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 First Trust Strategic Mortgage REIT ETF of First Trust Exchange-Traded Fund VIII, 29590-29598 [2016-11156]
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29590
Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. Persons relying upon this
exemptive relief shall discontinue
transactions involving the Shares of the
Funds, pending presentation of the facts
for the Commission’s consideration, in
the event that any material change
occurs with respect to any of the facts
or representations made by the
Requestors and, consistent with all
preceding letters, particularly with
respect to the close alignment between
the market price of Shares and each
Fund’s NAV. In addition, persons
relying on this exemptive relief are
directed to the anti-fraud and antimanipulation provisions of the
Exchange Act, particularly Sections 9(a)
and 10(b), and Rule 10b–5 thereunder.
Responsibility for compliance with
these and any other applicable
provisions of the federal securities laws
must rest with the persons relying on
this exemptive relief.
This order should not be considered
a view with respect to any other
question that the proposed transactions
may raise, including, but not limited to
the adequacy of the disclosure
concerning, and the applicability of
other federal or state laws to, the
proposed transactions.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–11154 Filed 5–11–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77781; File No. SR–
NASDAQ–2016–064]
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 First Trust Strategic
Mortgage REIT ETF of First Trust
Exchange-Traded Fund VIII
asabaliauskas on DSK3SPTVN1PROD with NOTICES
May 6, 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 May 3,
2016, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
6 17
CFR 200.30–3(a)(6) and (9).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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proposed rule change as described in in
Items I and II below, which Items have
been prepared by Nasdaq. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to list and trade the
shares of the First Trust Strategic
Mortgage REIT ETF (the ‘‘Fund’’) of
First Trust Exchange-Traded Fund VIII
(the ‘‘Trust’’) under Nasdaq Rule 5735
(‘‘Managed Fund Shares’’).3 The shares
of the Fund are collectively referred to
herein as the ‘‘Shares.’’
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 and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. Nasdaq has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund
Shares 4 on the Exchange. The Fund will
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008), 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). There are already multiple
actively-managed funds listed on the Exchange; see,
e.g., Securities Exchange Act Release Nos. 72506
(July 1, 2014), 79 FR 38631 (July 8, 2014) (SR–
NASDAQ–2014–050) (order approving listing and
trading of First Trust Strategic Income ETF); 69464
(April 26, 2013), 78 FR 25774 (May 2, 2013) (SR–
NASDAQ–2013–036) (order approving listing and
trading of First Trust Senior Loan Fund); and 66489
(February 29, 2012), 77 FR 13379 (March 6, 2012)
(SR–NASDAQ–2012–004) (order approving listing
and trading of WisdomTree Emerging Markets
Corporate Bond Fund). The Exchange believes the
proposed rule change raises no significant issues
not previously addressed in those prior
Commission orders.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues Index
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be an actively-managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust, which was
established as a Massachusetts business
trust on February 22, 2016.5 The Trust
is registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.6 The Fund will be a series
of the Trust.
First Trust Advisors L.P. will be the
investment adviser (‘‘Adviser’’) to the
Fund. First Trust Portfolios L.P. (the
‘‘Distributor’’) will be the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon Corporation (‘‘BNY’’) will act as
the administrator, accounting agent,
custodian and transfer agent to the
Fund.
Paragraph (g) of Rule 5735 provides
that if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
domestic stock index, fixed income securities index
or combination thereof.
5 The Commission has issued an order, upon
which the Trust may rely, granting certain
exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28468
(October 27, 2008) (File No. 812–13477) (the
‘‘Exemptive Relief’’).
6 See Registration Statement on Form N–1A for
the Trust, dated March 14, 2016 (File Nos. 333–
210186 and 811–23147). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser 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 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
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Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices
paragraph (g) further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material, non-public information
regarding the open-end fund’s portfolio.
Rule 5735(g) is similar to Nasdaq Rule
5705(b)(5)(A)(i); however, paragraph (g)
in connection with the establishment of
a ‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not a brokerdealer, but it is affiliated with the
Distributor, a broker-dealer, and has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In addition, 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 Fund’s
portfolio. In the event (a) the Adviser or
any sub-adviser registers as a brokerdealer, or becomes newly affiliated with
a broker-dealer, or (b) any new adviser
or sub-adviser is a registered brokerdealer or becomes affiliated with
another broker-dealer, it will implement
a fire wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, as applicable, regarding access
to information concerning the
composition and/or changes to the
portfolio and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio. The Fund currently does not
intend to use a sub-adviser.
The Fund intends to qualify each year
as a regulated investment company
under Subchapter M of the Internal
Revenue Code of 1986, as amended.
First Trust Strategic Mortgage REIT ETF
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Principal Investments
The investment objective of the Fund
will be to generate high current income.
Under normal market conditions,8 the
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
8 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.
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Fund will seek to achieve its investment
objective by investing at least 80% of its
net assets (including investment
borrowings) in the exchange-traded
common shares of U.S. exchange-traded
mortgage real estate investment trusts
(‘‘mortgage REITs’’). In general terms, a
mortgage REIT makes loans to
developers and owners of property and
invests primarily in mortgages and
similar real estate interests, and
includes companies or trusts that are
primarily engaged in the purchasing or
servicing of commercial or residential
mortgage loans or mortgage-related
securities, which may include mortgagebacked securities issued by private
issuers and those issued or guaranteed
by U.S. Government agencies,
instrumentalities or sponsored entities.
Other Investments
The Fund may invest (in the
aggregate) up to 20% of its net assets in
the following securities and
instruments.
The Fund may invest in the exchangetraded preferred shares of U.S.
exchange-traded mortgage REITs.
The Fund may invest in (i) U.S.
exchange-traded equity and preferred
securities and (ii) domestic over-thecounter (‘‘OTC’’) preferred securities, in
each case, of companies engaged in the
U.S. real estate industry (other than
mortgage REITs) (collectively, ‘‘Real
Estate Companies’’).
The Fund may invest in mortgagebacked securities,9 and such
investments may, from time to time,
include investments in to-be-announced
transactions 10 and mortgage dollar
On a temporary basis, including for 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 such
periods, the Fund may not be able to achieve its
investment objective. The Fund may adopt a
defensive strategy when the Adviser believes
securities in which the Fund normally invests have
elevated risks due to political or economic factors
and in other extraordinary circumstances.
9 Mortgage-backed securities, which are securities
that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage
loans on real property, will consist of: (1)
Residential mortgage-backed securities (‘‘RMBS’’);
(2) commercial mortgage-backed securities
(‘‘CMBS’’); (3) stripped mortgage-backed securities
(‘‘SMBS’’), which are mortgage-backed securities
where mortgage payments are divided between
paying the loan’s principal and paying the loan’s
interest; (4) collateralized mortgage obligations
(‘‘CMOs’’) and real estate mortgage investment
conduits (‘‘REMICs’’), which are mortgage-backed
securities that are divided into multiple classes,
with each class being entitled to a different share
of the principal and interest payments received
from the pool of underlying assets.
10 A to-be-announced (‘‘TBA’’) transaction is a
method of trading mortgage-backed securities. In a
TBA transaction, the buyer and seller agree upon
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29591
rolls 11 (collectively, ‘‘Mortgage-Related
Instruments’’).
The Fund may invest in exchangetraded and OTC options on mortgage
REITs and Real Estate Companies; OTC
options on mortgage TBA transactions;
exchange-traded U.S. Treasury and
Eurodollar futures contracts; exchangetraded and OTC interest rate swap
agreements; exchange-traded options on
U.S. Treasury and Eurodollar futures
contracts; and exchange-traded and OTC
options on interest rate swap
agreements. The use of these derivative
transactions may allow the Fund to
obtain net long or short exposures to
selected interest rates. These derivatives
may also be used to hedge risks,
including interest rate risks and credit
risks, associated with the Fund’s
portfolio investments. The Fund’s
investments in derivative instruments
will be consistent with the Fund’s
investment objective and the 1940 Act
and will not be used to seek to achieve
a multiple or inverse multiple of an
index. The Fund will only enter into
transactions in OTC derivatives
(including OTC options on mortgage
REITs, Real Estate Companies and
mortgage TBA transactions; OTC
interest rate swap agreements; and OTC
options on interest rate swap
agreements) with counterparties that the
Adviser reasonably believes are capable
of performing under the applicable
contract or agreement.12
The Fund may invest in short-term
debt securities and other short-term debt
instruments (described below), as well
as cash equivalents, or it may hold cash.
general trade parameters such as agency, settlement
date, par amount, and price. The actual pools
delivered generally are determined two days prior
to the settlement date.
11 In a mortgage dollar roll, the Fund will sell (or
buy) mortgage-backed securities for delivery on a
specified date and simultaneously contract to
repurchase (or sell) substantially similar (same type,
coupon and maturity) securities on a future date.
During the period between a sale and repurchase,
the Fund will forgo principal and interest paid on
the mortgage-backed securities. The Fund will earn
or lose money on a mortgage dollar roll from any
difference between the sale price and the future
purchase price. In a sale and repurchase, the Fund
will also earn money on the interest earned on the
cash proceeds of the initial sale. The Fund intends
to enter into mortgage dollar rolls only with high
quality securities dealers and banks, as determined
by the Adviser.
12 The Fund will seek, where possible, to use
counterparties, as applicable, whose financial status
is such that the risk of default is reduced; however,
the risk of losses resulting from default is still
possible. The Adviser will evaluate the
creditworthiness of counterparties on an ongoing
basis. In addition to information provided by credit
agencies, the Adviser’s analysis will evaluate each
approved counterparty using various methods of
analysis and may consider the Adviser’s past
experience with the counterparty, its known
disciplinary history and its share of market
participation.
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The percentage of the Fund invested in
such holdings or held in cash will vary
and will depend on several factors,
including market conditions. The Fund
may invest in the following short-term
debt instruments: 13 (1) Fixed rate and
floating rate U.S. government securities,
including bills, notes and bonds
differing as to maturity and rates of
interest, which are either issued or
guaranteed by the U.S. Treasury or by
U.S. government agencies or
instrumentalities; (2) certificates of
deposit issued against funds deposited
in a bank or savings and loan
association; (3) bankers’ acceptances,
which are short-term credit instruments
used to finance commercial
transactions; (4) repurchase
agreements,14 which involve purchases
of debt securities; (5) bank time
deposits, which are monies kept on
deposit with banks or savings and loan
associations for a stated period of time
at a fixed rate of interest; and (6)
commercial paper, which is short-term
unsecured promissory notes.15
The Fund may invest (but only, in the
aggregate, up to 10% of its net assets) in
the securities of money market funds
and other ETFs 16 that, in each case, will
13 Short-term debt instruments are issued by
issuers having a long-term debt rating of at least A
by Standard & Poor’s Ratings Services, a Division
of The McGraw-Hill Companies, Inc. (‘‘S&P
Ratings’’), Moody’s Investors Service, Inc.
(‘‘Moody’s’’) or Fitch Ratings (‘‘Fitch’’) and have a
maturity of one year or less.
14 The Fund intends to enter into repurchase
agreements only with financial institutions and
dealers believed by the Adviser to present minimal
credit risks in accordance with criteria approved by
the Board of Trustees of the Trust (‘‘Trust Board’’).
The Adviser will review and monitor the
creditworthiness of such institutions. The Adviser
will monitor the value of the collateral at the time
the transaction is entered into and at all times
during the term of the repurchase agreement.
15 The Fund may only invest in commercial paper
rated A–1 or higher by S&P Ratings, Prime-1 or
higher by Moody’s or F1 or higher by Fitch.
16 An ETF is an investment company registered
under the 1940 Act that holds a portfolio of
securities. Many ETFs are designed to track the
performance of a securities index, including
industry, sector, country and region indexes. 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. In addition, the
Fund may invest in the securities of certain other
investment companies in excess of the limits
imposed under the 1940 Act pursuant to an
exemptive order that the Trust has obtained from
the Commission. See Investment Company Act
Release No. 30377 (February 5, 2013) (File No. 812–
13895). The ETFs in which the Fund may invest
include Index Fund Shares (as described in Nasdaq
Rule 5705), Portfolio Depository Receipts (as
described in Nasdaq Rule 5705), and Managed Fund
Shares (as described in Nasdaq Rule 5735). While
the Fund may invest in inverse ETFs, the Fund will
not invest in leveraged or inverse leveraged (e.g., 2X
or -3X) ETFs.
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be investment companies registered
under the 1940 Act.
Investment Restrictions
The Fund may enter into short sales
as part of its overall portfolio
management strategies or to offset a
potential decline in the value of a
security; however, the Fund will not
engage in short sales with respect to
more than 30% of the value of its net
assets. To the extent required under
applicable federal securities laws, rules,
and interpretations thereof, the Fund
will ‘‘set aside’’ liquid assets or engage
in other measures to ‘‘cover’’ open
positions and short positions held in
connection with the foregoing types of
transactions.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), including Rule 144A
securities deemed illiquid by the
Adviser.17 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 assets. 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.18
The Fund may not invest 25% or
more of the value of its total assets in
17 In reaching liquidity decisions, the Adviser
may consider the following factors: the frequency
of trades and quotes for the security; the number of
dealers wishing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
18 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a-7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
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securities of issuers in any one
industry.19 This restriction does not
apply to securities of issuers in the real
estate sector, including real estate
investment trusts; obligations issued or
guaranteed by the U.S. government, its
agencies or instrumentalities; or
securities of other investment
companies. The Fund will be
concentrated in the real estate sector.
Creation and Redemption of Shares
The Fund will issue and redeem
Shares on a continuous basis at net asset
value (‘‘NAV’’) 20 only in large blocks of
Shares (‘‘Creation Units’’) in
transactions with authorized
participants, generally including brokerdealers and large institutional investors
(‘‘Authorized Participants’’). Creation
Units generally will consist of 50,000
Shares, although this may change from
time to time. Creation Units, however,
are not expected to consist of less than
50,000 Shares. As described in the
Registration Statement and consistent
with the Exemptive Relief, the Fund
will issue and redeem Creation Units in
exchange for an in-kind portfolio of
instruments and/or cash in lieu of such
instruments (the ‘‘Creation Basket’’).21
In addition, if there is a difference
between the NAV attributable to a
Creation Unit and the market value of
the Creation Basket exchanged for the
Creation Unit, the party conveying
instruments with the lower value will
pay to the other an amount in cash
equal to the difference (referred to as the
‘‘Cash Component’’).
Creations and redemptions must be
made by or through an Authorized
Participant that has executed an
agreement that has been agreed to by the
Distributor and BNY with respect to
creations and redemptions of Creation
Units. All standard orders to create
Creation Units must be received by the
transfer agent no later than the closing
time of the regular trading session on
the NYSE (ordinarily 4:00 p.m., Eastern
19 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
20 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange (‘‘NYSE’’), generally 4:00 p.m.,
Eastern Time (the ‘‘NAV Calculation Time’’). NAV
per Share will be calculated by dividing the Fund’s
net assets by the number of Fund Shares
outstanding.
21 It is expected that the Fund will typically issue
and redeem Creation Units on an in-kind basis;
however, subject to, and in accordance with, the
provisions of the Exemptive Relief, the Fund may,
at times, issue and redeem Creation Units on a cash
(or partially cash) basis.
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Time) (the ‘‘Closing Time’’) in each case
on the date such order is placed in order
for the creation of Creation Units to be
effected based on the NAV of Shares as
next determined on such date after
receipt of the order in proper form.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt not later than
the Closing Time of a redemption
request in proper form by the Fund
through the transfer agent and only on
a business day.
The Fund’s custodian, through the
National Securities Clearing
Corporation, will make available on
each business day, prior to the opening
of business of the Exchange, the list of
the names and quantities of the
instruments comprising the Creation
Basket, as well as the estimated Cash
Component (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following business
day prior to commencement of trading
in the Shares.
Net Asset Value
The Fund’s NAV will be determined
as of Closing Time on each day the
NYSE is open for trading. If the NYSE
closes early on a valuation day, the NAV
will be determined as of that time. NAV
per Share will be calculated for the
Fund by taking the value of the Fund’s
total assets, including interest or
dividends accrued but not yet collected,
less all liabilities, including accrued
expenses and dividends declared but
unpaid, and dividing such amount by
the total number of Shares outstanding.
The result, rounded to the nearest cent,
will be the NAV per Share. All
valuations will be subject to review by
the Trust Board or its delegate.
The Fund’s investments will be
valued daily. As described more
specifically below, investments traded
on an exchange (i.e., a regulated
market), will generally be valued at
market value prices that represent last
sale or official closing prices. In
addition, as described more specifically
below, non-exchange traded
investments will generally be valued
using prices obtained from third-party
pricing services (each, a ‘‘Pricing
Service’’).22 If, however, valuations for
any of the Fund’s investments cannot be
readily obtained as provided in the
preceding manner, or the Pricing
Committee of the Adviser (the ‘‘Pricing
Committee’’) 23 questions the accuracy
22 The Adviser may use various Pricing Services
or discontinue the use of any Pricing Services, as
approved by the Trust Board from time to time.
23 The Pricing Committee will be subject to
procedures designed to prevent the use and
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Jkt 238001
or reliability of valuations that are so
obtained, such investments will be
valued at fair value, as determined by
the Pricing Committee, in accordance
with valuation procedures (which may
be revised from time to time) adopted by
the Trust Board (the ‘‘Valuation
Procedures’’), and in accordance with
provisions of the 1940 Act. The Pricing
Committee’s fair value determinations
may require subjective judgments about
the value of an investment. The fair
valuations attempt to estimate the value
at which an investment could be sold at
the time of pricing, although actual sales
could result in price differences, which
could be material.
Certain securities in which the Fund
may invest will not be listed on any
securities exchange or board of trade.
Such securities will typically be bought
and sold by institutional investors in
individually negotiated private
transactions that function in many
respects like an OTC secondary market,
although typically no formal market
makers will exist. Certain securities,
particularly debt securities, will have
few or no trades, or trade infrequently,
and information regarding a specific
security may not be widely available or
may be incomplete. Accordingly,
determinations of the value of debt
securities may be based on infrequent
and dated information. Because there is
less reliable, objective data available,
elements of judgment may play a greater
role in valuation of debt securities than
for other types of securities.
The information summarized below is
based on the Valuation Procedures as
currently in effect; however, as noted
above, the Valuation Procedures are
amended from time to time and,
therefore, such information is subject to
change.
The following investments will
typically be valued using information
provided by a Pricing Service: (a)
Mortgage-Related Instruments; (b) OTC
derivatives (including OTC options on
mortgage REITs, Real Estate Companies
and mortgage TBA transactions; OTC
interest rate swap agreements; and OTC
options on interest rate swap
agreements); (c) OTC preferred
securities of Real Estate Companies; and
(d) except as provided below, short-term
U.S. government securities, commercial
paper, and bankers’ acceptances, all as
set forth under ‘‘Other Investments’’
(collectively, ‘‘Short-Term Debt
Instruments’’). Debt instruments may be
valued at evaluated mean prices, as
provided by Pricing Services. Pricing
Services typically value non-exchangedissemination of material non-public information
regarding the Fund’s portfolio.
PO 00000
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Fmt 4703
Sfmt 4703
29593
traded instruments utilizing a range of
market-based inputs and assumptions,
including readily available market
quotations obtained from broker-dealers
making markets in such instruments,
cash flows, and transactions for
comparable instruments. In pricing
certain instruments, the Pricing Services
may consider information about an
instrument’s issuer or market activity
provided by the Adviser.
Short-Term Debt Instruments having a
remaining maturity of 60 days or less
when purchased will typically be
valued at cost adjusted for amortization
of premiums and accretion of discounts,
provided the Pricing Committee has
determined that the use of amortized
cost is an appropriate reflection of value
given market and issuer-specific
conditions existing at the time of the
determination.
Certificates of deposit and bank time
deposits will typically be valued at cost.
Repurchase agreements will typically
be valued as follows: Overnight
repurchase agreements will be valued at
amortized cost when it represents the
best estimate of value. Term repurchase
agreements (i.e., those whose maturity
exceeds seven days) will be valued at
the average of the bid quotations
obtained daily from at least two
recognized dealers.
Common stocks and other equity
securities (including mortgage REITs
(both common and preferred shares);
ETFs; and exchange-traded Real Estate
Companies), as well as preferred
securities of Real Estate Companies, that
are listed on any exchange other than
the Exchange will typically be valued at
the last sale price on the exchange on
which they are principally traded on the
business day as of which such value is
being determined. Such securities listed
on the Exchange will typically be
valued at the official closing price on
the business day as of which such value
is being determined. If there has been no
sale on such day, or no official closing
price in the case of securities traded on
the Exchange, such securities will
typically be valued using fair value
pricing. Such securities traded on more
than one securities exchange will be
valued at the last sale price or official
closing price, as applicable, on the
business day as of which such value is
being determined at the close of the
exchange representing the principal
market for such securities.
Money market funds will typically be
valued at their net asset values as
reported by such funds to Pricing
Services.
Exchange-traded options on mortgage
REITs and Real Estate Companies,
exchange-traded U.S. Treasury and
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Eurodollar futures contracts, exchangetraded interest rate swap agreements,
exchange-traded options on U.S.
Treasury and Eurodollar futures
contracts, and exchange-traded options
on interest rate swap agreements will
typically be valued at the closing price
in the market where such instruments
are principally traded.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Availability of Information
The Fund’s Web site
(www.ftportfolios.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Web site will
include the Shares’ ticker, CUSIP and
exchange information along with
additional quantitative information
updated on a daily basis, including, for
the Fund: (1) Daily trading volume, the
prior business day’s reported NAV and
closing price, mid-point of the bid/ask
spread at the time of calculation of such
NAV (the ‘‘Bid/Ask Price’’),24 and a
calculation of the premium and
discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
displaying the frequency distribution of
discounts and premiums of the daily
Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters. On each
business day, before commencement of
trading in Shares in the Regular Market
Session 25 on the Exchange, the Fund
will disclose on its Web site the
identities and quantities of the portfolio
of securities and other assets (the
‘‘Disclosed Portfolio’’ as 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.26
The Fund’s disclosure of derivative
positions in the Disclosed Portfolio will
include sufficient information for
market participants to use to value these
positions intraday. On a daily basis, the
Fund will disclose on the Fund’s Web
24 The Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
25 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m., Eastern
Time; (2) Regular Market Session from 9:30 a.m. to
4 p.m. or 4:15 p.m., Eastern Time; and (3) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m.,
Eastern Time).
26 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’’). Accordingly, the
Fund will be able to disclose at the beginning of the
business day the portfolio that will form the basis
for the NAV calculation at the end of the business
day.
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17:02 May 11, 2016
Jkt 238001
site the following information regarding
each portfolio holding, 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, such as
the type of swap); the identity of the
security or other asset or instrument
underlying the holding, if any; for
options, the option strike price; quantity
held (as measured by, for example, par
value, notional value or number of
shares, contracts or units); maturity
date, if any; coupon rate, if any;
effective date, if any; market value of the
holding; and percentage weighting of
the holding in the Fund’s portfolio. The
Web site information will be publicly
available at no charge.
In addition, for the Fund, an
estimated value, defined in Rule
5735(c)(3) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s Disclosed
Portfolio, will be disseminated.
Moreover, the Intraday Indicative Value,
available on the NASDAQ OMX
Information LLC proprietary index data
service,27 will be based upon the current
value for the components of the
Disclosed Portfolio and will be updated
and widely disseminated by one or
more major market data vendors and
broadly displayed at least every 15
seconds during the Regular Market
Session. The Intraday Indicative Value
will be based on quotes and closing
prices from the securities’ local market
and may not reflect events that occur
subsequent to the local market’s close.
Premiums and discounts between the
Intraday Indicative Value and the
market price may occur. This should not
be viewed as a ‘‘real time’’ update of the
NAV per Share of the Fund, which is
calculated only once a day.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and will provide a close estimate of that
value throughout the trading day.
Investors will also be able to obtain
the Fund’s Statement of Additional
Information (‘‘SAI’’), the Fund’s annual
and semi-annual reports (together,
‘‘Shareholder Reports’’), and its Form
N–CSR and Form N–SAR, filed twice a
year. The Fund’s SAI and Shareholder
27 Currently, the NASDAQ OMX 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.
GIDS provides investment professionals with the
daily information needed to track or trade Nasdaq
indexes, listed ETFs, or third-party partner indexes
and ETFs.
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
Reports will be available free upon
request from the Fund, and those
documents and the Form N–CSR and
Form N–SAR may be viewed on-screen
or downloaded from the Commission’s
Web site at www.sec.gov. Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. Quotation and last sale
information for the Shares will be
available via Nasdaq proprietary quote
and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the Consolidated Tape
Association (‘‘CTA’’) plans for the
Shares. Quotation and last sale
information for U.S. exchange-traded
equity securities (including mortgage
REITs, ETFs and exchange-traded Real
Estate Companies) will be available
from the exchanges on which they are
traded as well as in accordance with any
applicable CTA plans. Quotation and
last sale information for U.S. exchangetraded options will be available via the
Options Price Reporting Authority.
Pricing information for MortgageRelated Instruments, OTC Real Estate
Companies, Short-Term Debt
Instruments, repurchase agreements,
certificates of deposit, bank time
deposits, OTC options on mortgage
REITs, Real Estate Companies and
mortgage TBA transactions, OTC
interest rate swap agreements, and OTC
options on interest rate swap
agreements will be available from major
broker-dealer firms and/or major market
data vendors and/or Pricing Services.
Pricing information for mortgage REITs
(both common and preferred shares),
exchange-traded Real Estate Companies,
ETFs, exchange-traded options on
mortgage REITs and Real Estate
Companies, exchange-traded U.S.
Treasury and Eurodollar futures
contracts, exchange-traded interest rate
swap agreements, exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts, and exchange-traded
options on interest rate swap
agreements will be available from the
applicable listing exchange and from
major market data vendors. Money
market funds are typically priced once
each business day and their prices will
be available through the applicable
fund’s Web site or from major market
data vendors.
Additional information regarding the
Fund and the Shares, including
investment strategies, risks, creation and
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Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices
redemption procedures, fees, Fund
holdings disclosure policies,
distributions and taxes will be included
in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule
5735, which sets forth the initial and
continued listing criteria applicable to
Managed Fund Shares. The Exchange
represents that, for initial and continued
listing, the Fund must be in compliance
with Rule 10A–3 28 under the Act. A
minimum of 100,000 Shares will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund. Nasdaq will halt trading in
the Shares under the conditions
specified in Nasdaq Rules 4120 and
4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the 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. 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.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Trading Rules
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
governing the trading of equity
securities. Nasdaq will allow trading in
the Shares from 4:00 a.m. until 8:00
p.m., Eastern Time. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in Nasdaq
Rule 5735(b)(3), the minimum price
variation for quoting and entry of orders
in Managed Fund Shares traded on the
Exchange is $0.01.
28 See
17 CFR 240.10A–3.
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17:02 May 11, 2016
Jkt 238001
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by both Nasdaq and also
the Financial Industry Regulatory
Authority (‘‘FINRA’’) on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.29 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund (including mortgage REITs
(both common and preferred shares);
exchange-traded Real Estate Companies;
ETFs; exchange-traded options on
mortgage REITs and Real Estate
Companies; exchange-traded U.S.
Treasury and Eurodollar futures
contracts; exchange-traded interest rate
swap agreements; exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded
options on interest rate swap
agreements) with other markets and
other entities that are members of the
Intermarket Surveillance Group
(‘‘ISG’’),30 and FINRA may obtain
trading information regarding trading in
the Shares and such exchange-traded
securities and instruments held by the
Fund from such 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, which includes
securities and futures exchanges, or
with which the Exchange has in place
29 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.
30 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
PO 00000
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Fmt 4703
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29595
a comprehensive surveillance sharing
agreement. Moreover, FINRA, on behalf
of the Exchange, will be able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’).
At least 90% of the Fund’s net assets
that are invested in exchange-traded
derivatives (including exchange-traded
options on mortgage REITs and Real
Estate Companies; exchange-traded U.S.
Treasury and Eurodollar futures
contracts; exchange-traded interest rate
swap agreements; exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded
options on interest rate swap
agreements) (in the aggregate) will be
invested in instruments that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
All of the Fund’s net assets that are
invested in exchange-traded equity
securities (including mortgage REITs
(both common and preferred shares);
ETFs; and exchange-traded Real Estate
Companies) (in the aggregate) will be
invested in securities that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) Nasdaq Rule 2111A,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value and the Disclosed
Portfolio is disseminated; (4) the risks
involved in trading the Shares during
the Pre-Market and Post-Market
Sessions when an updated Intraday
Indicative Value will not be calculated
or publicly disseminated; (5) the
requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (6) trading information.
The Information Circular will also
E:\FR\FM\12MYN1.SGM
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discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
Additionally, the Information Circular
will reference that the Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Fund and the applicable NAV
Calculation Time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Fund will be publicly available on the
Fund’s Web site.
All statements and representations
made in this 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. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under the Nasdaq 5800
Series.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act
in general and Section 6(b)(5) of the Act
in particular in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the
Shares will be subject to the existing
trading surveillances, administered by
both Nasdaq and also FINRA on behalf
of the Exchange, which are designed to
detect violations of Exchange rules and
applicable federal securities laws.
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17:02 May 11, 2016
Jkt 238001
The Adviser is not a broker-dealer,
but it is affiliated with the Distributor,
a broker-dealer, and is required to
implement a ‘‘fire wall’’ with respect to
such broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. In addition, paragraph
(g) of Nasdaq Rule 5735 further requires
that personnel who make decisions on
the open-end fund’s portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the openend fund’s portfolio.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund (including mortgage REITs
(both common and preferred shares);
exchange-traded Real Estate Companies;
ETFs; exchange-traded options on
mortgage REITs and Real Estate
Companies; exchange-traded U.S.
Treasury and Eurodollar futures
contracts; exchange-traded interest rate
swap agreements; exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded
options on interest rate swap
agreements) with other markets and
other entities that are members of ISG,
and FINRA may obtain trading
information regarding trading in the
Shares and such exchange-traded
securities and instruments held by the
Fund from such 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, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. Moreover, FINRA, on behalf
of the Exchange, will be able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s TRACE.
At least 90% of the Fund’s net assets
that are invested in exchange-traded
derivatives (including exchange-traded
options on mortgage REITs and Real
Estate Companies; exchange-traded U.S.
Treasury and Eurodollar futures
contracts; exchange-traded interest rate
swap agreements; exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded
options on interest rate swap
agreements) (in the aggregate) will be
invested in instruments that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
All of the Fund’s net assets that are
invested in exchange-traded equity
securities (including mortgage REITs
(both common and preferred shares);
ETFs; and exchange-traded Real Estate
Companies) (in the aggregate) will be
invested in securities that trade in
markets that are members of ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
The investment objective of the Fund
will be to generate high current income.
Under normal market conditions, the
Fund will seek to achieve its investment
objective by investing at least 80% of its
net assets (including investment
borrowings) in the exchange-traded
common shares of U.S. exchange-traded
mortgage REITs. The Fund may invest
up to 20% of its net assets in the
exchange-traded preferred shares of U.S.
exchange-traded mortgage REITs.
Additionally, the Fund may invest up to
20% of its net assets in derivative
instruments (including exchange-traded
and OTC options on mortgage REITs
and Real Estate Companies; OTC
options on mortgage TBA transactions;
exchange-traded U.S. Treasury and
Eurodollar futures contracts; exchangetraded and OTC interest rate swap
agreements; exchange-traded options on
U.S. Treasury and Eurodollar futures
contracts; and exchange-traded and OTC
options on interest rate swap
agreements). The Fund’s investments in
derivative instruments will be
consistent with the Fund’s investment
objective and the 1940 Act and will not
be used to seek to achieve a multiple or
inverse multiple of an index. Also, the
Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid assets (calculated at the time of
investment), including Rule 144A
securities deemed illiquid by the
Adviser. 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 assets. 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 proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
E:\FR\FM\12MYN1.SGM
12MYN1
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Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Moreover, the
Intraday Indicative Value, available on
the NASDAQ OMX Information LLC
proprietary index data service, will be
widely disseminated by one or more
major market data vendors and broadly
displayed at least every 15 seconds
during the Regular Market Session. On
each business day, before
commencement of trading in Shares in
the Regular Market Session on the
Exchange, the Fund will disclose on its
Web site the Disclosed Portfolio that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information for the Shares will
be available via Nasdaq proprietary
quote and trade services, as well as in
accordance with the Unlisted Trading
Privileges and the CTA plans for the
Shares. Pricing information for
Mortgage-Related Instruments, OTC
Real Estate Companies, Short-Term Debt
Instruments, repurchase agreements,
certificates of deposit, bank time
deposits, OTC options on mortgage
REITs, Real Estate Companies and
mortgage TBA transactions, OTC
interest rate swap agreements, and OTC
options on interest rate swap
agreements will be available from major
broker-dealer firms and/or major market
data vendors and/or Pricing Services.
Pricing information for mortgage REITs
(both common and preferred shares),
exchange-traded Real Estate Companies,
ETFs, exchange-traded options on
mortgage REITs and Real Estate
Companies, exchange-traded U.S.
Treasury and Eurodollar futures
contracts, exchange-traded interest rate
swap agreements, exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts, and exchange-traded
options on interest rate swap
agreements will be available from the
applicable listing exchange and from
major market data vendors. Money
market funds are typically priced once
each business day and their prices will
be available through the applicable
fund’s Web site or from major market
data vendors.
The Fund’s Web site will include a
form of the prospectus for the Fund and
additional data relating to NAV and
VerDate Sep<11>2014
17:02 May 11, 2016
Jkt 238001
other applicable quantitative
information. Trading in Shares of the
Fund will be halted under the
conditions specified in Nasdaq Rules
4120 and 4121 or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable, and trading in
the Shares will be subject to Nasdaq
Rule 5735(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The Fund’s investments will be
valued daily. Investments traded on an
exchange (i.e., a regulated market), will
generally be valued at market value
prices that represent last sale or official
closing prices. Non-exchange traded
investments will generally be valued
using prices obtained from a Pricing
Service. If, however, valuations for any
of the Fund’s investments cannot be
readily obtained as provided in the
preceding manner, or the Pricing
Committee questions the accuracy or
reliability of valuations that are so
obtained, such investments will be
valued at fair value, as determined by
the Pricing Committee, in accordance
with the Valuation Procedures and in
accordance with provisions of the 1940
Act.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares and exchangetraded securities and instruments held
by the Fund (including mortgage REITs
(both common and preferred shares);
exchange-traded Real Estate Companies;
ETFs; exchange-traded options on
mortgage REITs and Real Estate
Companies; exchange-traded U.S.
Treasury and Eurodollar futures
contracts; exchange-traded interest rate
swap agreements; exchange-traded
options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded
options on interest rate swap
agreements) with other markets and
other entities that are members of ISG,
and FINRA may obtain trading
information regarding trading in the
Shares and such exchange-traded
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
29597
securities and instruments held by the
Fund from such 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, which includes
securities and futures exchanges, or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. Moreover, FINRA, on behalf
of the Exchange, will be able to access,
as needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s TRACE.
Furthermore, as noted above, investors
will have ready access to information
regarding the Fund’s holdings, the
Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale
information for the Shares.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of activelymanaged exchange-traded fund that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will: (a) by
order approve or disapprove such
proposed rule change; or (b) institute
proceedings to determine whether the
proposed rule change should be
disapproved.
E:\FR\FM\12MYN1.SGM
12MYN1
29598
Federal Register / Vol. 81, No. 92 / Thursday, May 12, 2016 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2016–064 on the subject line.
Paper Comments
asabaliauskas on DSK3SPTVN1PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2016–064. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2016–064 and should be
submitted on or before June 2, 2016.
31 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:02 May 11, 2016
Jkt 238001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–11156 Filed 5–11–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77780; File No. SRBatsEDGX–2016–13]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to Fees
May 6, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 29,
2016, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
one establishing or changing a member
due, fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the fee schedule applicable to
Members 5 and non-members of the
Exchange pursuant to EDGX Rules
15.1(a) and (c).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
2 17
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange determines the
liquidity adding rebate that it will
provide to Members using the
Exchange’s tiered pricing structure.
Currently, the Exchange provides a
$0.0027 per share rebate under footnote
2 of the Fee Schedule for a Member that
adds an ADV 6 of at least 0.02% of the
TCV 7 in Tape B securities for orders
that yield fee codes B and 4.8 The
Exchange currently has only one Tape B
Volume Tier.
The Exchange now proposes to amend
the Tape B Volume Tier to add an
additional Tape B Volume Tier to
provide two Tape B Volume Tiers. The
Exchange proposes that the current
Tape B Volume Tier be renamed Tape
B Volume Tier 1. The Exchange
proposes that the rebate and the
required criteria for Tape B Volume Tier
1 remain substantively the same as the
current Tape B Volume Tier. The
Exchange also proposes a second Tape
B Volume Tier named ‘‘Tape B Volume
Tier 2.’’ The Exchange proposes to
provide a rebate per share of $0.0030
pursuant to the Tier and proposes the
required criteria to be that a Member
adds an ADV of at least 0.15% of the
TCV in Tape B securities. To
accommodate this proposed change in
its Fee Schedule, the Exchange proposes
adding an additional row to the Tape B
Volume Tier table to list the Tape B
Volume Tier 2. The Exchange also
proposes adding an additional column
to separate Tape B Volume Tier 1 and
Tape B Volume Tier 2. Finally, the
Exchange proposes stating as a
precursor that both Tape B Volume
6 As
defined on the Exchange’s Fee Schedule.
7 Id.
8 See Securities Exchange Act Release No. 76816
(January 4, 2016, 81 FR 987 (January 8, 2016) (SR–
EDGX–2015–67).
E:\FR\FM\12MYN1.SGM
12MYN1
]]>Agencies
[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29590-29598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11156]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77781; File No. SR-NASDAQ-2016-064]
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 First Trust Strategic Mortgage REIT ETF of
First Trust Exchange-Traded Fund VIII
May 6, 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 May 3, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in in Items I
and II below, which Items have been prepared by Nasdaq. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to list and trade the shares of the First Trust
Strategic Mortgage REIT ETF (the ``Fund'') of First Trust Exchange-
Traded Fund VIII (the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund
Shares'').\3\ The shares of the Fund are collectively referred to
herein as the ``Shares.''
---------------------------------------------------------------------------
\3\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see, e.g., Securities Exchange
Act Release Nos. 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014)
(SR-NASDAQ-2014-050) (order approving listing and trading of First
Trust Strategic Income ETF); 69464 (April 26, 2013), 78 FR 25774
(May 2, 2013) (SR-NASDAQ-2013-036) (order approving listing and
trading of First Trust Senior Loan Fund); and 66489 (February 29,
2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-004) (order
approving listing and trading of WisdomTree Emerging Markets
Corporate Bond Fund). The Exchange believes the proposed rule change
raises no significant issues not previously addressed in those prior
Commission orders.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust, which was established as a Massachusetts business trust on
February 22, 2016.\5\ The Trust is registered with the Commission as an
investment company and has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission.\6\ The Fund will be a
series of the Trust.
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
\5\ The Commission has issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 28468 (October 27, 2008) (File
No. 812-13477) (the ``Exemptive Relief'').
\6\ See Registration Statement on Form N-1A for the Trust, dated
March 14, 2016 (File Nos. 333-210186 and 811-23147). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement.
---------------------------------------------------------------------------
First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon Corporation (``BNY'')
will act as the administrator, accounting agent, custodian and transfer
agent to the Fund.
Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,
[[Page 29591]]
paragraph (g) further requires that personnel who make decisions on the
open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material, non-public
information regarding the open-end fund's portfolio. Rule 5735(g) is
similar to Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in
connection with the establishment of a ``fire wall'' between the
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case
with index-based funds. The Adviser is not a broker-dealer, but it is
affiliated with the Distributor, a broker-dealer, and has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the
portfolio. In addition, 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 Fund's portfolio. In the event (a) the Adviser or any 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 and/or
such broker-dealer affiliate, as applicable, regarding access to
information concerning the composition and/or changes to the portfolio
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund currently does not intend to use a sub-adviser.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser 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 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.
---------------------------------------------------------------------------
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended.
First Trust Strategic Mortgage REIT ETF
Principal Investments
The investment objective of the Fund will be to generate high
current income. Under normal market conditions,\8\ the Fund will seek
to achieve its investment objective by investing at least 80% of its
net assets (including investment borrowings) in the exchange-traded
common shares of U.S. exchange-traded mortgage real estate investment
trusts (``mortgage REITs''). In general terms, a mortgage REIT makes
loans to developers and owners of property and invests primarily in
mortgages and similar real estate interests, and includes companies or
trusts that are primarily engaged in the purchasing or servicing of
commercial or residential mortgage loans or mortgage-related
securities, which may include mortgage-backed securities issued by
private issuers and those issued or guaranteed by U.S. Government
agencies, instrumentalities or sponsored entities.
---------------------------------------------------------------------------
\8\ 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. On a temporary
basis, including for 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 such periods, the Fund may not be able to achieve
its investment objective. The Fund may adopt a defensive strategy
when the Adviser believes securities in which the Fund normally
invests have elevated risks due to political or economic factors and
in other extraordinary circumstances.
---------------------------------------------------------------------------
Other Investments
The Fund may invest (in the aggregate) up to 20% of its net assets
in the following securities and instruments.
The Fund may invest in the exchange-traded preferred shares of U.S.
exchange-traded mortgage REITs.
The Fund may invest in (i) U.S. exchange-traded equity and
preferred securities and (ii) domestic over-the-counter (``OTC'')
preferred securities, in each case, of companies engaged in the U.S.
real estate industry (other than mortgage REITs) (collectively, ``Real
Estate Companies'').
The Fund may invest in mortgage-backed securities,\9\ and such
investments may, from time to time, include investments in to-be-
announced transactions \10\ and mortgage dollar rolls \11\
(collectively, ``Mortgage-Related Instruments'').
---------------------------------------------------------------------------
\9\ Mortgage-backed securities, which are securities that
directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, will consist
of: (1) Residential mortgage-backed securities (``RMBS''); (2)
commercial mortgage-backed securities (``CMBS''); (3) stripped
mortgage-backed securities (``SMBS''), which are mortgage-backed
securities where mortgage payments are divided between paying the
loan's principal and paying the loan's interest; (4) collateralized
mortgage obligations (``CMOs'') and real estate mortgage investment
conduits (``REMICs''), which are mortgage-backed securities that are
divided into multiple classes, with each class being entitled to a
different share of the principal and interest payments received from
the pool of underlying assets.
\10\ A to-be-announced (``TBA'') transaction is a method of
trading mortgage-backed securities. In a TBA transaction, the buyer
and seller agree upon general trade parameters such as agency,
settlement date, par amount, and price. The actual pools delivered
generally are determined two days prior to the settlement date.
\11\ In a mortgage dollar roll, the Fund will sell (or buy)
mortgage-backed securities for delivery on a specified date and
simultaneously contract to repurchase (or sell) substantially
similar (same type, coupon and maturity) securities on a future
date. During the period between a sale and repurchase, the Fund will
forgo principal and interest paid on the mortgage-backed securities.
The Fund will earn or lose money on a mortgage dollar roll from any
difference between the sale price and the future purchase price. In
a sale and repurchase, the Fund will also earn money on the interest
earned on the cash proceeds of the initial sale. The Fund intends to
enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Adviser.
---------------------------------------------------------------------------
The Fund may invest in exchange-traded and OTC options on mortgage
REITs and Real Estate Companies; OTC options on mortgage TBA
transactions; exchange-traded U.S. Treasury and Eurodollar futures
contracts; exchange-traded and OTC interest rate swap agreements;
exchange-traded options on U.S. Treasury and Eurodollar futures
contracts; and exchange-traded and OTC options on interest rate swap
agreements. The use of these derivative transactions may allow the Fund
to obtain net long or short exposures to selected interest rates. These
derivatives may also be used to hedge risks, including interest rate
risks and credit risks, associated with the Fund's portfolio
investments. The Fund's investments in derivative instruments will be
consistent with the Fund's investment objective and the 1940 Act and
will not be used to seek to achieve a multiple or inverse multiple of
an index. The Fund will only enter into transactions in OTC derivatives
(including OTC options on mortgage REITs, Real Estate Companies and
mortgage TBA transactions; OTC interest rate swap agreements; and OTC
options on interest rate swap agreements) with counterparties that the
Adviser reasonably believes are capable of performing under the
applicable contract or agreement.\12\
---------------------------------------------------------------------------
\12\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced; however, the risk of losses resulting from
default is still possible. The Adviser will evaluate the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, the Adviser's analysis
will evaluate each approved counterparty using various methods of
analysis and may consider the Adviser's past experience with the
counterparty, its known disciplinary history and its share of market
participation.
---------------------------------------------------------------------------
The Fund may invest in short-term debt securities and other short-
term debt instruments (described below), as well as cash equivalents,
or it may hold cash.
[[Page 29592]]
The percentage of the Fund invested in such holdings or held in cash
will vary and will depend on several factors, including market
conditions. The Fund may invest in the following short-term debt
instruments: \13\ (1) Fixed rate and floating rate U.S. government
securities, including bills, notes and bonds differing as to maturity
and rates of interest, which are either issued or guaranteed by the
U.S. Treasury or by U.S. government agencies or instrumentalities; (2)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (3) bankers' acceptances, which are
short-term credit instruments used to finance commercial transactions;
(4) repurchase agreements,\14\ which involve purchases of debt
securities; (5) bank time deposits, which are monies kept on deposit
with banks or savings and loan associations for a stated period of time
at a fixed rate of interest; and (6) commercial paper, which is short-
term unsecured promissory notes.\15\
---------------------------------------------------------------------------
\13\ Short-term debt instruments are issued by issuers having a
long-term debt rating of at least A by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch
Ratings (``Fitch'') and have a maturity of one year or less.
\14\ The Fund intends to enter into repurchase agreements only
with financial institutions and dealers believed by the Adviser to
present minimal credit risks in accordance with criteria approved by
the Board of Trustees of the Trust (``Trust Board''). The Adviser
will review and monitor the creditworthiness of such institutions.
The Adviser will monitor the value of the collateral at the time the
transaction is entered into and at all times during the term of the
repurchase agreement.
\15\ The Fund may only invest in commercial paper rated A-1 or
higher by S&P Ratings, Prime-1 or higher by Moody's or F1 or higher
by Fitch.
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The Fund may invest (but only, in the aggregate, up to 10% of its
net assets) in the securities of money market funds and other ETFs \16\
that, in each case, will be investment companies registered under the
1940 Act.
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\16\ An ETF is an investment company registered under the 1940
Act that holds a portfolio of securities. Many ETFs are designed to
track the performance of a securities index, including industry,
sector, country and region indexes. 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. In addition, the Fund
may invest in the securities of certain other investment companies
in excess of the limits imposed under the 1940 Act pursuant to an
exemptive order that the Trust has obtained from the Commission. See
Investment Company Act Release No. 30377 (February 5, 2013) (File
No. 812-13895). The ETFs in which the Fund may invest include Index
Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depository
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares
(as described in Nasdaq Rule 5735). While the Fund may invest in
inverse ETFs, the Fund will not invest in leveraged or inverse
leveraged (e.g., 2X or -3X) ETFs.
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Investment Restrictions
The Fund may enter into short sales as part of its overall
portfolio management strategies or to offset a potential decline in the
value of a security; however, the Fund will not engage in short sales
with respect to more than 30% of the value of its net assets. To the
extent required under applicable federal securities laws, rules, and
interpretations thereof, the Fund will ``set aside'' liquid assets or
engage in other measures to ``cover'' open positions and short
positions held in connection with the foregoing types of transactions.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser.\17\ 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 assets. 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.\18\
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\17\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
\18\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry.\19\ This
restriction does not apply to securities of issuers in the real estate
sector, including real estate investment trusts; obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
or securities of other investment companies. The Fund will be
concentrated in the real estate sector.
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\19\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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Creation and Redemption of Shares
The Fund will issue and redeem Shares on a continuous basis at net
asset value (``NAV'') \20\ only in large blocks of Shares (``Creation
Units'') in transactions with authorized participants, generally
including broker-dealers and large institutional investors
(``Authorized Participants''). Creation Units generally will consist of
50,000 Shares, although this may change from time to time. Creation
Units, however, are not expected to consist of less than 50,000 Shares.
As described in the Registration Statement and consistent with the
Exemptive Relief, the Fund will issue and redeem Creation Units in
exchange for an in-kind portfolio of instruments and/or cash in lieu of
such instruments (the ``Creation Basket'').\21\ In addition, if there
is a difference between the NAV attributable to a Creation Unit and the
market value of the Creation Basket exchanged for the Creation Unit,
the party conveying instruments with the lower value will pay to the
other an amount in cash equal to the difference (referred to as the
``Cash Component'').
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\20\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m.,
Eastern Time (the ``NAV Calculation Time''). NAV per Share will be
calculated by dividing the Fund's net assets by the number of Fund
Shares outstanding.
\21\ It is expected that the Fund will typically issue and
redeem Creation Units on an in-kind basis; however, subject to, and
in accordance with, the provisions of the Exemptive Relief, the Fund
may, at times, issue and redeem Creation Units on a cash (or
partially cash) basis.
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Creations and redemptions must be made by or through an Authorized
Participant that has executed an agreement that has been agreed to by
the Distributor and BNY with respect to creations and redemptions of
Creation Units. All standard orders to create Creation Units must be
received by the transfer agent no later than the closing time of the
regular trading session on the NYSE (ordinarily 4:00 p.m., Eastern
[[Page 29593]]
Time) (the ``Closing Time'') in each case on the date such order is
placed in order for the creation of Creation Units to be effected based
on the NAV of Shares as next determined on such date after receipt of
the order in proper form. Shares may be redeemed only in Creation Units
at their NAV next determined after receipt not later than the Closing
Time of a redemption request in proper form by the Fund through the
transfer agent and only on a business day.
The Fund's custodian, through the National Securities Clearing
Corporation, will make available on each business day, prior to the
opening of business of the Exchange, the list of the names and
quantities of the instruments comprising the Creation Basket, as well
as the estimated Cash Component (if any), for that day. The published
Creation Basket will apply until a new Creation Basket is announced on
the following business day prior to commencement of trading in the
Shares.
Net Asset Value
The Fund's NAV will be determined as of Closing Time on each day
the NYSE is open for trading. If the NYSE closes early on a valuation
day, the NAV will be determined as of that time. NAV per Share will be
calculated for the Fund by taking the value of the Fund's total assets,
including interest or dividends accrued but not yet collected, less all
liabilities, including accrued expenses and dividends declared but
unpaid, and dividing such amount by the total number of Shares
outstanding. The result, rounded to the nearest cent, will be the NAV
per Share. All valuations will be subject to review by the Trust Board
or its delegate.
The Fund's investments will be valued daily. As described more
specifically below, investments traded on an exchange (i.e., a
regulated market), will generally be valued at market value prices that
represent last sale or official closing prices. In addition, as
described more specifically below, non-exchange traded investments will
generally be valued using prices obtained from third-party pricing
services (each, a ``Pricing Service'').\22\ If, however, valuations for
any of the Fund's investments cannot be readily obtained as provided in
the preceding manner, or the Pricing Committee of the Adviser (the
``Pricing Committee'') \23\ questions the accuracy or reliability of
valuations that are so obtained, such investments will be valued at
fair value, as determined by the Pricing Committee, in accordance with
valuation procedures (which may be revised from time to time) adopted
by the Trust Board (the ``Valuation Procedures''), and in accordance
with provisions of the 1940 Act. The Pricing Committee's fair value
determinations may require subjective judgments about the value of an
investment. The fair valuations attempt to estimate the value at which
an investment could be sold at the time of pricing, although actual
sales could result in price differences, which could be material.
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\22\ The Adviser may use various Pricing Services or discontinue
the use of any Pricing Services, as approved by the Trust Board from
time to time.
\23\ The Pricing Committee will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding the Fund's portfolio.
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Certain securities in which the Fund may invest will not be listed
on any securities exchange or board of trade. Such securities will
typically be bought and sold by institutional investors in individually
negotiated private transactions that function in many respects like an
OTC secondary market, although typically no formal market makers will
exist. Certain securities, particularly debt securities, will have few
or no trades, or trade infrequently, and information regarding a
specific security may not be widely available or may be incomplete.
Accordingly, determinations of the value of debt securities may be
based on infrequent and dated information. Because there is less
reliable, objective data available, elements of judgment may play a
greater role in valuation of debt securities than for other types of
securities.
The information summarized below is based on the Valuation
Procedures as currently in effect; however, as noted above, the
Valuation Procedures are amended from time to time and, therefore, such
information is subject to change.
The following investments will typically be valued using
information provided by a Pricing Service: (a) Mortgage-Related
Instruments; (b) OTC derivatives (including OTC options on mortgage
REITs, Real Estate Companies and mortgage TBA transactions; OTC
interest rate swap agreements; and OTC options on interest rate swap
agreements); (c) OTC preferred securities of Real Estate Companies; and
(d) except as provided below, short-term U.S. government securities,
commercial paper, and bankers' acceptances, all as set forth under
``Other Investments'' (collectively, ``Short-Term Debt Instruments'').
Debt instruments may be valued at evaluated mean prices, as provided by
Pricing Services. Pricing Services typically value non-exchange-traded
instruments utilizing a range of market-based inputs and assumptions,
including readily available market quotations obtained from broker-
dealers making markets in such instruments, cash flows, and
transactions for comparable instruments. In pricing certain
instruments, the Pricing Services may consider information about an
instrument's issuer or market activity provided by the Adviser.
Short-Term Debt Instruments having a remaining maturity of 60 days
or less when purchased will typically be valued at cost adjusted for
amortization of premiums and accretion of discounts, provided the
Pricing Committee has determined that the use of amortized cost is an
appropriate reflection of value given market and issuer-specific
conditions existing at the time of the determination.
Certificates of deposit and bank time deposits will typically be
valued at cost.
Repurchase agreements will typically be valued as follows:
Overnight repurchase agreements will be valued at amortized cost when
it represents the best estimate of value. Term repurchase agreements
(i.e., those whose maturity exceeds seven days) will be valued at the
average of the bid quotations obtained daily from at least two
recognized dealers.
Common stocks and other equity securities (including mortgage REITs
(both common and preferred shares); ETFs; and exchange-traded Real
Estate Companies), as well as preferred securities of Real Estate
Companies, that are listed on any exchange other than the Exchange will
typically be valued at the last sale price on the exchange on which
they are principally traded on the business day as of which such value
is being determined. Such securities listed on the Exchange will
typically be valued at the official closing price on the business day
as of which such value is being determined. If there has been no sale
on such day, or no official closing price in the case of securities
traded on the Exchange, such securities will typically be valued using
fair value pricing. Such securities traded on more than one securities
exchange will be valued at the last sale price or official closing
price, as applicable, on the business day as of which such value is
being determined at the close of the exchange representing the
principal market for such securities.
Money market funds will typically be valued at their net asset
values as reported by such funds to Pricing Services.
Exchange-traded options on mortgage REITs and Real Estate
Companies, exchange-traded U.S. Treasury and
[[Page 29594]]
Eurodollar futures contracts, exchange-traded interest rate swap
agreements, exchange-traded options on U.S. Treasury and Eurodollar
futures contracts, and exchange-traded options on interest rate swap
agreements will typically be valued at the closing price in the market
where such instruments are principally traded.
Availability of Information
The Fund's Web site (www.ftportfolios.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Web site
will include the Shares' ticker, CUSIP and exchange information along
with additional quantitative information updated on a daily basis,
including, for the Fund: (1) Daily trading volume, the prior business
day's reported NAV and closing price, mid-point of the bid/ask spread
at the time of calculation of such NAV (the ``Bid/Ask Price''),\24\ and
a calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Regular Market Session \25\ on the
Exchange, the Fund will disclose on its Web site the identities and
quantities of the portfolio of securities and other assets (the
``Disclosed Portfolio'' as 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.\26\
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\24\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\25\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m., Eastern Time).
\26\ 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''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include sufficient information for market participants
to use to value these positions intraday. On a daily basis, the Fund
will disclose on the Fund's Web site the following information
regarding each portfolio holding, 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, such as the type of
swap); the identity of the security or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of the holding; and
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge.
In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's Disclosed Portfolio, will be
disseminated. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service,\27\ will be
based upon the current value for the components of the Disclosed
Portfolio and will be updated and widely disseminated by one or more
major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. The Intraday Indicative
Value will be based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. Premiums and discounts between the Intraday
Indicative Value and the market price may occur. This should not be
viewed as a ``real time'' update of the NAV per Share of the Fund,
which is calculated only once a day.
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\27\ Currently, the NASDAQ OMX 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. GIDS
provides investment professionals with the daily information needed
to track or trade Nasdaq indexes, listed ETFs, or third-party
partner indexes and ETFs.
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The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's annual and semi-annual
reports (together, ``Shareholder Reports''), and its Form N-CSR and
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Fund, and those documents
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded
from the Commission's Web site at www.sec.gov. Information regarding
market price and trading volume of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services. Information regarding the
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
Quotation and last sale information for the Shares will be available
via Nasdaq proprietary quote and trade services, as well as in
accordance with the Unlisted Trading Privileges and the Consolidated
Tape Association (``CTA'') plans for the Shares. Quotation and last
sale information for U.S. exchange-traded equity securities (including
mortgage REITs, ETFs and exchange-traded Real Estate Companies) will be
available from the exchanges on which they are traded as well as in
accordance with any applicable CTA plans. Quotation and last sale
information for U.S. exchange-traded options will be available via the
Options Price Reporting Authority.
Pricing information for Mortgage-Related Instruments, OTC Real
Estate Companies, Short-Term Debt Instruments, repurchase agreements,
certificates of deposit, bank time deposits, OTC options on mortgage
REITs, Real Estate Companies and mortgage TBA transactions, OTC
interest rate swap agreements, and OTC options on interest rate swap
agreements will be available from major broker-dealer firms and/or
major market data vendors and/or Pricing Services. Pricing information
for mortgage REITs (both common and preferred shares), exchange-traded
Real Estate Companies, ETFs, exchange-traded options on mortgage REITs
and Real Estate Companies, exchange-traded U.S. Treasury and Eurodollar
futures contracts, exchange-traded interest rate swap agreements,
exchange-traded options on U.S. Treasury and Eurodollar futures
contracts, and exchange-traded options on interest rate swap agreements
will be available from the applicable listing exchange and from major
market data vendors. Money market funds are typically priced once each
business day and their prices will be available through the applicable
fund's Web site or from major market data vendors.
Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and
[[Page 29595]]
redemption procedures, fees, Fund holdings disclosure policies,
distributions and taxes will be included in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and continued
listing, the Fund must be in compliance with Rule 10A-3 \28\ under the
Act. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
---------------------------------------------------------------------------
\28\ See 17 CFR 240.10A-3.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Nasdaq will halt trading in the
Shares under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
Trading may be halted because of market conditions or for reasons that,
in the view of the Exchange, make trading in the Shares inadvisable.
These may include: (1) The extent to which trading is not occurring in
the securities and/or the 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. Trading in the Shares also will be subject to Rule
5735(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted.
Trading Rules
Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in the Shares
from 4:00 a.m. until 8:00 p.m., Eastern Time. The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum
price variation for quoting and entry of orders in Managed Fund Shares
traded on the Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\29\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
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\29\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund (including mortgage REITs (both common and
preferred shares); exchange-traded Real Estate Companies; ETFs;
exchange-traded options on mortgage REITs and Real Estate Companies;
exchange-traded U.S. Treasury and Eurodollar futures contracts;
exchange-traded interest rate swap agreements; exchange-traded options
on U.S. Treasury and Eurodollar futures contracts; and exchange-traded
options on interest rate swap agreements) with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''),\30\ and FINRA may obtain trading information regarding
trading in the Shares and such exchange-traded securities and
instruments held by the Fund from such 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, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. Moreover,
FINRA, on behalf of the Exchange, will be able to access, as needed,
trade information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
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\30\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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At least 90% of the Fund's net assets that are invested in
exchange-traded derivatives (including exchange-traded options on
mortgage REITs and Real Estate Companies; exchange-traded U.S. Treasury
and Eurodollar futures contracts; exchange-traded interest rate swap
agreements; exchange-traded options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded options on interest rate swap
agreements) (in the aggregate) will be invested in instruments that
trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange. All of
the Fund's net assets that are invested in exchange-traded equity
securities (including mortgage REITs (both common and preferred
shares); ETFs; and exchange-traded Real Estate Companies) (in the
aggregate) will be invested in securities that trade in markets that
are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Intraday Indicative Value and the Disclosed Portfolio is
disseminated; (4) the risks involved in trading the Shares during the
Pre-Market and Post-Market Sessions when an updated Intraday Indicative
Value will not be calculated or publicly disseminated; (5) the
requirement that members deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (6) trading information. The Information Circular will
also
[[Page 29596]]
discuss any exemptive, no-action and interpretive relief granted by the
Commission from any rules under the Act.
Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site.
All statements and representations made in this 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. If the Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under the Nasdaq 5800 Series.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act in general and Section 6(b)(5) of the Act in particular in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and, in general, to protect
investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the Shares will be subject to the
existing trading surveillances, administered by both Nasdaq and also
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities laws.
The Adviser is not a broker-dealer, but it is affiliated with the
Distributor, a broker-dealer, and is required to implement a ``fire
wall'' with respect to such broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material non-public information regarding
the open-end fund's portfolio.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund (including mortgage REITs (both common and
preferred shares); exchange-traded Real Estate Companies; ETFs;
exchange-traded options on mortgage REITs and Real Estate Companies;
exchange-traded U.S. Treasury and Eurodollar futures contracts;
exchange-traded interest rate swap agreements; exchange-traded options
on U.S. Treasury and Eurodollar futures contracts; and exchange-traded
options on interest rate swap agreements) with other markets and other
entities that are members of ISG, and FINRA may obtain trading
information regarding trading in the Shares and such exchange-traded
securities and instruments held by the Fund from such 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, which includes securities and futures exchanges, or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. Moreover, FINRA, on behalf of the Exchange, will be
able to access, as needed, trade information for certain fixed income
securities held by the Fund reported to FINRA's TRACE.
At least 90% of the Fund's net assets that are invested in
exchange-traded derivatives (including exchange-traded options on
mortgage REITs and Real Estate Companies; exchange-traded U.S. Treasury
and Eurodollar futures contracts; exchange-traded interest rate swap
agreements; exchange-traded options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded options on interest rate swap
agreements) (in the aggregate) will be invested in instruments that
trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange. All of
the Fund's net assets that are invested in exchange-traded equity
securities (including mortgage REITs (both common and preferred
shares); ETFs; and exchange-traded Real Estate Companies) (in the
aggregate) will be invested in securities that trade in markets that
are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
The investment objective of the Fund will be to generate high
current income. Under normal market conditions, the Fund will seek to
achieve its investment objective by investing at least 80% of its net
assets (including investment borrowings) in the exchange-traded common
shares of U.S. exchange-traded mortgage REITs. The Fund may invest up
to 20% of its net assets in the exchange-traded preferred shares of
U.S. exchange-traded mortgage REITs. Additionally, the Fund may invest
up to 20% of its net assets in derivative instruments (including
exchange-traded and OTC options on mortgage REITs and Real Estate
Companies; OTC options on mortgage TBA transactions; exchange-traded
U.S. Treasury and Eurodollar futures contracts; exchange-traded and OTC
interest rate swap agreements; exchange-traded options on U.S. Treasury
and Eurodollar futures contracts; and exchange-traded and OTC options
on interest rate swap agreements). The Fund's investments in derivative
instruments will be consistent with the Fund's investment objective and
the 1940 Act and will not be used to seek to achieve a multiple or
inverse multiple of an index. Also, the Fund may hold up to an
aggregate amount of 15% of its net assets in illiquid assets
(calculated at the time of investment), including Rule 144A securities
deemed illiquid by the Adviser. 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 assets. 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 proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the
[[Page 29597]]
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Intraday
Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service, will be widely disseminated by one or
more major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. On each business day, before
commencement of trading in Shares in the Regular Market Session on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information for the
Shares will be available via Nasdaq proprietary quote and trade
services, as well as in accordance with the Unlisted Trading Privileges
and the CTA plans for the Shares. Pricing information for Mortgage-
Related Instruments, OTC Real Estate Companies, Short-Term Debt
Instruments, repurchase agreements, certificates of deposit, bank time
deposits, OTC options on mortgage REITs, Real Estate Companies and
mortgage TBA transactions, OTC interest rate swap agreements, and OTC
options on interest rate swap agreements will be available from major
broker-dealer firms and/or major market data vendors and/or Pricing
Services. Pricing information for mortgage REITs (both common and
preferred shares), exchange-traded Real Estate Companies, ETFs,
exchange-traded options on mortgage REITs and Real Estate Companies,
exchange-traded U.S. Treasury and Eurodollar futures contracts,
exchange-traded interest rate swap agreements, exchange-traded options
on U.S. Treasury and Eurodollar futures contracts, and exchange-traded
options on interest rate swap agreements will be available from the
applicable listing exchange and from major market data vendors. Money
market funds are typically priced once each business day and their
prices will be available through the applicable fund's Web site or from
major market data vendors.
The Fund's Web site will include a form of the prospectus for the
Fund and additional data relating to NAV and other applicable
quantitative information. Trading in Shares of the Fund will be halted
under the conditions specified in Nasdaq Rules 4120 and 4121 or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances
under which Shares of the Fund may be halted. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The Fund's investments will be valued daily. Investments traded on
an exchange (i.e., a regulated market), will generally be valued at
market value prices that represent last sale or official closing
prices. Non-exchange traded investments will generally be valued using
prices obtained from a Pricing Service. If, however, valuations for any
of the Fund's investments cannot be readily obtained as provided in the
preceding manner, or the Pricing Committee questions the accuracy or
reliability of valuations that are so obtained, such investments will
be valued at fair value, as determined by the Pricing Committee, in
accordance with the Valuation Procedures and in accordance with
provisions of the 1940 Act.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and exchange-traded securities and instruments held by the Fund
(including mortgage REITs (both common and preferred shares); exchange-
traded Real Estate Companies; ETFs; exchange-traded options on mortgage
REITs and Real Estate Companies; exchange-traded U.S. Treasury and
Eurodollar futures contracts; exchange-traded interest rate swap
agreements; exchange-traded options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded options on interest rate swap
agreements) with other markets and other entities that are members of
ISG, and FINRA may obtain trading information regarding trading in the
Shares and such exchange-traded securities and instruments held by the
Fund from such 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, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Moreover, FINRA,
on behalf of the Exchange, will be able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE. Furthermore, as noted above, investors will
have ready access to information regarding the Fund's holdings, the
Intraday Indicative Value, the Disclosed Portfolio, and quotation and
last sale information for the Shares.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) by order approve or disapprove such proposed rule change; or (b)
institute proceedings to determine whether the proposed rule change
should be disapproved.
[[Page 29598]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-064 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-064. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2016-064 and should
be submitted on or before June 2, 2016.
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\31\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11156 Filed 5-11-16; 8:45 am]
BILLING CODE 8011-01-P
