Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to List and Trade Exchange-Traded Managed Funds, 49341-49347 [2016-17671]
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 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:
[FR Doc. 2016–17676 Filed 7–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–
BOX–2016–33 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.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Robert W. Errett,
Deputy Secretary.
All submissions should refer to File
Number SR–BOX–2016–33. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
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–BOX–
2016–33, and should be submitted on or
before August 17,2016.
[Release No. 34–78385; File No. SR–
NASDAQ–2016–103]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1 Thereto,
to List and Trade Exchange-Traded
Managed Funds
July 21, 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 July 13,
2016, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. On July 14,
2016, the Exchange filed Amendment
No. 1 to the proposed rule change,
which amended and replaced the
original filing in its entirety. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1 thereto, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade under Nasdaq Rule 5745
(Exchange-Traded Managed Fund
Shares (‘‘NextShares’’)) the common
shares (‘‘Shares’’) of the exchangetraded managed funds described herein
(each, a ‘‘Fund,’’ and collectively, the
‘‘Funds’’).
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
1 15
18 17
CFR 200.30–3(a)(12).
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CFR 240.19b–4.
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Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the Shares of each Fund under
Nasdaq Rule 5745, which governs the
listing and trading of exchange-traded
managed fund shares, as defined in
Nasdaq Rule 5745(c)(1), on the
Exchange.3 Each Fund listed below will
be advised by an investment adviser
registered under the Investment
Advisers Act of 1940 (‘‘Adviser’’), as
described below. Each Fund will be
actively managed and will pursue
various principal investment strategies,
as noted below.4
Ivy NextSharesTM
Ivy NextSharesTM (the ‘‘Trust’’) is
registered with the Commission as an
open-end investment company and has
filed a registration statement on Form
N–1A (‘‘Registration Statement’’) with
the Commission.5 Each of the following
Funds is a series of the Trust.6
Ivy Investment Management Company
(‘‘IICO’’ or the ‘‘Adviser’’) will be the
adviser to the Funds. IICO is not a
registered broker-dealer, although it is
affiliated with a broker-dealer. IICO has
implemented a fire wall with respect to
its affiliated broker-dealer regarding
access to information concerning the
composition and/or changes to each
Fund’s portfolio.7 In the future event
3 The Commission approved Nasdaq Rule 5745 in
Securities Exchange Act Release No. 34–73562
(Nov. 7, 2014), 79 FR 68309 (Nov. 14, 2014) (SR–
NASDAQ–2014–020).
4 Additional information regarding the Funds will
be available on one of two free public Web sites
(www.ivyinvestments.com or www.nextshares.com,
as indicated more fully below), as well as in the
Registration Statement for the Funds.
5 See Registration Statement on Form N–1A for
the Trust dated April 18, 2016 (File Nos. 333–
210814 and 811–23155).
6 The Commission has issued an order granting
the Trust and certain affiliates exemptive relief
under the Investment Company Act. See Investment
Company Act Release No. 31816 (Sept. 9, 2015)
(File No. 812–14526).
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
Continued
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that (a) IICO registers as a broker-dealer
or becomes newly affiliated with a
broker-dealer, or (b) any new adviser or
a sub-adviser to a Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire
wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, if applicable, regarding access
to information concerning the
composition and/or changes to the
relevant Fund’s portfolio and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
ALPS Distributors, Inc. will be the
principal underwriter and distributor of
each Fund’s Shares. Waddell & Reed
Services Company, doing business as
WI Services Company (‘‘WISC’’), will
act as the administrator and accounting
agent to the Funds. State Street Bank
and Trust Company (‘‘State Street’’) will
act as the custodian and transfer agent
to the Funds. In addition, it has entered
into agreements with WISC pursuant to
which State Street will serve as subadministrator and sub-accounting agent
to the Funds.
Ivy Focused Growth NextSharesTM
The investment objective of this Fund
is to provide growth of capital. The
Fund normally will invest primarily in
a portfolio of common stocks issued by
large-capitalization, growth-oriented
companies with above-average levels of
profitability and that IICO believes have
the ability to sustain growth over the
long term. Although the Fund primarily
will invest in securities issued by largecapitalization companies (defined as
companies with market capitalizations
of at least $10 billion at the time of
acquisition), it may invest in securities
issued by companies of any size.
invest in the common stocks of
companies that IICO believes are
undervalued, trading at a significant
discount relative to the intrinsic value
of the company as estimated by IICO
and/or are out of favor in the financial
markets but have a favorable outlook for
capital appreciation. Although the Fund
will often invest in securities issued by
large-capitalization companies (defined
as companies with market
capitalizations of at least $10 billion at
the time of acquisition), it may invest in
securities issued by companies of any
size.
Ivy Energy NextSharesTM
The investment objective of this Fund
is to provide capital growth and
appreciation. The Fund will invest,
under normal circumstances, at least
80% of its net assets in the common
stock of companies within the energy
sector, which includes all aspects of the
energy industry, such as exploration,
discovery, production, distribution or
infrastructure of energy and/or
alternative energy sources.
Creations and Redemptions of Shares
Shares will be issued and redeemed
on a daily basis for each Fund at the
Fund’s next-determined net asset value
(‘‘NAV’’) 8 in specified blocks of Shares
called ‘‘Creation Units.’’ A Creation Unit
will consist of at least 25,000 Shares.
Creation Units may be purchased and
redeemed by or through ‘‘Authorized
Participants.’’ 9 Purchases and sales of
Shares in amounts less than a Creation
Unit may be effected only in the
secondary market, as described below,
and not directly with a Fund.
The creation and redemption process
for Funds may be effected ‘‘in kind,’’ in
cash, or in a combination of securities
and cash. Creation ‘‘in kind’’ means that
an Authorized Participant—usually a
Ivy Focused Value NextSharesTM
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The investment objective of this Fund
is to provide capital appreciation, with
a secondary objective of providing
current income. The Fund normally will
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.
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8 As with other registered open-end investment
companies, NAV generally will be calculated daily
Monday through Friday as of the close of regular
trading on the New York Stock Exchange, normally
4:00 p.m. E.T. NAV will be calculated by dividing
a Fund’s net asset value by the number of Shares
outstanding. Information regarding the valuation of
investments in calculating a Fund’s NAV will be
contained in the Registration Statement for its
Shares.
9 ‘‘Authorized Participants’’ will be either: (1)
‘‘participating parties,’’ i.e., brokers or other
participants in the Continuous Net Settlement
System (‘‘CNS System’’) of the National Securities
Clearing Corporation (‘‘NSCC’’), a clearing agency
registered with the Commission and affiliated with
the Depository Trust Company (‘‘DTC’’), or (2) DTC
participants, which in either case have executed
participant agreements with the Funds’ distributor
and transfer agent regarding the creation and
redemption of Creation Units. Investors will not
have to be Authorized Participants in order to
transact in Creation Units, but must place an order
through and make appropriate arrangements with
an Authorized Participant for such transactions.
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brokerage house or large institutional
investor—purchases the Creation Unit
with a basket of securities equal in value
to the aggregate NAV of the Shares in
the Creation Unit. When an Authorized
Participant redeems a Creation Unit in
kind, it receives a basket of securities
equal in value to the aggregate NAV of
the Shares in the Creation Unit.10
Composition File
As defined in Nasdaq Rule 5745(c)(3),
the Composition File is the specified
portfolio of securities and/or cash that a
Fund will accept as a deposit in issuing
a Creation Unit of Shares, and the
specified portfolio of securities and/or
cash that a Fund will deliver in a
redemption of a Creation Unit of Shares.
The Composition File will be
disseminated through the NSCC once
each business day before the open of
trading in Shares on such day and also
will be made available to the public
each day on a free Web site.11 Because
the Funds seek to preserve the
confidentiality of their current portfolio
trading program, a Fund’s Composition
File generally will not be a pro rata
reflection of the Fund’s investment
positions. Each security included in the
Composition File will be a current
holding of the Fund, but the
Composition File generally will not
include all of the securities in the
Fund’s portfolio or match the
weightings of the included securities in
the portfolio. Securities that the Adviser
is in the process of acquiring for a Fund
generally will not be represented in the
Fund’s Composition File until their
purchase has been completed. Similarly,
securities that are held in a Fund’s
portfolio but in the process of being sold
may not be removed from its
Composition File until the sale program
is substantially completed. Funds
creating and redeeming Shares in kind
will use cash amounts to supplement
the in-kind transactions to the extent
necessary to ensure that Creation Units
are purchased and redeemed at NAV.
The Composition File also may consist
entirely of cash, in which case it will
10 In compliance with Nasdaq Rule 5745(b)(5),
which applies to Shares based on an international
or global portfolio, the Trust’s application for
exemptive relief under the Investment Company
Act states that each Fund will comply with the
federal securities laws in accepting securities for
deposits and satisfying redemptions with securities,
including that the securities accepted for deposits
and the securities used to satisfy redemption
requests are sold in transactions that would be
exempt from registration under the Securities Act
of 1933, as amended (15 U.S.C. 77a) (‘‘Securities
Act’’).
11 The free Web site containing the Composition
File will be www.nextshares.com.
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not include any of the securities in the
Fund’s portfolio.12
Transaction Fees
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All persons purchasing or redeeming
Creation Units of a Fund are expected
to incur a transaction fee to cover the
estimated cost to that Fund of
processing the transaction, including
the costs of clearance and settlement
charged to it by NSCC or DTC, and the
estimated trading costs (i.e., brokerage
commissions, bid-ask spread and market
impact) to be incurred in converting the
Composition File to or from the desired
portfolio holdings. The transaction fee is
determined daily and will be limited to
amounts determined by the Adviser to
be appropriate to defray the expenses
that a Fund incurs in connection with
the purchase or redemption of Creation
Units. The purpose of transaction fees is
to protect a Fund’s existing shareholders
from the dilutive costs associated with
the purchase and redemption of
Creation Units. Transaction fees will
differ among Funds and may vary over
time for a given Fund depending on the
estimated trading costs for its portfolio
positions and Composition File,
processing costs and other
considerations. Funds that specify
greater amounts of cash in their
Composition File may impose higher
transaction fees. In addition, Funds that
include in their Composition File
instruments that clear through DTC may
impose higher transaction fees than
Funds whose Composition File consists
solely of instruments that clear through
NSCC, because DTC may charge more
than NSCC in connection with Creation
Unit transactions.13 The transaction fees
applicable to each Fund’s purchases and
redemptions on a given business day
will be disseminated through the NSCC
prior to the open of market trading on
that day and also will be made available
to the public each day on a free Web
12 In determining whether a Fund will issue or
redeem Creation Units entirely on a cash basis, the
key consideration will be the benefit that would
accrue to the Fund and its investors. For instance,
in bond transactions, the Adviser may be able to
obtain better execution for a Fund than Authorized
Participants because of the Adviser’s size,
experience and potentially stronger relationships in
the fixed-income markets.
13 Authorized Participants that participate in the
CNS System of the NSCC are expected to be able
to use the enhanced NSCC/CNS process for
effecting in-kind purchases and redemptions of
ETFs (the ‘‘NSCC Process’’) to purchase and redeem
Creation Units of Funds that limit the composition
of their baskets to include only NSCC Processeligible instruments (generally domestic equity
securities and cash). Because the NSCC Process is
generally more efficient than the DTC clearing
process, NSCC is likely to charge a Fund less than
DTC to settle purchases and redemptions of
Creation Units.
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site.14 In all cases, the transaction fees
will be limited in accordance with the
requirements of the Commission
applicable to open-end management
investment companies offering
redeemable securities.
NAV-Based Trading
Because Shares will be listed and
traded on the Exchange, Shares will be
available for purchase and sale on an
intraday basis. Shares will be purchased
and sold in the secondary market at
prices directly linked to a Fund’s nextdetermined NAV using a new trading
protocol called ‘‘NAV-Based
Trading.’’ 15 All bids, offers and
execution prices of Shares will be
expressed as a premium/discount
(which may be zero) to a Fund’s nextdetermined NAV (e.g., NAV-$0.01,
NAV+$0.01). A Fund’s NAV will be
determined each business day, normally
as of 4:00 p.m. E.T. Trade executions
will be binding at the time orders are
matched on Nasdaq’s facilities, with the
transaction prices contingent upon the
determination of NAV.
Trading Premiums and Discounts
Bid and offer prices for Shares will be
quoted throughout the day relative to
NAV. The premium or discount to NAV
at which Share prices are quoted and
transactions are executed will vary
depending on market factors, including
the balance of supply and demand for
Shares among investors, transaction fees
and other costs in connection with
creating and redeeming Creation Units
of Shares, the cost and availability of
borrowing Shares, competition among
market makers, the Share inventory
positions and inventory strategies of
market makers, the profitability
requirements and business objectives of
market makers, and the volume of Share
trading. Reflecting such market factors,
prices for Shares in the secondary
market may be above, at or below NAV.
Funds with higher transaction fees may
trade at wider premiums or discounts to
NAV than other Funds with lower
transaction fees, reflecting the added
costs to market makers of managing
their Share inventory positions through
purchases and redemptions of Creation
Units.
free Web site will be www.nextshares.com.
of NAV-Based Trading are protected
intellectual property subject to issued and pending
U.S. patents held by NextShares Solutions LLC
(‘‘NextShares Solutions’’), a wholly owned
subsidiary of Eaton Vance Corp. Nasdaq has entered
into a license agreement with NextShares Solutions
to allow for NAV-Based Trading on the Exchange
of exchange-traded managed funds that have
themselves entered into license agreements with
NextShares Solutions.
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Because making markets in Shares
will be simple to manage and low risk,
competition among market makers
seeking to earn reliable, low-risk profits
should enable the Shares to routinely
trade at tight bid-ask spreads and
narrow premiums/discounts to NAV. As
noted below, the Funds will maintain a
public Web site that will be updated on
a daily basis to show current and
historical trading spreads and
premiums/discounts of Shares trading
in the secondary market.16
Transmitting and Processing Orders
Member firms will utilize certain
existing order types and interfaces to
transmit Share bids and offers to
Nasdaq, which will process Share trades
like trades in shares of other listed
securities.17 In the systems used to
transmit and process transactions in
Shares, a Fund’s next-determined NAV
will be represented by a proxy price
(e.g., 100.00) and a premium/discount of
a stated amount to the next-determined
NAV to be represented by the same
increment/decrement from the proxy
price used to denote NAV (e.g., NAV$0.01 would be represented as 99.99;
NAV+$0.01 as 100.01).
To avoid potential investor confusion,
Nasdaq will work with member firms
and providers of market data services to
seek to ensure that representations of
intraday bids, offers and execution
prices of Shares that are made available
to the investing public follow the
‘‘NAV-$0.01/NAV+$0.01’’ (or similar)
display format. All Shares listed on the
Exchange will have a unique identifier
associated with their ticker symbols,
which would indicate that the Shares
are traded using NAV-Based Trading.
Nasdaq makes available to member
firms and market data services certain
proprietary data feeds that are designed
to supplement the market information
disseminated through the consolidated
tape (‘‘Consolidated Tape’’).
Specifically, the Exchange will use the
NASDAQ Basic and NASDAQ Last Sale
data feeds to disseminate intraday price
and quote data for Shares in real time
in the ‘‘NAV-$0.01/NAV+$0.01’’ (or
similar) display format. Member firms
could use the NASDAQ Basic and
NASDAQ Last Sale data feeds to source
intraday Share prices for presentation to
the investing public in the ‘‘NAV-$0.01/
14 The
15 Aspects
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16 The Web site containing this information will
be www.ivyinvestments.com.
17 As noted below, all orders to buy or sell Shares
that are not executed on the day the order is
submitted will be automatically cancelled as of the
close of trading on such day. Prior to the
commencement of trading in a Fund, the Exchange
will inform its members in an Information Circular
of the effect of this characteristic on existing order
types.
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NAV+$0.01’’ (or similar) display format.
Alternatively, member firms could
source intraday Share prices in proxy
price format from the Consolidated Tape
and other Nasdaq data feeds (e.g.,
Nasdaq TotalView and Nasdaq Level 2)
and use a simple algorithm to convert
prices into the ‘‘NAV-$0.01/
NAV+$0.01’’ (or similar) display format.
As noted below, prior to the
commencement of trading in a Fund,
the Exchange will inform its members in
an Information Circular of the identities
of the specific Nasdaq data feeds from
which intraday Share prices in proxy
price format may be obtained.
Intraday Reporting of Quotes and Trades
All bids and offers for Shares and all
Share trade executions will be reported
intraday in real time by the Exchange to
the Consolidated Tape 18 and separately
disseminated to member firms and
market data services through the
Exchange data feeds listed above. The
Exchange will also provide the member
firms participating in each Share trade
with a contemporaneous notice of trade
execution, indicating the number of
Shares bought or sold and the executed
premium/discount to NAV.19
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Final Trade Pricing, Reporting and
Settlement
All executed Share trades will be
recorded and stored intraday by Nasdaq
to await the calculation of such Fund’s
end-of-day NAV and the determination
of final trade pricing. After a Fund’s
NAV is calculated and provided to the
Exchange, Nasdaq will price each Share
trade entered into during the day at the
Fund’s NAV plus/minus the trade’s
executed premium/discount. Using the
final trade price, each executed Share
trade will then be disseminated to
member firms and market data services
via an FTP file to be created for
exchange-traded managed funds and
confirmed to the member firms
participating in the trade to supplement
the previously provided information to
include final pricing.20 After the pricing
18 Due to systems limitations, the Consolidated
Tape will report intraday execution prices and
quotes for Shares using a proxy price format. As
noted, Nasdaq will separately report real-time
execution prices and quotes to member firms and
providers of market data services in the
‘‘NAV¥$0.01/NAV+$0.01’’ (or similar) display
format, and otherwise seek to ensure that
representations of intraday bids, offers and
execution prices for Shares that are made available
to the investing public follow the same display
format.
19 All orders to buy or sell Shares that are not
executed on the day the order is submitted will be
automatically cancelled as of the close of trading on
such day.
20 File Transfer Protocol (‘‘FTP’’) is a standard
network protocol used to transfer computer files on
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Using the final trade price, each
executed Share trade will then be
disseminated to member firms and
market data services via an FTP file to
be created for exchange-traded managed
funds and confirmed to the member
firms participating in the trade to
Availability of Information
supplement the previously provided
Prior to the commencement of market information to include final pricing.
Information regarding NAV-based
trading in Shares, the Funds will be
trading prices, best bids and offers for
required to establish and maintain a
Shares, and volume of Shares traded
public Web site through which the
will be continuously available on a realcurrent prospectus for each Fund may
be downloaded.21 In addition, a separate time basis throughout each trading day
on brokers’ computer screens and other
Web site (www.nextshares.com) will
electronic services.
include additional Fund information
updated on a daily basis, including the
Initial and Continued Listing
prior business day’s NAV, and the
Shares will conform to the initial and
following trading information for such
continued listing criteria as set forth
business day expressed as premiums/
under Nasdaq Rule 5745. A minimum of
discounts to NAV: (a) Intraday high,
50,000 Shares and no less than two
low, average and closing prices of
Creation Units of each Fund will be
Shares in Exchange trading; (b) the
outstanding at the commencement of
midpoint of the highest bid and lowest
trading on the Exchange. The Exchange
offer prices as of the close of Exchange
will obtain a representation from the
trading, expressed as a premium/
issuer of the Shares that the NAV per
discount to NAV (the ‘‘Closing Bid/Ask
Share will be calculated daily (on each
Midpoint’’); and (c) the spread between
highest bid and lowest offer prices as of business day that the New York Stock
Exchange is open for trading) and
the close of Exchange trading (the
provided to Nasdaq via the Mutual
‘‘Closing Bid/Ask Spread.’’). The Web
Fund Quotation Service (‘‘MFQS’’) by
site at www.nextshares.com will also
the fund accounting agent. As soon as
contain charts showing the frequency
the NAV is entered into MFQS, Nasdaq
distribution and range of values of
will disseminate the value to market
trading prices, Closing Bid/Ask
participants and market data vendors
Midpoints and Closing Bid/Ask Spreads
via the Mutual Fund Dissemination
over time.
Service (‘‘MFDS’’) so all firms will
The Composition File will be
receive the NAV per share at the same
disseminated through the NSCC before
time. The Reporting Authority 23 also
the open of trading in Shares on each
will ensure that the Composition File
business day and also will be made
will implement and maintain, or be
available to the public each day on a
subject to, procedures designed to
22
free Web site as noted above.
prevent the use and dissemination of
Consistent with the disclosure
material non-public information
requirements that apply to traditional
regarding each Fund’s portfolio
open-end investment companies, a
positions and changes in the positions.
complete list of current Fund portfolio
For each Fund, an estimated value of
positions will be made available at least an individual Share, defined in Nasdaq
once each calendar quarter, with a
Rule 5745(c)(2) as the ‘‘Intraday
reporting lag of not more than 60 days.
Indicative Value,’’ will be calculated
Funds may provide more frequent
and disseminated at intervals of not
disclosures of portfolio positions at their more than 15 minutes throughout the
discretion.
Regular Market Session 24 when Shares
Reports of Share transactions will be
trade on the Exchange. The Exchange
disseminated to the market and
will obtain a representation from the
delivered to the member firms
issuer of the Shares that the IIV will be
participating in the trade
calculated on an intraday basis and
contemporaneous with execution. Once
provided to Nasdaq for dissemination
a Fund’s daily NAV has been calculated
via the Nasdaq Global Index Service
and disseminated, Nasdaq will price
(‘‘GIDS’’). The IIV will be based on
each Share trade entered into during the
current information regarding the value
day at the Fund’s NAV plus/minus the
trade’s executed premium/discount.
23 See Nasdaq Rule 5745(c)(4).
is finalized, Nasdaq will deliver the
Share trading data to NSCC for
clearance and settlement, following the
same processes used for the clearance
and settlement of trades in other
exchange-traded securities.
the Internet. Nasdaq will arrange for the daily
dissemination of an FTP file with executed Share
trades to member firms and market data services.
21 See footnote 16.
22 See footnote 11.
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Fmt 4703
Sfmt 4703
24 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m. E.T.; (2)
Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. E.T.).
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
of the securities and other assets held by
a Fund.25 The purpose of the IIVs is to
enable investors to estimate the nextdetermined NAV so they can determine
the number of Shares to buy or sell if
they want to transact in an approximate
dollar amount (e.g., if an investor wants
to acquire approximately $5,000 of a
Fund, how many Shares should the
investor buy?).26
The Adviser is not a registered brokerdealer, although it is affiliated with a
broker-dealer. The Adviser has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to each
Fund’s portfolio. In the future event that
(a) the Adviser registers as a brokerdealer or becomes newly affiliated with
a broker-dealer, or (b) any new adviser
or a sub-adviser to a Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire
wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, if applicable, regarding access
to information concerning the
composition and/or changes to the
relevant Fund’s portfolio and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
sradovich on DSK3GMQ082PROD with NOTICES
Trading Halts
The Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
Shares. Nasdaq will halt trading in
Shares under the conditions specified in
Nasdaq Rule 4120 and in Nasdaq Rule
5745(d)(2)(C). Additionally, Nasdaq may
cease trading Shares if other unusual
conditions or circumstances exist
which, in the opinion of Nasdaq, make
further dealings on Nasdaq detrimental
to the maintenance of a fair and orderly
market. To manage the risk of a nonregulatory Share trading halt, Nasdaq
has in place back-up processes and
procedures to ensure orderly trading.
Because, in NAV-Based Trading, all
25 IIVs disseminated throughout each trading day
would be based on the same portfolio as used to
calculate that day’s NAV. Funds will reflect
purchases and sales of portfolio positions in their
NAV the next business day after trades are
executed.
26 Because, in NAV-Based Trading, prices of
executed trades are not determined until the
reference NAV is calculated, buyers and sellers of
Shares during the trading day will not know the
final value of their purchases and sales until the
end of the trading day. A Fund’s Registration
Statement, Web site and any advertising or
marketing materials will include prominent
disclosure of this fact. Although IIVs may provide
useful estimates of the value of intraday trades, they
cannot be used to calculate with precision the
dollar value of the Shares to be bought or sold.
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17:01 Jul 26, 2016
Jkt 238001
trade execution prices are linked to endof-day NAV, buyers and sellers of
Shares should be less exposed to risk of
loss due to intraday trading halts than
buyers and sellers of conventional
exchange-traded funds (‘‘ETFs’’) and
other exchange-traded securities.
Trading Rules
Nasdaq deems Shares to be equity
securities, thus rendering trading in
Shares to be subject to Nasdaq’s existing
rules governing the trading of equity
securities. Nasdaq will allow trading in
Shares from 9:30 a.m. until 4:00 p.m.
E.T.
Every order to trade Shares of the
Funds is subject to the proxy price
protection threshold of plus/minus
$1.00, which determines the lower and
upper threshold for the life of the order
and whereby the order will be cancelled
at any point if it exceeds $101.00 or falls
below $99.00, the established
thresholds.27 With certain exceptions,
each order also must contain the
applicable order attributes, including
routing instructions and time-in-force
information, as described in Nasdaq
Rule 4703.28
Surveillance
The Exchange represents that trading
in Shares will be subject to the existing
trading surveillances, administered by
both Nasdaq and the Financial Industry
Regulatory Authority, Inc. (‘‘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 trading of
Shares on the Exchange 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 with other
markets and other entities that are
members of the Intermarket
Nasdaq Rule 5745(h).
Nasdaq Rule 5745(b)(6).
29 FINRA provides surveillance of trading on the
Exchange pursuant to a regulatory services
agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
PO 00000
49345
Surveillance Group (‘‘ISG’’) 30 regarding
trading in Shares, and in exchangetraded securities and instruments held
by the Funds (to the extent such
exchange-traded securities and
instruments are known through the
publication of the Composition File and
periodic public disclosures of a Fund’s
portfolio holdings), and FINRA may
obtain trading information regarding
such trading from other markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in Shares, and in exchangetraded securities and instruments held
by the Funds (to the extent such
exchange-traded securities and
instruments are known through the
publication of the Composition File and
periodic public disclosures of a Fund’s
portfolio holdings), from markets and
other entities that are members of ISG,
which includes securities and futures
exchanges, or with which the Exchange
has in place a comprehensive
surveillance sharing agreement.
In addition, 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
in a Fund, 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 noting that Shares are not
individually redeemable); (2) Nasdaq
Rule 2111A, which imposes suitability
obligations on Nasdaq members with
respect to recommending transactions in
Shares to customers; (3) how
information regarding the IIV and
Composition File is disseminated; (4)
the requirement that members deliver a
prospectus to investors purchasing
Shares prior to or concurrently with the
confirmation of a transaction; and (5)
information regarding NAV-Based
Trading protocols.
As noted above, all orders to buy or
sell Shares that are not executed on the
day the order is submitted will be
automatically cancelled as of the close
of trading on such day. The Information
Circular will discuss the effect of this
characteristic on existing order types.
The Information Circular also will
27 See
28 See
Frm 00138
Fmt 4703
Sfmt 4703
30 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of a Fund’s 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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27JYN1
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
identify the specific Nasdaq data feeds
from which intraday Share prices in
proxy price format may be obtained.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Funds. Members
purchasing Shares from a Fund for
resale to investors will deliver a
summary prospectus to such investors.
The Information Circular will also
discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
The Information Circular also will
reference that the Funds are subject to
various fees and expenses described in
the Registration Statements. The
Information Circular will also disclose
the trading hours of the Shares and the
applicable NAV calculation time for the
Shares. The Information Circular will
disclose that information about the
Shares will be publicly available at
www.nextshares.com.
Information regarding Fund trading
protocols will be disseminated to
Nasdaq members in accordance with
current processes for newly listed
products. Nasdaq intends to provide its
members with a detailed explanation of
NAV-Based Trading through a Trading
Alert issued prior to the commencement
of trading in Shares on the Exchange.
sradovich on DSK3GMQ082PROD with NOTICES
Continued Listing Representations
All statements and representations
made in this filing regarding (a) the
description of the Funds’ portfolios, (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 of the Funds on the Exchange.
The issuer has represented to the
Exchange that it will advise the
Exchange of any failure by any 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 a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Nasdaq Rule 5800, et. seq.
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act 31
in general, and Section 6(b)(5) of the
Act 32 in particular, in that it is designed
31 15
32 15
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares
would be listed and traded on the
Exchange pursuant to the initial and
continued listing criteria in Nasdaq Rule
5745. The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of Shares
on Nasdaq and to deter and detect
violations of Exchange rules and the
applicable federal securities laws. The
Adviser is not registered as a brokerdealer, but it is affiliated with a brokerdealer. The Adviser has implemented a
‘‘fire wall’’ between the Adviser and its
broker-dealer affiliate with respect to
access to information concerning the
composition and/or changes to the
Funds’ portfolio holdings. The
Exchange may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement, to the extent necessary.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest. The Exchange will
obtain a representation from each issuer
of Shares that the NAV per Share will
be calculated on each business day that
the New York Stock Exchange is open
for trading and that the NAV will be
made available to all market
participants at the same time. In
addition, a large amount of information
would be publicly available regarding
the Funds and the Shares, thereby
promoting market transparency.
Prior to the commencement of market
trading in Shares, the Funds will be
required to establish and maintain a
public Web site through which the
current prospectus for each Fund may
be downloaded.33 In addition, a separate
Web site (www.nextshares.com) will
include additional Fund information
updated on a daily basis, including the
prior business day’s NAV, and the
following trading information for such
business day expressed as premiums/
discounts to NAV: (a) Intraday high,
low, average and closing prices of
Shares in Exchange trading; (b) the
Closing Bid/Ask Midpoint; and (c) the
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Sep<11>2014
17:01 Jul 26, 2016
33 See
Jkt 238001
PO 00000
footnote 16.
Frm 00139
Fmt 4703
Closing Bid/Ask Spread. The Web site at
www.nextshares.com will also contain
charts showing the frequency
distribution and range of values of
trading prices, Closing Bid/Ask
Midpoints and Closing Bid/Ask Spreads
over time.
The Composition File will be
disseminated through the NSCC before
the open of trading in Shares on each
business day and also will be made
available to the public each day on a
free Web site.34 The Exchange will
obtain a representation from the issuer
of the Shares that the IIV will be
calculated and disseminated on an
intraday basis at intervals of not more
than 15 minutes during trading on the
Exchange and provided to Nasdaq for
dissemination via GIDS. A complete list
of current portfolio positions for the
Funds will be made available at least
once each calendar quarter, with a
reporting lag of not more than 60 days.
Funds may provide more frequent
disclosures of portfolio positions at their
discretion.
Transactions in Shares will be
reported to the Consolidated Tape at the
time of execution in proxy price format
and will be disseminated to member
firms and market data services through
Nasdaq’s trading service and market
data interfaces, as defined above. Once
each Fund’s daily NAV has been
calculated and the final price of its
intraday Share trades has been
determined, Nasdaq will deliver a
confirmation with final pricing to the
transacting parties. At the end of the
day, Nasdaq will also post a newly
created FTP file with the final
transaction data for the trading and
market data services. The Exchange
expects that information regarding
NAV-based trading prices and volumes
of Shares traded will be continuously
available on a real-time basis throughout
each trading day on brokers’ computer
screens and other electronic services.
Because Shares will trade at prices
based on the next-determined NAV,
investors will be able to buy and sell
individual Shares at a known premium
or discount to NAV that they can limit
by transacting using limit orders at the
time of order entry. Trading in Shares
will be subject to Nasdaq Rules
5745(d)(2)(B) and (C), which provide for
the suspension of trading or trading
halts under certain circumstances,
including if, in the view of the
Exchange, trading in Shares becomes
inadvisable.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
34 See
Sfmt 4703
E:\FR\FM\27JYN1.SGM
footnote 11.
27JYN1
Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
investors and the public interest in that
it will facilitate the listing and trading
of the Funds, which seek to provide
investors with access to a broad range of
actively managed investment strategies
in a structure that offers the cost and tax
efficiencies and shareholder protections
of ETFs, while removing the
requirement for daily portfolio holdings
disclosure to ensure a tight relationship
between market trading prices and
NAV.
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 result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In fact, the
Exchange believes that the introduction
of the Funds would promote
competition by making available to
investors a broad range of actively
managed investment strategies in a
structure that offers the cost and tax
efficiencies and shareholder protections
of ETFs, while removing the
requirement for daily portfolio holdings
disclosure to ensure a tight relationship
between market trading prices and
NAV. Moreover, the Exchange believes
that the proposed method of Share
trading would provide investors with
transparency of trading costs, and the
ability to control trading costs using
limit orders, that is not available for
conventionally traded ETFs.
These developments could
significantly enhance competition to the
benefit of the markets and investors.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
sradovich on DSK3GMQ082PROD with NOTICES
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
VerDate Sep<11>2014
17:01 Jul 26, 2016
Jkt 238001
proposed rule change should be
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
49347
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17671 Filed 7–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
Submission for OMB Review;
Comment Request
• 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–2016–103 on the subject line.
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
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–2016–103. 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–2016–103 and should be
submitted on or before August 17, 2016.
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
Extension:
Rule 19b–5 and Form PILOT, SEC File No.
270–448, OMB Control No. 3235–0507.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 19b–5 (17 CFR 240.19b–5) and
Form PILOT (17 CFR 249.821) under the
Securities Exchange Act of 1934 (‘‘Act’’)
(15 U.S.C. 78a et seq.).
Rule 19b–5 provides a temporary
exemption from the rule-filing
requirements of Section 19(b) of the Act
(15 U.S.C. 78s(b)) to self-regulatory
organizations (‘‘SROs’’) wishing to
establish and operate pilot trading
systems. Rule 19b–5 permits an SRO to
develop a pilot trading system and to
begin operation of such system shortly
after submitting an initial report on
Form PILOT to the Commission. During
operation of any such pilot trading
system, the SRO must submit quarterly
reports of the system’s operation to the
Commission, as well as timely
amendments describing any material
changes to the system. Within two years
of operating such pilot trading system
under the exemption afforded by Rule
19b–5, the SRO must submit a rule
filing pursuant to Section 19(b)(2) of the
Act (15 U.S.C. 78s(b)(2)) to obtain
permanent approval of the pilot trading
system from the Commission.
The collection of information is
designed to allow the Commission to
maintain an accurate record of all new
pilot trading systems operated by SROs
and to determine whether an SRO has
properly availed itself of the exemption
afforded by Rule 19b–5, is operating a
35 17
E:\FR\FM\27JYN1.SGM
CFR 200.30–3(a)(12).
27JYN1
]]>Agencies
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Notices]
[Pages 49341-49347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17671]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78385; File No. SR-NASDAQ-2016-103]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, to List and Trade Exchange-Traded Managed Funds
July 21, 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 July 13, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
On July 14, 2016, the Exchange filed Amendment No. 1 to the proposed
rule change, which amended and replaced the original filing in its
entirety. The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 1 thereto,
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
The Exchange proposes to list and trade under Nasdaq Rule 5745
(Exchange-Traded Managed Fund Shares (``NextShares'')) the common
shares (``Shares'') of the exchange-traded managed funds described
herein (each, a ``Fund,'' and collectively, the ``Funds'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of each Fund
under Nasdaq Rule 5745, which governs the listing and trading of
exchange-traded managed fund shares, as defined in Nasdaq Rule
5745(c)(1), on the Exchange.\3\ Each Fund listed below will be advised
by an investment adviser registered under the Investment Advisers Act
of 1940 (``Adviser''), as described below. Each Fund will be actively
managed and will pursue various principal investment strategies, as
noted below.\4\
---------------------------------------------------------------------------
\3\ The Commission approved Nasdaq Rule 5745 in Securities
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov.
14, 2014) (SR-NASDAQ-2014-020).
\4\ Additional information regarding the Funds will be available
on one of two free public Web sites (www.ivyinvestments.com or
www.nextshares.com, as indicated more fully below), as well as in
the Registration Statement for the Funds.
---------------------------------------------------------------------------
Ivy NextSharesTM
Ivy NextSharesTM (the ``Trust'') is registered with the
Commission as an open-end investment company and has filed a
registration statement on Form N-1A (``Registration Statement'') with
the Commission.\5\ Each of the following Funds is a series of the
Trust.\6\
---------------------------------------------------------------------------
\5\ See Registration Statement on Form N-1A for the Trust dated
April 18, 2016 (File Nos. 333-210814 and 811-23155).
\6\ The Commission has issued an order granting the Trust and
certain affiliates exemptive relief under the Investment Company
Act. See Investment Company Act Release No. 31816 (Sept. 9, 2015)
(File No. 812-14526).
---------------------------------------------------------------------------
Ivy Investment Management Company (``IICO'' or the ``Adviser'')
will be the adviser to the Funds. IICO is not a registered broker-
dealer, although it is affiliated with a broker-dealer. IICO has
implemented a fire wall with respect to its affiliated broker-dealer
regarding access to information concerning the composition and/or
changes to each Fund's portfolio.\7\ In the future event
[[Page 49342]]
that (a) IICO registers as a broker-dealer or becomes newly affiliated
with a broker-dealer, or (b) any new adviser or a sub-adviser to a Fund
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant
personnel and/or such broker-dealer affiliate, if applicable, regarding
access to information concerning the composition and/or changes to the
relevant Fund's portfolio and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
---------------------------------------------------------------------------
\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.
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ALPS Distributors, Inc. will be the principal underwriter and
distributor of each Fund's Shares. Waddell & Reed Services Company,
doing business as WI Services Company (``WISC''), will act as the
administrator and accounting agent to the Funds. State Street Bank and
Trust Company (``State Street'') will act as the custodian and transfer
agent to the Funds. In addition, it has entered into agreements with
WISC pursuant to which State Street will serve as sub-administrator and
sub-accounting agent to the Funds.
Ivy Focused Growth NextSharesTM
The investment objective of this Fund is to provide growth of
capital. The Fund normally will invest primarily in a portfolio of
common stocks issued by large-capitalization, growth-oriented companies
with above-average levels of profitability and that IICO believes have
the ability to sustain growth over the long term. Although the Fund
primarily will invest in securities issued by large-capitalization
companies (defined as companies with market capitalizations of at least
$10 billion at the time of acquisition), it may invest in securities
issued by companies of any size.
Ivy Focused Value NextSharesTM
The investment objective of this Fund is to provide capital
appreciation, with a secondary objective of providing current income.
The Fund normally will invest in the common stocks of companies that
IICO believes are undervalued, trading at a significant discount
relative to the intrinsic value of the company as estimated by IICO
and/or are out of favor in the financial markets but have a favorable
outlook for capital appreciation. Although the Fund will often invest
in securities issued by large-capitalization companies (defined as
companies with market capitalizations of at least $10 billion at the
time of acquisition), it may invest in securities issued by companies
of any size.
Ivy Energy NextSharesTM
The investment objective of this Fund is to provide capital growth
and appreciation. The Fund will invest, under normal circumstances, at
least 80% of its net assets in the common stock of companies within the
energy sector, which includes all aspects of the energy industry, such
as exploration, discovery, production, distribution or infrastructure
of energy and/or alternative energy sources.
Creations and Redemptions of Shares
Shares will be issued and redeemed on a daily basis for each Fund
at the Fund's next-determined net asset value (``NAV'') \8\ in
specified blocks of Shares called ``Creation Units.'' A Creation Unit
will consist of at least 25,000 Shares. Creation Units may be purchased
and redeemed by or through ``Authorized Participants.'' \9\ Purchases
and sales of Shares in amounts less than a Creation Unit may be
effected only in the secondary market, as described below, and not
directly with a Fund.
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\8\ As with other registered open-end investment companies, NAV
generally will be calculated daily Monday through Friday as of the
close of regular trading on the New York Stock Exchange, normally
4:00 p.m. E.T. NAV will be calculated by dividing a Fund's net asset
value by the number of Shares outstanding. Information regarding the
valuation of investments in calculating a Fund's NAV will be
contained in the Registration Statement for its Shares.
\9\ ``Authorized Participants'' will be either: (1)
``participating parties,'' i.e., brokers or other participants in
the Continuous Net Settlement System (``CNS System'') of the
National Securities Clearing Corporation (``NSCC''), a clearing
agency registered with the Commission and affiliated with the
Depository Trust Company (``DTC''), or (2) DTC participants, which
in either case have executed participant agreements with the Funds'
distributor and transfer agent regarding the creation and redemption
of Creation Units. Investors will not have to be Authorized
Participants in order to transact in Creation Units, but must place
an order through and make appropriate arrangements with an
Authorized Participant for such transactions.
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The creation and redemption process for Funds may be effected ``in
kind,'' in cash, or in a combination of securities and cash. Creation
``in kind'' means that an Authorized Participant--usually a brokerage
house or large institutional investor--purchases the Creation Unit with
a basket of securities equal in value to the aggregate NAV of the
Shares in the Creation Unit. When an Authorized Participant redeems a
Creation Unit in kind, it receives a basket of securities equal in
value to the aggregate NAV of the Shares in the Creation Unit.\10\
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\10\ In compliance with Nasdaq Rule 5745(b)(5), which applies to
Shares based on an international or global portfolio, the Trust's
application for exemptive relief under the Investment Company Act
states that each Fund will comply with the federal securities laws
in accepting securities for deposits and satisfying redemptions with
securities, including that the securities accepted for deposits and
the securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933, as amended (15 U.S.C. 77a) (``Securities
Act'').
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Composition File
As defined in Nasdaq Rule 5745(c)(3), the Composition File is the
specified portfolio of securities and/or cash that a Fund will accept
as a deposit in issuing a Creation Unit of Shares, and the specified
portfolio of securities and/or cash that a Fund will deliver in a
redemption of a Creation Unit of Shares. The Composition File will be
disseminated through the NSCC once each business day before the open of
trading in Shares on such day and also will be made available to the
public each day on a free Web site.\11\ Because the Funds seek to
preserve the confidentiality of their current portfolio trading
program, a Fund's Composition File generally will not be a pro rata
reflection of the Fund's investment positions. Each security included
in the Composition File will be a current holding of the Fund, but the
Composition File generally will not include all of the securities in
the Fund's portfolio or match the weightings of the included securities
in the portfolio. Securities that the Adviser is in the process of
acquiring for a Fund generally will not be represented in the Fund's
Composition File until their purchase has been completed. Similarly,
securities that are held in a Fund's portfolio but in the process of
being sold may not be removed from its Composition File until the sale
program is substantially completed. Funds creating and redeeming Shares
in kind will use cash amounts to supplement the in-kind transactions to
the extent necessary to ensure that Creation Units are purchased and
redeemed at NAV. The Composition File also may consist entirely of
cash, in which case it will
[[Page 49343]]
not include any of the securities in the Fund's portfolio.\12\
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\11\ The free Web site containing the Composition File will be
www.nextshares.com.
\12\ In determining whether a Fund will issue or redeem Creation
Units entirely on a cash basis, the key consideration will be the
benefit that would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser may be able to obtain
better execution for a Fund than Authorized Participants because of
the Adviser's size, experience and potentially stronger
relationships in the fixed-income markets.
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Transaction Fees
All persons purchasing or redeeming Creation Units of a Fund are
expected to incur a transaction fee to cover the estimated cost to that
Fund of processing the transaction, including the costs of clearance
and settlement charged to it by NSCC or DTC, and the estimated trading
costs (i.e., brokerage commissions, bid-ask spread and market impact)
to be incurred in converting the Composition File to or from the
desired portfolio holdings. The transaction fee is determined daily and
will be limited to amounts determined by the Adviser to be appropriate
to defray the expenses that a Fund incurs in connection with the
purchase or redemption of Creation Units. The purpose of transaction
fees is to protect a Fund's existing shareholders from the dilutive
costs associated with the purchase and redemption of Creation Units.
Transaction fees will differ among Funds and may vary over time for a
given Fund depending on the estimated trading costs for its portfolio
positions and Composition File, processing costs and other
considerations. Funds that specify greater amounts of cash in their
Composition File may impose higher transaction fees. In addition, Funds
that include in their Composition File instruments that clear through
DTC may impose higher transaction fees than Funds whose Composition
File consists solely of instruments that clear through NSCC, because
DTC may charge more than NSCC in connection with Creation Unit
transactions.\13\ The transaction fees applicable to each Fund's
purchases and redemptions on a given business day will be disseminated
through the NSCC prior to the open of market trading on that day and
also will be made available to the public each day on a free Web
site.\14\ In all cases, the transaction fees will be limited in
accordance with the requirements of the Commission applicable to open-
end management investment companies offering redeemable securities.
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\13\ Authorized Participants that participate in the CNS System
of the NSCC are expected to be able to use the enhanced NSCC/CNS
process for effecting in-kind purchases and redemptions of ETFs (the
``NSCC Process'') to purchase and redeem Creation Units of Funds
that limit the composition of their baskets to include only NSCC
Process-eligible instruments (generally domestic equity securities
and cash). Because the NSCC Process is generally more efficient than
the DTC clearing process, NSCC is likely to charge a Fund less than
DTC to settle purchases and redemptions of Creation Units.
\14\ The free Web site will be www.nextshares.com.
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NAV-Based Trading
Because Shares will be listed and traded on the Exchange, Shares
will be available for purchase and sale on an intraday basis. Shares
will be purchased and sold in the secondary market at prices directly
linked to a Fund's next-determined NAV using a new trading protocol
called ``NAV-Based Trading.'' \15\ All bids, offers and execution
prices of Shares will be expressed as a premium/discount (which may be
zero) to a Fund's next-determined NAV (e.g., NAV-$0.01, NAV+$0.01). A
Fund's NAV will be determined each business day, normally as of 4:00
p.m. E.T. Trade executions will be binding at the time orders are
matched on Nasdaq's facilities, with the transaction prices contingent
upon the determination of NAV.
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\15\ Aspects of NAV-Based Trading are protected intellectual
property subject to issued and pending U.S. patents held by
NextShares Solutions LLC (``NextShares Solutions''), a wholly owned
subsidiary of Eaton Vance Corp. Nasdaq has entered into a license
agreement with NextShares Solutions to allow for NAV-Based Trading
on the Exchange of exchange-traded managed funds that have
themselves entered into license agreements with NextShares
Solutions.
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Trading Premiums and Discounts
Bid and offer prices for Shares will be quoted throughout the day
relative to NAV. The premium or discount to NAV at which Share prices
are quoted and transactions are executed will vary depending on market
factors, including the balance of supply and demand for Shares among
investors, transaction fees and other costs in connection with creating
and redeeming Creation Units of Shares, the cost and availability of
borrowing Shares, competition among market makers, the Share inventory
positions and inventory strategies of market makers, the profitability
requirements and business objectives of market makers, and the volume
of Share trading. Reflecting such market factors, prices for Shares in
the secondary market may be above, at or below NAV. Funds with higher
transaction fees may trade at wider premiums or discounts to NAV than
other Funds with lower transaction fees, reflecting the added costs to
market makers of managing their Share inventory positions through
purchases and redemptions of Creation Units.
Because making markets in Shares will be simple to manage and low
risk, competition among market makers seeking to earn reliable, low-
risk profits should enable the Shares to routinely trade at tight bid-
ask spreads and narrow premiums/discounts to NAV. As noted below, the
Funds will maintain a public Web site that will be updated on a daily
basis to show current and historical trading spreads and premiums/
discounts of Shares trading in the secondary market.\16\
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\16\ The Web site containing this information will be
www.ivyinvestments.com.
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Transmitting and Processing Orders
Member firms will utilize certain existing order types and
interfaces to transmit Share bids and offers to Nasdaq, which will
process Share trades like trades in shares of other listed
securities.\17\ In the systems used to transmit and process
transactions in Shares, a Fund's next-determined NAV will be
represented by a proxy price (e.g., 100.00) and a premium/discount of a
stated amount to the next-determined NAV to be represented by the same
increment/decrement from the proxy price used to denote NAV (e.g., NAV-
$0.01 would be represented as 99.99; NAV+$0.01 as 100.01).
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\17\ As noted below, all orders to buy or sell Shares that are
not executed on the day the order is submitted will be automatically
cancelled as of the close of trading on such day. Prior to the
commencement of trading in a Fund, the Exchange will inform its
members in an Information Circular of the effect of this
characteristic on existing order types.
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To avoid potential investor confusion, Nasdaq will work with member
firms and providers of market data services to seek to ensure that
representations of intraday bids, offers and execution prices of Shares
that are made available to the investing public follow the ``NAV-$0.01/
NAV+$0.01'' (or similar) display format. All Shares listed on the
Exchange will have a unique identifier associated with their ticker
symbols, which would indicate that the Shares are traded using NAV-
Based Trading. Nasdaq makes available to member firms and market data
services certain proprietary data feeds that are designed to supplement
the market information disseminated through the consolidated tape
(``Consolidated Tape''). Specifically, the Exchange will use the NASDAQ
Basic and NASDAQ Last Sale data feeds to disseminate intraday price and
quote data for Shares in real time in the ``NAV-$0.01/NAV+$0.01'' (or
similar) display format. Member firms could use the NASDAQ Basic and
NASDAQ Last Sale data feeds to source intraday Share prices for
presentation to the investing public in the ``NAV-$0.01/
[[Page 49344]]
NAV+$0.01'' (or similar) display format. Alternatively, member firms
could source intraday Share prices in proxy price format from the
Consolidated Tape and other Nasdaq data feeds (e.g., Nasdaq TotalView
and Nasdaq Level 2) and use a simple algorithm to convert prices into
the ``NAV-$0.01/NAV+$0.01'' (or similar) display format. As noted
below, prior to the commencement of trading in a Fund, the Exchange
will inform its members in an Information Circular of the identities of
the specific Nasdaq data feeds from which intraday Share prices in
proxy price format may be obtained.
Intraday Reporting of Quotes and Trades
All bids and offers for Shares and all Share trade executions will
be reported intraday in real time by the Exchange to the Consolidated
Tape \18\ and separately disseminated to member firms and market data
services through the Exchange data feeds listed above. The Exchange
will also provide the member firms participating in each Share trade
with a contemporaneous notice of trade execution, indicating the number
of Shares bought or sold and the executed premium/discount to NAV.\19\
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\18\ Due to systems limitations, the Consolidated Tape will
report intraday execution prices and quotes for Shares using a proxy
price format. As noted, Nasdaq will separately report real-time
execution prices and quotes to member firms and providers of market
data services in the ``NAV-$0.01/NAV+$0.01'' (or similar) display
format, and otherwise seek to ensure that representations of
intraday bids, offers and execution prices for Shares that are made
available to the investing public follow the same display format.
\19\ All orders to buy or sell Shares that are not executed on
the day the order is submitted will be automatically cancelled as of
the close of trading on such day.
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Final Trade Pricing, Reporting and Settlement
All executed Share trades will be recorded and stored intraday by
Nasdaq to await the calculation of such Fund's end-of-day NAV and the
determination of final trade pricing. After a Fund's NAV is calculated
and provided to the Exchange, Nasdaq will price each Share trade
entered into during the day at the Fund's NAV plus/minus the trade's
executed premium/discount. Using the final trade price, each executed
Share trade will then be disseminated to member firms and market data
services via an FTP file to be created for exchange-traded managed
funds and confirmed to the member firms participating in the trade to
supplement the previously provided information to include final
pricing.\20\ After the pricing is finalized, Nasdaq will deliver the
Share trading data to NSCC for clearance and settlement, following the
same processes used for the clearance and settlement of trades in other
exchange-traded securities.
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\20\ File Transfer Protocol (``FTP'') is a standard network
protocol used to transfer computer files on the Internet. Nasdaq
will arrange for the daily dissemination of an FTP file with
executed Share trades to member firms and market data services.
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Availability of Information
Prior to the commencement of market trading in Shares, the Funds
will be required to establish and maintain a public Web site through
which the current prospectus for each Fund may be downloaded.\21\ In
addition, a separate Web site (www.nextshares.com) will include
additional Fund information updated on a daily basis, including the
prior business day's NAV, and the following trading information for
such business day expressed as premiums/discounts to NAV: (a) Intraday
high, low, average and closing prices of Shares in Exchange trading;
(b) the midpoint of the highest bid and lowest offer prices as of the
close of Exchange trading, expressed as a premium/discount to NAV (the
``Closing Bid/Ask Midpoint''); and (c) the spread between highest bid
and lowest offer prices as of the close of Exchange trading (the
``Closing Bid/Ask Spread.''). The Web site at www.nextshares.com will
also contain charts showing the frequency distribution and range of
values of trading prices, Closing Bid/Ask Midpoints and Closing Bid/Ask
Spreads over time.
---------------------------------------------------------------------------
\21\ See footnote 16.
---------------------------------------------------------------------------
The Composition File will be disseminated through the NSCC before
the open of trading in Shares on each business day and also will be
made available to the public each day on a free Web site as noted
above.\22\ Consistent with the disclosure requirements that apply to
traditional open-end investment companies, a complete list of current
Fund portfolio positions will be made available at least once each
calendar quarter, with a reporting lag of not more than 60 days. Funds
may provide more frequent disclosures of portfolio positions at their
discretion.
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\22\ See footnote 11.
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Reports of Share transactions will be disseminated to the market
and delivered to the member firms participating in the trade
contemporaneous with execution. Once a Fund's daily NAV has been
calculated and disseminated, Nasdaq will price each Share trade entered
into during the day at the Fund's NAV plus/minus the trade's executed
premium/discount. Using the final trade price, each executed Share
trade will then be disseminated to member firms and market data
services via an FTP file to be created for exchange-traded managed
funds and confirmed to the member firms participating in the trade to
supplement the previously provided information to include final
pricing.
Information regarding NAV-based trading prices, best bids and
offers for Shares, and volume of Shares traded will be continuously
available on a real-time basis throughout each trading day on brokers'
computer screens and other electronic services.
Initial and Continued Listing
Shares will conform to the initial and continued listing criteria
as set forth under Nasdaq Rule 5745. A minimum of 50,000 Shares and no
less than two Creation Units of each Fund 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 (on each business day that the New York Stock
Exchange is open for trading) and provided to Nasdaq via the Mutual
Fund Quotation Service (``MFQS'') by the fund accounting agent. As soon
as the NAV is entered into MFQS, Nasdaq will disseminate the value to
market participants and market data vendors via the Mutual Fund
Dissemination Service (``MFDS'') so all firms will receive the NAV per
share at the same time. The Reporting Authority \23\ also will ensure
that the Composition File will implement and maintain, or be subject
to, procedures designed to prevent the use and dissemination of
material non-public information regarding each Fund's portfolio
positions and changes in the positions.
---------------------------------------------------------------------------
\23\ See Nasdaq Rule 5745(c)(4).
---------------------------------------------------------------------------
For each Fund, an estimated value of an individual Share, defined
in Nasdaq Rule 5745(c)(2) as the ``Intraday Indicative Value,'' will be
calculated and disseminated at intervals of not more than 15 minutes
throughout the Regular Market Session \24\ when Shares trade on the
Exchange. The Exchange will obtain a representation from the issuer of
the Shares that the IIV will be calculated on an intraday basis and
provided to Nasdaq for dissemination via the Nasdaq Global Index
Service (``GIDS''). The IIV will be based on current information
regarding the value
[[Page 49345]]
of the securities and other assets held by a Fund.\25\ The purpose of
the IIVs is to enable investors to estimate the next-determined NAV so
they can determine the number of Shares to buy or sell if they want to
transact in an approximate dollar amount (e.g., if an investor wants to
acquire approximately $5,000 of a Fund, how many Shares should the
investor buy?).\26\
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\24\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m.
to 8 p.m. E.T.).
\25\ IIVs disseminated throughout each trading day would be
based on the same portfolio as used to calculate that day's NAV.
Funds will reflect purchases and sales of portfolio positions in
their NAV the next business day after trades are executed.
\26\ Because, in NAV-Based Trading, prices of executed trades
are not determined until the reference NAV is calculated, buyers and
sellers of Shares during the trading day will not know the final
value of their purchases and sales until the end of the trading day.
A Fund's Registration Statement, Web site and any advertising or
marketing materials will include prominent disclosure of this fact.
Although IIVs may provide useful estimates of the value of intraday
trades, they cannot be used to calculate with precision the dollar
value of the Shares to be bought or sold.
---------------------------------------------------------------------------
The Adviser is not a registered broker-dealer, although it is
affiliated with a broker-dealer. The Adviser has implemented a fire
wall with respect to its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to each Fund's
portfolio. In the future event that (a) the Adviser registers as a
broker-dealer or becomes newly affiliated with a broker-dealer, or (b)
any new adviser or a sub-adviser to a Fund is a registered broker-
dealer or becomes affiliated with a broker-dealer, it will implement a
fire wall with respect to its relevant personnel and/or such broker-
dealer affiliate, if applicable, regarding access to information
concerning the composition and/or changes to the relevant Fund's
portfolio and will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding such
portfolio.
Trading Halts
The Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in Shares. Nasdaq will halt
trading in Shares under the conditions specified in Nasdaq Rule 4120
and in Nasdaq Rule 5745(d)(2)(C). Additionally, Nasdaq may cease
trading Shares if other unusual conditions or circumstances exist
which, in the opinion of Nasdaq, make further dealings on Nasdaq
detrimental to the maintenance of a fair and orderly market. To manage
the risk of a non-regulatory Share trading halt, Nasdaq has in place
back-up processes and procedures to ensure orderly trading. Because, in
NAV-Based Trading, all trade execution prices are linked to end-of-day
NAV, buyers and sellers of Shares should be less exposed to risk of
loss due to intraday trading halts than buyers and sellers of
conventional exchange-traded funds (``ETFs'') and other exchange-traded
securities.
Trading Rules
Nasdaq deems Shares to be equity securities, thus rendering trading
in Shares to be subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in Shares from
9:30 a.m. until 4:00 p.m. E.T.
Every order to trade Shares of the Funds is subject to the proxy
price protection threshold of plus/minus $1.00, which determines the
lower and upper threshold for the life of the order and whereby the
order will be cancelled at any point if it exceeds $101.00 or falls
below $99.00, the established thresholds.\27\ With certain exceptions,
each order also must contain the applicable order attributes, including
routing instructions and time-in-force information, as described in
Nasdaq Rule 4703.\28\
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\27\ See Nasdaq Rule 5745(h).
\28\ See Nasdaq Rule 5745(b)(6).
---------------------------------------------------------------------------
Surveillance
The Exchange represents that trading in Shares will be subject to
the existing trading surveillances, administered by both Nasdaq and the
Financial Industry Regulatory Authority, Inc. (``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 trading of
Shares on the Exchange and to deter and detect violations of Exchange
rules and applicable federal securities laws.
---------------------------------------------------------------------------
\29\ FINRA provides surveillance of trading on the Exchange
pursuant to a regulatory services agreement. The Exchange is
responsible for FINRA's performance under this regulatory services
agreement.
---------------------------------------------------------------------------
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 with
other markets and other entities that are members of the Intermarket
Surveillance Group (``ISG'') \30\ regarding trading in Shares, and in
exchange-traded securities and instruments held by the Funds (to the
extent such exchange-traded securities and instruments are known
through the publication of the Composition File and periodic public
disclosures of a Fund's portfolio holdings), and FINRA may obtain
trading information regarding such trading from other markets and other
entities. In addition, the Exchange may obtain information regarding
trading in Shares, and in exchange-traded securities and instruments
held by the Funds (to the extent such exchange-traded securities and
instruments are known through the publication of the Composition File
and periodic public disclosures of a Fund's portfolio holdings), from
markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
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\30\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of a
Fund's 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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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 in a Fund, 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 noting that Shares are not individually redeemable); (2)
Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq
members with respect to recommending transactions in Shares to
customers; (3) how information regarding the IIV and Composition File
is disseminated; (4) the requirement that members deliver a prospectus
to investors purchasing Shares prior to or concurrently with the
confirmation of a transaction; and (5) information regarding NAV-Based
Trading protocols.
As noted above, all orders to buy or sell Shares that are not
executed on the day the order is submitted will be automatically
cancelled as of the close of trading on such day. The Information
Circular will discuss the effect of this characteristic on existing
order types. The Information Circular also will
[[Page 49346]]
identify the specific Nasdaq data feeds from which intraday Share
prices in proxy price format may be obtained.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Funds. Members purchasing Shares from a Fund for
resale to investors will deliver a summary prospectus to such
investors. The Information Circular will also discuss any exemptive,
no-action and interpretive relief granted by the Commission from any
rules under the Act.
The Information Circular also will reference that the Funds are
subject to various fees and expenses described in the Registration
Statements. The Information Circular will also disclose the trading
hours of the Shares and the applicable NAV calculation time for the
Shares. The Information Circular will disclose that information about
the Shares will be publicly available at www.nextshares.com.
Information regarding Fund trading protocols will be disseminated
to Nasdaq members in accordance with current processes for newly listed
products. Nasdaq intends to provide its members with a detailed
explanation of NAV-Based Trading through a Trading Alert issued prior
to the commencement of trading in Shares on the Exchange.
Continued Listing Representations
All statements and representations made in this filing regarding
(a) the description of the Funds' portfolios, (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 of the Funds on the
Exchange. The issuer has represented to the Exchange that it will
advise the Exchange of any failure by any 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 a Fund is not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under Nasdaq Rule 5800, et. seq.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act \31\ in general, and Section 6(b)(5) of the Act \32\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares would be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5745. The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of Shares on Nasdaq and to deter and
detect violations of Exchange rules and the applicable federal
securities laws. The Adviser is not registered as a broker-dealer, but
it is affiliated with a broker-dealer. The Adviser has implemented a
``fire wall'' between the Adviser and its broker-dealer affiliate with
respect to access to information concerning the composition and/or
changes to the Funds' portfolio holdings. The Exchange may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement, to the extent necessary.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
The Exchange will obtain a representation from each issuer of Shares
that the NAV per Share will be calculated on each business day that the
New York Stock Exchange is open for trading and that the NAV will be
made available to all market participants at the same time. In
addition, a large amount of information would be publicly available
regarding the Funds and the Shares, thereby promoting market
transparency.
Prior to the commencement of market trading in Shares, the Funds
will be required to establish and maintain a public Web site through
which the current prospectus for each Fund may be downloaded.\33\ In
addition, a separate Web site (www.nextshares.com) will include
additional Fund information updated on a daily basis, including the
prior business day's NAV, and the following trading information for
such business day expressed as premiums/discounts to NAV: (a) Intraday
high, low, average and closing prices of Shares in Exchange trading;
(b) the Closing Bid/Ask Midpoint; and (c) the Closing Bid/Ask Spread.
The Web site at www.nextshares.com will also contain charts showing the
frequency distribution and range of values of trading prices, Closing
Bid/Ask Midpoints and Closing Bid/Ask Spreads over time.
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\33\ See footnote 16.
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The Composition File will be disseminated through the NSCC before
the open of trading in Shares on each business day and also will be
made available to the public each day on a free Web site.\34\ The
Exchange will obtain a representation from the issuer of the Shares
that the IIV will be calculated and disseminated on an intraday basis
at intervals of not more than 15 minutes during trading on the Exchange
and provided to Nasdaq for dissemination via GIDS. A complete list of
current portfolio positions for the Funds will be made available at
least once each calendar quarter, with a reporting lag of not more than
60 days. Funds may provide more frequent disclosures of portfolio
positions at their discretion.
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\34\ See footnote 11.
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Transactions in Shares will be reported to the Consolidated Tape at
the time of execution in proxy price format and will be disseminated to
member firms and market data services through Nasdaq's trading service
and market data interfaces, as defined above. Once each Fund's daily
NAV has been calculated and the final price of its intraday Share
trades has been determined, Nasdaq will deliver a confirmation with
final pricing to the transacting parties. At the end of the day, Nasdaq
will also post a newly created FTP file with the final transaction data
for the trading and market data services. The Exchange expects that
information regarding NAV-based trading prices and volumes of Shares
traded will be continuously available on a real-time basis throughout
each trading day on brokers' computer screens and other electronic
services. Because Shares will trade at prices based on the next-
determined NAV, investors will be able to buy and sell individual
Shares at a known premium or discount to NAV that they can limit by
transacting using limit orders at the time of order entry. Trading in
Shares will be subject to Nasdaq Rules 5745(d)(2)(B) and (C), which
provide for the suspension of trading or trading halts under certain
circumstances, including if, in the view of the Exchange, trading in
Shares becomes inadvisable.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect
[[Page 49347]]
investors and the public interest in that it will facilitate the
listing and trading of the Funds, which seek to provide investors with
access to a broad range of actively managed investment strategies in a
structure that offers the cost and tax efficiencies and shareholder
protections of ETFs, while removing the requirement for daily portfolio
holdings disclosure to ensure a tight relationship between market
trading prices and NAV.
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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. In fact, the
Exchange believes that the introduction of the Funds would promote
competition by making available to investors a broad range of actively
managed investment strategies in a structure that offers the cost and
tax efficiencies and shareholder protections of ETFs, while removing
the requirement for daily portfolio holdings disclosure to ensure a
tight relationship between market trading prices and NAV. Moreover, the
Exchange believes that the proposed method of Share trading would
provide investors with transparency of trading costs, and the ability
to control trading costs using limit orders, that is not available for
conventionally traded ETFs.
These developments could significantly enhance competition to the
benefit of the markets and investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve or disapprove such proposed rule change; or (b)
institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-103 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-2016-103. 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-2016-103 and should
be submitted on or before August 17, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17671 Filed 7-26-16; 8:45 am]
BILLING CODE 8011-01-P
