Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Certain Exchange-Traded Managed Funds, 86056-86060 [2016-28636]

Download as PDF asabaliauskas on DSK3SPTVN1PROD with NOTICES 86056 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices correspond pro rata to the positions in the Fund’s portfolio (including cash positions) except as specified in the application. 4. Because shares will not be individually redeemable, applicants request an exemption from section 5(a)(1) and section 2(a)(32) of the Act that would permit the Funds to register as open-end management investment companies and issue shares that are redeemable in Creation Units only. 5. Applicants also request an exemption from section 22(d) of the Act and rule 22c–1 under the Act as secondary market trading in shares will take place at negotiated prices, not at a current offering price described in a Fund’s prospectus, and not at a price based on NAV. Applicants state that (a) secondary market trading in shares does not involve a Fund as a party and will not result in dilution of an investment in shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in shares will not lead to discrimination or preferential treatment among purchasers. Finally, applicants represent that share market prices will be disciplined by arbitrage opportunities, which should prevent shares from trading at a material discount or premium from NAV. 6. With respect to Funds that effect creations and redemptions of Creation Units in kind and that are based on certain Underlying Indexes that include foreign securities, applicants request relief from the requirement imposed by section 22(e) in order to allow such Funds to pay redemption proceeds within fifteen calendar days following the tender of Creation Units for redemption. Applicants assert that the requested relief would not be inconsistent with the spirit and intent of section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. 7. Applicants request an exemption to permit Funds of Funds to acquire Fund shares beyond the limits of section 12(d)(1)(A) of the Act; and the Funds, and any principal underwriter for the Funds, and/or any broker or dealer registered under the Exchange Act, to sell shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. The application’s terms and conditions are designed to, among other things, help prevent any potential (i) undue influence over a Fund through control or voting power, or in connection with certain services, transactions, and underwritings, (ii) VerDate Sep<11>2014 17:48 Nov 28, 2016 Jkt 241001 excessive layering of fees, and (iii) overly complex fund structures, which are the concerns underlying the limits in sections 12(d)(1)(A) and (B) of the Act. 8. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act to permit persons that are Affiliated Persons, or Second Tier Affiliates, of the Funds, solely by virtue of certain ownership interests, to effectuate purchases and redemptions in-kind. The deposit procedures for in-kind purchases of Creation Units and the redemption procedures for in-kind redemptions of Creation Units will be the same for all purchases and redemptions and Deposit Instruments and Redemption Instruments will be valued in the same manner as those investment positions currently held by the Funds. Applicants also seek relief from the prohibitions on affiliated transactions in section 17(a) to permit a Fund to sell its shares to and redeem its shares from a Fund of Funds, and to engage in the accompanying in-kind transactions with the Fund of Funds.3 The purchase of Creation Units by a Fund of Funds directly from a Fund will be accomplished in accordance with the policies of the Fund of Funds and will be based on the NAVs of the Funds. 9. Section 6(c) of the Act permits the Commission to exempt any persons or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered 3 The requested relief would apply to direct sales of shares in Creation Units by a Fund to a Fund of Funds and redemptions of those shares. Applicants, moreover, are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Fund could be deemed an Affiliated Person, or a Second-Tier Affiliate, of a Fund of Funds because an Adviser or an entity controlling, controlled by or under common control with an Adviser provides investment advisory services to that Fund of Funds. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–28640 Filed 11–28–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79377; File No. SR– NASDAQ–2016–134] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Certain Exchange-Traded Managed Funds November 22, 2016. I. Introduction On September 28, 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’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the common shares (‘‘Shares’’) of the following ExchangeTraded Managed Funds: Gabelli ESG NextShares; Gabelli All Cap NextShares; Gabelli Equity Income NextShares; Gabelli Small and Mid Cap Value NextShares; and Gabelli Media Mogul NextShares (individually, ‘‘Fund,’’ and collectively, ‘‘Funds’’). The proposed rule change was published for comment in the Federal Register on October 17, 2016.3 On October 18, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79082 (Oct. 11, 2016), 81 FR 71549 (‘‘Notice’’). 4 In Amendment No. 1 to the proposed rule change, the Exchange: (a) Identified the public Web sites on which certain information about the Funds would be available; (b) discussed the obligations of the Adviser and its related personnel under the Advisers Act (as defined herein); (c) noted that the Bank of New York Mellon would act as custodian and transfer agent for the Funds; (d) clarified certain investment strategies of the Funds; and (e) made other technical, non-substantive corrections in the proposed rule change. Amendment No. 1 is available at https://www.sec.gov/comments/srnasdaq-2016-134/nasdaq2016134-1.pdf. Because Amendment No. 1 to the proposed rule change does not materially alter the substance of the proposed rule change or raise unique or novel regulatory issues, Amendment No. 1 is not subject to notice and comment. 2 17 E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices The Commission received no comments on the proposed rule change. This order grants approval of the proposed rule change, as modified by Amendment No. 1. II. Exchange’s Description of the Proposed Rule Change 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, which are defined in Nasdaq Rule 5745(c)(1). Each Fund is a series of Gabelli NextShares Trust (‘‘Trust’’).5 The Exchange represents that 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.6 Gabelli Funds, LLC (‘‘Adviser’’) will be the adviser to the Funds. G.distributors, LLC will be the principal underwriter and distributor of each Fund’s Shares. The Bank of New York Mellon will act as custodian and transfer agent. BNY Mellon Investment Servicing (US) Inc. will act as the subadministrator to the Funds. The Exchange has made the following representations and statements in describing the Funds.7 asabaliauskas on DSK3SPTVN1PROD with NOTICES A. Principal Investment Strategies of the Funds According to the Exchange, each Fund will be actively managed and will pursue the various principal investment strategies described below.8 5 According to the Exchange, the Trust and certain affiliates of the Trusts have obtained exemptive relief under the Investment Company Act of 1940 (‘‘1940 Act’’). See Investment Company Act Release No. 31608 (May 19, 2015) (File No. 812–14438). The Exchange represents that, 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 1940 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. 6 See Registration Statement on Form N–1A for the Trust dated June 6, 2016 (File Nos. 333–211881 and 811–23160). 7 The Commission notes that additional information regarding the Trust, the Funds, and the Shares, including investment strategies, risks, creation and redemption procedures, calculation of net asset value (‘‘NAV’’), fees, distributions, and taxes, among other things, can be found in the Notice, Amendment No. 1, and Registration Statement, as applicable. See supra notes 3, 4, and 6, respectively, and accompanying text. 8 According to the Exchange, additional information regarding the Funds also will be available on one of two public Web sites for the Funds. VerDate Sep<11>2014 17:48 Nov 28, 2016 Jkt 241001 1. Gabelli ESG NextShares (‘‘Gabelli ESG Fund’’) The Gabelli ESG Fund seeks to provide capital appreciation. The Gabelli ESG Fund will seek to achieve its objective by investing substantially all, and in any case no less than 80%, of its net assets (plus borrowings for investment purposes) in common and preferred stocks of companies that meet the Gabelli ESG Fund’s guidelines for social responsibility at the time of investment. Pursuant to its social responsibility guidelines, the Gabelli ESG Fund will not invest in publicly traded fossil fuel (coal, oil, and gas) companies, the top 50 defense/weapons contractors, or in companies that derive more than 5% of their revenues from the following areas: Tobacco, alcohol, gaming, defense/weapons production, and companies involved in the manufacture of abortion-related products. 2. Gabelli All Cap NextShares (‘‘Gabelli All Cap Fund’’) The Gabelli All Cap Fund primarily seeks to provide capital appreciation. Under normal market conditions, the Gabelli All Cap Fund will invest at least 80% of its net assets plus borrowings for investment purposes in common stocks and preferred stocks of companies of all capitalization ranges that are listed on a recognized securities exchange or similar market. The Gabelli All Cap Fund may also invest in common and preferred securities of foreign issuers. 3. Gabelli Equity Income NextShares (‘‘Gabelli Equity Income Fund’’) The Gabelli Equity Income Fund seeks a high level of total return on its assets with an emphasis on income. The Gabelli Equity Income Fund will seek to achieve its investment objective through a combination of capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets plus borrowings for investment purposes in incomeproducing equity securities. Incomeproducing equity securities include, for example, common stock and preferred stock. 4. Gabelli Small and Mid Cap Value NextShares (‘‘Gabelli Small and Mid Cap Value Fund’’) The Gabelli Small and Mid Cap Value Fund seeks long-term capital growth. Under normal market conditions, the Gabelli Small and Mid Cap Value Fund will invest at least 80% of its net assets plus borrowings for investment purposes in equity securities (such as common stock and preferred stock) of companies with small or medium-sized PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 86057 market capitalizations (‘‘small cap’’ and ‘‘mid cap’’ companies, respectively). The Gabelli Small and Mid Cap Value Fund defines ‘‘small cap companies’’ as those with a market capitalization generally less than $3 billion at the time of investment and ‘‘mid cap companies’’ as those with a market capitalization between $3 billion and $12 billion at the time of investment. The Gabelli Small and Mid Cap Value Fund may invest in the equity securities of companies of any market capitalization, subject to its policy of investing at least 80% of its net assets in the equity securities of small-cap and mid-cap companies at the time of investment. In addition, the Gabelli Small and Mid Cap Value Fund may invest up to 25% of its total assets in securities of issuers in a single industry. 5. Gabelli Media Mogul NextShares (‘‘Gabelli Media Mogul Fund’’) The Gabelli Media Mogul Fund seeks to provide capital appreciation. Under normal market conditions, the Fund will invest at least 80% of net assets plus borrowings for investment purposes in (a) companies that were spun-off from Liberty Media Corporation as constituted in 2001, (b) companies that resulted from subsequent mergers of any of those spinoffs, (c) stocks that track performance of those spin-offs or companies that resulted from subsequent mergers of any of those spin-offs, and (d) public companies in which Liberty Media Corporation and its successor companies invest. The current set of companies in which the Fund may invest includes U.S. and non-U.S. listed companies in the telecommunications, media, publishing, and entertainment industries. B. Portfolio Disclosure and Composition File 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. As defined in Nasdaq Rule 5745(c)(3), the ‘‘Composition File’’ is the specified portfolio of securities, cash, or both that a Fund will accept as a deposit in issuing a Creation Unit of Shares, and the specified portfolio of securities, cash, or both that a Fund will deliver in a redemption of a Creation Unit of Shares. The Composition File will be disseminated through the National E:\FR\FM\29NON1.SGM 29NON1 86058 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices Securities Clearing Corporation once each business day before the open of trading in Shares on that day and also will be made available to the public each day on a free Web site.9 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 a 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 not include any of the securities in the Fund’s portfolio.10 asabaliauskas on DSK3SPTVN1PROD with NOTICES C. Intraday Indicative Value 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 11 when Shares trade on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the Intraday Indicative Value will be calculated on an intraday basis and provided to Nasdaq for dissemination via the Nasdaq Global Index Service. The Intraday Indicative Value will be based 9 The free Web site containing the Composition File will be www.nextshares.com. 10 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. 11 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 or ‘‘E.T.’’; (2) Regular Market Session from 9:30 a.m. to 4:00 p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4:00 p.m. or 4:15 p.m. to 8:00 p.m. E.T.). VerDate Sep<11>2014 17:48 Nov 28, 2016 Jkt 241001 on current information regarding the value of the securities and other assets held by a Fund.12 The purpose of the Intraday Indicative Value 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?).13 D. NAV-Based Trading Shares of a Fund will be purchased and sold in the secondary market at prices directly linked to the Fund’s next-determined NAV using a trading protocol called ‘‘NAV-Based Trading.’’ All bids, offers, and execution prices of Shares will be expressed as a premium or discount (which may be zero) to a Fund’s next-determined NAV (e.g., NAV-$0.01, NAV+$0.01).14 Each 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. Nasdaq represents that all Shares listed on the Exchange will have a unique identifier associated with their ticker symbols, which will indicate that the Shares are traded using NAV-Based Trading. According to the Exchange, 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 12 The Intraday Indicative Values 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. 13 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 Intraday Indicative Values 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. 14 According to the Exchange, 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. PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 shares of other listed securities.15 In the systems used to transmit and process transactions in Shares, a Fund’s nextdetermined NAV will be represented by a proxy price (e.g., 100.00) and a premium or discount of a stated amount to the next-determined NAV to be represented by the same increment or 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 represents that it 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. 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 may 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/NAV+$0.01’’ (or similar) display format. Alternatively, member firms may 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. 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. 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 Act and the rules and regulations thereunder applicable to a national securities exchange.16 In particular, the Commission finds that the proposed rule change is consistent with Section 15 According to the Exchange, all orders to buy or sell Shares that are not executed on the day the order is submitted will be automatically canceled as of the close of trading on that 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. 16 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). E:\FR\FM\29NON1.SGM 29NON1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices 6(b)(5) of the Act,17 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 foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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 Shares will be subject to Rule 5745, which sets forth the initial and continued listing criteria applicable to Exchange-Traded Managed Fund Shares. 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. Nasdaq deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. 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 provides that the order will be canceled at any point if it exceeds $101.00 or falls below $99.00, the established thresholds.18 With certain exceptions, each order also must contain the applicable order attributes, including routing instructions and timein-force information, as described in Nasdaq Rule 4703.19 Nasdaq also represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.20 The Exchange represents that its surveillance 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. FINRA, on behalf of the Exchange, will communicate as needed with other markets and other entities that are members of the Intermarket 17 15 U.S.C. 78f(b)(5). Nasdaq Rule 5745(h). 19 See Nasdaq Rule 5745(b)(6). 20 The Exchange states that FINRA provides surveillance of 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. Surveillance Group (‘‘ISG’’) 21 regarding trading in the Shares, and in exchangetraded securities and instruments held by the Funds (to the extent those 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 from other markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, and in exchange-traded securities and instruments held by the Funds (to the extent those 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. 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) the dissemination of information regarding the Intraday Indicative Value and Composition File; (d) the requirement that members deliver a prospectus to investors purchasing Shares prior to or concurrently with the confirmation of a transaction; and (e) information regarding NAV-Based Trading protocols. The Information Circular also will identify the specific Nasdaq data feeds from which intraday Share prices in proxy price format may be obtained. As noted above, all orders to buy or sell Shares that are not executed on the day the order is submitted will be automatically canceled as of the close of trading on that day. The Information Circular will discuss the effect of this characteristic on existing order types. In addition, Nasdaq intends to provide its members with a detailed explanation of NAV-Based Trading through a Trading 18 See VerDate Sep<11>2014 17:48 Nov 28, 2016 Jkt 241001 21 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. PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 86059 Alert issued prior to the commencement of trading in Shares on the Exchange. Nasdaq states that the Adviser is not a registered broker-dealer, although it is affiliated with a broker-dealer.22 The Exchange represents that the Adviser has implemented a fire wall with respect to its affiliated broker-dealer regarding access to information concerning the composition of, and changes to, each Fund’s portfolio.23 The Reporting Authority 24 will ensure that the Composition File will implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding each Fund’s portfolio positions and changes in the positions. In the event that (a) the Adviser registers as a broker-dealer or becomes newly affiliated with a brokerdealer, or (b) any new adviser or a subadviser to a Fund is a registered brokerdealer or becomes affiliated with a broker-dealer, the applicable entity will implement a fire wall with respect to its relevant personnel and broker-dealer affiliate, as the case may be, regarding access to information concerning the composition of, and 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 the portfolio. 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 Act,25 which sets forth Congress’ finding that it is in the public interest and appropriate for the 22 See Notice, supra note 3, 81 FR at 71550. id. 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 and its related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of nonpublic information by an investment adviser must be consistent with 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. 24 See Nasdaq Rule 5745(c)(4). 25 15 U.S.C. 78k–1(a)(1)(C)(iii). 23 See E:\FR\FM\29NON1.SGM 29NON1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 86060 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices 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. Information regarding NAV-based trading prices, best bids and offers for Shares, and volume of Shares traded will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. 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 and separately disseminated to member firms and market data services through the Exchange data feeds. 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 or minus the trade’s executed premium or 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 26 that will be created for exchange-traded managed funds and that will be confirmed to the member firms participating in the trade to supplement the previously provided information with final pricing. 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 so that all firms will receive the NAV per share at the same time. The Exchange further represents that it 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 that, 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 26 According to Nasdaq, 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. VerDate Sep<11>2014 17:48 Nov 28, 2016 Jkt 241001 trading halt, Nasdaq has in place backup processes and procedures to ensure orderly trading. Prior to the commencement of market trading in Shares, each Fund will be required to establish and maintain a public Web site through which its current prospectus may be downloaded. In addition, a separate Web site (www.nextshares.com) will include the prior business day’s NAV, and the following trading information for that business day expressed as premiums or 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 or discount to NAV (‘‘Closing Bid/Ask Midpoint’’); and (c) the spread between highest bid and lowest offer prices as of the close of Exchange trading (‘‘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 Exchange represents that 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.27 If a Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Nasdaq Rules 5800, et seq. This approval order is based on all of the Exchange’s representations, including those set forth above, in the 27 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. PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 Notice and Amendment No. 1,28 and the Exchange’s description of the Funds. The Commission notes that the Funds and the Shares must comply with the requirements of Nasdaq Rule 5745 and the conditions set forth in this proposed rule change to be listed and traded on the Exchange on an initial and continuing basis. For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act 29 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 Act,30 that the proposed rule change (SR–NASDAQ– 2016–134), as modified by Amendment No. 1, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–28636 Filed 11–28–16; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #14958 and #14959] Virginia Disaster Number VA–00065 U.S. Small Business Administration. ACTION: Amendment 2. AGENCY: This is an amendment of the Presidential declaration of a major disaster for the Commonwealth of Virginia (FEMA–4291–DR), dated 11/ 02/2016. Incident: Hurricane Matthew. Incident Period: 10/07/2016 through 10/15/2016. EFFECTIVE DATES: 11/17/2016. Physical Loan Application Deadline Date: 01/03/2017. EIDL Loan Application Deadline Date: 08/02/2017. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUMMARY: 28 See supra notes 3 and 4, respectively. U.S.C. 78f(b)(5). 30 15 U.S.C. 78s(b)(2). 31 17 CFR 200.30–3(a)(12). 29 15 E:\FR\FM\29NON1.SGM 29NON1

Agencies

[Federal Register Volume 81, Number 229 (Tuesday, November 29, 2016)]
[Notices]
[Pages 86056-86060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28636]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79377; File No. SR-NASDAQ-2016-134]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1, To List and Trade Certain Exchange-Traded Managed Funds

November 22, 2016.

I. Introduction

    On September 28, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the common shares (``Shares'') 
of the following Exchange-Traded Managed Funds: Gabelli ESG NextShares; 
Gabelli All Cap NextShares; Gabelli Equity Income NextShares; Gabelli 
Small and Mid Cap Value NextShares; and Gabelli Media Mogul NextShares 
(individually, ``Fund,'' and collectively, ``Funds''). The proposed 
rule change was published for comment in the Federal Register on 
October 17, 2016.\3\ On October 18, 2016, the Exchange filed Amendment 
No. 1 to the proposed rule change.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79082 (Oct. 11, 
2016), 81 FR 71549 (``Notice'').
    \4\ In Amendment No. 1 to the proposed rule change, the 
Exchange: (a) Identified the public Web sites on which certain 
information about the Funds would be available; (b) discussed the 
obligations of the Adviser and its related personnel under the 
Advisers Act (as defined herein); (c) noted that the Bank of New 
York Mellon would act as custodian and transfer agent for the Funds; 
(d) clarified certain investment strategies of the Funds; and (e) 
made other technical, non-substantive corrections in the proposed 
rule change. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2016-134/nasdaq2016134-1.pdf. Because Amendment 
No. 1 to the proposed rule change does not materially alter the 
substance of the proposed rule change or raise unique or novel 
regulatory issues, Amendment No. 1 is not subject to notice and 
comment.

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[[Page 86057]]

    The Commission received no comments on the proposed rule change. 
This order grants approval of the proposed rule change, as modified by 
Amendment No. 1.

II. Exchange's Description of the Proposed Rule Change

    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, which are defined in Nasdaq Rule 
5745(c)(1). Each Fund is a series of Gabelli NextShares Trust 
(``Trust'').\5\ The Exchange represents that 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.\6\
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    \5\ According to the Exchange, the Trust and certain affiliates 
of the Trusts have obtained exemptive relief under the Investment 
Company Act of 1940 (``1940 Act''). See Investment Company Act 
Release No. 31608 (May 19, 2015) (File No. 812-14438). The Exchange 
represents that, 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 1940 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.
    \6\ See Registration Statement on Form N-1A for the Trust dated 
June 6, 2016 (File Nos. 333-211881 and 811-23160).
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    Gabelli Funds, LLC (``Adviser'') will be the adviser to the Funds. 
G.distributors, LLC will be the principal underwriter and distributor 
of each Fund's Shares. The Bank of New York Mellon will act as 
custodian and transfer agent. BNY Mellon Investment Servicing (US) Inc. 
will act as the sub-administrator to the Funds.
    The Exchange has made the following representations and statements 
in describing the Funds.\7\
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    \7\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including investment 
strategies, risks, creation and redemption procedures, calculation 
of net asset value (``NAV''), fees, distributions, and taxes, among 
other things, can be found in the Notice, Amendment No. 1, and 
Registration Statement, as applicable. See supra notes 3, 4, and 6, 
respectively, and accompanying text.
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A. Principal Investment Strategies of the Funds

    According to the Exchange, each Fund will be actively managed and 
will pursue the various principal investment strategies described 
below.\8\
---------------------------------------------------------------------------

    \8\ According to the Exchange, additional information regarding 
the Funds also will be available on one of two public Web sites for 
the Funds.
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1. Gabelli ESG NextShares (``Gabelli ESG Fund'')
    The Gabelli ESG Fund seeks to provide capital appreciation. The 
Gabelli ESG Fund will seek to achieve its objective by investing 
substantially all, and in any case no less than 80%, of its net assets 
(plus borrowings for investment purposes) in common and preferred 
stocks of companies that meet the Gabelli ESG Fund's guidelines for 
social responsibility at the time of investment. Pursuant to its social 
responsibility guidelines, the Gabelli ESG Fund will not invest in 
publicly traded fossil fuel (coal, oil, and gas) companies, the top 50 
defense/weapons contractors, or in companies that derive more than 5% 
of their revenues from the following areas: Tobacco, alcohol, gaming, 
defense/weapons production, and companies involved in the manufacture 
of abortion-related products.
2. Gabelli All Cap NextShares (``Gabelli All Cap Fund'')
    The Gabelli All Cap Fund primarily seeks to provide capital 
appreciation. Under normal market conditions, the Gabelli All Cap Fund 
will invest at least 80% of its net assets plus borrowings for 
investment purposes in common stocks and preferred stocks of companies 
of all capitalization ranges that are listed on a recognized securities 
exchange or similar market. The Gabelli All Cap Fund may also invest in 
common and preferred securities of foreign issuers.
3. Gabelli Equity Income NextShares (``Gabelli Equity Income Fund'')
    The Gabelli Equity Income Fund seeks a high level of total return 
on its assets with an emphasis on income. The Gabelli Equity Income 
Fund will seek to achieve its investment objective through a 
combination of capital appreciation and current income by investing, 
under normal market conditions, at least 80% of its net assets plus 
borrowings for investment purposes in income-producing equity 
securities. Income-producing equity securities include, for example, 
common stock and preferred stock.
4. Gabelli Small and Mid Cap Value NextShares (``Gabelli Small and Mid 
Cap Value Fund'')
    The Gabelli Small and Mid Cap Value Fund seeks long-term capital 
growth. Under normal market conditions, the Gabelli Small and Mid Cap 
Value Fund will invest at least 80% of its net assets plus borrowings 
for investment purposes in equity securities (such as common stock and 
preferred stock) of companies with small or medium-sized market 
capitalizations (``small cap'' and ``mid cap'' companies, 
respectively). The Gabelli Small and Mid Cap Value Fund defines ``small 
cap companies'' as those with a market capitalization generally less 
than $3 billion at the time of investment and ``mid cap companies'' as 
those with a market capitalization between $3 billion and $12 billion 
at the time of investment. The Gabelli Small and Mid Cap Value Fund may 
invest in the equity securities of companies of any market 
capitalization, subject to its policy of investing at least 80% of its 
net assets in the equity securities of small-cap and mid-cap companies 
at the time of investment. In addition, the Gabelli Small and Mid Cap 
Value Fund may invest up to 25% of its total assets in securities of 
issuers in a single industry.
5. Gabelli Media Mogul NextShares (``Gabelli Media Mogul Fund'')
    The Gabelli Media Mogul Fund seeks to provide capital appreciation. 
Under normal market conditions, the Fund will invest at least 80% of 
net assets plus borrowings for investment purposes in (a) companies 
that were spun-off from Liberty Media Corporation  as constituted in 
2001, (b) companies that resulted from subsequent mergers of any of 
those spin-offs, (c) stocks that track performance of those spin-offs 
or  companies that resulted from subsequent mergers of any of those 
spin-offs, and (d) public companies in which Liberty Media Corporation 
and its successor companies invest. The current set of companies in 
which the Fund may invest includes U.S. and non-U.S. listed companies 
in the telecommunications, media, publishing, and entertainment 
industries.
B. Portfolio Disclosure and Composition File
    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.
    As defined in Nasdaq Rule 5745(c)(3), the ``Composition File'' is 
the specified portfolio of securities, cash, or both that a Fund will 
accept as a deposit in issuing a Creation Unit of Shares, and the 
specified portfolio of securities, cash, or both that a Fund will 
deliver in a redemption of a Creation Unit of Shares. The Composition 
File will be disseminated through the National

[[Page 86058]]

Securities Clearing Corporation once each business day before the open 
of trading in Shares on that day and also will be made available to the 
public each day on a free Web site.\9\
---------------------------------------------------------------------------

    \9\ The free Web site containing the Composition File will be 
www.nextshares.com.
---------------------------------------------------------------------------

    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 a 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 not 
include any of the securities in the Fund's portfolio.\10\
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    \10\ 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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C. Intraday Indicative Value
    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 \11\ when Shares trade on the 
Exchange. The Exchange will obtain a representation from the issuer of 
the Shares that the Intraday Indicative Value will be calculated on an 
intraday basis and provided to Nasdaq for dissemination via the Nasdaq 
Global Index Service. The Intraday Indicative Value will be based on 
current information regarding the value of the securities and other 
assets held by a Fund.\12\ The purpose of the Intraday Indicative Value 
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?).\13\
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    \11\ 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 or ``E.T.''; (2) Regular Market Session from 
9:30 a.m. to 4:00 p.m. or 4:15 p.m. E.T.; and (3) Post-Market 
Session from 4:00 p.m. or 4:15 p.m. to 8:00 p.m. E.T.).
    \12\ The Intraday Indicative Values 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.
    \13\ 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 Intraday Indicative Values 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.
---------------------------------------------------------------------------

D. NAV-Based Trading
    Shares of a Fund will be purchased and sold in the secondary market 
at prices directly linked to the Fund's next-determined NAV using a 
trading protocol called ``NAV-Based Trading.'' All bids, offers, and 
execution prices of Shares will be expressed as a premium or discount 
(which may be zero) to a Fund's next-determined NAV (e.g., NAV-$0.01, 
NAV+$0.01).\14\ Each Fund's NAV will be determined each business day, 
normally as of 4:00 p.m. E.T.
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    \14\ According to the Exchange, 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.
---------------------------------------------------------------------------

    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. Nasdaq represents that all Shares listed on the 
Exchange will have a unique identifier associated with their ticker 
symbols, which will indicate that the Shares are traded using NAV-Based 
Trading.
    According to the Exchange, 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.\15\ 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 or discount 
of a stated amount to the next-determined NAV to be represented by the 
same increment or 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).
---------------------------------------------------------------------------

    \15\ According to the Exchange, all orders to buy or sell Shares 
that are not executed on the day the order is submitted will be 
automatically canceled as of the close of trading on that 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.
---------------------------------------------------------------------------

    To avoid potential investor confusion, Nasdaq represents that it 
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. 
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 may 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/NAV+$0.01'' (or similar) display format. 
Alternatively, member firms may 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. 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.

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 Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposed rule change is consistent with Section

[[Page 86059]]

6(b)(5) of the Act,\17\ 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 foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, 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.
---------------------------------------------------------------------------

    \16\ 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).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Shares will be subject to Rule 5745, which sets forth the 
initial and continued listing criteria applicable to Exchange-Traded 
Managed Fund Shares. 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.
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities. 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 provides that the order will be canceled at 
any point if it exceeds $101.00 or falls below $99.00, the established 
thresholds.\18\ 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.\19\
---------------------------------------------------------------------------

    \18\ See Nasdaq Rule 5745(h).
    \19\ See Nasdaq Rule 5745(b)(6).
---------------------------------------------------------------------------

    Nasdaq also represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
the Financial Industry Regulatory Authority (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\20\ The Exchange represents 
that its surveillance 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. 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'') \21\ regarding trading in the Shares, and in exchange-traded 
securities and instruments held by the Funds (to the extent those 
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 
from other markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares, and in exchange-
traded securities and instruments held by the Funds (to the extent 
those 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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    \20\ The Exchange states that FINRA provides surveillance of 
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.
    \21\ 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.
---------------------------------------------------------------------------

    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) the dissemination of 
information regarding the Intraday Indicative Value and Composition 
File; (d) the requirement that members deliver a prospectus to 
investors purchasing Shares prior to or concurrently with the 
confirmation of a transaction; and (e) information regarding NAV-Based 
Trading protocols.
    The Information Circular also will identify the specific Nasdaq 
data feeds from which intraday Share prices in proxy price format may 
be obtained. As noted above, all orders to buy or sell Shares that are 
not executed on the day the order is submitted will be automatically 
canceled as of the close of trading on that day. The Information 
Circular will discuss the effect of this characteristic on existing 
order types. In addition, 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.
    Nasdaq states that the Adviser is not a registered broker-dealer, 
although it is affiliated with a broker-dealer.\22\ The Exchange 
represents that the Adviser has implemented a fire wall with respect to 
its affiliated broker-dealer regarding access to information concerning 
the composition of, and changes to, each Fund's portfolio.\23\ The 
Reporting Authority \24\ 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. 
In the 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, the applicable entity will implement a 
fire wall with respect to its relevant personnel and broker-dealer 
affiliate, as the case may be, regarding access to information 
concerning the composition of, and 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 the 
portfolio.
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    \22\ See Notice, supra note 3, 81 FR at 71550.
    \23\ See id. 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 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.
    \24\ See Nasdaq Rule 5745(c)(4).
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    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Act,\25\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the

[[Page 86060]]

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. Information regarding NAV-based trading prices, best bids 
and offers for Shares, and volume of Shares traded will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. 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 and separately disseminated to 
member firms and market data services through the Exchange data feeds.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    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 or minus the trade's executed premium or 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 
\26\ that will be created for exchange-traded managed funds and that 
will be confirmed to the member firms participating in the trade to 
supplement the previously provided information with final pricing.
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    \26\ According to Nasdaq, 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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    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 so that all 
firms will receive the NAV per share at the same time.
    The Exchange further represents that it 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 that, 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.
    Prior to the commencement of market trading in Shares, each Fund 
will be required to establish and maintain a public Web site through 
which its current prospectus may be downloaded. In addition, a separate 
Web site (www.nextshares.com) will include the prior business day's 
NAV, and the following trading information for that business day 
expressed as premiums or 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 or discount to NAV (``Closing 
Bid/Ask Midpoint''); and (c) the spread between highest bid and lowest 
offer prices as of the close of Exchange trading (``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 Exchange represents that 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.\27\ If 
a Fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Nasdaq Rules 
5800, et seq.
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    \27\ 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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    This approval order is based on all of the Exchange's 
representations, including those set forth above, in the Notice and 
Amendment No. 1,\28\ and the Exchange's description of the Funds. The 
Commission notes that the Funds and the Shares must comply with the 
requirements of Nasdaq Rule 5745 and the conditions set forth in this 
proposed rule change to be listed and traded on the Exchange on an 
initial and continuing basis.
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    \28\ See supra notes 3 and 4, respectively.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \29\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \29\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NASDAQ-2016-134), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-28636 Filed 11-28-16; 8:45 am]
 BILLING CODE 8011-01-P
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