Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Listing and Trading of the Shares of the First Trust Strategic Income ETF of First Trust Exchange-Traded Fund IV, 1390-1394 [2016-31939]

Download as PDF 1390 Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2016–092, and should be submitted on or before January 26, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–31941 Filed 1–4–17; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–79706; File No. SR– NASDAQ–2016–180] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Listing and Trading of the Shares of the First Trust Strategic Income ETF of First Trust Exchange-Traded Fund IV December 29, 2016. mstockstill on DSK3G9T082PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 16, 2016, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes a proposed rule change relating to the First Trust Strategic Income ETF (the ‘‘Fund’’) of First Trust Exchange-Traded Fund IV (the ‘‘Trust’’), the shares of which have been approved by the Commission for listing and trading under Nasdaq Rule 5735 (‘‘Managed Fund Shares’’). The shares of the Fund are collectively referred to herein as the ‘‘Shares.’’ The text of the proposed rule change is available at http:// nasdaq.cchwallstreet.com, at Nasdaq’s CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 21:06 Jan 04, 2017 Jkt 241001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 17 17 principal office, and at the Commission’s Public Reference Room. 1. Purpose The Exchange proposes to reflect changes to the means of achieving the Fund’s investment objectives. The Commission has approved the listing and trading of Shares under Nasdaq Rule 5735, which governs the listing and trading of Managed Fund Shares on the Exchange.3 The Exchange believes the proposed rule change reflects no significant issues not previously addressed in the Prior Release. The Fund is an actively-managed exchangetraded fund (‘‘ETF’’). The Shares are offered by the Trust, which was established as a Massachusetts business trust on September 15, 2010. The Trust, which is registered with the Commission as an investment company under the Investment Company Act of 1940 (the ‘‘1940 Act’’), has filed a registration statement on Form N–1A (‘‘Registration Statement’’) relating to the Fund with the Commission.4 The Fund is a series of the Trust. First Trust Advisors L.P. is the investment adviser (‘‘Adviser’’) to the Fund. The following serve as investment sub-advisers (each a ‘‘Sub3 The Commission approved Nasdaq Rule 5735 in Securities Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 20, 2008) (SR– NASDAQ–2008–039). The Commission previously approved the listing and trading of the Shares of the Fund. See Securities Exchange Act Release No. 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014) (SR–NASDAQ–2014–050) (‘‘Prior Order’’). See also Securities Exchange Act Release No. 72169 (May 15, 2014), 79 FR 29247 (May 21, 2014) (SR– NASDAQ–2014–050) (‘‘Prior Notice,’’ and together with the Prior Order, the ‘‘Prior Release’’). 4 See Post-Effective Amendment No. 140 to Registration Statement on Form N–1A for the Trust, dated February 26, 2016 (File Nos. 333–174332 and 811–22559). The descriptions of the Fund and the Shares contained herein are based, in part, on information in the Registration Statement. See also note 5. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 Adviser’’) to the Fund: First Trust Global Portfolios Ltd.; Energy Income Partners, LLC; Stonebridge Advisors LLC; and Richard Bernstein Advisors LLC. First Trust Portfolios L.P. is the principal underwriter and distributor of the Fund’s Shares. The Bank of New York Mellon Corporation acts as the administrator, accounting agent, custodian and transfer agent to the Fund. The Prior Release provided that the primary investment objective of the Fund would be to seek risk-adjusted income and that its secondary objective would be capital appreciation. Additionally, the Prior Release stated that under normal market conditions, the Fund would seek to achieve its investment objectives by following a strategic and tactical asset allocation process that would provide diversified exposure to income-producing asset classes. Further, the Prior Release stated that the Adviser would determine the Fund’s strategic allocation among the following investment categories (the following currently existing investment categories, as well as the proposed new investment category described below, are each referred to as an ‘‘Investment Category’’) and allocate the Fund’s assets to portfolio management teams comprised of personnel of the Adviser and/or a Sub-Adviser (each such team, with respect to the currently existing Investment Categories as well as the proposed new Investment Category described below, is referred to as a ‘‘Management Team’’) which would employ their respective investment strategies: (i) High yield corporate bonds and first lien senior secured floating rate bank loans (referred to as ‘‘senior loans’’); (ii) mortgage-related investments; (iii) preferred securities (‘‘Investment Category (iii)’’); (iv) international sovereign bonds; (v) equity securities of Energy Infrastructure Companies (as defined in the Prior Release) (‘‘Investment Category (v)’’); and (vi) dividend paying domestic equity securities and Depositary Receipts (as defined in the Prior Release), together with a related Option Overlay Strategy (as defined in the Prior Release) (‘‘Investment Category (vi)’’). The Exchange now proposes to modify the description of the measures utilized to achieve the Fund’s investment objectives. As described in further detail below, these changes would: (1) Remove a current limitation on the Fund’s ability to invest in Other ETFs (as defined below) and clarify, modify or delete certain representations to facilitate the Fund’s ability to do so; (2) in conjunction with Investment Category (vi), (a) expand the Fund’s E:\FR\FM\05JAN1.SGM 05JAN1 Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices permissible investments in equity securities to include, in addition to the equity securities specified in the Prior Release, dividend paying U.S. exchangetraded equity securities (including common stock) of companies domiciled outside of the United States and U.S. exchange-traded closed-end funds and (b) modify the description of the Option Overlay Strategy (as defined in the Prior Release) so that it provides (x) that the Option Overlay Strategy may be used in connection with any of the Fund’s other investments (as expanded) included in Investment Category (vi) and (y) that options utilized in connection with the Option Overlay Strategy will have one year or less to expiration; and (3) add a new Investment Category (the ‘‘New Investment Category’’) relating to investments in equity securities of U.S. exchange-traded mortgage real estate investment trusts (‘‘Mortgage REITs’’).5 These modifications are being proposed to enhance the flexibility of the Adviser and the Management Teams in pursuing the Fund’s investment objectives. The Adviser represents that there would be no change to the Fund’s investment objectives. Except as provided herein, all other facts presented and representations made in the Prior Release would remain unchanged. The Fund and the Shares would continue to comply with all initial and continued listing requirements under Nasdaq Rule 5735. The Fund’s Investments in Other ETFs mstockstill on DSK3G9T082PROD with NOTICES 1. General: Proposal To Remove 50% Limitation The Prior Release stated that the Fund would seek to provide income and total return by having each Management Team focus on those securities within its respective Investment Category. The Prior Release also stated that the Fund may directly invest in securities covered by the applicable Investment Category or, alternatively, may invest in other ETFs that generally provide exposure to such Investment Category (referred to for purposes of this filing as ‘‘Other ETFs’’).6 Further, the Prior Release 5 These changes will be effected contingent upon the effectiveness of a post-effective amendment (which has not yet been filed as of the date of this filing) to the Trust’s Registration Statement reflecting such changes. The Adviser represents that the Adviser and the Management Teams will not implement these changes until the instant proposed rule change is operative. 6 Other ETFs will be limited to ETFs described in this footnote, consistent with the Prior Release. The Prior Release stated that an ETF is an investment company registered under the 1940 Act that holds a portfolio of securities. In addition, the Prior Release required that any ETFs included in the Fund would be listed and traded in the U.S. on one or more registered exchanges. Further, the Prior VerDate Sep<11>2014 21:06 Jan 04, 2017 Jkt 241001 included the following statement (the ‘‘Other ETFs Statement’’): ‘‘The Adviser expects that the Fund may at times invest significantly (and, potentially, may invest up to 50% of its net assets) in other ETFs, including but not limited to, other ETFs that are advised by the Adviser; however, the Fund does not intend to operate principally as a ‘fund of funds’.’’ As a related matter, the Prior Release included an acknowledgment that any other ETFs in which the Fund invests to gain exposure to an Investment Category may be subject to investment parameters that differ in certain respects from those that have been established for such Investment Category. Going forward, the Exchange proposes to amend the Other ETFs Statement by replacing it with the following: ‘‘The Adviser expects that the Fund may at times invest significantly in other ETFs, including but not limited to, other ETFs that are advised by the Adviser; accordingly, the Fund may operate as a ‘fund of funds,’ but will not necessarily operate as such at all times.’’ Therefore, going forward, in pursuing its investment objectives, the Fund’s investments in Other ETFs would not be limited to 50% of its net assets. The Adviser believes that the proposed modification to the Other ETFs Statement would provide the Management Teams with additional flexibility in managing the assets allocated to their respective Investment Categories and, accordingly, would enhance the ability of the Fund to achieve its investment objectives.7 2. Certain Representations The Adviser has considered the impact of the proposed change to the Other ETFs Statement on various other representations that are set forth in the Prior Release. In this regard, the Adviser notes that although the Prior Release included certain representations that Release noted that the ETFs in which the Fund may invest included Index Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 5735). Further, the Prior Release stated that the Fund may invest in inverse ETFs, but would not invest in leveraged or inverse leveraged (e.g., 2X or –3X) ETFs. 7 Specific representations, including representations regarding the portion of the Fund’s net assets to be allocated to an Investment Category (the ‘‘Allocation Representations’’), are set forth in the Prior Release (with respect to the currently existing Investment Categories) and below (with respect to Investment Category (vi), as modified, and the New Investment Category). Investments in Other ETFs intended to gain exposure to an Investment Category will be treated as investments in the securities and other instruments comprising such Investment Category for purposes of the Allocation Representations. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 1391 apply to Other ETFs, a number of other representations were designed to apply to direct investments in securities and other instruments rather than to investments in Other ETFs made for the purposes of gaining exposure to Investment Categories. To facilitate the ability of the Fund to pursue its investment objectives by investing in Other ETFs and to clarify the applicability of certain representations, the Exchange is proposing the following: a. Non-Affiliated Issuers The Prior Release included the following representation: ‘‘The Fund represents that its portfolio will include a minimum of 13 non-affiliated issuers of fixed income securities’’ (the ‘‘13 Issuer Representation’’). Consistent with the proposal above to amend the Other ETFs Statement to enhance the Fund’s ability to gain investment exposure through investing in Other ETFs, the Exchange is proposing that going forward, the 13 Issuer Representation be replaced with the following: ‘‘The Fund represents that if its portfolio (excluding exempted securities as defined in Section 3(a)(12) of the Act) includes fixed income securities, such portfolio will include a minimum of 13 nonaffiliated issuers of fixed income securities; provided, however, that there shall be no minimum number of nonaffiliated issuers required for fixed income securities if at least 70% of the Fund’s net assets consist of equity securities (including without limitation other ETFs). If at least 70% of the Fund’s net assets consist of equity securities (including without limitation other ETFs), no single issuer of fixed income securities (excluding issuers of U.S. Department of Treasury securities and government-sponsored entity securities) will represent more than 5% of the Fund’s net assets.’’ b. Exposure to Single Countries The Prior Release included the following representation with respect to the Fund’s exposure to single countries (the ‘‘Single Country Representation’’): ‘‘The Fund’s exposure to any single country (outside of the U.S.) will generally be limited to 20% of the Fund’s net assets.’’ To facilitate the Fund’s ability to gain investment exposure through investing in Other ETFs (which may provide exposure of varying degrees to one or more countries), as well as to provide the Adviser and the applicable Management Teams with additional flexibility, the Exchange is proposing that going forward, the Single Country Representation be deleted. E:\FR\FM\05JAN1.SGM 05JAN1 1392 Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices c. Representations Applicable to Investment Categories With respect to each currently existing Investment Category, the Prior Release included statements and representations describing the nature of the securities and other instruments comprising such Investment Category. Statements and representations pertaining to Investment Category (vi), as modified, as well as to the New Investment Category, are set forth below. For the avoidance of doubt, with respect to the currently existing Investment Categories (including Investment Category (vi), as modified) as well as the New Investment Category, such statements and representations shall apply only to the Fund’s direct investments in securities and other instruments comprising the applicable Investment Categories and not to holdings by Other ETFs. As a related matter, with respect to the Fund’s investments in particular Investment Categories emphasizing fixed income securities, the Prior Release included certain statements and representations pertaining to, in general terms, issuance amounts and amounts outstanding, as well as credit quality, that were based on percentages of the Fund’s investments in specific types of assets (the ‘‘Percentage Representations’’).8 For the avoidance of doubt, the Percentage Representations shall be based only on the Fund’s direct investments in securities and other instruments without regard to holdings by Other ETFs. mstockstill on DSK3G9T082PROD with NOTICES Investment Category (vi) In connection with Investment Category (vi), the Prior Release stated that the Fund intended to invest between 0% and 30%, but could invest 8 In this regard, the Prior Release provided that, under normal market conditions, the Fund would seek to invest at least 75% of its net assets that are invested in high yield corporate bonds and senior loans (in the aggregate) in bonds and loans that, at the time of original issuance, have at least $100 million par amount outstanding. Similarly, the Prior Release provided that, under normal market conditions, the Fund would seek to invest at least 75% of its net assets that are invested in preferred securities in preferred securities that have a minimum initial issuance amount of at least $100 million. Additionally, the Prior Release included a statement that the Fund expected that, under normal market conditions, at least 80% of the Sovereign Debt (as defined in the Prior Release) in which it invested would be issued by issuers with outstanding debt of at least $200 million (or the foreign currency equivalent thereof). With respect to credit quality, the Prior Release provided that at least 50% of the Fund’s net assets that are invested in Sovereign Debt would be invested in securities of issuers rated investment grade at the time of purchase by at least one nationally recognized statistical rating organization and unrated securities judged to be of comparable quality by the Adviser and/or the applicable Management Team. VerDate Sep<11>2014 21:06 Jan 04, 2017 Jkt 241001 up to 50%, of its net assets in dividend paying U.S. exchange-traded equity securities (including common stock) of companies domiciled in the United States and Depositary Receipts (as defined in the Prior Release). Going forward, the Exchange proposes that the foregoing be revised to provide that the Fund intends to invest between 0% and 30%, but may invest up to 50%, of its net assets in (a) dividend paying U.S. exchange-traded equity securities (including common stock) of companies (that may be domiciled in or outside of the United States) and Depositary Receipts and/or (b) U.S. exchange traded closed end funds.9 In addition, the Prior Release provided that the Fund may use an Option Overlay Strategy in connection with certain of its other investments included in Investment Category (vi), whereby it would write (sell) covered U.S. exchange-traded call options in order to seek additional cash flow in the form of premiums on the options, and that the maturity of the options utilized would generally be between one week and three months. Going forward, the Exchange proposes that (a) the Fund may use its Option Overlay Strategy in connection with any of its other investments (as expanded) included in Investment Category (vi) and (b) the foregoing provision regarding maturity of options be replaced to provide that options utilized in connection with the Option Overlay Strategy will have one year or less to expiration. New Investment Category Relating to the Fund’s Investments in Mortgage REITs The Exchange proposes to add the New Investment Category. Accordingly, going forward, the Fund intends to invest between 0% and 30%, but may invest up to 50%, of its net assets in the exchange-traded common shares of U.S. exchange-traded Mortgage REITs. In 9 The closed-end funds in which the Fund invests (‘‘Closed-End Funds’’) will be registered under the 1940 Act and listed and traded in the U.S. on one or more registered exchanges. Closed-End Funds may invest in securities and instruments of any type. As indicated in the Prior Release, this Investment Category and these percentages do not include investments in preferred securities that are included in Investment Category (iii), investments in those equity securities that are included in Investment Category (v), or investments in Other ETFs that are intended to provide exposure to any of the other Investment Categories. In addition, going forward, this Investment Category and the foregoing percentages shall not include investments in exchange-traded common shares issued by Mortgage REITs, which are included in the New Investment Category described below. Further, going forward, investments in preferred securities issued by Closed-End Funds will be included in this Investment Category and not in Investment Category (iii). PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 general terms, a Mortgage REIT makes loans to developers and owners of property and invests primarily in mortgages and similar real estate interests, and includes companies or trusts that are primarily engaged in the purchasing or servicing of commercial or residential mortgage loans or mortgage-related securities, which may include mortgage-backed securities issued by private issuers and those issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored entities. Addition of Mortgage REITs, Closed-End Funds and Dividend Paying U.S. Exchange Traded Equity Securities of Companies Domiciled Outside of the United States as Fund Investments For purposes of calculating net asset value (‘‘NAV’’), exchange-traded common shares of U.S. exchange-traded Mortgage REITs, dividend paying U.S. exchange-traded equity securities of companies domiciled outside of the United States (‘‘Foreign Company Equities’’), and shares of Closed-End Funds listed on any exchange other than the Exchange will typically be valued at the last sale price on the exchange on which they are principally traded on the business day as of which such value is being determined. Such equity securities listed on the Exchange will typically be valued at the official closing price on the business day as of which such value is being determined. If there has been no sale on such day, or no official closing price in the case of such equity securities traded on the Exchange, such equity securities will typically be valued using fair value pricing. Such equity securities traded on more than one securities exchange will typically be valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Quotation and last sale information for Mortgage REITs, Foreign Company Equities and Closed-End Funds (in addition to the U.S. exchange-traded equity securities referenced in the Prior Release) will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line, and will be available from the national securities exchanges on which they are listed. Pricing information for Closed-End Funds, Foreign Company Equities and Mortgage REITs (in addition to the exchangetraded equity securities referenced in the Prior Release) will be available from the exchanges on which they trade and from major market data vendors. E:\FR\FM\05JAN1.SGM 05JAN1 Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices mstockstill on DSK3G9T082PROD with NOTICES The Exchange represents that trading in the Shares will continue to be subject to the existing trading surveillances, administered by both Nasdaq and also the Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.10 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Mortgage REITs, Foreign Company Equities and Closed-End Funds held by the Fund (in addition to the Shares and the other exchangetraded securities and instruments referenced in the Prior Release) with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’) 11 and FINRA may obtain trading information regarding trading in the Mortgage REITs, Foreign Company Equities and ClosedEnd Funds held by the Fund (in addition to the Shares and the other exchange-traded securities and instruments referenced in the Prior Release) from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Mortgage REITs, Foreign Company Equities and Closed-End Funds held by the Fund (in addition to the Shares and the other exchange-traded securities and instruments referenced in the Prior Release) 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. At least 90% of the Fund’s net assets that are invested in exchange-traded equity securities of both domestic and foreign issuers (including Mortgage REITs, Foreign Company Equities and Closed-End Funds in addition to the other exchange-traded equity securities referenced in the Prior Release), exchange-traded products and exchange-traded derivatives (in the aggregate) will be invested in investments that trade in markets that 10 FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 11 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio (as defined in the Prior Release) may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. VerDate Sep<11>2014 21:06 Jan 04, 2017 Jkt 241001 are members of ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. 2. Statutory Basis Nasdaq believes that the proposal is consistent with Section 6(b) of the Act in general and Section 6(b)(5) of the Act in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. Except as provided herein, all other facts presented and representations made in the Prior Release will remain unchanged. The Fund will continue to comply with all the initial and continued listing requirements under Nasdaq Rule 5735. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares would continue to be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Nasdaq Rule 5735 and, except as provided herein, all other facts presented and representations made in the Prior Release would remain unchanged. The Exchange represents that trading in the Shares would be subject to the existing trading surveillances, administered by both Nasdaq and also FINRA, on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, would communicate as needed regarding trading in the Mortgage REITs, Foreign Company Equities and ClosedEnd Funds held by the Fund (in addition to the Shares and the other exchange-traded securities and instruments referenced in the Prior Release) with other markets and other entities that are members of ISG, and FINRA may obtain trading information regarding trading in the Mortgage REITs, Foreign Company Equities and ClosedEnd Funds held by the Fund (in addition to the Shares and the other exchange-traded securities and instruments referenced in the Prior Release) from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Mortgage REITs, Foreign Company Equities and Closed-End Funds held by the Fund (in addition to the Shares and the other exchange-traded securities and instruments referenced in the Prior Release) from markets and other entities PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 1393 that are members of ISG, which includes securities and futures exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement. At least 90% of the Fund’s net assets that are invested in exchangetraded equity securities of both domestic and foreign issuers (including Mortgage REITs, Foreign Company Equities and Closed-End Funds in addition to the other exchange-traded equity securities referenced in the Prior Release), exchange-traded products and exchange-traded derivatives (in the aggregate) would be invested in investments that trade in markets that are members of ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Adviser represents that the purpose of the proposed changes is to provide it and the Management Teams with greater flexibility in meeting the Fund’s investment objectives. These changes, which would: (1) Remove a current limitation on the Fund’s ability to invest in Other ETFs and clarify, modify or delete certain representations to facilitate the Fund’s ability to do so; (2) in conjunction with Investment Category (vi), (a) expand the Fund’s permissible investments in equity securities to include, in addition to the equity securities specified in the Prior Release, dividend paying U.S. exchangetraded equity securities (including common stock) of companies domiciled outside of the United States and U.S. exchange-traded closed-end funds and (b) modify the description of the Option Overlay Strategy (as defined in the Prior Release) so that it provides (x) that the Option Overlay Strategy may be used in connection with any of the Fund’s other investments (as expanded) included in Investment Category (vi) and (y) that options utilized in connection with the Option Overlay Strategy will have one year or less to expiration; and (3) add the New Investment Category (relating to investments in equity securities of U.S. exchange-traded Mortgage REITs), would be effected contingent upon the effectiveness of a post-effective amendment to the Trust’s Registration Statement reflecting such changes and would not be implemented by the Adviser or the Management Teams until the instant proposed rule change is operative. In addition, consistent with the Prior Release, the NAV per Share would continue to be calculated daily and the NAV and the Disclosed Portfolio (as defined in the Prior E:\FR\FM\05JAN1.SGM 05JAN1 1394 Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices mstockstill on DSK3G9T082PROD with NOTICES Release) would continue to be made available to all market participants at the same time. In addition, a large amount of information would continue to be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Pricing information for Closed-End Funds, Foreign Company Equities and Mortgage REITs (in addition to the exchangetraded equity securities referenced in the Prior Release) would be available from the exchanges on which they trade and from major market data vendors. Moreover, the Intraday Indicative Value (as described in the Prior Release), available on the NASDAQ OMX Information LLC proprietary index data service, would continue to be widely disseminated by one or more major market data vendors and broadly displayed at least every 15 seconds during the Regular Market Session. On each business day, before commencement of trading in Shares in the Regular Market Session on the Exchange, the Fund would continue to disclose on its Web site the Disclosed Portfolio that will form the basis for the Fund’s calculation of NAV at the end of the business day. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. As noted above, the additional flexibility to be afforded to the Adviser and the Management Teams under the proposed rule change is intended to enhance their ability to meet the Fund’s investment objectives. In addition, the Exchange may obtain information regarding trading in the Mortgage REITs, Foreign Company Equities and Closed-End Funds held by the Fund (in addition to the Shares and the other exchangetraded securities and instruments referenced in the Prior Release) 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. For the above reasons, Nasdaq believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed rule change will permit the Adviser and VerDate Sep<11>2014 21:06 Jan 04, 2017 Jkt 241001 the Management Teams to have additional flexibility, thereby helping the Fund to achieve its investment objectives and enhancing competition among market participants, to the benefit of investors and the marketplace. Paper Comments C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others All submissions should refer to File Number SR–NASDAQ–2016–180. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2016–180 and should be submitted on or before January 26, 2017. Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b– 4(f)(6) thereunder.13 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2016–180 on the subject line. U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–31939 Filed 1–4–17; 8:45 am] BILL6ING CODE 8011–01–P 12 15 13 17 PO 00000 Frm 00085 Fmt 4703 Sfmt 9990 14 17 E:\FR\FM\05JAN1.SGM CFR 200.30–3(a)(12). 05JAN1

Agencies

[Federal Register Volume 82, Number 3 (Thursday, January 5, 2017)]
[Notices]
[Pages 1390-1394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31939]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79706; File No. SR-NASDAQ-2016-180]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Listing and Trading of the Shares of the First Trust 
Strategic Income ETF of First Trust Exchange-Traded Fund IV

December 29, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 16, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by Nasdaq. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes a proposed rule change relating to the First Trust 
Strategic Income ETF (the ``Fund'') of First Trust Exchange-Traded Fund 
IV (the ``Trust''), the shares of which have been approved by the 
Commission for listing and trading under Nasdaq Rule 5735 (``Managed 
Fund Shares''). The shares of the Fund are collectively referred to 
herein as the ``Shares.''
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com, at Nasdaq's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to reflect changes to the means of achieving 
the Fund's investment objectives. The Commission has approved the 
listing and trading of Shares under Nasdaq Rule 5735, which governs the 
listing and trading of Managed Fund Shares on the Exchange.\3\ The 
Exchange believes the proposed rule change reflects no significant 
issues not previously addressed in the Prior Release. The Fund is an 
actively-managed exchange-traded fund (``ETF''). The Shares are offered 
by the Trust, which was established as a Massachusetts business trust 
on September 15, 2010. The Trust, which is registered with the 
Commission as an investment company under the Investment Company Act of 
1940 (the ``1940 Act''), has filed a registration statement on Form N-
1A (``Registration Statement'') relating to the Fund with the 
Commission.\4\ The Fund is a series of the Trust.
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). The Commission previously approved 
the listing and trading of the Shares of the Fund. See Securities 
Exchange Act Release No. 72506 (July 1, 2014), 79 FR 38631 (July 8, 
2014) (SR-NASDAQ-2014-050) (``Prior Order''). See also Securities 
Exchange Act Release No. 72169 (May 15, 2014), 79 FR 29247 (May 21, 
2014) (SR-NASDAQ-2014-050) (``Prior Notice,'' and together with the 
Prior Order, the ``Prior Release'').
    \4\ See Post-Effective Amendment No. 140 to Registration 
Statement on Form N-1A for the Trust, dated February 26, 2016 (File 
Nos. 333-174332 and 811-22559). The descriptions of the Fund and the 
Shares contained herein are based, in part, on information in the 
Registration Statement. See also note 5.
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    First Trust Advisors L.P. is the investment adviser (``Adviser'') 
to the Fund. The following serve as investment sub-advisers (each a 
``Sub-Adviser'') to the Fund: First Trust Global Portfolios Ltd.; 
Energy Income Partners, LLC; Stonebridge Advisors LLC; and Richard 
Bernstein Advisors LLC. First Trust Portfolios L.P. is the principal 
underwriter and distributor of the Fund's Shares. The Bank of New York 
Mellon Corporation acts as the administrator, accounting agent, 
custodian and transfer agent to the Fund.
    The Prior Release provided that the primary investment objective of 
the Fund would be to seek risk-adjusted income and that its secondary 
objective would be capital appreciation. Additionally, the Prior 
Release stated that under normal market conditions, the Fund would seek 
to achieve its investment objectives by following a strategic and 
tactical asset allocation process that would provide diversified 
exposure to income-producing asset classes. Further, the Prior Release 
stated that the Adviser would determine the Fund's strategic allocation 
among the following investment categories (the following currently 
existing investment categories, as well as the proposed new investment 
category described below, are each referred to as an ``Investment 
Category'') and allocate the Fund's assets to portfolio management 
teams comprised of personnel of the Adviser and/or a Sub-Adviser (each 
such team, with respect to the currently existing Investment Categories 
as well as the proposed new Investment Category described below, is 
referred to as a ``Management Team'') which would employ their 
respective investment strategies: (i) High yield corporate bonds and 
first lien senior secured floating rate bank loans (referred to as 
``senior loans''); (ii) mortgage-related investments; (iii) preferred 
securities (``Investment Category (iii)''); (iv) international 
sovereign bonds; (v) equity securities of Energy Infrastructure 
Companies (as defined in the Prior Release) (``Investment Category 
(v)''); and (vi) dividend paying domestic equity securities and 
Depositary Receipts (as defined in the Prior Release), together with a 
related Option Overlay Strategy (as defined in the Prior Release) 
(``Investment Category (vi)'').
    The Exchange now proposes to modify the description of the measures 
utilized to achieve the Fund's investment objectives. As described in 
further detail below, these changes would: (1) Remove a current 
limitation on the Fund's ability to invest in Other ETFs (as defined 
below) and clarify, modify or delete certain representations to 
facilitate the Fund's ability to do so; (2) in conjunction with 
Investment Category (vi), (a) expand the Fund's

[[Page 1391]]

permissible investments in equity securities to include, in addition to 
the equity securities specified in the Prior Release, dividend paying 
U.S. exchange-traded equity securities (including common stock) of 
companies domiciled outside of the United States and U.S. exchange-
traded closed-end funds and (b) modify the description of the Option 
Overlay Strategy (as defined in the Prior Release) so that it provides 
(x) that the Option Overlay Strategy may be used in connection with any 
of the Fund's other investments (as expanded) included in Investment 
Category (vi) and (y) that options utilized in connection with the 
Option Overlay Strategy will have one year or less to expiration; and 
(3) add a new Investment Category (the ``New Investment Category'') 
relating to investments in equity securities of U.S. exchange-traded 
mortgage real estate investment trusts (``Mortgage REITs'').\5\
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    \5\ These changes will be effected contingent upon the 
effectiveness of a post-effective amendment (which has not yet been 
filed as of the date of this filing) to the Trust's Registration 
Statement reflecting such changes. The Adviser represents that the 
Adviser and the Management Teams will not implement these changes 
until the instant proposed rule change is operative.
---------------------------------------------------------------------------

    These modifications are being proposed to enhance the flexibility 
of the Adviser and the Management Teams in pursuing the Fund's 
investment objectives. The Adviser represents that there would be no 
change to the Fund's investment objectives. Except as provided herein, 
all other facts presented and representations made in the Prior Release 
would remain unchanged. The Fund and the Shares would continue to 
comply with all initial and continued listing requirements under Nasdaq 
Rule 5735.
The Fund's Investments in Other ETFs
1. General: Proposal To Remove 50% Limitation
    The Prior Release stated that the Fund would seek to provide income 
and total return by having each Management Team focus on those 
securities within its respective Investment Category. The Prior Release 
also stated that the Fund may directly invest in securities covered by 
the applicable Investment Category or, alternatively, may invest in 
other ETFs that generally provide exposure to such Investment Category 
(referred to for purposes of this filing as ``Other ETFs'').\6\ 
Further, the Prior Release included the following statement (the 
``Other ETFs Statement''): ``The Adviser expects that the Fund may at 
times invest significantly (and, potentially, may invest up to 50% of 
its net assets) in other ETFs, including but not limited to, other ETFs 
that are advised by the Adviser; however, the Fund does not intend to 
operate principally as a `fund of funds'.'' As a related matter, the 
Prior Release included an acknowledgment that any other ETFs in which 
the Fund invests to gain exposure to an Investment Category may be 
subject to investment parameters that differ in certain respects from 
those that have been established for such Investment Category.
---------------------------------------------------------------------------

    \6\ Other ETFs will be limited to ETFs described in this 
footnote, consistent with the Prior Release. The Prior Release 
stated that an ETF is an investment company registered under the 
1940 Act that holds a portfolio of securities. In addition, the 
Prior Release required that any ETFs included in the Fund would be 
listed and traded in the U.S. on one or more registered exchanges. 
Further, the Prior Release noted that the ETFs in which the Fund may 
invest included Index Fund Shares (as described in Nasdaq Rule 
5705), Portfolio Depositary Receipts (as described in Nasdaq Rule 
5705), and Managed Fund Shares (as described in Nasdaq Rule 5735). 
Further, the Prior Release stated that the Fund may invest in 
inverse ETFs, but would not invest in leveraged or inverse leveraged 
(e.g., 2X or -3X) ETFs.
---------------------------------------------------------------------------

    Going forward, the Exchange proposes to amend the Other ETFs 
Statement by replacing it with the following: ``The Adviser expects 
that the Fund may at times invest significantly in other ETFs, 
including but not limited to, other ETFs that are advised by the 
Adviser; accordingly, the Fund may operate as a `fund of funds,' but 
will not necessarily operate as such at all times.'' Therefore, going 
forward, in pursuing its investment objectives, the Fund's investments 
in Other ETFs would not be limited to 50% of its net assets. The 
Adviser believes that the proposed modification to the Other ETFs 
Statement would provide the Management Teams with additional 
flexibility in managing the assets allocated to their respective 
Investment Categories and, accordingly, would enhance the ability of 
the Fund to achieve its investment objectives.\7\
---------------------------------------------------------------------------

    \7\ Specific representations, including representations 
regarding the portion of the Fund's net assets to be allocated to an 
Investment Category (the ``Allocation Representations''), are set 
forth in the Prior Release (with respect to the currently existing 
Investment Categories) and below (with respect to Investment 
Category (vi), as modified, and the New Investment Category). 
Investments in Other ETFs intended to gain exposure to an Investment 
Category will be treated as investments in the securities and other 
instruments comprising such Investment Category for purposes of the 
Allocation Representations.
---------------------------------------------------------------------------

2. Certain Representations
    The Adviser has considered the impact of the proposed change to the 
Other ETFs Statement on various other representations that are set 
forth in the Prior Release. In this regard, the Adviser notes that 
although the Prior Release included certain representations that apply 
to Other ETFs, a number of other representations were designed to apply 
to direct investments in securities and other instruments rather than 
to investments in Other ETFs made for the purposes of gaining exposure 
to Investment Categories. To facilitate the ability of the Fund to 
pursue its investment objectives by investing in Other ETFs and to 
clarify the applicability of certain representations, the Exchange is 
proposing the following:
a. Non-Affiliated Issuers
    The Prior Release included the following representation: ``The Fund 
represents that its portfolio will include a minimum of 13 non-
affiliated issuers of fixed income securities'' (the ``13 Issuer 
Representation''). Consistent with the proposal above to amend the 
Other ETFs Statement to enhance the Fund's ability to gain investment 
exposure through investing in Other ETFs, the Exchange is proposing 
that going forward, the 13 Issuer Representation be replaced with the 
following: ``The Fund represents that if its portfolio (excluding 
exempted securities as defined in Section 3(a)(12) of the Act) includes 
fixed income securities, such portfolio will include a minimum of 13 
non-affiliated issuers of fixed income securities; provided, however, 
that there shall be no minimum number of non-affiliated issuers 
required for fixed income securities if at least 70% of the Fund's net 
assets consist of equity securities (including without limitation other 
ETFs). If at least 70% of the Fund's net assets consist of equity 
securities (including without limitation other ETFs), no single issuer 
of fixed income securities (excluding issuers of U.S. Department of 
Treasury securities and government-sponsored entity securities) will 
represent more than 5% of the Fund's net assets.''
b. Exposure to Single Countries
    The Prior Release included the following representation with 
respect to the Fund's exposure to single countries (the ``Single 
Country Representation''): ``The Fund's exposure to any single country 
(outside of the U.S.) will generally be limited to 20% of the Fund's 
net assets.'' To facilitate the Fund's ability to gain investment 
exposure through investing in Other ETFs (which may provide exposure of 
varying degrees to one or more countries), as well as to provide the 
Adviser and the applicable Management Teams with additional 
flexibility, the Exchange is proposing that going forward, the Single 
Country Representation be deleted.

[[Page 1392]]

c. Representations Applicable to Investment Categories
    With respect to each currently existing Investment Category, the 
Prior Release included statements and representations describing the 
nature of the securities and other instruments comprising such 
Investment Category. Statements and representations pertaining to 
Investment Category (vi), as modified, as well as to the New Investment 
Category, are set forth below. For the avoidance of doubt, with respect 
to the currently existing Investment Categories (including Investment 
Category (vi), as modified) as well as the New Investment Category, 
such statements and representations shall apply only to the Fund's 
direct investments in securities and other instruments comprising the 
applicable Investment Categories and not to holdings by Other ETFs.
    As a related matter, with respect to the Fund's investments in 
particular Investment Categories emphasizing fixed income securities, 
the Prior Release included certain statements and representations 
pertaining to, in general terms, issuance amounts and amounts 
outstanding, as well as credit quality, that were based on percentages 
of the Fund's investments in specific types of assets (the ``Percentage 
Representations'').\8\ For the avoidance of doubt, the Percentage 
Representations shall be based only on the Fund's direct investments in 
securities and other instruments without regard to holdings by Other 
ETFs.
---------------------------------------------------------------------------

    \8\ In this regard, the Prior Release provided that, under 
normal market conditions, the Fund would seek to invest at least 75% 
of its net assets that are invested in high yield corporate bonds 
and senior loans (in the aggregate) in bonds and loans that, at the 
time of original issuance, have at least $100 million par amount 
outstanding. Similarly, the Prior Release provided that, under 
normal market conditions, the Fund would seek to invest at least 75% 
of its net assets that are invested in preferred securities in 
preferred securities that have a minimum initial issuance amount of 
at least $100 million. Additionally, the Prior Release included a 
statement that the Fund expected that, under normal market 
conditions, at least 80% of the Sovereign Debt (as defined in the 
Prior Release) in which it invested would be issued by issuers with 
outstanding debt of at least $200 million (or the foreign currency 
equivalent thereof). With respect to credit quality, the Prior 
Release provided that at least 50% of the Fund's net assets that are 
invested in Sovereign Debt would be invested in securities of 
issuers rated investment grade at the time of purchase by at least 
one nationally recognized statistical rating organization and 
unrated securities judged to be of comparable quality by the Adviser 
and/or the applicable Management Team.
---------------------------------------------------------------------------

Investment Category (vi)
    In connection with Investment Category (vi), the Prior Release 
stated that the Fund intended to invest between 0% and 30%, but could 
invest up to 50%, of its net assets in dividend paying U.S. exchange-
traded equity securities (including common stock) of companies 
domiciled in the United States and Depositary Receipts (as defined in 
the Prior Release). Going forward, the Exchange proposes that the 
foregoing be revised to provide that the Fund intends to invest between 
0% and 30%, but may invest up to 50%, of its net assets in (a) dividend 
paying U.S. exchange-traded equity securities (including common stock) 
of companies (that may be domiciled in or outside of the United States) 
and Depositary Receipts and/or (b) U.S. exchange traded closed end 
funds.\9\
---------------------------------------------------------------------------

    \9\ The closed-end funds in which the Fund invests (``Closed-End 
Funds'') will be registered under the 1940 Act and listed and traded 
in the U.S. on one or more registered exchanges. Closed-End Funds 
may invest in securities and instruments of any type. As indicated 
in the Prior Release, this Investment Category and these percentages 
do not include investments in preferred securities that are included 
in Investment Category (iii), investments in those equity securities 
that are included in Investment Category (v), or investments in 
Other ETFs that are intended to provide exposure to any of the other 
Investment Categories. In addition, going forward, this Investment 
Category and the foregoing percentages shall not include investments 
in exchange-traded common shares issued by Mortgage REITs, which are 
included in the New Investment Category described below. Further, 
going forward, investments in preferred securities issued by Closed-
End Funds will be included in this Investment Category and not in 
Investment Category (iii).
---------------------------------------------------------------------------

    In addition, the Prior Release provided that the Fund may use an 
Option Overlay Strategy in connection with certain of its other 
investments included in Investment Category (vi), whereby it would 
write (sell) covered U.S. exchange-traded call options in order to seek 
additional cash flow in the form of premiums on the options, and that 
the maturity of the options utilized would generally be between one 
week and three months. Going forward, the Exchange proposes that (a) 
the Fund may use its Option Overlay Strategy in connection with any of 
its other investments (as expanded) included in Investment Category 
(vi) and (b) the foregoing provision regarding maturity of options be 
replaced to provide that options utilized in connection with the Option 
Overlay Strategy will have one year or less to expiration.
New Investment Category Relating to the Fund's Investments in Mortgage 
REITs
    The Exchange proposes to add the New Investment Category. 
Accordingly, going forward, the Fund intends to invest between 0% and 
30%, but may invest up to 50%, of its net assets in the exchange-traded 
common shares of U.S. exchange-traded Mortgage REITs. In general terms, 
a Mortgage REIT makes loans to developers and owners of property and 
invests primarily in mortgages and similar real estate interests, and 
includes companies or trusts that are primarily engaged in the 
purchasing or servicing of commercial or residential mortgage loans or 
mortgage-related securities, which may include mortgage-backed 
securities issued by private issuers and those issued or guaranteed by 
U.S. Government agencies, instrumentalities or sponsored entities.
Addition of Mortgage REITs, Closed-End Funds and Dividend Paying U.S. 
Exchange Traded Equity Securities of Companies Domiciled Outside of the 
United States as Fund Investments
    For purposes of calculating net asset value (``NAV''), exchange-
traded common shares of U.S. exchange-traded Mortgage REITs, dividend 
paying U.S. exchange-traded equity securities of companies domiciled 
outside of the United States (``Foreign Company Equities''), and shares 
of Closed-End Funds listed on any exchange other than the Exchange will 
typically be valued at the last sale price on the exchange on which 
they are principally traded on the business day as of which such value 
is being determined. Such equity securities listed on the Exchange will 
typically be valued at the official closing price on the business day 
as of which such value is being determined. If there has been no sale 
on such day, or no official closing price in the case of such equity 
securities traded on the Exchange, such equity securities will 
typically be valued using fair value pricing. Such equity securities 
traded on more than one securities exchange will typically be valued at 
the last sale price or official closing price, as applicable, on the 
business day as of which such value is being determined at the close of 
the exchange representing the principal market for such securities.
    Quotation and last sale information for Mortgage REITs, Foreign 
Company Equities and Closed-End Funds (in addition to the U.S. 
exchange-traded equity securities referenced in the Prior Release) will 
be available via the Consolidated Tape Association (``CTA'') high-speed 
line, and will be available from the national securities exchanges on 
which they are listed. Pricing information for Closed-End Funds, 
Foreign Company Equities and Mortgage REITs (in addition to the 
exchange-traded equity securities referenced in the Prior Release) will 
be available from the exchanges on which they trade and from major 
market data vendors.

[[Page 1393]]

    The Exchange represents that trading in the Shares will continue to 
be subject to the existing trading surveillances, administered by both 
Nasdaq and also the Financial Industry Regulatory Authority 
(``FINRA''), on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\10\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and applicable 
federal securities laws.
---------------------------------------------------------------------------

    \10\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Mortgage REITs, Foreign Company Equities and 
Closed-End Funds held by the Fund (in addition to the Shares and the 
other exchange-traded securities and instruments referenced in the 
Prior Release) with other markets and other entities that are members 
of the Intermarket Surveillance Group (``ISG'') \11\ and FINRA may 
obtain trading information regarding trading in the Mortgage REITs, 
Foreign Company Equities and Closed-End Funds held by the Fund (in 
addition to the Shares and the other exchange-traded securities and 
instruments referenced in the Prior Release) from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Mortgage REITs, Foreign Company Equities and 
Closed-End Funds held by the Fund (in addition to the Shares and the 
other exchange-traded securities and instruments referenced in the 
Prior Release) 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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    \11\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio (as defined in the Prior Release) may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    At least 90% of the Fund's net assets that are invested in 
exchange-traded equity securities of both domestic and foreign issuers 
(including Mortgage REITs, Foreign Company Equities and Closed-End 
Funds in addition to the other exchange-traded equity securities 
referenced in the Prior Release), exchange-traded products and 
exchange-traded derivatives (in the aggregate) will be invested in 
investments that trade in markets that are members of ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act in particular in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest. Except as provided herein, all other 
facts presented and representations made in the Prior Release will 
remain unchanged. The Fund will continue to comply with all the initial 
and continued listing requirements under Nasdaq Rule 5735.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares would continue to be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in Nasdaq Rule 5735 and, 
except as provided herein, all other facts presented and 
representations made in the Prior Release would remain unchanged. The 
Exchange represents that trading in the Shares would be subject to the 
existing trading surveillances, administered by both Nasdaq and also 
FINRA, on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws. 
FINRA, on behalf of the Exchange, would communicate as needed regarding 
trading in the Mortgage REITs, Foreign Company Equities and Closed-End 
Funds held by the Fund (in addition to the Shares and the other 
exchange-traded securities and instruments referenced in the Prior 
Release) with other markets and other entities that are members of ISG, 
and FINRA may obtain trading information regarding trading in the 
Mortgage REITs, Foreign Company Equities and Closed-End Funds held by 
the Fund (in addition to the Shares and the other exchange-traded 
securities and instruments referenced in the Prior Release) from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Mortgage REITs, Foreign Company 
Equities and Closed-End Funds held by the Fund (in addition to the 
Shares and the other exchange-traded securities and instruments 
referenced in the Prior Release) 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. At least 90% of the Fund's net assets that are 
invested in exchange-traded equity securities of both domestic and 
foreign issuers (including Mortgage REITs, Foreign Company Equities and 
Closed-End Funds in addition to the other exchange-traded equity 
securities referenced in the Prior Release), exchange-traded products 
and exchange-traded derivatives (in the aggregate) would be invested in 
investments that trade in markets that are members of ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Adviser represents that the purpose of the proposed changes is 
to provide it and the Management Teams with greater flexibility in 
meeting the Fund's investment objectives. These changes, which would: 
(1) Remove a current limitation on the Fund's ability to invest in 
Other ETFs and clarify, modify or delete certain representations to 
facilitate the Fund's ability to do so; (2) in conjunction with 
Investment Category (vi), (a) expand the Fund's permissible investments 
in equity securities to include, in addition to the equity securities 
specified in the Prior Release, dividend paying U.S. exchange-traded 
equity securities (including common stock) of companies domiciled 
outside of the United States and U.S. exchange-traded closed-end funds 
and (b) modify the description of the Option Overlay Strategy (as 
defined in the Prior Release) so that it provides (x) that the Option 
Overlay Strategy may be used in connection with any of the Fund's other 
investments (as expanded) included in Investment Category (vi) and (y) 
that options utilized in connection with the Option Overlay Strategy 
will have one year or less to expiration; and (3) add the New 
Investment Category (relating to investments in equity securities of 
U.S. exchange-traded Mortgage REITs), would be effected contingent upon 
the effectiveness of a post-effective amendment to the Trust's 
Registration Statement reflecting such changes and would not be 
implemented by the Adviser or the Management Teams until the instant 
proposed rule change is operative. In addition, consistent with the 
Prior Release, the NAV per Share would continue to be calculated daily 
and the NAV and the Disclosed Portfolio (as defined in the Prior

[[Page 1394]]

Release) would continue to be made available to all market participants 
at the same time.
    In addition, a large amount of information would continue to be 
publicly available regarding the Fund and the Shares, thereby promoting 
market transparency. Pricing information for Closed-End Funds, Foreign 
Company Equities and Mortgage REITs (in addition to the exchange-traded 
equity securities referenced in the Prior Release) would be available 
from the exchanges on which they trade and from major market data 
vendors. Moreover, the Intraday Indicative Value (as described in the 
Prior Release), available on the NASDAQ OMX Information LLC proprietary 
index data service, would continue to be widely disseminated by one or 
more major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund would continue to disclose on its Web site the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest. As noted above, the additional flexibility to be 
afforded to the Adviser and the Management Teams under the proposed 
rule change is intended to enhance their ability to meet the Fund's 
investment objectives. In addition, the Exchange may obtain information 
regarding trading in the Mortgage REITs, Foreign Company Equities and 
Closed-End Funds held by the Fund (in addition to the Shares and the 
other exchange-traded securities and instruments referenced in the 
Prior Release) 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.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will permit the Adviser and the Management 
Teams to have additional flexibility, thereby helping the Fund to 
achieve its investment objectives and enhancing competition among 
market participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-180 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-180. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-180 and should 
be submitted on or before January 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31939 Filed 1-4-17; 8:45 am]
BILL6ING CODE 8011-01-P