Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of a Proposed Rule Change, As Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of the Shares of the Amplify Dow Theory Forecasts Buy List ETF of Amplify ETF Trust, 58983-58987 [2016-20453]
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Federal Register / Vol. 81, No. 166 / Friday, August 26, 2016 / Notices
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Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s Web site (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.40.
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2016–265; Filing
Title: Notice of the United States Postal
Service of Filing a Functionally
Equivalent Global Plus 1D Negotiated
Service Agreement and Application for
Non-Public Treatment of Materials Filed
Under Seal; Filing Acceptance Date:
August 22, 2016; Filing Authority: 39
CFR 3015.5 et seq.; Public
Representative: Natalie R. Ward;
Comments Due: August 30, 2016.
This notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
[FR Doc. 2016–20503 Filed 8–25–16; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78626; File No. SR–
NASDAQ–2016–072]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Approval of a Proposed Rule
Change, As Modified by Amendment
No. 1 Thereto, Relating to the Listing
and Trading of the Shares of the
Amplify Dow Theory Forecasts Buy
List ETF of Amplify ETF Trust
August 22, 2016.
I. Introduction
On May 10, 2016, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’ or ‘‘Exchange Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the Amplify Dow Theory
Forecasts Buy List ETF (‘‘Fund’’) of
Amplify ETF Trust (‘‘Trust’’). On May
20, 2016, the Exchange filed
Amendment No. 1 to the proposed rule
change. The proposed rule change, as
modified by Amendment No. 1 thereto,
was published for comment in the
Federal Register on May 31, 2016.3 On
July 5, 2016, pursuant to section 19(b)(2)
of the Act,4 the Commission designated
a longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
The Commission received no comment
letters on the proposed rule change.
This order grants approval of the
proposed rule change, as modified by
Amendment No. 1 thereto.
II. Exchange’s Description of the
Proposal
The Exchange proposes to list and
trade the Shares under Nasdaq Rule
5735, which governs the listing and
trading of Managed Fund Shares on the
Exchange. The Shares will be offered by
the Trust, which was established as a
Massachusetts business trust on January
6, 2015.6 According to the Exchange, the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77890
(May 24, 2016), 81 FR 34419 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 78225,
81 FR 44902 (July 11, 2016).
6 The Exchange represents that the Trust has
obtained certain exemptive relief under the
Investment Company Act of 1940 (‘‘1940 Act’’). See
Investment Company Act Release No. 31582 (April
28, 2015) (File No. 812–14423).
2 17
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58983
Trust is registered with the Commission
as an investment company and has filed
a registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.7 The Fund, which will be
an actively-managed exchange-traded
fund (‘‘ETF’’), will be a series of the
Trust.
Amplify Investments LLC will be the
investment adviser (‘‘Adviser’’) to the
Fund. The following entities will serve
as investment sub-advisers (collectively,
‘‘Sub-Adviser’’) to the Fund: Horizon
Investment Services, LLC (‘‘Horizon’’)
and Penserra Capital Management LLC
(‘‘Penserra’’). Quasar Distributors LLC
will be the principal underwriter and
distributor of the Fund’s Shares. U.S.
Bancorp Fund Services LLC will act as
the administrator, accounting agent,
custodian, and transfer agent to the
Fund. The Exchange represents that
neither the Adviser nor any Sub-Adviser
is a broker-dealer, although Penserra is
affiliated with a broker-dealer.8 Penserra
has implemented and will maintain a
fire wall with respect to its brokerdealer affiliate regarding access to
information concerning the composition
of, and changes to, the portfolio.
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategies, including the Fund’s
portfolio holdings and investment
restrictions.9
7 See Post-Effective Amendment No. 2 to
Registration Statement on Form N–1A for the Trust,
dated May 5, 2016 (File Nos. 333 207937 and 811
23108).
8 The Exchange further represents that Adviser
and Horizon are not currently affiliated with a
broker-dealer. In addition, the Exchange states that
personnel who make decisions on the Fund’s
portfolio composition will be subject to procedures
designed to prevent the use and dissemination of
material, non-public information regarding the
Fund’s portfolio. In the event (a) the Adviser or a
Sub-Adviser registers as a broker-dealer, or becomes
affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer
or becomes affiliated with another broker-dealer, it
will implement and will maintain a fire wall with
respect to its relevant personnel or broker-dealer
affiliate, as applicable, regarding access to
information concerning the composition of, and
changes to, the portfolio, and will be subject to
procedures designed to prevent the use and
dissemination of material, non-public information
regarding the portfolio.
9 The Commission notes that additional
information regarding the Trust, the Fund, and the
Shares, including investment strategies, risks, net
asset value (‘‘NAV’’) calculation, creation and
redemption procedures, fees, Fund holdings
disclosure policies, distributions, and taxes, among
other information, is included in the Notice, as
modified by Amendment No. 1 thereto, and the
Registration Statement, as applicable. See Notice
and Registration Statement, supra notes 3 and 7,
respectively, and accompanying text.
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A. Exchange’s Description of the Fund’s
Principal Investments
The investment objective of the Fund
will be to seek long-term capital
appreciation. Under normal market
conditions,10 the Fund will seek to
achieve its investment objective by
investing at least 90% of its net assets
(including investment borrowings) in
companies included in the buy list
(updated on a semi-weekly basis) (‘‘Buy
List’’) of the Dow Theory Forecasts, an
investment newsletter of Horizon
Publishing Company, LLC, an affiliate of
Horizon. In general, the Buy List
includes 25 to 40 U.S. exchange-traded
stocks. All of such stocks are large-cap
or mid-cap and are selected based on a
proprietary quantitative ranking system
known as Quadrix®. Quadrix® ranks
approximately 5,000 stocks and scores
target stocks based on their operating
momentum; valuation; long-term term
track record and financial strength;
earnings-estimate trends; and shareprice performance.
The Fund will seek diversification
among the ten economic sectors of the
U.S. stock market, and it is not
anticipated that more than 45% of the
portfolio will be invested in a single
sector. Horizon will select the Fund’s
portfolio securities from the Buy List.
Penserra will be responsible for
implementing the Fund’s investment
program by, among other things, trading
portfolio securities and performing
related services, rebalancing the Fund’s
portfolio, and providing cash
management services in accordance
with the investment advice formulated
by, and model portfolios delivered by,
the Adviser and Horizon.
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B. Exchange’s Description of the Fund’s
Other Investments
The Fund may invest the remaining
10% of its net assets in short-term debt
10 The term ‘‘under normal market conditions’’ as
used herein includes, but is not limited to, the
absence of adverse market, economic, political or
other conditions, including extreme volatility or
trading halts in the securities markets or the
financial markets generally; operational issues
causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
On a temporary basis, including for defensive
purposes, during the initial invest-up period and
during periods of high cash inflows or outflows, the
Fund may depart from its principal investment
strategies; for example, it may hold a higher than
normal proportion of its assets in cash. During such
periods, the Fund may not be able to achieve its
investment objective. The Fund may adopt a
defensive strategy when the Adviser or a SubAdviser believes securities in which the Fund
normally invests have elevated risks due to political
or economic factors and in other extraordinary
circumstances.
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securities and other short-term debt
instruments (described below), as well
as cash equivalents, or it may hold cash.
The percentage of the Fund invested in
such holdings or held in cash will vary
and will depend on several factors,
including market conditions. The Fund
may invest in the following short-term
debt instruments: 11 (1) Fixed rate and
floating rate U.S. government securities,
including bills, notes and bonds
differing as to maturity and rates of
interest, which are either issued or
guaranteed by the U.S. Treasury or by
U.S. government agencies or
instrumentalities; (2) certificates of
deposit issued against funds deposited
in a bank or savings and loan
association; (3) bankers’ acceptances,
which are short-term credit instruments
used to finance commercial
transactions; (4) repurchase
agreements,12 which involve purchases
of debt securities; (5) bank time
deposits, which are monies kept on
deposit with banks or savings and loan
associations for a stated period of time
at a fixed rate of interest; and (6)
commercial paper, which is short-term
unsecured promissory notes.13
The Fund may invest in the securities
of other ETFs and non-exchange listed
open-end investment companies
(referred to as ‘‘mutual funds’’),
including money market funds,14 that,
11 Short-term debt instruments are issued by
issuers having a long-term debt rating of at least A
by Standard & Poor’s Ratings Services, a Division
of The McGraw-Hill Companies, Inc. (‘‘S&P
Ratings’’), Moody’s Investors Service, Inc.
(‘‘Moody’s’’) or Fitch Ratings (‘‘Fitch’’) and have a
maturity of one year or less.
12 The Fund intends to enter into repurchase
agreements only with financial institutions and
dealers believed by the Adviser to present minimal
credit risks in accordance with criteria approved by
the Board of Trustees of the Trust. The Adviser will
review and monitor the creditworthiness of such
institutions. The Adviser will monitor the value of
the collateral at the time the transaction is entered
into and at all times during the term of the
repurchase agreement.
13 The Fund may only invest in commercial paper
rated A–1 or higher by S&P Ratings, Prime-1 or
higher by Moody’s, or F1 or higher by Fitch.
14 It is expected that any such mutual fund or ETF
will invest primarily in short-term fixed income
securities. ETFs included in the Fund will be listed
and traded in the U.S. on registered exchanges. The
Fund may invest in the securities of ETFs in excess
of the limits imposed under the 1940 Act pursuant
to exemptive orders obtained by other ETFs and
their sponsors from the Commission. In addition,
the Fund may invest in the securities of certain
other investment companies in excess of the limits
imposed under the 1940 Act pursuant to an
exemptive order that the Trust has obtained from
the Commission. The ETFs in which the Fund may
invest include Index Fund Shares (as described in
Nasdaq Rule 5705), Portfolio Depository Receipts
(as described in Nasdaq Rule 5705), and Managed
Fund Shares (as described in Nasdaq Rule 5735).
While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged or inverse
leveraged (e.g., 2X or -3X) ETFs.
PO 00000
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in each case, will be investment
companies registered under the 1940
Act.
C. Exchange’s Description of the Fund’s
Investment Restrictions
According to the Exchange, the Fund
may hold up to an aggregate amount of
15% of its net assets in illiquid assets
(calculated at the time of investment),
including securities deemed illiquid by
the Adviser or a Sub-Adviser.15 The
Fund will monitor its portfolio liquidity
on an ongoing basis to determine
whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
The Fund may not invest 25% or
more of the value of its total assets in
securities of issuers in any one industry
or group of industries (other than
securities issued or guaranteed by the
U.S. government, its agencies or
instrumentalities, or securities of other
investment companies), except that the
Fund may invest 25% or more of the
value of its total assets in securities of
issuers in a group of industries to
approximately the same extent that the
Buy List includes the securities of a
particular group of industries.16
All of the Fund’s net assets that are
invested in exchange-traded equity
securities (including common stocks
and ETFs) will be invested in securities
that are listed on a U.S. exchange.17 In
addition, the Fund will not invest in
derivative instruments, and the Fund’s
investments will be consistent with its
investment objective and will not be
used to enhance leverage.
15 In reaching liquidity decisions, the Adviser and
a Sub-Adviser may consider the following factors:
The frequency of trades and quotes for the security;
the number of dealers wishing to purchase or sell
the security and the number of other potential
purchasers; dealer undertakings to make a market
in the security; and the nature of the security and
the nature of the marketplace in which it trades
(e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of
transfer).
16 The Exchange further represents that the Fund
intends to qualify each year as a regulated
investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended.
17 The Fund will not invest in OTC secondary
market securities.
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III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal to list
and trade the Shares is consistent with
the Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange.18 In
particular, the Commission finds that
the proposed rule change, as modified
by Amendment No. 1 thereto, is
consistent with section 6(b)(5) of the
Exchange Act,19 which requires, among
other things, that the Exchange’s rules
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
The Commission also finds that the
proposal to list and trade the Shares on
the Exchange is consistent with section
11A(a)(1)(C)(iii) of the Exchange Act,20
which sets forth the finding of Congress
that it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure the
availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. According to the Exchange,
quotation and last-sale information for
the Shares will be available via Nasdaq
proprietary quote and trade services, as
well as in accordance with the Unlisted
Trading Privileges and the Consolidated
Tape Association (‘‘CTA’’) plans for the
Shares. On each business day, before
commencement of trading in Shares in
the Regular Market Session 21 on the
Exchange, the Fund will disclose on its
Web site the ‘‘Disclosed Portfolio,’’ as
defined in Nasdaq Rule 5735(c)(2), that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day.22 In addition, an
18 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78f(b)(5).
20 15 U.S.C. 78k–1(a)(1)(C)(iii).
21 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4:00 a.m. to 9:30 a.m., Eastern
Time; (2) Regular Market Session from 9:30 a.m. to
4:00 p.m. or 4:15 p.m., Eastern Time; and (3) PostMarket Session from 4:00 p.m. or 4:15 p.m. to 8:00
p.m., Eastern Time).
22 Under accounting procedures to be followed by
the Fund, trades made on the prior business day
(‘‘T’’) will be booked and reflected in NAV on the
current business day (‘‘T+1’’). Accordingly, the
Fund will be able to disclose at the beginning of the
business day the portfolio that will form the basis
for the NAV calculation at the end of the business
day. On a daily basis, the Fund will disclose on the
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estimated value, defined in Rule
5735(c)(3) as the ‘‘Intraday Indicative
Value,’’ that reflects an estimated
intraday value of the Fund’s Disclosed
Portfolio, will be disseminated. The
Intraday Indicative Value, which will be
made available on the NASDAQ OMX
Information LLC proprietary index data
service,23 will be based upon the current
value for the components of the
Disclosed Portfolio and will be updated
and widely disseminated by one or
more major market data vendors and
broadly displayed at least every 15
seconds during the Regular Market
Session. The Fund’s NAV will be
determined as of the close of regular
trading on the New York Stock
Exchange (‘‘NYSE’’) on each day the
NYSE is open for trading. If the NYSE
closes early on a valuation day, the NAV
will be determined as of that time.24
Fund’s Web site the following information
regarding each portfolio holding, as applicable to
the type of holding: Ticker symbol, CUSIP number
or other identifier, if any; a description of the
holding (including the type of holding); the identity
of the security or other asset or instrument
underlying the holding, if any; quantity held (as
measured by, for example, par value, notional value
or number of shares, contracts or units); maturity
date, if any; coupon rate, if any; effective date, if
any; market value of the holding; and percentage
weighting of the holding in the Fund’s portfolio.
The Web site information will be publicly available
at no charge.
23 According to the Exchange, the NASDAQ OMX
Global Index Data Service (‘‘GIDS’’) currently is the
NASDAQ OMX global index data feed service,
offering real-time updates, daily summary
messages, and access to widely followed indexes
and Intraday Indicative Values for ETFs. GIDS
provides investment professionals with the daily
information needed to track or trade NASDAQ
OMX indexes, listed ETFs, or third-party partner
indexes and ETFs.
24 According to the Exchange, equity securities
(including other ETFs) listed on a securities
exchange, market or automated quotation system for
which quotations are readily available (except for
securities traded on NASDAQ) will be valued at the
last reported sale price on the primary exchange or
market on which they are traded on the valuation
date (or at approximately 4:00 p.m., Eastern Time
if a security’s primary exchange is normally open
at that time). For a security that trades on multiple
exchanges, the primary exchange will generally be
considered to be the exchange on which the
security generally has the highest volume of trading
activity. If it is not possible to determine the last
reported sale price on the relevant exchange or
market on the valuation date, the value of the
security will be taken to be the most recent mean
between the bid and asked prices on such exchange
or market on the valuation date. Absent both bid
and asked prices on such exchange, the bid price
may be used. For securities traded on NASDAQ, the
official closing price will be used. If such prices are
not available, the security will be valued based on
values supplied by independent brokers or by fair
value pricing. Open-end investment companies
other than ETFs will be valued at NAV. Except as
provided below, short-term U.S. government
securities, commercial paper, and bankers’
acceptances, all as set forth under ‘‘Other
Investments’’ (collectively, ‘‘Short-Term Debt
Instruments’’) will typically be valued using
information provided by a pricing service. Pricing
services typically value non-exchange-traded
PO 00000
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58985
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. Quotation and
last-sale information for U.S. exchangetraded equity securities (including
common stocks and ETFs) will be
available from the exchanges on which
they are traded as well as in accordance
with any applicable CTA plans. Openend investment companies (other than
ETFs) are typically priced once each
business day and their prices will be
available through the applicable fund’s
Web site or from major market data
vendors. Pricing information for ShortTerm Debt Instruments, repurchase
agreements, certificates of deposit, and
bank time deposits will be available
from major broker-dealer firms, major
market data vendors, and pricing
services. Moreover, the Fund’s Web site,
which will be publicly available prior to
the public offering of Shares, will
include a form of the prospectus for the
Fund, as well as the Shares’ ticker,
CUSIP, and exchange information along
with additional quantitative information
updated on a daily basis, including, for
the Fund: (1) Daily trading volume, the
prior business day’s reported NAV and
closing price, mid-point of the bid/ask
spread at the time of calculation of such
NAV (‘‘Bid/Ask Price’’),25 and a
calculation of the premium and
discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
instruments utilizing a range of market-based inputs
and assumptions, including readily available
market quotations obtained from broker-dealers
making markets in such instruments, cash flows,
and transactions for comparable instruments. In
pricing certain instruments, the pricing services
may consider information about an instrument’s
issuer or market activity provided by the Adviser.
Short-Term Debt Instruments having a remaining
maturity of 60 days or less when purchased will
typically be valued at cost adjusted for amortization
of premiums and accretion of discounts, provided
the pricing committee of the Adviser has
determined that the use of amortized cost is an
appropriate reflection of value given market and
issuer-specific conditions existing at the time of the
determination. Certificates of deposit and bank time
deposits will typically be valued at cost. Overnight
repurchase agreements will be valued at amortized
cost when it represents the best estimate of value;
term repurchase agreements (i.e., those whose
maturity exceeds seven days) will be valued at the
average of the bid quotations obtained daily from
at least two recognized dealers.
25 The Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
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displaying the frequency distribution of
discounts and premiums of the daily
Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters.
The Commission believes that the
proposal to list and trade the Shares is
reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Exchange will obtain a representation
from the issuer of the Shares that the
NAV per Share will be calculated daily
and that the NAV and the Disclosed
Portfolio will be made available to all
market participants at the same time.
Nasdaq will halt trading in the Shares
under the conditions specified in
Nasdaq Rules 4120 and 4121, including
the trading pauses under Nasdaq Rules
4120(a)(11) and (12). Trading may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.26 Trading in the Shares also
will be subject to Rule 5735(d)(2)(D),
which sets forth circumstances under
which trading in the Shares of the Fund
may be halted. The Exchange represents
that it has a general policy prohibiting
the distribution of material, non-public
information by its employees. Further,
the Commission notes that the
Reporting Authority 27 that provides the
Disclosed Portfolio must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material, non-public
information regarding the actual
components of the portfolio.28 In
addition, Nasdaq Rule 5735(g) further
requires that personnel who make
decisions on the open-end fund’s
portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding the openend fund’s portfolio. The Exchange
states that Penserra is affiliated with a
broker-dealer, and has implemented a
fire wall with respect to its brokerdealer affiliate regarding access to
information concerning the composition
of, and changes to, the portfolio.29
26 These may include: (1) The extent to which
trading is not occurring in the securities and other
assets constituting the Disclosed Portfolio of the
Fund; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a
fair and orderly market are present.
27 Nasdaq Rule 5730(c)(4) defines ‘‘Reporting
Authority.’’
28 See Nasdaq Rule 5735(d)(2)(B)(ii).
29 See supra note 8 and accompanying text. The
Exchange further represents that an investment
adviser to an open-end fund is required to be
registered under the Investment Advisers Act of
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The Exchange represents that the
Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including the
following:
(1) The Shares will be subject to Rule
5735, which sets forth the initial and
continued listing criteria applicable to
Managed Fund Shares.
(2) Trading in the Shares will be
subject to the existing trading
surveillances, administered by both
Nasdaq and also the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, and these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.30
(3) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and the exchangetraded securities and instruments held
by the Fund (including common stocks
and ETFs) with other markets and other
entities that are members of the
Intermarket Surveillance Group
(‘‘ISG’’),31 and FINRA may obtain
trading information regarding trading in
the Shares and such exchange-traded
securities and instruments held by the
1940 (‘‘Advisers Act’’). As a result, the Adviser,
each Sub-Adviser, and their related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
30 The Exchange represents that FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement and that the Exchange is
responsible for FINRA’s performance under this
regulatory services agreement.
31 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
Fund from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares and the exchange-traded
securities and instruments held by the
Fund from markets and other entities
that are members of ISG, which includes
securities exchanges, or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
(4) All of the Fund’s net assets that are
invested in exchange-traded equity
securities (including common stocks
and ETFs) will be invested in securities
that trade in markets that are members
of ISG or are parties to a comprehensive
surveillance sharing agreement with the
Exchange. In addition, the Fund will not
invest in OTC secondary market
securities.
(5) The Fund will not invest in
derivative instruments, and the Fund’s
investments will be consistent with its
investment objective and will not be
used to enhance leverage.
(6) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(7) Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (b) Nasdaq Rule 2111A,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (c) how and by
whom the information regarding the
Intraday Indicative Value and the
Disclosed Portfolio is disseminated; (d)
the risks involved in trading the Shares
during the Pre-Market and Post-Market
Sessions when an updated Intraday
Indicative Value will not be calculated
or publicly disseminated; (e) the
requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(8) For initial and continued listing,
the Fund must be in compliance with
Rule 10A–3 under the Exchange Act.32
(9) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including
securities deemed illiquid by the
Adviser or a Sub-Adviser.33
32 See
33 See
E:\FR\FM\26AUN1.SGM
17 CFR 240.10A–3.
supra note 15 and accompanying text.
26AUN1
Federal Register / Vol. 81, No. 166 / Friday, August 26, 2016 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
(10) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading on the
Exchange.
(11) The Fund intends to enter into
repurchase agreements only with
financial institutions and dealers
believed by the Adviser to present
minimal credit risks in accordance with
criteria approved by the Board of
Trustees of the Trust. The Adviser will
review and monitor the
creditworthiness of such institutions
and will monitor the value of the
collateral at the time the transaction is
entered into and at all times during the
term of the repurchase agreement.
(12) The Fund may only invest in
commercial paper rated A–1 or higher
by S&P Ratings, Prime-1 or higher by
Moody’s, or F1 or higher by Fitch.
(13) While the Fund may invest in
inverse ETFs, the Fund will not invest
in leveraged or inverse leveraged (e.g.,
2X or -3X) ETFs.
The Commission notes that the Fund
and the Shares must comply with the
initial and continued listing criteria in
Nasdaq Rule 5735 for the Shares to be
listed and traded on the Exchange. In
addition, the Exchange represents that
all statements and representations made
in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange. In addition, the
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by the Fund to comply with the
continued listing requirements, and,
pursuant to its obligations under section
19(g)(1) of the Act, the Exchange will
monitor for compliance with the
continued listing requirements.34 If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under the Nasdaq 5800
Series. This approval order is based on
all of the Exchange’s representations,
including those set forth above and in
34 The Commission notes that certain other
proposals for the listing and trading of Managed
Fund Shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of a fund’s compliance
with the continued listing requirements. Therefore,
the Commission does not view ‘‘monitor’’ as a more
or less stringent obligation than ‘‘surveil’’ with
respect to the continued listing requirements.
VerDate Sep<11>2014
21:17 Aug 25, 2016
Jkt 238001
the Notice, as modified by Amendment
No. 1 to the proposed rule change.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1 thereto, is consistent with section
6(b)(5) of the Act,35 Section
11A(a)(1)(C)(iii) of the Act,36 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Conclusion
IT IS THEREFORE ORDERED,
pursuant to section 19(b)(2) of the
Exchange Act,37 that the proposed rule
change (SR–NASDAQ–2016–072), as
modified by Amendment No. 1 thereto,
be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–20453 Filed 8–25–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78635; File No. SR–
BatsEDGX–2016–45]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule
13.8, EDGX Book Feeds, To Adopt a
New Market Data Product Known as
EDGX Summary Depth
August 22, 2016.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
11, 2016, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders it effective upon filing
with the Commission. The Commission
is publishing this notice to solicit
35 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1)(C)(iii).
37 15 U.S.C. 78s(b)(2).
38 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
36 15
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
58987
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 13.8 to adopt a new market
data product known as EDGX Summary
Depth.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 13.8 to adopt a new market data
product known as EDGX Summary
Depth. EDGX Summary Depth would be
a data feed that offers aggregated twosided quotations for all displayed orders
entered into the System 5 for up to five
(5) price levels for securities traded on
the Exchange and for which the
Exchange reports quotes under the
Consolidated Tape Association (‘‘CTA’’)
Plan or the Nasdaq/UTP Plan. EDGX
Summary Depth also contains the
individual last sale information, Market
Status, Trading Status, and Trade Break
messages. The individual last sale
information will include the price, size,
and time of execution. The last sale
message will also include the
cumulative number of shares executed
on the Exchange for that trading day.
The Exchange will disseminate the
aggregate Best Bid and Offer (‘‘BBO’’)
and last sale information through EDGX
5 ‘‘System’’ is defined as the ‘‘the electronic
communications and trading facility designated by
the Board through which securities orders of Users
Are consolidated for ranking, execution and, when
applicable, routing away.’’ See Exchange Rule
1.5(aa).
E:\FR\FM\26AUN1.SGM
26AUN1
]]>Agencies
[Federal Register Volume 81, Number 166 (Friday, August 26, 2016)]
[Notices]
[Pages 58983-58987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20453]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78626; File No. SR-NASDAQ-2016-072]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, As Modified by Amendment
No. 1 Thereto, Relating to the Listing and Trading of the Shares of the
Amplify Dow Theory Forecasts Buy List ETF of Amplify ETF Trust
August 22, 2016.
I. Introduction
On May 10, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the Amplify Dow Theory Forecasts Buy List ETF
(``Fund'') of Amplify ETF Trust (``Trust''). On May 20, 2016, the
Exchange filed Amendment No. 1 to the proposed rule change. The
proposed rule change, as modified by Amendment No. 1 thereto, was
published for comment in the Federal Register on May 31, 2016.\3\ On
July 5, 2016, pursuant to section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission received no comment letters on the proposed
rule change. This order grants approval of the proposed rule change, as
modified by Amendment No. 1 thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 77890 (May 24,
2016), 81 FR 34419 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 78225, 81 FR 44902
(July 11, 2016).
---------------------------------------------------------------------------
II. Exchange's Description of the Proposal
The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5735, which governs the listing and trading of Managed Fund Shares
on the Exchange. The Shares will be offered by the Trust, which was
established as a Massachusetts business trust on January 6, 2015.\6\
According to the Exchange, the Trust is registered with the Commission
as an investment company and has filed a registration statement on Form
N-1A (``Registration Statement'') with the Commission.\7\ The Fund,
which will be an actively-managed exchange-traded fund (``ETF''), will
be a series of the Trust.
---------------------------------------------------------------------------
\6\ The Exchange represents that the Trust has obtained certain
exemptive relief under the Investment Company Act of 1940 (``1940
Act''). See Investment Company Act Release No. 31582 (April 28,
2015) (File No. 812-14423).
\7\ See Post-Effective Amendment No. 2 to Registration Statement
on Form N-1A for the Trust, dated May 5, 2016 (File Nos. 333 207937
and 811 23108).
---------------------------------------------------------------------------
Amplify Investments LLC will be the investment adviser
(``Adviser'') to the Fund. The following entities will serve as
investment sub-advisers (collectively, ``Sub-Adviser'') to the Fund:
Horizon Investment Services, LLC (``Horizon'') and Penserra Capital
Management LLC (``Penserra''). Quasar Distributors LLC will be the
principal underwriter and distributor of the Fund's Shares. U.S.
Bancorp Fund Services LLC will act as the administrator, accounting
agent, custodian, and transfer agent to the Fund. The Exchange
represents that neither the Adviser nor any Sub-Adviser is a broker-
dealer, although Penserra is affiliated with a broker-dealer.\8\
Penserra has implemented and will maintain a fire wall with respect to
its broker-dealer affiliate regarding access to information concerning
the composition of, and changes to, the portfolio.
---------------------------------------------------------------------------
\8\ The Exchange further represents that Adviser and Horizon are
not currently affiliated with a broker-dealer. In addition, the
Exchange states that personnel who make decisions on the Fund's
portfolio composition will be subject to procedures designed to
prevent the use and dissemination of material, non-public
information regarding the Fund's portfolio. In the event (a) the
Adviser or a Sub-Adviser registers as a broker-dealer, or becomes
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with
another broker-dealer, it will implement and will maintain a fire
wall with respect to its relevant personnel or broker-dealer
affiliate, as applicable, regarding access to information concerning
the composition of, and changes to, the portfolio, and will be
subject to procedures designed to prevent the use and dissemination
of material, non-public information regarding the portfolio.
---------------------------------------------------------------------------
The Exchange has made the following representations and statements
in describing the Fund and its investment strategies, including the
Fund's portfolio holdings and investment restrictions.\9\
---------------------------------------------------------------------------
\9\ The Commission notes that additional information regarding
the Trust, the Fund, and the Shares, including investment
strategies, risks, net asset value (``NAV'') calculation, creation
and redemption procedures, fees, Fund holdings disclosure policies,
distributions, and taxes, among other information, is included in
the Notice, as modified by Amendment No. 1 thereto, and the
Registration Statement, as applicable. See Notice and Registration
Statement, supra notes 3 and 7, respectively, and accompanying text.
---------------------------------------------------------------------------
[[Page 58984]]
A. Exchange's Description of the Fund's Principal Investments
The investment objective of the Fund will be to seek long-term
capital appreciation. Under normal market conditions,\10\ the Fund will
seek to achieve its investment objective by investing at least 90% of
its net assets (including investment borrowings) in companies included
in the buy list (updated on a semi-weekly basis) (``Buy List'') of the
Dow Theory Forecasts, an investment newsletter of Horizon Publishing
Company, LLC, an affiliate of Horizon. In general, the Buy List
includes 25 to 40 U.S. exchange-traded stocks. All of such stocks are
large-cap or mid-cap and are selected based on a proprietary
quantitative ranking system known as Quadrix[supreg]. Quadrix[supreg]
ranks approximately 5,000 stocks and scores target stocks based on
their operating momentum; valuation; long-term term track record and
financial strength; earnings-estimate trends; and share-price
performance.
---------------------------------------------------------------------------
\10\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the securities markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. On a temporary
basis, including for defensive purposes, during the initial invest-
up period and during periods of high cash inflows or outflows, the
Fund may depart from its principal investment strategies; for
example, it may hold a higher than normal proportion of its assets
in cash. During such periods, the Fund may not be able to achieve
its investment objective. The Fund may adopt a defensive strategy
when the Adviser or a Sub-Adviser believes securities in which the
Fund normally invests have elevated risks due to political or
economic factors and in other extraordinary circumstances.
---------------------------------------------------------------------------
The Fund will seek diversification among the ten economic sectors
of the U.S. stock market, and it is not anticipated that more than 45%
of the portfolio will be invested in a single sector. Horizon will
select the Fund's portfolio securities from the Buy List. Penserra will
be responsible for implementing the Fund's investment program by, among
other things, trading portfolio securities and performing related
services, rebalancing the Fund's portfolio, and providing cash
management services in accordance with the investment advice formulated
by, and model portfolios delivered by, the Adviser and Horizon.
B. Exchange's Description of the Fund's Other Investments
The Fund may invest the remaining 10% of its net assets in short-
term debt securities and other short-term debt instruments (described
below), as well as cash equivalents, or it may hold cash. The
percentage of the Fund invested in such holdings or held in cash will
vary and will depend on several factors, including market conditions.
The Fund may invest in the following short-term debt instruments: \11\
(1) Fixed rate and floating rate U.S. government securities, including
bills, notes and bonds differing as to maturity and rates of interest,
which are either issued or guaranteed by the U.S. Treasury or by U.S.
government agencies or instrumentalities; (2) certificates of deposit
issued against funds deposited in a bank or savings and loan
association; (3) bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions; (4) repurchase
agreements,\12\ which involve purchases of debt securities; (5) bank
time deposits, which are monies kept on deposit with banks or savings
and loan associations for a stated period of time at a fixed rate of
interest; and (6) commercial paper, which is short-term unsecured
promissory notes.\13\
---------------------------------------------------------------------------
\11\ Short-term debt instruments are issued by issuers having a
long-term debt rating of at least A by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch
Ratings (``Fitch'') and have a maturity of one year or less.
\12\ The Fund intends to enter into repurchase agreements only
with financial institutions and dealers believed by the Adviser to
present minimal credit risks in accordance with criteria approved by
the Board of Trustees of the Trust. The Adviser will review and
monitor the creditworthiness of such institutions. The Adviser will
monitor the value of the collateral at the time the transaction is
entered into and at all times during the term of the repurchase
agreement.
\13\ The Fund may only invest in commercial paper rated A-1 or
higher by S&P Ratings, Prime-1 or higher by Moody's, or F1 or higher
by Fitch.
---------------------------------------------------------------------------
The Fund may invest in the securities of other ETFs and non-
exchange listed open-end investment companies (referred to as ``mutual
funds''), including money market funds,\14\ that, in each case, will be
investment companies registered under the 1940 Act.
---------------------------------------------------------------------------
\14\ It is expected that any such mutual fund or ETF will invest
primarily in short-term fixed income securities. ETFs included in
the Fund will be listed and traded in the U.S. on registered
exchanges. The Fund may invest in the securities of ETFs in excess
of the limits imposed under the 1940 Act pursuant to exemptive
orders obtained by other ETFs and their sponsors from the
Commission. In addition, the Fund may invest in the securities of
certain other investment companies in excess of the limits imposed
under the 1940 Act pursuant to an exemptive order that the Trust has
obtained from the Commission. The ETFs in which the Fund may invest
include Index Fund Shares (as described in Nasdaq Rule 5705),
Portfolio Depository Receipts (as described in Nasdaq Rule 5705),
and Managed Fund Shares (as described in Nasdaq Rule 5735). While
the Fund may invest in inverse ETFs, the Fund will not invest in
leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
---------------------------------------------------------------------------
C. Exchange's Description of the Fund's Investment Restrictions
According to the Exchange, the Fund may hold up to an aggregate
amount of 15% of its net assets in illiquid assets (calculated at the
time of investment), including securities deemed illiquid by the
Adviser or a Sub-Adviser.\15\ The Fund will monitor its portfolio
liquidity on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity if, through a change in values, net assets, or other
circumstances, more than 15% of the Fund's net assets are held in
illiquid assets. Illiquid assets include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.
---------------------------------------------------------------------------
\15\ In reaching liquidity decisions, the Adviser and a Sub-
Adviser may consider the following factors: The frequency of trades
and quotes for the security; the number of dealers wishing to
purchase or sell the security and the number of other potential
purchasers; dealer undertakings to make a market in the security;
and the nature of the security and the nature of the marketplace in
which it trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer).
---------------------------------------------------------------------------
The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry or group of
industries (other than securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or securities of other
investment companies), except that the Fund may invest 25% or more of
the value of its total assets in securities of issuers in a group of
industries to approximately the same extent that the Buy List includes
the securities of a particular group of industries.\16\
---------------------------------------------------------------------------
\16\ The Exchange further represents that the Fund intends to
qualify each year as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended.
---------------------------------------------------------------------------
All of the Fund's net assets that are invested in exchange-traded
equity securities (including common stocks and ETFs) will be invested
in securities that are listed on a U.S. exchange.\17\ In addition, the
Fund will not invest in derivative instruments, and the Fund's
investments will be consistent with its investment objective and will
not be used to enhance leverage.
---------------------------------------------------------------------------
\17\ The Fund will not invest in OTC secondary market
securities.
---------------------------------------------------------------------------
[[Page 58985]]
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\18\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 1 thereto, is
consistent with section 6(b)(5) of the Exchange Act,\19\ which
requires, among other things, that the Exchange's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with section 11A(a)(1)(C)(iii) of
the Exchange Act,\20\ which sets forth the finding of Congress that it
is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure the
availability to brokers, dealers, and investors of information with
respect to quotations for and transactions in securities. According to
the Exchange, quotation and last-sale information for the Shares will
be available via Nasdaq proprietary quote and trade services, as well
as in accordance with the Unlisted Trading Privileges and the
Consolidated Tape Association (``CTA'') plans for the Shares. On each
business day, before commencement of trading in Shares in the Regular
Market Session \21\ on the Exchange, the Fund will disclose on its Web
site the ``Disclosed Portfolio,'' as defined in Nasdaq Rule 5735(c)(2),
that will form the basis for the Fund's calculation of NAV at the end
of the business day.\22\ In addition, an estimated value, defined in
Rule 5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's Disclosed Portfolio, will be
disseminated. The Intraday Indicative Value, which will be made
available on the NASDAQ OMX Information LLC proprietary index data
service,\23\ will be based upon the current value for the components of
the Disclosed Portfolio and will be updated and widely disseminated by
one or more major market data vendors and broadly displayed at least
every 15 seconds during the Regular Market Session. The Fund's NAV will
be determined as of the close of regular trading on the New York Stock
Exchange (``NYSE'') on each day the NYSE is open for trading. If the
NYSE closes early on a valuation day, the NAV will be determined as of
that time.\24\
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\20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\21\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to
9:30 a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m.
to 4:00 p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session
from 4:00 p.m. or 4:15 p.m. to 8:00 p.m., Eastern Time).
\22\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day. On a daily basis, the Fund will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of
the holding (including the type of holding); the identity of the
security or other asset or instrument underlying the holding, if
any; quantity held (as measured by, for example, par value, notional
value or number of shares, contracts or units); maturity date, if
any; coupon rate, if any; effective date, if any; market value of
the holding; and percentage weighting of the holding in the Fund's
portfolio. The Web site information will be publicly available at no
charge.
\23\ According to the Exchange, the NASDAQ OMX Global Index Data
Service (``GIDS'') currently is the NASDAQ OMX global index data
feed service, offering real-time updates, daily summary messages,
and access to widely followed indexes and Intraday Indicative Values
for ETFs. GIDS provides investment professionals with the daily
information needed to track or trade NASDAQ OMX indexes, listed
ETFs, or third-party partner indexes and ETFs.
\24\ According to the Exchange, equity securities (including
other ETFs) listed on a securities exchange, market or automated
quotation system for which quotations are readily available (except
for securities traded on NASDAQ) will be valued at the last reported
sale price on the primary exchange or market on which they are
traded on the valuation date (or at approximately 4:00 p.m., Eastern
Time if a security's primary exchange is normally open at that
time). For a security that trades on multiple exchanges, the primary
exchange will generally be considered to be the exchange on which
the security generally has the highest volume of trading activity.
If it is not possible to determine the last reported sale price on
the relevant exchange or market on the valuation date, the value of
the security will be taken to be the most recent mean between the
bid and asked prices on such exchange or market on the valuation
date. Absent both bid and asked prices on such exchange, the bid
price may be used. For securities traded on NASDAQ, the official
closing price will be used. If such prices are not available, the
security will be valued based on values supplied by independent
brokers or by fair value pricing. Open-end investment companies
other than ETFs will be valued at NAV. Except as provided below,
short-term U.S. government securities, commercial paper, and
bankers' acceptances, all as set forth under ``Other Investments''
(collectively, ``Short-Term Debt Instruments'') will typically be
valued using information provided by a pricing service. Pricing
services typically value non-exchange-traded instruments utilizing a
range of market-based inputs and assumptions, including readily
available market quotations obtained from broker-dealers making
markets in such instruments, cash flows, and transactions for
comparable instruments. In pricing certain instruments, the pricing
services may consider information about an instrument's issuer or
market activity provided by the Adviser. Short-Term Debt Instruments
having a remaining maturity of 60 days or less when purchased will
typically be valued at cost adjusted for amortization of premiums
and accretion of discounts, provided the pricing committee of the
Adviser has determined that the use of amortized cost is an
appropriate reflection of value given market and issuer-specific
conditions existing at the time of the determination. Certificates
of deposit and bank time deposits will typically be valued at cost.
Overnight repurchase agreements will be valued at amortized cost
when it represents the best estimate of value; term repurchase
agreements (i.e., those whose maturity exceeds seven days) will be
valued at the average of the bid quotations obtained daily from at
least two recognized dealers.
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Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for U.S.
exchange-traded equity securities (including common stocks and ETFs)
will be available from the exchanges on which they are traded as well
as in accordance with any applicable CTA plans. Open-end investment
companies (other than ETFs) are typically priced once each business day
and their prices will be available through the applicable fund's Web
site or from major market data vendors. Pricing information for Short-
Term Debt Instruments, repurchase agreements, certificates of deposit,
and bank time deposits will be available from major broker-dealer
firms, major market data vendors, and pricing services. Moreover, the
Fund's Web site, which will be publicly available prior to the public
offering of Shares, will include a form of the prospectus for the Fund,
as well as the Shares' ticker, CUSIP, and exchange information along
with additional quantitative information updated on a daily basis,
including, for the Fund: (1) Daily trading volume, the prior business
day's reported NAV and closing price, mid-point of the bid/ask spread
at the time of calculation of such NAV (``Bid/Ask Price''),\25\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format
[[Page 58986]]
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters.
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\25\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
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The Commission believes that the proposal to list and trade the
Shares is reasonably designed to promote fair disclosure of information
that may be necessary to price the Shares appropriately and to prevent
trading when a reasonable degree of transparency cannot be assured. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time. Nasdaq will halt trading in the Shares
under the conditions specified in Nasdaq Rules 4120 and 4121, including
the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may
be halted because of market conditions or for reasons that, in the view
of the Exchange, make trading in the Shares inadvisable.\26\ Trading in
the Shares also will be subject to Rule 5735(d)(2)(D), which sets forth
circumstances under which trading in the Shares of the Fund may be
halted. The Exchange represents that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. Further, the Commission notes that the Reporting Authority
\27\ that provides the Disclosed Portfolio must implement and maintain,
or be subject to, procedures designed to prevent the use and
dissemination of material, non-public information regarding the actual
components of the portfolio.\28\ In addition, Nasdaq Rule 5735(g)
further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the open-end fund's portfolio. The Exchange states that
Penserra is affiliated with a broker-dealer, and has implemented a fire
wall with respect to its broker-dealer affiliate regarding access to
information concerning the composition of, and changes to, the
portfolio.\29\
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\26\ These may include: (1) The extent to which trading is not
occurring in the securities and other assets constituting the
Disclosed Portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present.
\27\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
\28\ See Nasdaq Rule 5735(d)(2)(B)(ii).
\29\ See supra note 8 and accompanying text. The Exchange
further represents that an investment adviser to an open-end fund is
required to be registered under the Investment Advisers Act of 1940
(``Advisers Act''). As a result, the Adviser, each Sub-Adviser, and
their related personnel are subject to the provisions of Rule 204A-1
under the Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of ethics that reflects
the fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including the following:
(1) The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares.
(2) Trading in the Shares will be subject to the existing trading
surveillances, administered by both Nasdaq and also the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
and these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities
laws.\30\
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\30\ The Exchange represents that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund (including common stocks and ETFs) with
other markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''),\31\ and FINRA may obtain trading
information regarding trading in the Shares and such exchange-traded
securities and instruments held by the Fund from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and the exchange-traded securities and
instruments held by the Fund from markets and other entities that are
members of ISG, which includes securities exchanges, or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
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\31\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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(4) All of the Fund's net assets that are invested in exchange-
traded equity securities (including common stocks and ETFs) will be
invested in securities that trade in markets that are members of ISG or
are parties to a comprehensive surveillance sharing agreement with the
Exchange. In addition, the Fund will not invest in OTC secondary market
securities.
(5) The Fund will not invest in derivative instruments, and the
Fund's investments will be consistent with its investment objective and
will not be used to enhance leverage.
(6) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(7) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) The procedures for
purchases and redemptions of Shares in Creation Units (and that Shares
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how and by whom the
information regarding the Intraday Indicative Value and the Disclosed
Portfolio is disseminated; (d) the risks involved in trading the Shares
during the Pre-Market and Post-Market Sessions when an updated Intraday
Indicative Value will not be calculated or publicly disseminated; (e)
the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(8) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Exchange Act.\32\
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\32\ See 17 CFR 240.10A-3.
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(9) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including securities deemed illiquid by the Adviser or a Sub-
Adviser.\33\
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\33\ See supra note 15 and accompanying text.
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[[Page 58987]]
(10) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
(11) The Fund intends to enter into repurchase agreements only with
financial institutions and dealers believed by the Adviser to present
minimal credit risks in accordance with criteria approved by the Board
of Trustees of the Trust. The Adviser will review and monitor the
creditworthiness of such institutions and will monitor the value of the
collateral at the time the transaction is entered into and at all times
during the term of the repurchase agreement.
(12) The Fund may only invest in commercial paper rated A-1 or
higher by S&P Ratings, Prime-1 or higher by Moody's, or F1 or higher by
Fitch.
(13) While the Fund may invest in inverse ETFs, the Fund will not
invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
The Commission notes that the Fund and the Shares must comply with
the initial and continued listing criteria in Nasdaq Rule 5735 for the
Shares to be listed and traded on the Exchange. In addition, the
Exchange represents that all statements and representations made in
this filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures shall
constitute continued listing requirements for listing the Shares on the
Exchange. In addition, the issuer has represented to the Exchange that
it will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements, and, pursuant to its obligations
under section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements.\34\ If the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series. This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, as
modified by Amendment No. 1 to the proposed rule change.
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\34\ The Commission notes that certain other proposals for the
listing and trading of Managed Fund Shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015-
100). In the context of this representation, it is the Commission's
view that ``monitor'' and ``surveil'' both mean ongoing oversight of
a fund's compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
section 6(b)(5) of the Act,\35\ Section 11A(a)(1)(C)(iii) of the
Act,\36\ and the rules and regulations thereunder applicable to a
national securities exchange.
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\35\ 15 U.S.C. 78f(b)(5).
\36\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion
IT IS THEREFORE ORDERED, pursuant to section 19(b)(2) of the
Exchange Act,\37\ that the proposed rule change (SR-NASDAQ-2016-072),
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\37\ 15 U.S.C. 78s(b)(2).
\38\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20453 Filed 8-25-16; 8:45 am]
BILLING CODE 8011-01-P
