Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of the Shares of the iSectors Post-MPT Growth ETF of ETFis Series Trust I, 26281-26285 [2016-10153]

Download as PDF srobinson on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices any person who, if it were not directly or indirectly controlled by the BDC, would not be directly or indirectly under the control of a person who controls the BDC), or any person who is, within the meaning of section 2(a)(3)(C) of the Act, an affiliated person of such person. Sections 2(a)(3)(C) defines an ‘‘affiliated person’’ of another person as any person directly or indirectly controlling, controlled by, or under common control with, such other person. 2. Rule 17d–1 under the Act generally prohibits participation by a registered investment company and an affiliated person (as defined in section 2(a)(3) of the Act) or principal underwriter for that investment company, or an affiliated person of such affiliated person or principal underwriter, in any ‘‘joint enterprise or other joint arrangement or profit-sharing plan,’’ as defined in the rule, without prior approval by the Commission by order upon application. Although the Commission has not adopted any rules expressly under section 57(a)(4), section 57(i) provides that the rules (but not section 17(d) itself) under section 17(d) applicable to registered closed-end investment companies (e.g., rule 17d–1) are, in the interim, deemed to apply to transactions subject to section 57(a). 3. As the investment adviser and principal underwriter to the Company, the Advisor and the Dealer Manager, respectively, are subject to the prohibitions of section 57(a)(4) as a result of section 57(b)(2) of the Act. Moreover, the Sponsor may be deemed to control both the Advisor and the Dealer Manager and the Advisor may be deemed to control the Company within the meaning of section 2(a)(9) of the Act.1 Accordingly, the Company, the Advisor, the Dealer Manager and the Sponsor may be deemed to be affiliated persons of each other under section 2(a)(3)(C) of the Act because they are under common control of the Sponsor, and thus the Advisor, the Dealer Manager and the Sponsor would be persons described in section 57(b)(2) subject to the prohibitions of section 57(a)(4). The Distribution Fee Reimbursement and the Dealer-Manager Agreement Amendment (the ‘‘Proposed Transactions’’) might be deemed a ‘‘joint enterprise or other joint arrangement,’’ within the meaning of section 57(a)(4) of the Act and rule 17d–1 thereunder. Therefore, the Sponsor, the Advisor, the Dealer Manager, and the Company may be prohibited from engaging in the Proposed Transactions as a result of the prohibitions of section 57(a)(4) and rule 17d–1, without a grant of the Order of the Commission. VerDate Sep<11>2014 20:30 Apr 29, 2016 Jkt 238001 4. In passing upon applications under rule 17d–1, the Commission considers whether the company’s participation in the joint transaction is consistent with the provisions, policies, and purposes of the Act and the extent to which such participation is on a basis different from or less advantageous than that of other participants. 5. Applicants believe that the representations and conditions set forth in the application will ensure that the Proposed Transactions are consistent with the protection of the Company’s Shareholders, including the Current Common Shareholders (as herein defined), and with the purposes intended by the policies and provisions of the Act. Applicants state that the Company’s participation in the Proposed Transactions will be consistent with the provisions, policies, and purposes of the Act and on a basis that is not different from or less advantageous than that of other participants. Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The Company will ensure that total Underwriting Compensation payable in the Offering will not exceed 10% of the gross proceeds of the Offering, consistent with Conduct Rule 2310. 2. For the period of time in which the Distribution Fee is payable, the Dealer Manager will waive any annual Distribution Fee payment to which it is otherwise entitled in an amount sufficient to ensure that the total return experienced by the holders of the Company’s Common Shares immediately prior to the implementation of the Dealer Manager Agreement Amendment (the ‘‘Current Common Shareholders’’) is not less than the total return the Current Common Shareholders would have experienced if the Proposed Transactions had not occurred and the Dealer Manager Agreement had not been amended. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–10109 Filed 4–29–16; 8:45 am] BILLING CODE 8011–01–P PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 26281 SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] Order of Suspension of Trading; In the Matter of Pineapple Express, Inc. April 28, 2016. It appears to the Securities and Exchange Commission that the public interest and the protection of investors require a suspension of trading in the securities of Pineapple Express, Inc. (CIK No. 1654672) because of recent, unusual and unexplained market activity in the company’s stock that raises concerns about the adequacy of publicly-available information regarding the company. Pineapple Express, Inc. is a Wyoming corporation with its principal place of business listed as Los Angeles, California, with stock quoted on OTC Link (previously ‘‘Pink Sheets’’) operated by OTC Markets Group, Inc. under the ticker symbol PNPL. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed company. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed company is suspended for the period from 9:30 a.m. EDT, on April 28, 2016, through 11:59 p.m. EDT, on May 11, 2016. By the Commission. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–10295 Filed 4–28–16; 4:15 pm] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77714; File No. SR– NASDAQ–2016–028] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of the Shares of the iSectors Post-MPT Growth ETF of ETFis Series Trust I April 26, 2016. I. Introduction On February 23, 2016, The NASDAQ Stock Market LLC (‘‘Exchange’’ or ‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ E:\FR\FM\02MYN1.SGM 02MYN1 26282 Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the iSectors Post-MPT Growth ETF (‘‘Fund’’), a series of ETFis Series Trust I (‘‘Trust’’), under Nasdaq Rule 5735. The proposed rule change was published for comment in the Federal Register on March 11, 2016.3 On April 14, 2016, (a) the Exchange filed Amendment No. 1 to the proposed rule change,4 and (b) pursuant to Section 19(b)(2) of the Act,5 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.6 The Commission received no comments on the proposed rule change. This order grants approval of the proposed rule change, as modified by Amendment No. 1 thereto. II. Exchange’s Description of the Proposal 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 on the Exchange. The Fund will be an actively managed exchange-traded fund (‘‘ETF’’). The Shares will be offered by the Trust,7 which is 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 77301 (Mar. 7, 2016), 81 FR 978 (‘‘Notice’’). 4 In Amendment No. 1, the Exchange clarified that: (a) all statements and representations made in the proposal regarding the description of the portfolio, limitations on portfolio holdings or reference assets, or the applicability of Exchange rules and surveillance procedures shall constitute continued listing requirements for listing the Shares on the Exchange; (b) the issuer will advise the Exchange of any failure by the Fund to comply with the continued listing requirements; (c) pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements; (d) if the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series; (e) the Fund will not invest in inverse or inverse leveraged ETPs (as defined herein); and (f) no more than 25% of the Fund’s holdings will be invested in leveraged ETPs. Because Amendment No. 1 to the proposed rule change does not materially alter the substance of the proposed rule change or raise novel regulatory issues, Amendment No. 1 is not subject to notice and comment. Amendment No. 1 to the proposed rule change is available at: https:// www.sec.gov/comments/sr-nasdaq-2016–028/ nasdaq2016028-1.pdf. 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 77623 (Apr. 14, 2016), 81 FR 23333 (Apr. 20, 2016). 7 According to the Exchange, the Commission has issued an order, upon which the Trust may rely, granting certain exemptive relief under the Investment Company Act of 1940 (‘‘1940 Act’’). The Exchange also states that, in compliance with Nasdaq Rule 5735(b)(5), which applies to Managed Fund Shares based on an international or global srobinson on DSK5SPTVN1PROD with NOTICES 2 17 VerDate Sep<11>2014 20:30 Apr 29, 2016 Jkt 238001 registered with the Commission as an investment company and has filed a registration statement on Form N–1A (‘‘Registration Statement’’) with the Commission.8 The Fund will be a series of the Trust. Virtus ETF Advisers LLC will be the investment adviser (‘‘Adviser’’) to the Fund. iSectors, LLC will be the investment sub-adviser (‘‘Sub-Adviser’’) to the Fund. ETF Distributors LLC will be the principal underwriter and distributor of the Fund’s Shares. The Bank of New York Mellon will act as the administrator, accounting agent, custodian, and transfer agent to the Fund. The Exchange states that, while the Adviser and Sub-Adviser are not registered as broker-dealers,9 the Adviser (but not the Sub-Adviser) is affiliated with a broker-dealer. The Exchange represents that the Adviser has implemented a fire wall with respect to that broker-dealer regarding access to information concerning the composition of, and changes to, the portfolio, and personnel who make decisions on the Fund’s portfolio composition will be subject to procedures designed to prevent the use and dissemination of material, nonpublic information regarding the portfolio.10 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.11 portfolio, the Trust’s application for exemptive relief under the 1940 Act states that the Fund will comply with the federal securities laws in accepting securities for deposits and satisfying redemptions with redemption securities, including that the securities accepted for deposits and the securities used to satisfy redemption requests are sold in transactions that would be exempt from registration under the Securities Act of 1933. See Notice, supra note 3, 81 FR at 12990. 8 See Notice, supra note 3, 81 FR at 12990. See Registration Statement on Form N–1A for the Trust filed on December 2, 2015 (File Nos. 333–187668 and 811–22819). 9 See Notice, supra note 3, 81 FR at 12990–12991. 10 The Exchange further represents that, in the event (a) the Adviser or the Sub-Adviser registers as a broker dealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or subadviser is a registered broker-dealer or becomes affiliated with another broker-dealer, it 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, and changes to, the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding the portfolio. Id. 11 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 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 A. Exchange’s Description of the Fund’s Principal Investments The Fund’s investment objective will be to provide growth of capital, with a secondary emphasis on capital preservation, independent of individual market conditions. The Fund will seek to achieve its investment objective by utilizing a long-only, tactically-managed exposure to sectors of the U.S. equity market and U.S. fixed income markets. To obtain this exposure, the SubAdviser will invest, under normal market conditions,12 the Fund’s assets in: (1) ETFs,13 exchange-traded notes (‘‘ETNs’’),14 and exchange-traded trusts that hold commodities (‘‘ETTs’’) (ETFs, ETNs, and ETTs, collectively, ‘‘ETPs’’); 15 (2) individually selected U.S. exchange-traded common stocks (when the Sub-Adviser determines that investing in them would be more efficient or otherwise advantageous to do so); (3) money market funds; (4) U.S. treasuries; 16 or (5) money market and Registration Statement, supra notes 3 and 8, respectively. 12 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 equity and fixed income 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. See Notice, supra note 3, 81 FR at 12991. 13 According to the Exchange, ETFs included in the Fund will be listed and traded in the U.S. on registered exchanges. The Fund may invest in the securities of ETFs in excess of the limits imposed under the 1940 Act pursuant to exemptive orders obtained by other ETFs and their sponsors from the Commission. The ETFs in which the Fund may invest include Index Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 5735). The shares of ETFs in which a Fund may invest will be limited to securities that trade in markets that are members of the Intermarket Surveillance Group (‘‘ISG’’), which includes all U.S. national securities exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. See infra note 15. 14 The ETNs are limited to those described in Nasdaq Rule 5710. 15 The Fund may invest in the following ETPs: Trust Certificates, Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust Shares, Partnership Units, Trust Units, and Managed Trust Securities (each as described in Nasdaq Rule 5711); Paired Class Shares (as described in Nasdaq Rule 5713); Trust Issued Receipts (as described in Nasdaq Rule 5720); and Exchange-Traded Managed Fund Shares (as described in Nasdaq Rule 5745). See Notice, supra note 3, at 12991. The Fund may invest in leveraged ETPs (e.g., 2X or 3X), but will not invest in inverse or inverse leveraged ETPs (e.g., –1X or –2X). In addition, no more than 25% of the Fund’s holdings will be invested in leveraged ETPs. See Amendment No. 1, supra note 4. 16 These securities will include securities that are issued or guaranteed by the U.S. Treasury, by E:\FR\FM\02MYN1.SGM 02MYN1 Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices instruments. To the extent that the Fund invests in ETPs or money market funds to gain domestic exposure, the Fund is considered, in part, a ‘‘fund of funds.’’ 17 B. Exchange’s Description of Other Investments for the Fund In order to seek its investment objective, the Fund will not employ other strategies outside of the abovedescribed ‘‘Principal Investments.’’ 18 C. Exchange’s Description of the Fund’s Investment Restrictions srobinson on DSK5SPTVN1PROD with NOTICES According to the Exchange, under normal market conditions, the Fund anticipates investing its total assets in shares of ETPs, individually selected U.S. exchange-traded common stocks, money market funds, U.S. treasuries, or money market instruments.19 The Fund will not purchase securities of open-end investment companies except in compliance with the 1940 Act. The Fund will not use derivative instruments, including options, swaps, forwards, and futures contracts. The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities and other illiquid assets (calculated at the time of investment). The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities or other illiquid assets. Illiquid securities and other illiquid assets include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined various agencies of the U.S. government, or by various instrumentalities, which have been established or sponsored by the U.S. government. U.S. Treasury obligations are backed by the ‘‘full faith and credit’’ of the U.S. government. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the U.S. government. See Notice, supra note 3, 81 FR at 12991. 17 See id. 18 See id. 19 According to the Exchange, for temporary defensive purposes, during the initial invest-up period, and during periods of high cash inflows or outflows, the Fund may depart from its principal investment strategies. For example, it may hold a higher than normal proportion of its assets in cash. During these periods, the Fund may not be able to achieve its investment objective. The Fund may adopt a defensive strategy when the Adviser believes securities in which the Fund normally invests have elevated risks due to political or economic factors and in other extraordinary circumstances. VerDate Sep<11>2014 20:30 Apr 29, 2016 Jkt 238001 in accordance with Commission staff guidance. The Exchange states that the Fund intends to qualify for and to elect to be treated as a separate regulated investment company under Subchapter M of the Internal Revenue Code. In addition, under the 1940 Act, the Fund’s investment in investment companies will be limited to, subject to certain exceptions: (i) 3% Of the total outstanding voting stock of any one investment company; (ii) 5% of the Fund’s total assets with respect to any one investment company; and (iii) 10% of the Fund’s total assets with respect to investment companies in the aggregate.20 The Fund’s investments will be consistent with its investment objective. 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.21 III. Discussion and Commission Findings After careful review, the Commission finds that the Exchange’s proposal is consistent with the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.22 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1 thereto, is consistent with Section 6(b)(5) of the Exchange Act,23 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 is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,24 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 20 See Notice, supra note 3, 81 FR at 12991. at 12991–12992. 22 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). 23 15 U.S.C. 78f(b)(5). 24 15 U.S.C. 78k–1(a)(1)(C)(iii). 21 Id. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 26283 information for the Shares and any underlying ETPs 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.25 On each business day, before commencement of trading in Shares in the Regular Market Session 26 on the Exchange, the Fund will disclose on its Web site the identities and quantities of the portfolio of securities and other assets (‘‘Disclosed Portfolio,’’ as defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day.27 In addition, the Intraday Indicative Value, available on the NASDAQ OMX Information LLC proprietary index data service 28 will be based upon the current value for the components of the Disclosed Portfolio and will be updated and widely disseminated by one or more major market data vendors and broadly displayed at least every 15 seconds during the Regular Market Session.29 The Fund’s NAV will be determined as of the close of trading on the New York Stock Exchange (ordinarily 4:00 p.m. E.T.) on each day that the New York Stock Exchange is 25 See Notice, supra note 3, 81 FR at 12993. Nasdaq Rule 4120(b)(4) (describing the three trading sessions on the Exchange: (1) PreMarket Session from 4:00 a.m. to 9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00 p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4:00 p.m. or 4:15 p.m. to 8:00 p.m. E.T.). 27 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 that 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. See Notice, supra note 3, 81 FR at 12993. The daily disclosure will include for each portfolio security and other asset of the Fund the following information on the Fund’s Web site (if applicable): Ticker symbol, CUSIP number or other identifier, if any; a description of the holding (including the type of holding); the identity of the security, commodity, index, or other asset or instrument underlying the holding, if any; 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. See id. 28 Currently, the Nasdaq Global Index Data Service (‘‘GIDS’’) is the Nasdaq global index data feed service, offering real-time updates, daily summary messages, and access to widely followed indexes and Intraday Indicative Values for ETFs. The Exchange represents that 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. See id. 29 See id. 26 See E:\FR\FM\02MYN1.SGM 02MYN1 26284 Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices srobinson on DSK5SPTVN1PROD with NOTICES open.30 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.31 Information regarding market price and volume of the Shares will be continually available on a realtime 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.32 Price information regarding the ETPs, equity securities, U.S. treasuries, money market instruments, and money market funds held by the Fund will be available through the U.S. exchanges trading these assets, in the case of exchangetraded securities, as well as automated quotation systems, or published or other public sources. Intra-day price information for all assets held by the Fund will also be available through subscription services, such as Bloomberg, Markit, and Thomson Reuters, which can be accessed by authorized participants and other investors. The Commission also 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 states that it will obtain a 30 According to the Exchange, the Fund’s investments will be valued at market value (i.e., the price at which a security is trading and could presumably be purchased or sold) or, in the absence of market value with respect to any investment, at fair value in accordance with valuation procedures adopted by the Trust’s Board (‘‘Board’’) and in accordance with the 1940 Act. Common stocks and equity securities (including shares of ETPs) will be valued at the last sales price on that exchange. Portfolio securities traded on more than one securities exchange will be valued at the last sale price or, if so disseminated by an exchange, the official closing price, as applicable, at the close of the exchange representing the principal exchange or market for these securities on the business day as of which the value is being determined. U.S. treasuries are valued using quoted market prices, and money market funds are valued at the net asset value reported by the funds. Money market instruments will typically be valued using information provided by a third-party pricing service. For all security types in which the Fund may invest, the Fund’s primary pricing source is Interactive Data Corp.; its secondary source is Reuters; and its tertiary source is Bloomberg. Certain securities may not be able to be priced by pre-established pricing methods. These securities may be valued by the Board or its delegate at fair value. The use of fair value pricing by the Fund will be governed by valuation procedures adopted by the Board and in accordance with the provisions of the 1940 Act. All valuations will be subject to review by the Board or its delegate. See id. at 12992. 31 See id. at 12993. 32 See id. VerDate Sep<11>2014 20:30 Apr 29, 2016 Jkt 238001 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.33 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). In addition, trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.34 Trading in the Shares also will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth additional circumstances under which Shares of the Fund may be halted.35 The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees.36 In addition, the Exchange states that, while the Adviser and SubAdviser are not registered as brokerdealers, the Adviser (but not the SubAdviser) is affiliated with a brokerdealer and has implemented a fire wall with respect to that broker-dealer regarding access to information concerning the composition of, and changes to, the portfolio.37 Further, the 33 See id. at 12994. Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. These may include: (1) The extent to which trading is not occurring in the securities and other assets 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. See id. 35 See id. 36 See id. 37 See id. at 12990; see also supra note 10 and accompanying text. The Exchange further represents that an investment adviser to an openend fund is required to be registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). As a result, the Adviser, the Sub-Adviser, and their related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. In addition, Rule 206(4)–7 under the Advisers Act makes it unlawful for an investment adviser to provide investment advice to clients unless such investment adviser has (i) adopted and implemented written policies and procedures reasonably designed to prevent violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted 34 The PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 Commission notes that the Reporting Authority 38 that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, non-public information regarding the actual components of the portfolio.39 The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and the Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.40 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. In support of this proposal, the Exchange has represented that: (1) The Shares will be subject to Nasdaq Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. (2) Nasdaq’s surveillance procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to detect and help deter 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 and instruments, including the common stock and shares held by the Fund with other markets and other entities that are members of the ISG,41 and FINRA may obtain trading information regarding trading in the Shares and the exchangetraded securities and instruments held by the Fund from those markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and the exchangetraded securities and instruments held by the Fund from markets and other entities that are members of ISG,42 or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixedincome securities held by the Fund under subparagraph (i) above. See Notice, supra note 3, 81 FR at 12990–12991. 38 Nasdaq Rule 5730(c)(4) defines ‘‘Reporting Authority.’’ 39 See Nasdaq Rule 5735(d)(2)(B)(ii). 40 According to the Exchange, FINRA surveils trading on the Exchange pursuant to a regulatory services agreement, and the Exchange is responsible for FINRA’s performance under this regulatory services agreement. See Notice, supra note 3, 81 FR at 12994. 41 For a list of the current members of ISG, see www.isgportal.org. 42 Id. E:\FR\FM\02MYN1.SGM 02MYN1 srobinson on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 84 / Monday, May 2, 2016 / Notices reported to FINRA’s Trade Reporting and Compliance Engine. (4) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (5) Prior to commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (c) how information regarding the Intraday Indicative Value and Disclosed Portfolio is disseminated; (d) the risks involved in trading the Shares during the PreMarket and Post-Market Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (e) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (6) For initial and continued listing, the Fund must be in compliance with Rule 10A–3 under the Act.43 (7) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets. (8) The Fund may invest in leveraged ETPs (e.g., 2X or 3X), but will not invest in inverse or inverse leveraged ETPs (e.g., –1X or –2X). In addition, no more than 25% of the Fund’s holdings will be invested in leveraged ETPs. (9) The Fund will not use derivative instruments, including options, swaps, forwards, and futures contracts. (10) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the exchange. The Exchange represents that all statements and representations made in the filing regarding (a) the description of the portfolio, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange rules and surveillance procedures shall constitute continued listing requirements for listing the Shares on the Exchange. In addition, the issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for 43 See 17 CFR 240.10A–3. VerDate Sep<11>2014 20:30 Apr 29, 2016 Jkt 238001 compliance with the continued listing requirements.44 If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. This approval order is based on all of the Exchange’s representations, including those set forth above, in the Notice, and in Amendment No. 1 to the proposed rule change. The Commission notes that the Fund and the Shares must comply with the requirements of Nasdaq Rule 5735, including those set forth in this proposed rule change, as modified by Amendment No. 1 thereto, to be listed and traded on the Exchange on an initial and continuing basis. For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1 thereto, is consistent with Section 6(b)(5) of the Act 45 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,46 that the proposed rule change (SR– NASDAQ–2016–028), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–10153 Filed 4–29–16; 8:45 am] BILLING CODE 8011–01–P 44 The Commission notes that certain other proposals for the listing and trading of Managed Fund Shares include a representation that the exchange will ‘‘surveil’’ for compliance with the continued listing requirements. See, e.g., Securities Exchange Act Release No. 77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (SR–BATS–2016–04) (approving a proposed rule change to list and trade shares of the SPDR DoubleLine Short Duration Total Return Tactical ETF), available at: https:// www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the context of this representation, it is the Commission’s view that ‘‘monitor’’ and ‘‘surveil’’ both mean ongoing oversight of the Fund’s compliance with the continued listing requirements. Therefore, the Commission does not view ‘‘monitor’’ as a more or less stringent obligation than ‘‘surveil’’ with respect to the continued listing requirements. 45 15 U.S.C. 78f(b)(5). 46 15 U.S.C. 78s(b)(2). 47 17 CFR 200.30–3(a)(12). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 26285 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77715; File No. SR– NASDAQ–2016–056] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the Shares of the PowerShares Variable Rate Investment Grade Portfolio, a Series of the PowerShares Actively Managed Exchange-Traded Fund Trust April 26, 2016. 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 April 13 2016, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 common shares of beneficial interest of the PowerShares Variable Rate Investment Grade Portfolio (the ‘‘Fund’’), a series of the PowerShares Actively Managed Exchange-Traded Fund Trust (the ‘‘Trust’’), under Nasdaq Rule 5735 (‘‘Rule 5735’’). The common shares of beneficial interest of the Fund are referred to herein as the ‘‘Shares.’’ The text of the proposed rule change is available at https:// nasdaq.cchwallstreet.com/, at Nasdaq’s principal office, and at the Commission’s Public Reference Room. 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 2 17 E:\FR\FM\02MYN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 02MYN1

Agencies

[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26281-26285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10153]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77714; File No. SR-NASDAQ-2016-028]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, Relating to the Listing and Trading of the Shares of the 
iSectors Post-MPT Growth ETF of ETFis Series Trust I

April 26, 2016.

I. Introduction

    On February 23, 2016, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''

[[Page 26282]]

or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to list and trade shares (``Shares'') of the iSectors Post-MPT 
Growth ETF (``Fund''), a series of ETFis Series Trust I (``Trust''), 
under Nasdaq Rule 5735. The proposed rule change was published for 
comment in the Federal Register on March 11, 2016.\3\ On April 14, 
2016, (a) the Exchange filed Amendment No. 1 to the proposed rule 
change,\4\ and (b) pursuant to Section 19(b)(2) of the Act,\5\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\6\ The Commission received no comments on the proposed rule 
change. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77301 (Mar. 7, 
2016), 81 FR 978 (``Notice'').
    \4\ In Amendment No. 1, the Exchange clarified that: (a) all 
statements and representations made in the proposal regarding the 
description of the portfolio, limitations on portfolio holdings or 
reference assets, or the applicability of Exchange rules and 
surveillance procedures shall constitute continued listing 
requirements for listing the Shares on the Exchange; (b) the issuer 
will advise the Exchange of any failure by the Fund to comply with 
the continued listing requirements; (c) pursuant to its obligations 
under Section 19(g)(1) of the Act, the Exchange will monitor for 
compliance with the continued listing requirements; (d) if the Fund 
is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq 5800 
Series; (e) the Fund will not invest in inverse or inverse leveraged 
ETPs (as defined herein); and (f) no more than 25% of the Fund's 
holdings will be invested in leveraged ETPs. Because Amendment No. 1 
to the proposed rule change does not materially alter the substance 
of the proposed rule change or raise novel regulatory issues, 
Amendment No. 1 is not subject to notice and comment. Amendment No. 
1 to the proposed rule change is available at: https://www.sec.gov/comments/sr-nasdaq-2016-028/nasdaq2016028-1.pdf.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 77623 (Apr. 14, 
2016), 81 FR 23333 (Apr. 20, 2016).
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II. Exchange's Description of the Proposal

    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 on the Exchange. The Fund will be an actively 
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust,\7\ which is registered with the Commission as an investment 
company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\8\ The Fund will be a 
series of the Trust.
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    \7\ According to the Exchange, the Commission has issued an 
order, upon which the Trust may rely, granting certain exemptive 
relief under the Investment Company Act of 1940 (``1940 Act''). The 
Exchange also states that, in compliance with Nasdaq Rule 
5735(b)(5), which applies to Managed Fund Shares based on an 
international or global portfolio, the Trust's application for 
exemptive relief under the 1940 Act states that the Fund will comply 
with the federal securities laws in accepting securities for 
deposits and satisfying redemptions with redemption securities, 
including that the securities accepted for deposits and the 
securities used to satisfy redemption requests are sold in 
transactions that would be exempt from registration under the 
Securities Act of 1933. See Notice, supra note 3, 81 FR at 12990.
    \8\ See Notice, supra note 3, 81 FR at 12990. See Registration 
Statement on Form N-1A for the Trust filed on December 2, 2015 (File 
Nos. 333-187668 and 811-22819).
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    Virtus ETF Advisers LLC will be the investment adviser 
(``Adviser'') to the Fund. iSectors, LLC will be the investment sub-
adviser (``Sub-Adviser'') to the Fund. ETF Distributors LLC will be the 
principal underwriter and distributor of the Fund's Shares. The Bank of 
New York Mellon will act as the administrator, accounting agent, 
custodian, and transfer agent to the Fund. The Exchange states that, 
while the Adviser and Sub-Adviser are not registered as broker-
dealers,\9\ the Adviser (but not the Sub-Adviser) is affiliated with a 
broker-dealer. The Exchange represents that the Adviser has implemented 
a fire wall with respect to that broker-dealer regarding access to 
information concerning the composition of, and changes to, the 
portfolio, and personnel who make decisions on the Fund's portfolio 
composition will be subject to procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
portfolio.\10\
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    \9\ See Notice, supra note 3, 81 FR at 12990-12991.
    \10\ The Exchange further represents that, in the event (a) the 
Adviser or the Sub-Adviser registers as a broker dealer or becomes 
newly affiliated with a broker-dealer, or (b) any new adviser or 
sub-adviser is a registered broker-dealer or becomes affiliated with 
another broker-dealer, it 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, and 
changes to, the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material, non-
public information regarding the portfolio. Id.
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    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.\11\
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    \11\ 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 
8, respectively.
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A. Exchange's Description of the Fund's Principal Investments

    The Fund's investment objective will be to provide growth of 
capital, with a secondary emphasis on capital preservation, independent 
of individual market conditions. The Fund will seek to achieve its 
investment objective by utilizing a long-only, tactically-managed 
exposure to sectors of the U.S. equity market and U.S. fixed income 
markets. To obtain this exposure, the Sub-Adviser will invest, under 
normal market conditions,\12\ the Fund's assets in: (1) ETFs,\13\ 
exchange-traded notes (``ETNs''),\14\ and exchange-traded trusts that 
hold commodities (``ETTs'') (ETFs, ETNs, and ETTs, collectively, 
``ETPs''); \15\ (2) individually selected U.S. exchange-traded common 
stocks (when the Sub-Adviser determines that investing in them would be 
more efficient or otherwise advantageous to do so); (3) money market 
funds; (4) U.S. treasuries; \16\ or (5) money market

[[Page 26283]]

instruments. To the extent that the Fund invests in ETPs or money 
market funds to gain domestic exposure, the Fund is considered, in 
part, a ``fund of funds.'' \17\
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    \12\ 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 equity and fixed income 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. See Notice, 
supra note 3, 81 FR at 12991.
    \13\ According to the Exchange, ETFs included in the Fund will 
be listed and traded in the U.S. on registered exchanges. The Fund 
may invest in the securities of ETFs in excess of the limits imposed 
under the 1940 Act pursuant to exemptive orders obtained by other 
ETFs and their sponsors from the Commission. The ETFs in which the 
Fund may invest include Index Fund Shares (as described in Nasdaq 
Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq 
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 
5735). The shares of ETFs in which a Fund may invest will be limited 
to securities that trade in markets that are members of the 
Intermarket Surveillance Group (``ISG''), which includes all U.S. 
national securities exchanges, or are parties to a comprehensive 
surveillance sharing agreement with the Exchange. See infra note 15.
    \14\ The ETNs are limited to those described in Nasdaq Rule 
5710.
    \15\ The Fund may invest in the following ETPs: Trust 
Certificates, Commodity-Based Trust Shares, Currency Trust Shares, 
Commodity Index Trust Shares, Commodity Futures Trust Shares, 
Partnership Units, Trust Units, and Managed Trust Securities (each 
as described in Nasdaq Rule 5711); Paired Class Shares (as described 
in Nasdaq Rule 5713); Trust Issued Receipts (as described in Nasdaq 
Rule 5720); and Exchange-Traded Managed Fund Shares (as described in 
Nasdaq Rule 5745). See Notice, supra note 3, at 12991. The Fund may 
invest in leveraged ETPs (e.g., 2X or 3X), but will not invest in 
inverse or inverse leveraged ETPs (e.g., -1X or -2X). In addition, 
no more than 25% of the Fund's holdings will be invested in 
leveraged ETPs. See Amendment No. 1, supra note 4.
    \16\ These securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government. See Notice, 
supra note 3, 81 FR at 12991.
    \17\ See id.
---------------------------------------------------------------------------

B. Exchange's Description of Other Investments for the Fund

    In order to seek its investment objective, the Fund will not employ 
other strategies outside of the above-described ``Principal 
Investments.'' \18\
---------------------------------------------------------------------------

    \18\ See id.
---------------------------------------------------------------------------

C. Exchange's Description of the Fund's Investment Restrictions

    According to the Exchange, under normal market conditions, the Fund 
anticipates investing its total assets in shares of ETPs, individually 
selected U.S. exchange-traded common stocks, money market funds, U.S. 
treasuries, or money market instruments.\19\ The Fund will not purchase 
securities of open-end investment companies except in compliance with 
the 1940 Act. The Fund will not use derivative instruments, including 
options, swaps, forwards, and futures contracts.
---------------------------------------------------------------------------

    \19\ According to the Exchange, for temporary defensive 
purposes, during the initial invest-up period, and during periods of 
high cash inflows or outflows, the Fund may depart from its 
principal investment strategies. For example, it may hold a higher 
than normal proportion of its assets in cash. During these periods, 
the Fund may not be able to achieve its investment objective. The 
Fund may adopt a defensive strategy when the Adviser believes 
securities in which the Fund normally invests have elevated risks 
due to political or economic factors and in other extraordinary 
circumstances.
---------------------------------------------------------------------------

    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities and other illiquid assets (calculated at 
the time of investment). The Fund will monitor its portfolio liquidity 
on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid securities or other illiquid assets. Illiquid securities and 
other illiquid assets include securities subject to contractual or 
other restrictions on resale and other instruments that lack readily 
available markets as determined in accordance with Commission staff 
guidance.
    The Exchange states that the Fund intends to qualify for and to 
elect to be treated as a separate regulated investment company under 
Subchapter M of the Internal Revenue Code. In addition, under the 1940 
Act, the Fund's investment in investment companies will be limited to, 
subject to certain exceptions: (i) 3% Of the total outstanding voting 
stock of any one investment company; (ii) 5% of the Fund's total assets 
with respect to any one investment company; and (iii) 10% of the Fund's 
total assets with respect to investment companies in the aggregate.\20\
---------------------------------------------------------------------------

    \20\ See Notice, supra note 3, 81 FR at 12991.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with its investment 
objective. 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.\21\
---------------------------------------------------------------------------

    \21\ Id. at 12991-12992.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal is consistent with the Exchange Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\22\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Exchange Act,\23\ 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.
---------------------------------------------------------------------------

    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Exchange Act,\24\ 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 and any 
underlying ETPs 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.\25\ On each business day, before commencement of trading in 
Shares in the Regular Market Session \26\ on the Exchange, the Fund 
will disclose on its Web site the identities and quantities of the 
portfolio of securities and other assets (``Disclosed Portfolio,'' as 
defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form the 
basis for the Fund's calculation of NAV at the end of the business 
day.\27\ In addition, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service \28\ will be 
based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session.\29\ The Fund's NAV will be 
determined as of the close of trading on the New York Stock Exchange 
(ordinarily 4:00 p.m. E.T.) on each day that the New York Stock 
Exchange is

[[Page 26284]]

open.\30\ 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.\31\ Information regarding market 
price and volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. The previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers.\32\ Price information regarding the 
ETPs, equity securities, U.S. treasuries, money market instruments, and 
money market funds held by the Fund will be available through the U.S. 
exchanges trading these assets, in the case of exchange-traded 
securities, as well as automated quotation systems, or published or 
other public sources. Intra-day price information for all assets held 
by the Fund will also be available through subscription services, such 
as Bloomberg, Markit, and Thomson Reuters, which can be accessed by 
authorized participants and other investors.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \25\ See Notice, supra note 3, 81 FR at 12993.
    \26\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to 
9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00 
p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4:00 p.m. 
or 4:15 p.m. to 8:00 p.m. E.T.).
    \27\ 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 that 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. See Notice, supra note 3, 81 FR at 
12993. The daily disclosure will include for each portfolio security 
and other asset of the Fund the following information on the Fund's 
Web site (if applicable): Ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type 
of holding); the identity of the security, commodity, index, or 
other asset or instrument underlying the holding, if any; 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. See id.
    \28\ Currently, the Nasdaq Global Index Data Service (``GIDS'') 
is the Nasdaq global index data feed service, offering real-time 
updates, daily summary messages, and access to widely followed 
indexes and Intraday Indicative Values for ETFs. The Exchange 
represents that 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. See id.
    \29\ See id.
    \30\ According to the Exchange, the Fund's investments will be 
valued at market value (i.e., the price at which a security is 
trading and could presumably be purchased or sold) or, in the 
absence of market value with respect to any investment, at fair 
value in accordance with valuation procedures adopted by the Trust's 
Board (``Board'') and in accordance with the 1940 Act. Common stocks 
and equity securities (including shares of ETPs) will be valued at 
the last sales price on that exchange. Portfolio securities traded 
on more than one securities exchange will be valued at the last sale 
price or, if so disseminated by an exchange, the official closing 
price, as applicable, at the close of the exchange representing the 
principal exchange or market for these securities on the business 
day as of which the value is being determined. U.S. treasuries are 
valued using quoted market prices, and money market funds are valued 
at the net asset value reported by the funds. Money market 
instruments will typically be valued using information provided by a 
third-party pricing service. For all security types in which the 
Fund may invest, the Fund's primary pricing source is Interactive 
Data Corp.; its secondary source is Reuters; and its tertiary source 
is Bloomberg. Certain securities may not be able to be priced by 
pre-established pricing methods. These securities may be valued by 
the Board or its delegate at fair value. The use of fair value 
pricing by the Fund will be governed by valuation procedures adopted 
by the Board and in accordance with the provisions of the 1940 Act. 
All valuations will be subject to review by the Board or its 
delegate. See id. at 12992.
    \31\ See id. at 12993.
    \32\ See id.
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    The Commission also 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 states that it 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.\33\ 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). In addition, trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable.\34\ Trading in the Shares also 
will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth 
additional circumstances under which Shares of the Fund may be 
halted.\35\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\36\ In addition, the Exchange states that, while the Adviser 
and Sub-Adviser are not registered as broker-dealers, the Adviser (but 
not the Sub-Adviser) is affiliated with a broker-dealer and has 
implemented a fire wall with respect to that broker-dealer regarding 
access to information concerning the composition of, and changes to, 
the portfolio.\37\ Further, the Commission notes that the Reporting 
Authority \38\ that provides the Disclosed Portfolio must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material, non-public information regarding the actual 
components of the portfolio.\39\ The Exchange represents that trading 
in the Shares will be subject to the existing trading surveillances, 
administered by both Nasdaq and the Financial Industry Regulatory 
Authority (``FINRA''), on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws.\40\
---------------------------------------------------------------------------

    \33\ See id. at 12994.
    \34\ The Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares 
of the Fund. These may include: (1) The extent to which trading is 
not occurring in the securities and other assets 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. See id.
    \35\ See id.
    \36\ See id.
    \37\ See id. at 12990; see also supra note 10 and accompanying 
text. The Exchange further 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, 
the Sub-Adviser, and their related personnel are subject to the 
provisions of Rule 204A-1 under the Advisers Act relating to codes 
of ethics. This Rule requires investment advisers to adopt a code of 
ethics that reflects the fiduciary nature of the relationship to 
clients as well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non-public information by an investment adviser must be 
consistent with Rule 204A-1 under the Advisers Act. In addition, 
Rule 206(4)-7 under the Advisers Act makes it unlawful for an 
investment adviser to provide investment advice to clients unless 
such investment adviser has (i) adopted and implemented written 
policies and procedures reasonably designed to prevent violation, by 
the investment adviser and its supervised persons, of the Advisers 
Act and the Commission rules adopted thereunder; (ii) implemented, 
at a minimum, an annual review regarding the adequacy of the 
policies and procedures established pursuant to subparagraph (i) 
above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above. See Notice, supra note 3, 81 FR at 12990-
12991.
    \38\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
    \39\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \40\ According to the Exchange, FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement, and the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement. See Notice, supra note 3, 81 FR at 
12994.
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    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. In support of this proposal, the Exchange 
has represented that:
    (1) The Shares will be subject to Nasdaq Rule 5735, which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) Nasdaq's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
detect and help deter 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 
and instruments, including the common stock and shares held by the Fund 
with other markets and other entities that are members of the ISG,\41\ 
and FINRA may obtain trading information regarding trading in the 
Shares and the exchange-traded securities and instruments held by the 
Fund from those markets and other entities. In addition, the Exchange 
may obtain information regarding trading in the Shares and the 
exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG,\42\ or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. FINRA, on behalf of the Exchange, is able to access, as 
needed, trade information for certain fixed-income securities held by 
the Fund

[[Page 26285]]

reported to FINRA's Trade Reporting and Compliance Engine.
---------------------------------------------------------------------------

    \41\ For a list of the current members of ISG, see 
www.isgportal.org.
    \42\ Id.
---------------------------------------------------------------------------

    (4) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (5) Prior to commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (a) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how information regarding 
the Intraday Indicative Value and Disclosed Portfolio is disseminated; 
(d) the risks involved in trading the Shares during the Pre-Market and 
Post-Market Sessions when an updated Intraday Indicative Value will not 
be calculated or publicly disseminated; (e) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (6) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\43\
---------------------------------------------------------------------------

    \43\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets.
    (8) The Fund may invest in leveraged ETPs (e.g., 2X or 3X), but 
will not invest in inverse or inverse leveraged ETPs (e.g., -1X or -
2X). In addition, no more than 25% of the Fund's holdings will be 
invested in leveraged ETPs.
    (9) The Fund will not use derivative instruments, including 
options, swaps, forwards, and futures contracts.
    (10) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the exchange.
    The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures shall 
constitute continued listing requirements for listing the Shares on the 
Exchange. In addition, the issuer has represented to the Exchange that 
it will advise the Exchange of any failure by the Fund to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Act, the Exchange will monitor for 
compliance with the continued listing requirements.\44\ If the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq 5800 
Series.
---------------------------------------------------------------------------

    \44\ The Commission notes that certain other proposals for the 
listing and trading of Managed Fund Shares include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (SR-BATS-2016-04) 
(approving a proposed rule change to list and trade shares of the 
SPDR DoubleLine Short Duration Total Return Tactical ETF), available 
at: https://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the 
context of this representation, it is the Commission's view that 
``monitor'' and ``surveil'' both mean ongoing oversight of the 
Fund's compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's 
representations, including those set forth above, in the Notice, and in 
Amendment No. 1 to the proposed rule change. The Commission notes that 
the Fund and the Shares must comply with the requirements of Nasdaq 
Rule 5735, including those set forth in this proposed rule change, as 
modified by Amendment No. 1 thereto, to be listed and traded on the 
Exchange on an initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \45\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\46\ that the proposed rule change (SR-NASDAQ-2016-028), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10153 Filed 4-29-16; 8:45 am]
BILLING CODE 8011-01-P
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