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]
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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
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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.
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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
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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
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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
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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.
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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.
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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
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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.
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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.
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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
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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
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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]
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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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
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\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.
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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.
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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