
will invest substantially all of its assets
in (i) an equity sleeve that generally
8 The Fund will be ‘‘non-diversified’’ under the
1940 Act and therefore may invest more of its assets
in fewer issuers than ‘‘diversified’’ funds. The
diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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 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 or cash-like
instruments; however, to the extent possible, the
Adviser would continue to seek to achieve the
Fund’s investment objective.
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corresponds to the Equity Component
Index, represented by a combination of
150 high-yield securities that includes
preferred stocks, MLPs, REITs, and
Global Equities, each of which will be
listed either on a U.S. securities
exchange or a member exchange of the
Intermarket Surveillance Group
(‘‘ISG’’); 10 and (ii) a volatility sleeve,
represented by the VIX Index Related
Instruments. During periods of low
volatility, a greater portion of the Fund’s
assets will be invested in equity
securities, and during periods of
increased volatility, a greater portion of
the Fund’s assets will be invested in
VIX Index Related Instruments. Any
U.S. security invested by the Fund must
be listed on a national securities
exchange, and any non-U.S. security
must be listed on a member exchange of
the ISG.
Further, in addition to the ETFs and
ETNs that provide exposure to the VIX
Index, the Fund may invest in ETFs and
ETNs that are listed on U.S. securities
exchanges that provide exposure to the
components of the Equity Component
Index.
B. The Exchange’s Description of the
Fund’s Other Investments
According to the Exchange, the Fund
may invest its remaining assets in U.S.
government securities, high-quality
money market instruments, cash, and
cash equivalents to provide liquidity
and to collateralize its investments in
derivative instruments. These
instruments in which the Fund may
invest include: (i) Short-term obligations
issued by the U.S. Government; 11 (ii)
short-term negotiable obligations of
commercial banks, fixed time deposits,
and bankers’ acceptances of U.S. and
foreign banks and similar institutions; 12
(iii) commercial paper rated at the date
of purchase ‘‘Prime-1’’ by Moody’s
Investors Service, Inc. or ‘‘A–1+’’ or ‘‘A–
1’’ by S&P or, if unrated, of comparable
quality, as the Adviser of the Fund
10 For a list of the current members of ISG, see
https://www.isgportal.org. The Exchange notes that
not all components of the Disclosed Portfolio (as
defined herein) for the Fund may trade on markets
that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
11 The Fund may invest in U.S. government
obligations. Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities
include bills, notes, and bonds issued by the U.S.
Treasury, as well as ‘‘stripped’’ or ‘‘zero coupon’’
U.S. Treasury obligations representing future
interest or principal payments on U.S. Treasury
notes or bonds.
12 Time deposits are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Banker’s
acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with
international transactions.
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determines; and (iv) money market
mutual funds, including affiliated
money market funds.
The Fund also may enter into
repurchase agreements. These
agreements may be made with respect to
any of the portfolio securities in which
the Fund is authorized to invest.
Repurchase agreements may be
characterized as loans secured by the
underlying securities. The Fund may
enter into repurchase agreements with
(i) member banks of the Federal Reserve
System having total assets in excess of
$500 million, and (ii) securities dealers
(‘‘Qualified Institutions’’). The Adviser
will monitor the continued
creditworthiness of Qualified
Institutions.
In addition, the Fund may enter into
reverse repurchase agreements, which
involve the sale of securities with an
agreement to repurchase the securities
at an agreed-upon price, date, and
interest payment and have the
characteristics of borrowing. The
securities purchased with the funds
obtained from the agreement and
securities collateralizing the agreement
will have maturity dates no later than
the repayment date.
The Fund may purchase exchangelisted warrants. The Fund does not
expect to enter into swap agreements,
including credit default swaps, but may
do so if such investments are in the best
interests of the Fund’s shareholders.
C. The Exchange’s Description of the
Fund’s Investment Restrictions
According to the Exchange, the Fund
may not concentrate its investments
(i.e., invest more than 25% of the value
of its net assets) in securities of issuers
in any one industry or group of
industries. This restriction will not
apply to obligations issued or
guaranteed by the U.S. government or
its agencies or instrumentalities. The
Fund’s investment in securities of other
investment companies (including
money market funds) may exceed the
limits permitted under the 1940 Act, in
accordance with certain terms and
conditions set forth in a Commission
exemptive order issued to the Trust
pursuant to Section 12(d)(1)(J) of the
1940 Act.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities or other illiquid assets
(calculated at the time of investment),
including Rule 144A securities. The
Fund will monitor its portfolio liquidity
on an ongoing basis to determine
whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
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order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid securities or other illiquid
assets. Illiquid securities and other
illiquid assets include those subject to
contractual or other restrictions on
resale and other instruments or assets
that lack readily available markets as
determined in accordance with
Commission staff guidance.
The Fund intends to qualify for and
to elect to be treated as a regulated
investment company under Subchapter
M of the Internal Revenue Code.
As a result of the instruments that the
Fund will hold, the Fund will be subject
to regulation by the Commodity Futures
Trading Commission and the National
Futures Association (‘‘NFA’’) as a
commodity pool, and thus must comply
with additional disclosure, reporting,
and recordkeeping rules imposed upon
commodity pools.13
The Exchange represents that the
Fund’s investments will be consistent
with the Fund’s investment objective.
Additionally, the Fund may engage in
frequent and active trading of portfolio
securities to achieve its investment
objective. The Fund may utilize
instruments or investment techniques
that have a leveraging effect on the
Fund. This effective leverage occurs
when the Fund’s market exposure
exceeds the amounts actually invested.
Any instance of effective leverage will
be covered in accordance with guidance
promulgated by the Commission and its
staff. The Exchange represents that the
Fund does not currently intend to
engage in any form of borrowing for
investment purposes, and will not be
operated as a ‘‘leveraged ETF,’’ i.e., it
will not be operated in a manner
designed to seek a multiple of the
performance of an underlying reference
index.
The Exchange represents that the
Fund will not use futures for
speculative purposes, nor will the Fund
invest in OTC equities or enter into
futures contracts that are not traded on
a U.S. exchange.
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III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal to list
and trade the Shares is consistent with
the Exchange Act and the rules and
regulations thereunder applicable to a
13 The Exchange represents that the Adviser has
previously registered as a commodity pool operator
and commodity trading advisor and also is a
member of the NFA.
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national securities exchange.14 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Exchange
Act,15 which requires, among other
things, that the Exchange’s rules be
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Commission also finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Exchange Act,16
which sets forth the finding of Congress
that it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure the
availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. Quotation and last-sale
information for the Shares will be
available via Nasdaq proprietary quote
and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the Consolidated Tape
Association plans for the Shares. In
addition, the Intraday Indicative Value,
available on the NASDAQ OMX
Information LLC proprietary index data
service, will be widely disseminated by
one or more major market data vendors
at least every 15 seconds during the
Exchange’s Regular Market Session. On
each Business Day, before
commencement of trading in Shares in
the Regular Market Session on the
Exchange, the Fund will disclose on its
Web site the ‘‘Disclosed Portfolio’’ of the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.17 In addition, to the
extent the Fund permits full or partial
creations in-kind, a basket composition
14 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
16 15 U.S.C. 78k–1(a)(1)(C)(iii).
17 In addition to disclosing the identities and
quantities of the portfolio of securities and other
assets in the Disclosed Portfolio, the Fund also will
disclose on a daily basis on its Web site the
following information, as applicable to the type of
holding: Ticker symbol, CUSIP number, or other
identifier, if any; a description of the holding
(including the type of holding) and the identity of
the security or other asset or instrument underlying
the holding, if any; for options, the option strike
price; quantity held (as measured by, for example,
par value, notional value, or number of shares,
contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of
the holding; and percentage weighting of the
holding in the Fund’s portfolio. The Web site
information will be publicly available at no charge.
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file, which will include the security
names and share quantities to deliver
(along with requisite cash in lieu) in
exchange for Shares, together with
estimates and actual Cash Components,
will be publicly disseminated daily
prior to the opening of the Exchange via
the NSCC and at www.pstrader.net. The
basket will represent the equity
component of the Shares of the Fund.
The Fund’s administrator will
calculate the Fund’s NAV per Share as
of the close of regular trading (normally
4:00 p.m., Eastern time (‘‘E.T.’’)) on each
Business Day.18 Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume for the Shares
will be published daily in the financial
section of newspapers. The Exchange
represents that quotation and last-sale
information for any U.S. exchangetraded instruments will be available via
the quote and trade service of their
respective primary exchanges, as well as
in accordance with the Unlisted Trading
Privileges and the Consolidated Tape
Association plans. Quotation and lastsale information for any non-U.S.
exchange-listed securities will be
available from the foreign exchanges on
which those securities trade as well as
from major market data vendors. Pricing
information for any futures contracts or
options will be available via the quote
18 The NAV per Share will be calculated for the
Fund by deducting all of the Fund’s liabilities from
the total value of its assets and dividing the result
by the number of Shares outstanding, rounding to
the nearest cent. According to the Exchange,
securities and other assets for which market
quotations are readily available will be valued at
market value. Securities listed or traded on an
exchange (including high yield Global Equities,
preferred stocks, MLPs, REITs and warrants) will be
valued at the last sale price or official closing price
that day as of the close of the exchange on which
those securities primarily trade. Shares of open-end
registered investment companies (i.e., mutual
funds) will be valued at net asset value; shares of
exchange-traded investment companies (i.e., ETFs)
and ETNs will be valued at the last sale price or
official closing price on the exchange on which they
primarily trade. Futures contracts are valued as of
the final settlement price on the exchange on which
they trade. Options will be valued at the closing
price (and, if no closing price is available, at the
mean of the last bid/ask quotations) from the
exchange where those instruments principally
trade. U.S. government securities will be valued at
the mean price provided by a third party vendor.
Illiquid securities, as well as cash and cash
equivalents, money market funds, repurchase
agreements (including reverse repurchase
agreements), and other short-term obligations
(including corporate commercial paper, negotiable
short-term obligations of commercial banks, fixed
time deposits, bankers acceptances, and similar
securities) will each be valued in accordance with
the Trust’s valuation policies and procedures,
which have been approved by the Trust’s Board.
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and trade service of their respective
primary exchanges. Pricing information
related to U.S. government securities,
money market mutual funds,
commercial paper, repurchase and
reverse repurchase agreements, and
other short-term investments held by
the Fund will be available through
publicly available quotation services,
such as Bloomberg, Markit, and
Thomson Reuters.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
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.
Nasdaq will halt trading in the Shares
under the conditions specified in
Nasdaq Rules 4120 and 4121, including
the trading pauses under Nasdaq Rules
4120(a)(11) and (12). Trading also may
be halted because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.19 These may include: (1)
The extent to which trading is not
occurring in the securities 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.
The Exchange represents that it also
has a general policy prohibiting the
distribution of material, non-public
information by its employees.
The Exchange represents that the
Adviser is not a registered broker-dealer
but is affiliated with the Distributor, a
broker-dealer. The Adviser has
implemented a ‘‘fire wall’’ between
itself and the Distributor with respect to
the access of information concerning the
composition of or changes to the Fund’s
portfolio.20 Prior to the commencement
19 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.
20 See supra note 5. The Exchange represents that
an investment adviser to an open-end fund is
required to be registered under the Investment
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of trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares. The
Exchange represents that trading in the
Shares will be subject to the existing
trading surveillances, administered by
both Nasdaq and FINRA, on behalf of
the Exchange, which are designed to
deter and detect violations of Exchange
rules and applicable federal securities
laws and are adequate to properly
monitor trading in the Shares in all
trading sessions.21
The Exchange represents that it deems
the Shares to be equity securities, thus
rendering trading in the Shares subject
to the Exchange’s existing rules
governing the trading of equity
securities.
In support of this proposal, the
Exchange has also made the following
representations:
(1) The Shares will conform to the
initial and continued listing criteria
applicable to Managed Fund Shares, as
set forth under Rule 5735.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
Trading in the Shares will be subject to
the existing trading surveillances, which
are administered by both Nasdaq and
FINRA, on behalf of the Exchange, and
which are designed to detect violations
of Exchange rules and applicable federal
securities laws, and 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.
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and its related personnel are subject to
the provisions of Rule 204A–1 under the Advisers
Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that
reflects the fiduciary nature of the relationship to
clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed
to prevent the communication and misuse of nonpublic information by an investment adviser must
be consistent with the Advisers Act and Rule 204A–
1 thereunder. In addition, Rule 206(4)–7 under the
Advisers Act makes it unlawful for an investment
adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
21 The Exchange states that FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
PO 00000
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57417
(3) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and other
exchange-traded securities (including
the equity component securities, ETFs,
ETNs, and warrants) and instruments
(including futures contracts and
options) held by the Fund with other
markets and other entities that are
members of the ISG,22 and FINRA may
obtain trading information regarding
trading in the Shares and other
exchange-traded securities (including
the equity component securities, ETFs,
ETNs, and warrants) and instruments
(including futures contracts and
options) held by the Fund from those
markets and entities. In addition, the
Exchange may obtain information
regarding trading in the Shares and
other exchange-traded securities
(including the equity component
securities, ETFs, ETNs, and warrants)
and instruments (including futures
contracts and options) held by the Fund
from markets and other entities that are
members of ISG, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
(4) Each component of the Fund’s
equity sleeve, which generally
corresponds to the Equity Component
Index and is represented by a
combination of 150 high-yield securities
that includes preferred stocks, MLPs,
REITs, and Global Equities, will be
listed either on a U.S. securities
exchange or a member exchange of ISG.
Further, with regard to the Fund’s
investments in futures contracts and
options, those instruments shall have
their principal trading market be a
member of ISG or a market with which
the Exchange has a comprehensive
surveillance sharing agreement.
(5) 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: (i) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (ii) Nasdaq Rule 2111A,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (iii) how
information regarding the Intraday
Indicative Value and the Disclosed
Portfolio is disseminated; (iv) the risks
involved in trading the Shares during
the Pre-Market and Post- Market
22 See
E:\FR\FM\23SEN1.SGM
supra note 10.
23SEN1
mstockstill on DSK4VPTVN1PROD with NOTICES
57418
Federal Register / Vol. 80, No. 184 / Wednesday, September 23, 2015 / Notices
Sessions when an updated Intraday
Indicative Value will not be calculated
or publicly disseminated; (v) the
requirement that members purchasing
Shares from the Fund for resale to
investors deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (vi)
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 those investors. The
Information Circular will also discuss
any exemptive, no-action, or
interpretive relief granted by the
Commission from any rules under the
Exchange Act; will reference that the
Fund is subject to various fees and
expenses; and will disclose the trading
hours of the Shares of the Fund and the
applicable NAV calculation time for the
Shares.
(6) For initial and continued listing,
the Fund will be in compliance with
Rule 10A–3 23 under the Exchange Act.
(7) The Fund may not concentrate its
investments (i.e., invest more than 25%
of the value of its net assets) in
securities of issuers in any one industry
or group of industries. This restriction
will not apply to obligations issued or
guaranteed by the U.S. government or
its agencies or instrumentalities.
(8) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities or other
illiquid assets (calculated at the time of
investment), including Rule 144A
securities. The Fund will not use futures
for speculative purposes, nor will the
Fund invest in OTC equities or enter
into futures contracts that are not traded
on a U.S. exchange.
(9) The Fund’s investments will be
consistent with the Fund’s investment
objective.
(10) The Fund may utilize
instruments or investment techniques
that have a leveraging effect on the
Fund. Any instance of effective leverage
will be covered in accordance with
guidance promulgated by the
Commission and its staff.
(11) The Fund does not presently
intend to engage in any form of
borrowing for investment purposes, and
it will not be operated as a ‘‘leveraged
ETF’’—i.e., it will not be operated in a
manner designed to seek a multiple of
the performance of an underlying
reference index.
(12) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Fund.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 24 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,25
that the proposed rule change (SR–
NASDAQ–2015–085), be, and it hereby
is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Brent J. Fields,
Secretary.
[FR Doc. 2015–24060 Filed 9–22–15; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Revocation of License of Small
Business Investment Company
Pursuant to the authority granted to
the United States Small Business
Administration by the Final Order of the
United States District Court for the
Southern District of New York, entered
February 2, 2015, the United States
Small Business Administration hereby
revokes the license of WAV, L.P., a
Delaware Limited Partnership, to
function as a small business investment
company under the Small Business
Investment Company License No.
02720569 issued to WAV, L.P., on
November 1, 1996, and said license is
hereby declared null and void as of
February 2, 2015.
United States Small Business
Administration.
Dated: September 17, 2015.
Javier E. Saade,
Associate Administrator for Investment.
[FR Doc. 2015–24112 Filed 9–22–15; 8:45 am]
BILLING CODE 8025–01–P
24 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
26 17 CFR 200.30–3(a)(12).
25 15
23 See
17 CFR 240.10A–3.
VerDate Sep<11>2014
18:00 Sep 22, 2015
Jkt 235001
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
SOCIAL SECURITY ADMINISTRATION
[Docket No. SSA–2014–0080]
Social Security Acquiescence Ruling
(AR) 15–1(4), Radford v. Colvin:
Standard for Meeting the Listing for
Disorders of the Spine With Evidence
of Nerve Root Compression
Social Security Administration.
Notice of Social Security
Acquiescence Ruling (AR).
AGENCY:
ACTION:
This Social Security AR
explains how we will apply a holding
in a decision of the United States Court
of Appeals for the Fourth Circuit that
we determined conflicts with our
interpretation of the section in the
Listing of Impairments (the Listings)
that addresses disorders of the spine
with evidence of nerve root
compression.
DATES: Effective: September 23, 2015.
FOR FURTHER INFORMATION CONTACT:
Gabriel Deadwyler, Office of the General
Counsel, Office of Program Law, Social
Security Administration, 6401 Security
Boulevard, Baltimore, MD 21235–6401,
(410) 965–8775, or TTY 410–966–5609,
for information about this notice. For
information on eligibility or filing for
benefits, call our national toll-free
number, 1–800–772–1213 or TTY 1–
800–325–0778, or visit our Internet site,
Social Security Online, at https://
www.socialsecurity.gov.
SUPPLEMENTARY INFORMATION: We are
publishing this Social Security AR in
accordance with 20 CFR 402.35(b)(2),
404.985(a), (b), and 416.1485(a), (b) to
explain how we will apply a holding in
Radford v. Colvin, 734 F.3d 288 (4th Cir.
2013), regarding the standard for
meeting section 1.04A of the Listings,
which addresses disorders of the spine
with evidence of nerve root
compression.
An AR explains how we will apply a
holding in a decision of a United States
Court of Appeals that we determine
conflicts with our interpretation of a
provision of the Social Security Act
(Act) or regulations when the
Government has decided not to seek
further review of that decision or is
unsuccessful on further review.
We will apply the holding of the court
of appeals’ decision as explained in this
AR to claims at all levels of
administrative review within the Fourth
Circuit. We will apply this AR to all
determinations or decisions made on or
after September 23, 2015. If we made a
determination or decision on an
application for benefits between October
29, 2013, the date of the court of
appeals’ decision, and September 23,
SUMMARY:
E:\FR\FM\23SEN1.SGM
23SEN1
]]>Agencies
[Federal Register Volume 80, Number 184 (Wednesday, September 23, 2015)]
[Notices]
[Pages 57414-57418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24060]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75936; File No. SR-NASDAQ-2015-085])
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the PowerShares High Income Downside Hedged
Portfolio, a Series of the PowerShares Actively Managed Exchange-Traded
Fund Trust
September 17, 2015.
I. Introduction
On July 28, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade common shares of beneficial
interest (``Shares'') of the PowerShares High Income Downside Hedged
Portfolio (``Fund''), under Nasdaq Rule 5735. The proposed rule change
was published for comment in the Federal Register on August 5, 2015.\3\
The Commission received no comments on the proposal. This order grants
approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 75555 (Jul. 30,
2015), 80 FR 46631 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to list and trade the Shares of the Fund
under Rule 5735, which governs the listing and trading of Managed Fund
Shares on the Exchange. The Shares will be offered by the Fund, which
will be an actively managed exchange-traded fund (``ETF'') and a series
of the PowerShares Actively Managed Exchange-Traded Fund Trust
(``Trust''). The Trust was established as a Delaware statutory trust on
November 6, 2007.\4\ Invesco PowerShares Capital Management LLC will
serve as the investment adviser to the Fund (``Adviser'').\5\ Invesco
Distributors, Inc. will serve as the principal underwriter and
distributor of the Fund's Shares (``Distributor''). The Bank of New
York Mellon will act as the administrator, accounting agent, custodian,
and transfer agent for the Fund. The Exchange has made the following
representations and statements in describing the Fund and its
investment strategy, including the Fund's portfolio holdings and
investment restrictions.\6\
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\4\ The Trust is registered with the Commission as an open-end
management investment company and has filed a post-effective
amendment to its registration statement on Form N-1A (``Registration
Statement'') with the Commission to register the Fund and its Shares
under the Investment Company Act of 1940 (``1940 Act'') and the
Securities Act of 1933. See Registration Statement for the Trust,
filed on April 13, 2015 (File Nos. 333-147622 and 811-22148). In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 28171 (Feb. 27, 2008) (File No. 812-13386).
\5\ The Exchange represents that the Adviser is itself not a
broker-dealer, but it is affiliated with the Distributor, which is a
broker-dealer. The Adviser has therefore implemented a fire wall
between itself and the Distributor with respect to access to
information concerning the composition of or changes to the Fund's
portfolio. The Exchange further represents that in the event (a) the
Adviser becomes newly affiliated with a different broker-dealer (or
becomes a registered broker-dealer), or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes
affiliated with a broker-dealer, the Advisor will implement a fire
wall with respect to its relevant personnel or broker-dealer
affiliate, as applicable, regarding access to information concerning
the composition of or changes to the Fund's portfolio and will be
subject to procedures designed to prevent the use and dissemination
of material, non-public information regarding the portfolio. The
Exchange states that the Fund does not currently intend to use a
sub-adviser.
\6\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice and Registration Statement, supra notes 3 and
4, respectively.
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A. The Exchange's Description of the Fund's Investment Objective
According to the Exchange, the Fund will be an actively managed ETF
that will seek to achieve high income and positive total returns. The
Fund will seek to achieve its investment objective by using a
quantitative, rules-based investment methodology designed to provide
returns that exceed the performance of the S&P High Income VEQTOR Index
(``Benchmark''). The Fund will seek to gain exposure to the securities
contained in the equity component of the Benchmark and CBOE Volatility
Index (``VIX Index'') related instruments (``VIX Index Related
Instruments'').\7\
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\7\ The Exchange defines ``VIX Index Related Instruments'' as
ETFs and exchange-traded notes (``ETNs'') that provide exposure to
the VIX Index, as well as VIX Index futures contracts and options on
those futures contracts.
---------------------------------------------------------------------------
The Exchange represents that the Benchmark is composed of two types
of components: An equity component, represented by the constituents of
the S&P High Income Equity Composite Index (``Equity Component
Index''), and a volatility component, represented by the S&P 500 VIX
Short Term Futures Index (``VIX Futures Index''). The Benchmark
allocates its constituents between the two components in any given
amount from time to time based on the level of volatility in the
market.
The Exchange represents that the Equity Component Index is composed
of 150 high-yield securities that meet certain size, liquidity, and
listing exchange criteria as determined by S&P. This component
comprises the following four sub-components: (i) Preferred stocks; (ii)
units of master limited partnerships (``MLPs''); (iii) real estate
investment trusts (``REITs''); and (iv) a portfolio of global
securities engaged in the real estate industry (``global property
securities'') and global securities that pay high dividends (``global
dividend securities,'' and together with global property securities,
collectively ``Global Equities'').
The Exchange states that the VIX Index is a theoretical calculation
and cannot be traded. The VIX Index is a benchmark index designed to
measure the market price of volatility in large cap U.S. stocks over 30
days in the future, and is calculated based on the prices of certain
put and call options on the S&P 500[supreg] Index. The VIX Index
measures the premium paid by investors for certain options linked to
the S&P 500[supreg] Index. During periods of market instability, the
implied level of volatility of the S&P 500[supreg] Index typically
increases, and, consequently, the prices of options linked to the S&P
500[supreg] Index typically increase (assuming all other relevant
factors remain constant or have negligible changes). This, in turn,
causes the level of the VIX Index to increase. The VIX Index
historically has had negative correlations to the S&P 500[supreg]
Index.
The VIX Futures Index utilizes the prices of the first- and second-
month futures contracts based on the VIX
[[Page 57415]]
Index, replicating a position that rolls the nearest-month VIX futures
contracts to the next-month VIX futures contracts on a daily basis in
equal fractional amounts. The Benchmark's allocation to its volatility
component serves as an implied volatility hedge, as volatility
historically tends to correlate negatively to the performance of the
equity markets (i.e., rapid declines in the performance of the equity
markets generally are associated with particularly high volatility in
those markets).
On any day the New York Stock Exchange (``NYSE'') is open for
business (``Business Day''), the Benchmark allocates its equity and
volatility components based on a combination of realized volatility and
implied volatility trend decision variables. The allocation to the VIX
Futures Index generally increases when realized volatility and implied
volatility are higher, and decreases when realized volatility and
implied volatility are lower. While allocations are reviewed daily,
they may change on a less frequent basis.
B. The Exchange's Description of the Fund's Principal Investments
According to the Exchange, the Fund's investment strategy is
similar to the rules-based allocation methodology of its Benchmark.
Therefore, the allocation among the Fund's investments generally will
tend to approximate the allocation between the equity and volatility
components of the Benchmark. However, the Fund seeks returns that
exceed the returns of the Benchmark; accordingly, the Fund can have a
higher or lower exposure to either component (or any respective sub-
component) of the Benchmark at any time.\8\
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\8\ The Fund will be ``non-diversified'' under the 1940 Act and
therefore may invest more of its assets in fewer issuers than
``diversified'' funds. The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------
The Exchange represents that, in pursuing its investment objective,
under normal market conditions,\9\ the Fund will invest substantially
all of its assets in (i) an equity sleeve that generally corresponds to
the Equity Component Index, represented by a combination of 150 high-
yield securities that includes preferred stocks, MLPs, REITs, and
Global Equities, each of which will be listed either on a U.S.
securities exchange or a member exchange of the Intermarket
Surveillance Group (``ISG''); \10\ and (ii) a volatility sleeve,
represented by the VIX Index Related Instruments. During periods of low
volatility, a greater portion of the Fund's assets will be invested in
equity securities, and during periods of increased volatility, a
greater portion of the Fund's assets will be invested in VIX Index
Related Instruments. Any U.S. security invested by the Fund must be
listed on a national securities exchange, and any non-U.S. security
must be listed on a member exchange of the ISG.
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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 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 or cash-like
instruments; however, to the extent possible, the Adviser would
continue to seek to achieve the Fund's investment objective.
\10\ For a list of the current members of ISG, see https://www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio (as defined herein) for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
Further, in addition to the ETFs and ETNs that provide exposure to
the VIX Index, the Fund may invest in ETFs and ETNs that are listed on
U.S. securities exchanges that provide exposure to the components of
the Equity Component Index.
B. The Exchange's Description of the Fund's Other Investments
According to the Exchange, the Fund may invest its remaining assets
in U.S. government securities, high-quality money market instruments,
cash, and cash equivalents to provide liquidity and to collateralize
its investments in derivative instruments. These instruments in which
the Fund may invest include: (i) Short-term obligations issued by the
U.S. Government; \11\ (ii) short-term negotiable obligations of
commercial banks, fixed time deposits, and bankers' acceptances of U.S.
and foreign banks and similar institutions; \12\ (iii) commercial paper
rated at the date of purchase ``Prime-1'' by Moody's Investors Service,
Inc. or ``A-1+'' or ``A-1'' by S&P or, if unrated, of comparable
quality, as the Adviser of the Fund determines; and (iv) money market
mutual funds, including affiliated money market funds.
---------------------------------------------------------------------------
\11\ The Fund may invest in U.S. government obligations.
Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities include bills, notes, and bonds issued
by the U.S. Treasury, as well as ``stripped'' or ``zero coupon''
U.S. Treasury obligations representing future interest or principal
payments on U.S. Treasury notes or bonds.
\12\ Time deposits are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates. Banker's acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with
international transactions.
---------------------------------------------------------------------------
The Fund also may enter into repurchase agreements. These
agreements may be made with respect to any of the portfolio securities
in which the Fund is authorized to invest. Repurchase agreements may be
characterized as loans secured by the underlying securities. The Fund
may enter into repurchase agreements with (i) member banks of the
Federal Reserve System having total assets in excess of $500 million,
and (ii) securities dealers (``Qualified Institutions''). The Adviser
will monitor the continued creditworthiness of Qualified Institutions.
In addition, the Fund may enter into reverse repurchase agreements,
which involve the sale of securities with an agreement to repurchase
the securities at an agreed-upon price, date, and interest payment and
have the characteristics of borrowing. The securities purchased with
the funds obtained from the agreement and securities collateralizing
the agreement will have maturity dates no later than the repayment
date.
The Fund may purchase exchange-listed warrants. The Fund does not
expect to enter into swap agreements, including credit default swaps,
but may do so if such investments are in the best interests of the
Fund's shareholders.
C. The Exchange's Description of the Fund's Investment Restrictions
According to the Exchange, the Fund may not concentrate its
investments (i.e., invest more than 25% of the value of its net assets)
in securities of issuers in any one industry or group of industries.
This restriction will not apply to obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities. The Fund's
investment in securities of other investment companies (including money
market funds) may exceed the limits permitted under the 1940 Act, in
accordance with certain terms and conditions set forth in a Commission
exemptive order issued to the Trust pursuant to Section 12(d)(1)(J) of
the 1940 Act.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities or other illiquid assets (calculated at
the time of investment), including Rule 144A securities. The Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in
[[Page 57416]]
order to maintain adequate liquidity if, through a change in values,
net assets, or other circumstances, more than 15% of the Fund's net
assets are held in illiquid securities or other illiquid assets.
Illiquid securities and other illiquid assets include those subject to
contractual or other restrictions on resale and other instruments or
assets that lack readily available markets as determined in accordance
with Commission staff guidance.
The Fund intends to qualify for and to elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.
As a result of the instruments that the Fund will hold, the Fund
will be subject to regulation by the Commodity Futures Trading
Commission and the National Futures Association (``NFA'') as a
commodity pool, and thus must comply with additional disclosure,
reporting, and recordkeeping rules imposed upon commodity pools.\13\
---------------------------------------------------------------------------
\13\ The Exchange represents that the Adviser has previously
registered as a commodity pool operator and commodity trading
advisor and also is a member of the NFA.
---------------------------------------------------------------------------
The Exchange represents that the Fund's investments will be
consistent with the Fund's investment objective. Additionally, the Fund
may engage in frequent and active trading of portfolio securities to
achieve its investment objective. The Fund may utilize instruments or
investment techniques that have a leveraging effect on the Fund. This
effective leverage occurs when the Fund's market exposure exceeds the
amounts actually invested. Any instance of effective leverage will be
covered in accordance with guidance promulgated by the Commission and
its staff. The Exchange represents that the Fund does not currently
intend to engage in any form of borrowing for investment purposes, and
will not be operated as a ``leveraged ETF,'' i.e., it will not be
operated in a manner designed to seek a multiple of the performance of
an underlying reference index.
The Exchange represents that the Fund will not use futures for
speculative purposes, nor will the Fund invest in OTC equities or enter
into futures contracts that are not traded on a U.S. exchange.
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\14\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Exchange
Act,\15\ which requires, among other things, that the Exchange's rules
be designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
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\14\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Exchange Act,\16\ which sets forth the finding of Congress that it
is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure the
availability to brokers, dealers, and investors of information with
respect to quotations for and transactions in securities. Quotation and
last-sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares. In addition, the Intraday Indicative Value, available
on the NASDAQ OMX Information LLC proprietary index data service, will
be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Regular Market Session. On
each Business Day, before commencement of trading in Shares in the
Regular Market Session on the Exchange, the Fund will disclose on its
Web site the ``Disclosed Portfolio'' of the Fund that will form the
basis for the Fund's calculation of NAV at the end of the Business
Day.\17\ In addition, to the extent the Fund permits full or partial
creations in-kind, a basket composition file, which will include the
security names and share quantities to deliver (along with requisite
cash in lieu) in exchange for Shares, together with estimates and
actual Cash Components, will be publicly disseminated daily prior to
the opening of the Exchange via the NSCC and at www.pstrader.net. The
basket will represent the equity component of the Shares of the Fund.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\17\ In addition to disclosing the identities and quantities of
the portfolio of securities and other assets in the Disclosed
Portfolio, the Fund also will disclose on a daily basis on its Web
site the following information, as applicable to the type of
holding: Ticker symbol, CUSIP number, or other identifier, if any; a
description of the holding (including the type of holding) and the
identity of the security or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value, or number
of shares, contracts or units); maturity date, if any; coupon rate,
if any; effective date, if any; market value of the holding; and
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
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The Fund's administrator will calculate the Fund's NAV per Share as
of the close of regular trading (normally 4:00 p.m., Eastern time
(``E.T.'')) on each Business Day.\18\ Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume for the Shares will be published daily
in the financial section of newspapers. The Exchange represents that
quotation and last-sale information for any U.S. exchange-traded
instruments will be available via the quote and trade service of their
respective primary exchanges, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association
plans. Quotation and last-sale information for any non-U.S. exchange-
listed securities will be available from the foreign exchanges on which
those securities trade as well as from major market data vendors.
Pricing information for any futures contracts or options will be
available via the quote
[[Page 57417]]
and trade service of their respective primary exchanges. Pricing
information related to U.S. government securities, money market mutual
funds, commercial paper, repurchase and reverse repurchase agreements,
and other short-term investments held by the Fund will be available
through publicly available quotation services, such as Bloomberg,
Markit, and Thomson Reuters.
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\18\ The NAV per Share will be calculated for the Fund by
deducting all of the Fund's liabilities from the total value of its
assets and dividing the result by the number of Shares outstanding,
rounding to the nearest cent. According to the Exchange, securities
and other assets for which market quotations are readily available
will be valued at market value. Securities listed or traded on an
exchange (including high yield Global Equities, preferred stocks,
MLPs, REITs and warrants) will be valued at the last sale price or
official closing price that day as of the close of the exchange on
which those securities primarily trade. Shares of open-end
registered investment companies (i.e., mutual funds) will be valued
at net asset value; shares of exchange-traded investment companies
(i.e., ETFs) and ETNs will be valued at the last sale price or
official closing price on the exchange on which they primarily
trade. Futures contracts are valued as of the final settlement price
on the exchange on which they trade. Options will be valued at the
closing price (and, if no closing price is available, at the mean of
the last bid/ask quotations) from the exchange where those
instruments principally trade. U.S. government securities will be
valued at the mean price provided by a third party vendor. Illiquid
securities, as well as cash and cash equivalents, money market
funds, repurchase agreements (including reverse repurchase
agreements), and other short-term obligations (including corporate
commercial paper, negotiable short-term obligations of commercial
banks, fixed time deposits, bankers acceptances, and similar
securities) will each be valued in accordance with the Trust's
valuation policies and procedures, which have been approved by the
Trust's Board.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The 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.
Nasdaq will halt trading in the Shares under the conditions
specified in Nasdaq Rules 4120 and 4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and (12). Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.\19\ These may
include: (1) The extent to which trading is not occurring in the
securities 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.
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\19\ 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.
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The Exchange represents that it also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange represents that the Adviser is not a registered
broker-dealer but is affiliated with the Distributor, a broker-dealer.
The Adviser has implemented a ``fire wall'' between itself and the
Distributor with respect to the access of information concerning the
composition of or changes to the Fund's portfolio.\20\ 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. The Exchange represents that
trading in the Shares will be subject to the existing trading
surveillances, administered by both Nasdaq and FINRA, on behalf of the
Exchange, which are designed to deter and detect violations of Exchange
rules and applicable federal securities laws and are adequate to
properly monitor trading in the Shares in all trading sessions.\21\
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\20\ See supra note 5. The Exchange represents that an
investment adviser to an open-end fund is required to be registered
under the Investment Advisers Act of 1940 (``Advisers Act''). As a
result, the Adviser and its related personnel are subject to the
provisions of Rule 204A-1 under the Advisers Act relating to codes
of ethics. This Rule requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the relationship to
clients as well as compliance with other applicable securities laws.
Accordingly, procedures designed to prevent the communication and
misuse of non-public information by an investment adviser must be
consistent with the Advisers Act and Rule 204A-1 thereunder. In
addition, Rule 206(4)-7 under the Advisers Act makes it unlawful for
an investment adviser to provide investment advice to clients unless
such investment adviser has (i) adopted and implemented written
policies and procedures reasonably designed to prevent violation, by
the investment adviser and its supervised persons, of the Advisers
Act and the Commission rules adopted thereunder; (ii) implemented,
at a minimum, an annual review regarding the adequacy of the
policies and procedures established pursuant to subparagraph (i)
above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
\21\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The Exchange represents that it deems the Shares to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has also made the
following representations:
(1) The Shares will conform to the initial and continued listing
criteria applicable to Managed Fund Shares, as set forth under Rule
5735.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions. Trading in the Shares will
be subject to the existing trading surveillances, which are
administered by both Nasdaq and FINRA, on behalf of the Exchange, and
which are designed to detect violations of Exchange rules and
applicable federal securities laws, and 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.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and other exchange-traded securities
(including the equity component securities, ETFs, ETNs, and warrants)
and instruments (including futures contracts and options) held by the
Fund with other markets and other entities that are members of the
ISG,\22\ and FINRA may obtain trading information regarding trading in
the Shares and other exchange-traded securities (including the equity
component securities, ETFs, ETNs, and warrants) and instruments
(including futures contracts and options) held by the Fund from those
markets and entities. In addition, the Exchange may obtain information
regarding trading in the Shares and other exchange-traded securities
(including the equity component securities, ETFs, ETNs, and warrants)
and instruments (including futures contracts and options) held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement.
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\22\ See supra note 10.
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(4) Each component of the Fund's equity sleeve, which generally
corresponds to the Equity Component Index and is represented by a
combination of 150 high-yield securities that includes preferred
stocks, MLPs, REITs, and Global Equities, will be listed either on a
U.S. securities exchange or a member exchange of ISG. Further, with
regard to the Fund's investments in futures contracts and options,
those instruments shall have their principal trading market be a member
of ISG or a market with which the Exchange has a comprehensive
surveillance sharing agreement.
(5) 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: (i) The procedures for
purchases and redemptions of Shares in Creation Units (and that Shares
are not individually redeemable); (ii) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (iii) how information
regarding the Intraday Indicative Value and the Disclosed Portfolio is
disseminated; (iv) the risks involved in trading the Shares during the
Pre-Market and Post- Market
[[Page 57418]]
Sessions when an updated Intraday Indicative Value will not be
calculated or publicly disseminated; (v) the requirement that members
purchasing Shares from the Fund for resale to investors deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) 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 those
investors. The Information Circular will also discuss any exemptive,
no-action, or interpretive relief granted by the Commission from any
rules under the Exchange Act; will reference that the Fund is subject
to various fees and expenses; and will disclose the trading hours of
the Shares of the Fund and the applicable NAV calculation time for the
Shares.
(6) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 \23\ under the Exchange Act.
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\23\ See 17 CFR 240.10A-3.
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(7) The Fund may not concentrate its investments (i.e., invest more
than 25% of the value of its net assets) in securities of issuers in
any one industry or group of industries. This restriction will not
apply to obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities.
(8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities or other illiquid assets (calculated at
the time of investment), including Rule 144A securities. The Fund will
not use futures for speculative purposes, nor will the Fund invest in
OTC equities or enter into futures contracts that are not traded on a
U.S. exchange.
(9) The Fund's investments will be consistent with the Fund's
investment objective.
(10) The Fund may utilize instruments or investment techniques that
have a leveraging effect on the Fund. Any instance of effective
leverage will be covered in accordance with guidance promulgated by the
Commission and its staff.
(11) The Fund does not presently intend to engage in any form of
borrowing for investment purposes, and it will not be operated as a
``leveraged ETF''--i.e., it will not be operated in a manner designed
to seek a multiple of the performance of an underlying reference index.
(12) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations,
including those set forth above and in the Notice, and the Exchange's
description of the Fund.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \24\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\24\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\25\ that the proposed rule change (SR-NASDAQ-2015-085),
be, and it hereby is, approved.
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\25\ 15 U.S.C. 78s(b)(2).
\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Brent J. Fields,
Secretary.
[FR Doc. 2015-24060 Filed 9-22-15; 8:45 am]
BILLING CODE 8011-01-P
