Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade Exchange-Traded Managed Funds, 14395-14401 [2017-05404]
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Federal Register / Vol. 82, No. 52 / Monday, March 20, 2017 / Notices
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• Use the Commission’s Internet
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• Send an email message to rulecomments@sec.gov. Please include File
Number 265–29 on the subject line; or
Paper Statements
• Send paper statements in triplicate
to Brent J. Fields, Federal Advisory
Committee Management Officer,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File No.
265–29. This file number should be
included on the subject line if email is
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will post all statements on the
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comments/265–29/265–29.shtml).
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should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Arisa Tinaves Kettig, Senior Special
Counsel, at (202) 551–5676, Division of
Trading and Markets, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–7010.
In
accordance with Section 10(a) of the
Federal Advisory Committee Act, 5
U.S.C.–App. 1, and the regulations
thereunder, Heather Seidel, Designated
Federal Officer of the Committee, has
ordered publication of this notice.
SUPPLEMENTARY INFORMATION:
Dated: March 14, 2017.
Brent J. Fields,
Committee Management Officer.
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SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
[Release No. 34–80237; File No. SR–
NASDAQ–2017–025]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
List and Trade Exchange-Traded
Managed Funds
March 14, 2017.
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 March 1,
2017, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II, below, which Items have been
prepared by the Exchange. 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
The Exchange proposes to list and
trade under Nasdaq Rule 5745
(Exchange-Traded Managed Fund
Shares (‘‘NextShares’’)) the common
shares (‘‘Shares’’) of the exchangetraded managed fund described herein
(the ‘‘Fund’’).3
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Except for the specific Fund information set
forth below, this rule filing conforms to the rule
filing, as modified by amendments 1 and 2 thereto,
relating to the listing and trading on Nasdaq of the
shares of 18 series of the Eaton Vance ETMF Trust
and the Eaton Vance ETMF Trust II, as approved
by the Commission in Securities Exchange Act
Release No. 75499 (July 21, 2015) (SR–NASDAQ–
2015–036).
2 17
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1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5745, which governs the
listing and trading of exchange-traded
managed fund shares, as defined in
Nasdaq Rule 5745(c)(1), on the
Exchange.4 The Trust listed below will
be registered with the Commission as an
open-end investment company and has
filed a registration statement on Form
N–1A (‘‘Registration Statement’’) with
the Commission. The Fund is a series of
a Trust and will be advised by an
investment adviser registered under the
Investment Advisers Act of 1940
(‘‘Adviser’’), as described below. The
Fund will be actively managed and will
pursue the principal investment
strategy, as noted below.5
I. Hartford Funds NextSharesTM Trust
Hartford Funds NextSharesTM Trust
(‘‘Hartford Funds Trust’’) will be
registered with the Commission as an
open-end investment company and has
filed a Registration Statement with the
Commission.6 The following Fund is a
series of Hartford Funds Trust.7
Hartford Funds Management
Company, LLC (the ‘‘Adviser’’) will be
the adviser to the Fund and Wellington
Management Company LLP will the
sub-adviser to the Fund (the ‘‘SubAdviser’’). Each of the Adviser and the
Sub-Adviser is a registered brokerdealer or affiliated with a broker-dealer,
and each of the Adviser and the SubAdviser has implemented a fire wall
with respect to its affiliated brokerdealer regarding access to information
concerning the composition and/or
4 The Commission approved Nasdaq Rule 5745 in
Securities Exchange Act Release No. 34–73562
(Nov. 7, 2014), 79 FR 68309 (Nov. 14, 2014) (SR–
NASDAQ–014–020) [sic].
5 Additional information regarding the Fund will
be available on the free public Web site for the
Fund and in the Registration Statements [sic] for the
Fund.
6 See initial Registration Statement on Form N–
1A for Hartford Funds NextShares Trust dated
November 30, 2016 (File Nos. 333–214842 and 811–
23215). The descriptions of the Fund and the
Shares contained herein conform to the initial
Registration Statement.
7 The Commission has issued an order granting
Hartford Funds NextShares Trust and certain
affiliates exemptive relief under the Investment
Company Act. See Investment Company Act
Release No. 31607 (May 19, 2015) (File No. 812–
14439).
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Federal Register / Vol. 82, No. 52 / Monday, March 20, 2017 / Notices
changes to the Fund’s portfolio.8 In the
future event that (a) the Adviser or the
Sub-Adviser registers as a broker-dealer
or becomes newly affiliated with a
broker-dealer, or (b) any new adviser or
a sub-adviser to the Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire
wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, if applicable, regarding access
to information concerning the
composition and/or changes to the
Fund’s portfolio and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio.
ALPS Distributors, Inc. (‘‘ALPS’’) will
be the principal underwriter and
distributor of the Fund’s Shares.
Hartford Funds Management Company,
LLC will act as the administrator and
accounting agent to the Fund; State
Street Bank and Trust Company will act
as sub-administrator, sub-accounting
agent, transfer agent and custodian to
the Fund.
The Fund will be actively managed
and will pursue the principal
investment strategy described below.9
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Hartford Global Impact NextSharesTM
Fund
The investment objective of the Fund
is long-term capital appreciation. The
Fund seeks to achieve its objective by
investing all of its assets in shares of the
Global Impact Master Portfolio (the
‘‘Master Portfolio;’’ references to the
8 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, each of the Adviser and the Sub-Adviser,
and its related personnel, are subject to the
provisions of Rule 204A–1 under the Advisers Act
relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that
reflects the fiduciary nature of the relationship to
clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed
to prevent the communication and misuse of nonpublic information by an investment adviser must
be consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
9 Additional information regarding the Fund will
be available on a free public Web site for the Fund
(www.hartfordfunds.com or www.nextshares.com)
and in the Registration Statement for the Fund.
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‘‘Fund’’ include, where applicable, the
Master Portfolio), which has the same
investment objective and strategy as the
Fund. The Fund invests in equity
securities of issuers located throughout
the world, including non-dollar
securities and securities of emerging
market issuers. The Fund seeks to invest
in companies that focus their operations
in areas that the Sub-Adviser believes
are likely to address major social and
environmental challenges. The Fund
may invest in companies of any market
capitalization, including small
capitalization securities.
Creations and Redemptions of Shares
Shares will be issued and redeemed
on a daily basis at the Fund’s nextdetermined net asset value (‘‘NAV’’) 10
in specified blocks of Shares called
‘‘Creation Units.’’ A Creation Unit will
consist of at least 25,000 Shares.
Creation Units may be purchased and
redeemed by or through ‘‘Authorized
Participants.’’ 11 Purchases and sales of
Shares in amounts less than a Creation
Unit may be effected only in the
secondary market, as described below,
and not directly with the Fund.
The creation and redemption process
for the Fund may be effected ‘‘in kind,’’
in cash, or in a combination of securities
and cash. Creation ‘‘in kind’’ means that
an Authorized Participant—usually a
brokerage house or large institutional
investor—purchases the Creation Unit
with a basket of securities equal in value
to the aggregate NAV of the Shares in
the Creation Unit. When an Authorized
Participant redeems a Creation Unit in
kind, it receives a basket of securities
equal in value to the aggregate NAV of
the Shares in the Creation Unit.12
10 As with other registered open-end investment
companies, NAV generally will be calculated daily
Monday through Friday as of the close of regular
trading on the New York Stock Exchange, normally
4:00 p.m. Eastern Time. NAV will be calculated by
dividing the Fund’s net asset value by the number
of Shares outstanding. Information regarding the
valuation of investments in calculating the Fund’s
NAV will be contained in the Registration
Statement for its Shares.
11 ‘‘Authorized Participants’’ will be either: (1)
‘‘participating parties,’’ i.e., brokers or other
participants in the Continuous Net Settlement
System (‘‘CNS System’’) of the National Securities
Clearing Corporation (‘‘NSCC’’), a clearing agency
registered with the Commission and affiliated with
the Depository Trust Company (‘‘DTC’’), or (2) DTC
participants, which in either case have executed
participant agreements with the Fund’s distributor
and transfer agent regarding the creation and
redemption of Creation Units. Investors will not
have to be Authorized Participants in order to
transact in Creation Units, but must place an order
through and make appropriate arrangements with
an Authorized Participant for such transactions.
12 In compliance with Nasdaq Rule 5745(b)(5),
which applies to Shares based on an international
or global portfolio, Hartford Funds Trust’s
application for exemptive relief under the
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Composition File
As defined in Nasdaq Rule 5745(c)(3),
the Composition File is the specified
portfolio of securities and/or cash that
the Fund will accept as a deposit in
issuing a Creation Unit of Shares, and
the specified portfolio of securities and/
or cash that the Fund will deliver in a
redemption of a Creation Unit of Shares.
The Composition File will be
disseminated through the NSCC once
each business day before the open of
trading in Shares on such day and also
will be made available to the public
each day on a free Web site.13 Because
the Fund seeks to preserve the
confidentiality of its current portfolio
trading program, the Fund’s
Composition File generally will not be
a pro rata reflection of the Fund’s
investment positions. Each security
included in the Composition File will
be a current holding of the Fund, but the
Composition File generally will not
include all of the securities in the
Fund’s portfolio or match the
weightings of the included securities in
the portfolio. Securities that the Adviser
or the Sub-Adviser is in the process of
acquiring for the Fund generally will
not be represented in the Fund’s
Composition File until their purchase
has been completed. Similarly,
securities that are held in the Fund’s
portfolio but in the process of being sold
may not be removed from its
Composition File until the sale program
is substantially completed. To the extent
that the Fund creates or redeems Shares
in kind, it will use cash amounts to
supplement the in-kind transactions to
the extent necessary to ensure that
Creation Units are purchased and
redeemed at NAV. The Composition
File also may consist entirely of cash, in
which case it will not include any of the
securities in the Fund’s portfolio.14
Investment Company Act states that the Trust will
comply with the federal securities laws in accepting
securities for deposits and satisfying redemptions
with securities, including that the securities
accepted for deposits and the securities used to
satisfy redemption requests are sold in transactions
that would be exempt from registration under the
Securities Act of 1933, as amended (15 U.S.C. 77a)
(‘‘Securities Act’’).
13 The free Web site containing the Composition
File will be www.hartfordfunds.com or
wwww.nextshares.com [sic].
14 In determining whether the Fund will issue or
redeem Creation Units entirely on a cash basis, the
key consideration will be the benefit that would
accrue to the Fund and its investors. For instance,
in bond transactions, the Adviser or the SubAdviser may be able to obtain better execution for
the Fund than Authorized Participants because of
the Adviser’s or Sub-Adviser’s size, experience and
potentially stronger relationships in the fixedincome markets.
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Transaction Fees
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All persons purchasing or redeeming
Creation Units are expected to incur a
transaction fee to cover the estimated
cost to the Fund of processing the
transaction, including the costs of
clearance and settlement charged to it
by NSCC or DTC, and the estimated
trading costs (i.e., brokerage
commissions, bid-ask spread and market
impact) to be incurred in converting the
Composition File to or from the desired
portfolio holdings. The transaction fee is
determined daily and will be limited to
amounts approved by the board of
trustees of the Fund and determined by
the Adviser to be appropriate to defray
the expenses that the Fund incurs in
connection with the purchase or
redemption of Creation Units. The
purpose of transaction fees is to protect
the Fund’s existing shareholders from
the dilutive costs associated with the
purchase and redemption of Creation
Units. Transaction fees may vary over
time for the Fund depending on the
estimated trading costs for its portfolio
positions and Composition File,
processing costs and other
considerations. To the extent that the
Fund specifies greater amounts of cash
in its Composition File, it may impose
higher transaction fees. In addition, to
the extent that the Fund includes in its
Composition File instruments that clear
through DTC, it may impose higher
transaction fees than when the
Composition File consists solely of
instruments that clear through NSCC,
because DTC may charge more than
NSCC in connection with Creation Unit
transactions.15 The transaction fees
applicable to the Fund’s purchases and
redemptions on a given business day
will be disseminated through the NSCC
prior to the open of market trading on
that day and also will be made available
to the public each day on a free Web
site.16 In all cases, the transaction fees
will be limited in accordance with the
requirements of the Commission
applicable to open-end management
investment companies offering
redeemable securities.
15 Authorized Participants that participate in the
CNS System of the NSCC are expected to be able
to use the enhanced NSCC/CNS process for
effecting in-kind purchases and redemptions of
ETFs (the ‘‘NSCC Process’’) to purchase and redeem
Creation Units of the Fund that limit the
composition of its baskets to include only NSCC
Process-eligible instruments (generally domestic
equity securities and cash). Because the NSCC
Process is generally more efficient than the DTC
clearing process, NSCC is likely to charge the Fund
less than DTC to settle purchases and redemptions
of Creation Units.
16 The free Web site will be
www.hartfordfunds.com or www.nextshares.com.
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Trading Premiums and Discounts
Bid and offer prices for Shares will be
quoted throughout the day relative to
NAV. The premium or discount to NAV
at which Share prices are quoted and
transactions are executed will vary
depending on market factors, including
the balance of supply and demand for
Shares among investors, transaction fees
and other costs in connection with
creating and redeeming Creation Units
of Shares, the cost and availability of
borrowing Shares, competition among
market makers, the Share inventory
positions and inventory strategies of
market makers, the profitability
requirements and business objectives of
market makers, and the volume of Share
trading. Reflecting such market factors,
prices for Shares in the secondary
market may be above, at or below NAV.
Funds with higher transaction fees may
trade at wider premiums or discounts to
NAV than Funds with lower transaction
fees, reflecting the added costs to market
makers of managing their Share
inventory positions through purchases
and redemptions of Creation Units.
Because making markets in Shares
will be simple to manage and low risk,
competition among market makers
seeking to earn reliable, low-risk profits
should enable the Shares to routinely
trade at tight bid-ask spreads and
narrow premiums/discounts to NAV. As
noted below, the Fund will maintain a
public Web site that will be updated on
a daily basis to show current and
historical trading spreads and
premiums/discounts of Shares trading
in the secondary market.18
Transmitting and Processing Orders.
Member firms will utilize certain
existing order types and interfaces to
transmit Share bids and offers to
Nasdaq, which will process Share trades
like trades in shares of other listed
securities.19 In the systems used to
transmit and process transactions in
Shares, the Fund’s next-determined
NAV will be represented by a proxy
price (e.g., 100.00) and a premium/
discount of a stated amount to the nextdetermined NAV to be represented by
the same increment/decrement from the
proxy price used to denote NAV (e.g.,
NAV¥$0.01 would be represented as
99.99; NAV + $0.01 as 100.01).
To avoid potential investor confusion,
Nasdaq will work with member firms
and providers of market data services to
seek to ensure that representations of
intraday bids, offers and execution
prices of Shares that are made available
to the investing public follow the
‘‘NAV¥$0.01/NAV + $0.01’’ (or similar)
display format. All Shares listed on the
Exchange will have a unique identifier
associated with their ticker symbols,
which would indicate that the Shares
are traded using NAV-Based Trading.
Nasdaq makes available to member
firms and market data services certain
proprietary data feeds that are designed
to supplement the market information
disseminated through the consolidated
tape (‘‘Consolidated Tape’’).
Specifically, the Exchange will use the
NASDAQ Basic and NASDAQ Last Sale
data feeds to disseminate intraday price
and quote data for Shares in real time
in the ‘‘NAV¥0.01/NAV + $0.01’’ (or
similar) display format. Member firms
could use the NASDAQ Basic and
NASDAQ Last Sale data feeds to source
intraday Share prices for presentation to
the investing public in the
‘‘NAV¥$0.01/NAV + $0.01’’ (or similar)
display format. Alternatively, member
firms could source intraday Share prices
in proxy price format from the
Consolidated Tape and other Nasdaq
data feeds (e.g., Nasdaq TotalView and
Nasdaq Level 2) and use a simple
algorithm to convert prices into the
17 Aspects of NAV-Based Trading are protected
intellectual property subject to issued and pending
U.S. patents held by NextShares Solutions LLC
(‘‘NextShares Solutions’’), a wholly owned
subsidiary of Eaton Vance Corp. Nasdaq has entered
into a license agreement with NextShares Solutions
to allow for NAV-Based Trading on the Exchange
of exchange-traded managed funds that have
themselves entered into license agreements with
NextShares Solutions.
18 The Web site containing this information will
be www.hartfordfunds.com or www.nextshares.com.
19 As noted below, all orders to buy or sell Shares
that are not executed on the day the order is
submitted will be automatically cancelled as of the
close of trading on such day. Prior to the
commencement of trading in a Fund, the Exchange
will inform its members in an Information Circular
of the effect of this characteristic on existing order
types.
NAV-Based Trading
Because Shares will be listed and
traded on the Exchange, Shares will be
available for purchase and sale on an
intraday basis. Shares will be purchased
and sold in the secondary market at
prices directly linked to the Fund’s
next-determined NAV using a new
trading protocol called ‘‘NAV-Based
Trading.’’ 17 All bids, offers and
execution prices of Shares will be
expressed as a premium/discount
(which may be zero) to the Fund’s nextdetermined NAV (e.g., NAV¥$0.01,
NAV + $0.01). The Fund’s NAV will be
determined each business day, normally
as of 4:00 p.m. Eastern Time. Trade
executions will be binding at the time
orders are matched on Nasdaq’s
facilities, with the transaction prices
contingent upon the determination of
NAV.
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‘‘NAV¥$0.01/NAV + $0.01’’ (or similar)
display format. As noted below, prior to
the commencement of trading in the
Fund, the Exchange will inform its
members in an Information Circular of
the identities of the specific Nasdaq data
feeds from which intraday Share prices
in proxy price format may be obtained.
Intraday Reporting of Quotes and
Trades. All bids and offers for Shares
and all Share trade executions will be
reported intraday in real time by the
Exchange to the Consolidated Tape 20
and separately disseminated to member
firms and market data services through
the Exchange data feeds listed above.
The Exchange will also provide the
member firms participating in each
Share trade with a contemporaneous
notice of trade execution, indicating the
number of Shares bought or sold and the
executed premium/discount to NAV.21
Final Trade Pricing, Reporting and
Settlement. All executed Share trades
will be recorded and stored intraday by
Nasdaq to await the calculation of the
Fund’s end-of- day NAV and the
determination of final trade pricing.
After the Fund’s NAV is calculated and
provided to the Exchange, Nasdaq will
price each Share trade entered into
during the day at the Fund’s NAV plus/
minus the trade’s executed premium/
discount. Using the final trade price,
each executed Share trade will then be
disseminated to member firms and
market data services via an FTP file to
be created for exchange-traded managed
funds and confirmed to the member
firms participating in the trade to
supplement the previously provided
information to include final pricing.22
After the pricing is finalized, Nasdaq
will deliver the Share trading data to
NSCC for clearance and settlement,
following the same processes used for
the clearance and settlement of trades in
other exchange-traded securities.
20 Due to systems limitations, the Consolidated
Tape will report intraday execution prices and
quotes for Shares using a proxy price format. As
noted, Nasdaq will separately report real-time
execution prices and quotes to member firms and
providers of market data services in the
‘‘NAV¥$0.01/NAV+$0.01’’ (or similar) display
format, and otherwise seek to ensure that
representations of intraday bids, offers and
execution prices for Shares that are made available
to the investing public follow the same display
format.
21 All orders to buy or sell Shares that are not
executed on the day the order is submitted will be
automatically cancelled as of the close of trading on
such day.
22 File Transfer Protocol (‘‘FTP’’) is a standard
network protocol used to transfer computer files on
the Internet. Nasdaq will arrange for the daily
dissemination of an FTP file with executed Share
trades to member firms and market data services.
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Availability of Information
Prior to the commencement of market
trading in Shares, the Fund will be
required to establish and maintain a
public Web site through which its
current prospectus may be
downloaded.23 The Web site will
include additional Fund information
updated on a daily basis, including the
prior business day’s NAV, and the
following trading information for such
business day expressed as premiums/
discounts to NAV: (a) Intraday high,
low, average and closing prices of
Shares in Exchange trading; (b) the
midpoint of the highest bid and lowest
offer prices as of the close of Exchange
trading, expressed as a premium/
discount to NAV (the ‘‘Closing Bid/Ask
Midpoint’’); and (c) the spread between
highest bid and lowest offer prices as of
the close of Exchange trading (the
‘‘Closing Bid/Ask Spread.’’). The Web
site will also contain charts showing the
frequency distribution and range of
values of trading prices, Closing Bid/
Ask Midpoints and Closing Bid/Ask
Spreads over time.
The Composition File will be
disseminated through the NSCC before
the open of trading in Shares on each
business day and also will be made
available to the public each day on a
free Web site as noted above. Consistent
with the disclosure requirements that
apply to traditional open-end
investment companies, a complete list
of current Fund portfolio positions will
be made available at least once each
calendar quarter, with a reporting lag of
not more than 60 days. The Fund may
provide more frequent disclosures of
portfolio positions at its discretion.
Reports of Share transactions will be
disseminated to the market and
delivered to the member firms
participating in the trade
contemporaneous with execution. Once
the Fund’s daily NAV has been
calculated and disseminated, Nasdaq
will price each Share trade entered into
during the day at the Fund’s NAV plus/
minus the trade’s executed premium/
discount. Using the final trade price,
each executed Share trade will then be
disseminated to member firms and
market data services via an FTP file to
be created for exchange-traded managed
funds and confirmed to the member
firms participating in the trade to
supplement the previously provided
information to include final pricing.
Information regarding NAV-based
trading prices, best bids and offers for
Shares, and volume of Shares traded
will be continuously available on a real23 The Web site containing this information will
be www.hartfordfunds.com or www.nextshares.com.
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Fmt 4703
Sfmt 4703
time basis throughout each trading day
on brokers’ computer screens and other
electronic services.
Initial and Continued Listing
Shares will conform to the initial and
continued listing criteria as set forth
under Nasdaq Rule 5745. A minimum of
50,000 Shares and no less than two
Creation Units of the Fund will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily (on each
day the New York Stock Exchange is
open for trading) and provided to
Nasdaq via the Mutual Fund Quotation
Service (’’MFQS’’) by the fund
accounting agent. As soon as the NAV
is entered into MFQS, Nasdaq will
disseminate the value to market
participants and market data vendors
via the Mutual Fund Dissemination
Service (‘‘MFDS’’) so all firms will
receive the data element at the same
time. The Reporting Authority 24 also
will ensure that the Composition File
will implement and maintain, or be
subject to, procedures designed to
prevent the use and dissemination of
material non-public information
regarding each Fund’s portfolio
positions and changes in the positions.
For each series of Shares, an
estimated value of an individual Share,
defined in Nasdaq Rule 5745(c)(2) as the
‘‘Intraday Indicative Value,’’ will be
calculated and disseminated at intervals
of not more than 15 minutes throughout
the Regular Market Session 25 when
Shares trade on the Exchange. The
Exchange will obtain a representation
from the issuer of the Shares that the IIV
will be calculated on an intraday basis
and provided to Nasdaq for
dissemination via the Nasdaq Global
Index Service (‘‘GIDS’’).
The IIV will be based on current
information regarding the value of the
securities and other assets held by the
Fund.26 The purpose of the IIVs is to
enable investors to estimate the nextdetermined NAV so they can determine
the number of Shares to buy or sell if
they want to transact in an approximate
dollar amount (e.g., if an investor wants
24 See
Nasdaq Rule 5745(c)(4).
Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m. E.T.; (2)
Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. E.T.).
26 IIVs disseminated throughout each trading day
would be based on the same portfolio as used to
calculate that day’s NAV. The Fund will reflect
purchases and sales of portfolio positions in its
NAV the next business day after trades are
executed.
25 See
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Federal Register / Vol. 82, No. 52 / Monday, March 20, 2017 / Notices
to acquire approximately $5,000 of a
Fund, how many Shares should the
investor buy?).27
Neither the Adviser nor the SuAdviser [sic] is a registered brokerdealer, although each is affiliated with
a broker-dealer. Each of the Adviser and
the Sub-Adviser has implemented a fire
wall with respect to its broker-dealer
affiliate regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. In the
future event that (a) the Adviser or the
Sub-Adviser registers as a broker-dealer
or becomes newly affiliated with a
broker-dealer, or (b) any new adviser or
a sub-adviser to the Fund is a registered
broker-dealer or becomes affiliated with
a broker-dealer, it will implement a fire
wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, if applicable, regarding access
to information concerning the
composition and/or changes to the
Fund’s portfolio and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
portfolio.
Trading Halts
The Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
Shares. Nasdaq will halt trading in
Shares under the conditions specified in
Nasdaq Rules 4120 and in Nasdaq Rule
5745(d)(2)(C). Additionally, Nasdaq may
cease trading Shares if other unusual
conditions or circumstances exist
which, in the opinion of Nasdaq, make
further dealings on Nasdaq detrimental
to the maintenance of a fair and orderly
market. To manage the risk of a nonregulatory Share trading halt, Nasdaq
has in place back-up processes and
procedures to ensure orderly trading.
Because, in NAV-Based Trading, all
trade execution prices are linked to endof-day NAV, buyers and sellers of
Shares should be less exposed to risk of
loss due to intraday trading halts than
buyers and sellers of conventional
exchange-traded funds (‘‘ETFs’’) and
other exchange-traded securities.
Every order to trade Shares of the
Funds [sic] is subject to the proxy price
protection threshold of plus/minus
$1.00, which determines the lower and
upper threshold for the life of the order
and whereby the order will be cancelled
at any point if it exceeds $101.00 or falls
below $99.00, the established
thresholds.28 With certain exceptions,
each order also must contain the
applicable order attributes, including
routing instructions and time-in-force
information, as described in Nasdaq
Rule 4703.29
Trading Rules
Nasdaq deems Shares to be equity
securities, thus rendering trading in
Shares to be subject to Nasdaq’s existing
rules governing the trading of equity
securities. Nasdaq will allow trading in
Shares from 9:30 a.m. until 4:00 p.m.
Eastern Time.
Surveillance
The Exchange represents that trading
in Shares will be subject to the existing
trading surveillances, administered by
both Nasdaq and the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.30 The Exchange
represents that these procedures are
adequate to properly monitor trading of
Shares on the Exchange and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed with other
markets and other entities that are
members of the Intermarket
Surveillance Group (‘‘ISG’’) 31 regarding
trading in Shares, and in exchangetraded securities and instruments held
by the Fund (to the extent such
exchange-traded securities and
instruments are known through the
28 See
sradovich on DSK3GMQ082PROD with NOTICES
27 Because,
in NAV-Based Trading, prices of
executed trades are not determined until the
reference NAV is calculated, buyers and sellers of
Shares during the trading day will not know the
final value of their purchases and sales until the
end of the trading day. The Fund’s Registration
Statement, Web site and any advertising or
marketing materials will include prominent
disclosure of this fact. Although IIVs may provide
useful estimates of the value of intraday trades, they
cannot be used to calculate with precision the
dollar value of the Shares to be bought or sold.
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Nasdaq Rule 5745(h).
Nasdaq Rule 5745(b)(6).
30 FINRA provides surveillance of trading on the
Exchange pursuant to a regulatory services
agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
31 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Fund’s portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
29 See
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
14399
publication of the Composition File and
periodic public disclosures of the
Fund’s portfolio holdings), and FINRA
may obtain trading information
regarding such trading from other
markets and other entities. In addition,
the Exchange may obtain information
regarding trading in Shares, and in
exchange-traded securities and
instruments held by the Fund (to the
extent such exchange-traded securities
and instruments are known through the
publication of the Composition File and
periodic public disclosures of a [sic]
Fund’s portfolio holdings), from markets
and other entities that are members of
ISG, which includes securities and
futures exchanges, or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material non-public
information by its employees.
Information Circular
Prior to the commencement of trading
in the Fund, the Exchange will inform
its members in an Information Circular
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and noting that Shares are not
individually redeemable); (2) Nasdaq
Rule 2111A, which imposes suitability
obligations on Nasdaq members with
respect to recommending transactions in
Shares to customers; (3) how
information regarding the IIV and
Composition File is disseminated; (4)
the requirement that members deliver a
prospectus to investors purchasing
Shares prior to or concurrently with the
confirmation of a transaction; and (5)
information regarding NAV-Based
Trading protocols.
As noted above, all orders to buy or
sell Shares that are not executed on the
day the order is submitted will be
automatically cancelled as of the close
of trading on such day. The Information
Circular will discuss the effect of this
characteristic on existing order types.
The Information Circular also will
identify the specific Nasdaq data feeds
from which intraday Share prices in
proxy price format may be obtained.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Fund for
resale to investors will deliver a
summary prospectus to such investors.
The Information Circular will also
E:\FR\FM\20MRN1.SGM
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Federal Register / Vol. 82, No. 52 / Monday, March 20, 2017 / Notices
discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
The Information Circular also will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares and the
applicable NAV calculation time for the
Shares. The Information Circular will
disclose that information about the
Shares will be publicly available on the
Fund’s Web site.
Information regarding Fund trading
protocols will be disseminated to
Nasdaq members in accordance with
current processes for newly listed
products. Nasdaq intends to provide its
members with a detailed explanation of
NAV-Based Trading through a Trading
Alert issued prior to the commencement
of trading in Shares on the Exchange.
sradovich on DSK3GMQ082PROD with NOTICES
Continued Listing Representations
All statements and representations
made in this filing regarding (a) the
description of the portfolio, (b)
limitations on portfolio holdings or
reference assets, or (c) the applicability
of Exchange rules and surveillance
procedures shall constitute continued
listing requirements for listing the
Shares on the Exchange. In addition, the
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by the Fund to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor for compliance with the
continued listing requirements. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under the Nasdaq 5800
Series.
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act 32
in general, and Section 6(b)(5) of the
Act 33 in particular, in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
32 15
33 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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18:36 Mar 17, 2017
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acts and practices in that the Shares
would be listed and traded on the
Exchange pursuant to the initial and
continued listing criteria in Nasdaq Rule
5745. The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of Shares
on Nasdaq and to deter and detect
violations of Exchange rules and the
applicable federal securities laws. Each
of the Adviser and the Sub-Adviser is a
registered broker-dealer or affiliated
with a broker-dealer, and each of the
Adviser and the Sub-Adviser has
implemented a fire wall with respect to
its affiliated broker-dealer regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. The Exchange may
obtain information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement, to the extent
necessary.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest. The Exchange will
obtain a representation from each issuer
of Shares that the NAV per Share will
be calculated on each business day that
the New York Stock Exchange is open
for trading and that the NAV will be
made available to all market
participants at the same time. In
addition, a large amount of information
would be publicly available regarding
the Fund and the Shares, thereby
promoting market transparency.
Prior to the commencement of market
trading in Shares, the Fund will be
required to establish and maintain a
public Web site through which its
current prospectus may be downloaded.
The Web site will display additional
Fund information updated on a daily
basis, including the prior business day’s
NAV, and the following trading
information for such business day
expressed as premiums/discounts to
NAV: (a) Intraday high, low, average
and closing prices of Shares in
Exchange trading; (b) the Closing Bid/
Ask Midpoint; and (c) the Closing Bid/
Ask Spread. The Web site will also
contain charts showing the frequency
distribution and range of values of
trading prices, Closing Bid/Ask
Midpoints and Closing Bid/Ask Spreads
over time.
The Composition File will be
disseminated through the NSCC before
the open of trading in Shares on each
business day and also will be made
available to the public each day on a
free Web site. The Exchange will obtain
a representation from the issuer of the
Shares that the IIV will be calculated
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
and disseminated on an intraday basis
at intervals of not more than 15 minutes
during trading on the Exchange and
provided to Nasdaq for dissemination
via GIDS. A complete list of current
portfolio positions for the Fund will be
made available at least once each
calendar quarter, with a reporting lag of
not more than 60 days. The Fund may
provide more frequent disclosures of
portfolio positions at its discretion.
Transactions in Shares will be
reported to the Consolidated Tape at the
time of execution in proxy price format
and will be disseminated to member
firms and market data services through
Nasdaq’s trading service and market
data interfaces, as defined above. Once
the Fund’s daily NAV has been
calculated and the final price of its
intraday Share trades has been
determined, Nasdaq will deliver a
confirmation with final pricing to the
transacting parties. At the end of the
day, Nasdaq will also post a newly
created FTP file with the final
transaction data for the trading and
market data services. The Exchange
expects that information regarding
NAV-based trading prices and volumes
of Shares traded will be continuously
available on a real-time basis throughout
each trading day on brokers’ computer
screens and other electronic services.
Because Shares will trade at prices
based on the next-determined NAV,
investors will be able to buy and sell
individual Shares at a known premium
or discount to NAV that they can limit
by transacting using limit orders at the
time of order entry. Trading in Shares
will be subject to Nasdaq Rules
5745(d)(2)(B) and (C), which provide for
the suspension of trading or trading
halts under certain circumstances,
including if, in the view of the
Exchange, trading in Shares becomes
inadvisable.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of the Fund, which seeks to provide
investors with access to an actively
managed investment strategy in a
structure that offers the cost and tax
efficiencies and shareholder protections
of ETFs, while removing the
requirement for daily portfolio holdings
disclosure to ensure a tight relationship
between market trading prices and
NAV.
For the above reasons, Nasdaq
believes the proposed rule change is
consistent with the requirements of
Section 6(b)(5) of the Act.
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Federal Register / Vol. 82, No. 52 / Monday, March 20, 2017 / Notices
Paper Comments
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In fact, the
Exchange believes that the introduction
of the Fund would promote competition
by making available to investors an
actively managed investment strategy in
a structure that offers the cost and tax
efficiencies and shareholder protections
of ETFs, while removing the
requirement for daily portfolio holdings
disclosure to ensure a tight relationship
between market trading prices and
NAV. Moreover, the Exchange believes
that the proposed method of Share
trading would provide investors with
transparency of trading costs, and the
ability to control trading costs using
limit orders, that is not available for
conventionally traded ETFs.
These developments could
significantly enhance competition to the
benefit of the markets and investors.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
shall: (a) by order approve or disapprove
such proposed rule change, or (b)
institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
sradovich on DSK3GMQ082PROD with NOTICES
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:
• 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–2017–025. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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–2017–025 and should be
submitted on or before April 10, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017–05404 Filed 3–17–17; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2017–025 on the subject line.
VerDate Sep<11>2014
18:36 Mar 17, 2017
Jkt 241001
34 17
PO 00000
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Frm 00059
Fmt 4703
Sfmt 4703
14401
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80234; File No. SR–FICC–
2017–002]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of Proposed Rule Change To
Implement the Capped Contingency
Liquidity Facility in the Government
Securities Division Rulebook
March 14, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 1, 2017, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the clearing
agency.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to FICC’s Government
Securities Division (‘‘GSD’’) Rulebook
(the ‘‘GSD Rules’’) 4 in order to include
a committed liquidity resource (referred
to as the ‘‘Capped Contingency
Liquidity Facility®’’ (‘‘CCLF’’)). This
facility would provide FICC with
additional liquid financial resources to
meet its cash settlement obligations in
the event of a default of the largest
family of affiliated Netting Members 5
(an ‘‘Affiliated Family’’) of GSD, as
described in greater detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 On March 1, 2017, FICC filed this proposed rule
change as an advance notice (SR–FICC–2017–802)
(‘‘Advance Notice Filing’’) with the Commission
pursuant to Section 806(e)(1) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act
entitled the Payment, Clearing, and Settlement
Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and
Rule 19b–4(n)(1)(i) of the Exchange Act, 17 CFR
240.19b–4(n)(1)(i). A copy of the advance notice is
available at https://www.dtcc.com/legal/sec-rulefilings.aspx.
4 GSD Rules, available at www.dtcc.com/legal/
rules-and-procedures.aspx. Capitalized terms used
herein and not otherwise defined shall have the
meaning assigned to such terms in the GSD Rules.
5 As defined in the GSD Rules, the term ‘‘Netting
Member’’ means a Member that is a Member of the
Comparison System and the Netting System. Id.
2 17
E:\FR\FM\20MRN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 52 (Monday, March 20, 2017)]
[Notices]
[Pages 14395-14401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05404]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80237; File No. SR-NASDAQ-2017-025]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To List and Trade Exchange-
Traded Managed Funds
March 14, 2017.
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 March 1, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II, below, which Items have been prepared by the Exchange.
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
The Exchange proposes to list and trade under Nasdaq Rule 5745
(Exchange-Traded Managed Fund Shares (``NextShares'')) the common
shares (``Shares'') of the exchange-traded managed fund described
herein (the ``Fund'').\3\
---------------------------------------------------------------------------
\3\ Except for the specific Fund information set forth below,
this rule filing conforms to the rule filing, as modified by
amendments 1 and 2 thereto, relating to the listing and trading on
Nasdaq of the shares of 18 series of the Eaton Vance ETMF Trust and
the Eaton Vance ETMF Trust II, as approved by the Commission in
Securities Exchange Act Release No. 75499 (July 21, 2015) (SR-
NASDAQ-2015-036).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant 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 list and trade the Shares of the Fund
under Nasdaq Rule 5745, which governs the listing and trading of
exchange-traded managed fund shares, as defined in Nasdaq Rule
5745(c)(1), on the Exchange.\4\ The Trust listed below will be
registered with the Commission as an open-end investment company and
has filed a registration statement on Form N-1A (``Registration
Statement'') with the Commission. The Fund is a series of a Trust and
will be advised by an investment adviser registered under the
Investment Advisers Act of 1940 (``Adviser''), as described below. The
Fund will be actively managed and will pursue the principal investment
strategy, as noted below.\5\
---------------------------------------------------------------------------
\4\ The Commission approved Nasdaq Rule 5745 in Securities
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov.
14, 2014) (SR-NASDAQ-014-020) [sic].
\5\ Additional information regarding the Fund will be available
on the free public Web site for the Fund and in the Registration
Statements [sic] for the Fund.
---------------------------------------------------------------------------
I. Hartford Funds NextSharesTM Trust
Hartford Funds NextSharesTM Trust (``Hartford Funds
Trust'') will be registered with the Commission as an open-end
investment company and has filed a Registration Statement with the
Commission.\6\ The following Fund is a series of Hartford Funds
Trust.\7\
---------------------------------------------------------------------------
\6\ See initial Registration Statement on Form N-1A for Hartford
Funds NextShares Trust dated November 30, 2016 (File Nos. 333-214842
and 811-23215). The descriptions of the Fund and the Shares
contained herein conform to the initial Registration Statement.
\7\ The Commission has issued an order granting Hartford Funds
NextShares Trust and certain affiliates exemptive relief under the
Investment Company Act. See Investment Company Act Release No. 31607
(May 19, 2015) (File No. 812-14439).
---------------------------------------------------------------------------
Hartford Funds Management Company, LLC (the ``Adviser'') will be
the adviser to the Fund and Wellington Management Company LLP will the
sub-adviser to the Fund (the ``Sub-Adviser''). Each of the Adviser and
the Sub-Adviser is a registered broker-dealer or affiliated with a
broker-dealer, and each of the Adviser and the Sub-Adviser has
implemented a fire wall with respect to its affiliated broker-dealer
regarding access to information concerning the composition and/or
[[Page 14396]]
changes to the Fund's portfolio.\8\ In the future event that (a) the
Adviser or the Sub-Adviser registers as a broker-dealer or becomes
newly affiliated with a broker-dealer, or (b) any new adviser or a sub-
adviser to the Fund is a registered broker-dealer or becomes affiliated
with a broker-dealer, it will implement a fire wall with respect to its
relevant personnel and/or such broker-dealer affiliate, if applicable,
regarding access to information concerning the composition and/or
changes to the Fund's portfolio and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
---------------------------------------------------------------------------
\8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, each of the Adviser and the Sub-Adviser, and
its related personnel, are subject to the provisions of Rule 204A-1
under the Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of ethics that reflects
the fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------
ALPS Distributors, Inc. (``ALPS'') will be the principal
underwriter and distributor of the Fund's Shares. Hartford Funds
Management Company, LLC will act as the administrator and accounting
agent to the Fund; State Street Bank and Trust Company will act as sub-
administrator, sub-accounting agent, transfer agent and custodian to
the Fund.
The Fund will be actively managed and will pursue the principal
investment strategy described below.\9\
---------------------------------------------------------------------------
\9\ Additional information regarding the Fund will be available
on a free public Web site for the Fund (www.hartfordfunds.com or
www.nextshares.com) and in the Registration Statement for the Fund.
---------------------------------------------------------------------------
Hartford Global Impact NextSharesTM Fund
The investment objective of the Fund is long-term capital
appreciation. The Fund seeks to achieve its objective by investing all
of its assets in shares of the Global Impact Master Portfolio (the
``Master Portfolio;'' references to the ``Fund'' include, where
applicable, the Master Portfolio), which has the same investment
objective and strategy as the Fund. The Fund invests in equity
securities of issuers located throughout the world, including non-
dollar securities and securities of emerging market issuers. The Fund
seeks to invest in companies that focus their operations in areas that
the Sub-Adviser believes are likely to address major social and
environmental challenges. The Fund may invest in companies of any
market capitalization, including small capitalization securities.
Creations and Redemptions of Shares
Shares will be issued and redeemed on a daily basis at the Fund's
next-determined net asset value (``NAV'') \10\ in specified blocks of
Shares called ``Creation Units.'' A Creation Unit will consist of at
least 25,000 Shares. Creation Units may be purchased and redeemed by or
through ``Authorized Participants.'' \11\ Purchases and sales of Shares
in amounts less than a Creation Unit may be effected only in the
secondary market, as described below, and not directly with the Fund.
---------------------------------------------------------------------------
\10\ As with other registered open-end investment companies, NAV
generally will be calculated daily Monday through Friday as of the
close of regular trading on the New York Stock Exchange, normally
4:00 p.m. Eastern Time. NAV will be calculated by dividing the
Fund's net asset value by the number of Shares outstanding.
Information regarding the valuation of investments in calculating
the Fund's NAV will be contained in the Registration Statement for
its Shares.
\11\ ``Authorized Participants'' will be either: (1)
``participating parties,'' i.e., brokers or other participants in
the Continuous Net Settlement System (``CNS System'') of the
National Securities Clearing Corporation (``NSCC''), a clearing
agency registered with the Commission and affiliated with the
Depository Trust Company (``DTC''), or (2) DTC participants, which
in either case have executed participant agreements with the Fund's
distributor and transfer agent regarding the creation and redemption
of Creation Units. Investors will not have to be Authorized
Participants in order to transact in Creation Units, but must place
an order through and make appropriate arrangements with an
Authorized Participant for such transactions.
---------------------------------------------------------------------------
The creation and redemption process for the Fund may be effected
``in kind,'' in cash, or in a combination of securities and cash.
Creation ``in kind'' means that an Authorized Participant--usually a
brokerage house or large institutional investor--purchases the Creation
Unit with a basket of securities equal in value to the aggregate NAV of
the Shares in the Creation Unit. When an Authorized Participant redeems
a Creation Unit in kind, it receives a basket of securities equal in
value to the aggregate NAV of the Shares in the Creation Unit.\12\
---------------------------------------------------------------------------
\12\ In compliance with Nasdaq Rule 5745(b)(5), which applies to
Shares based on an international or global portfolio, Hartford Funds
Trust's application for exemptive relief under the Investment
Company Act states that the Trust will comply with the federal
securities laws in accepting securities for deposits and satisfying
redemptions with securities, including that the securities accepted
for deposits and the securities used to satisfy redemption requests
are sold in transactions that would be exempt from registration
under the Securities Act of 1933, as amended (15 U.S.C. 77a)
(``Securities Act'').
---------------------------------------------------------------------------
Composition File
As defined in Nasdaq Rule 5745(c)(3), the Composition File is the
specified portfolio of securities and/or cash that the Fund will accept
as a deposit in issuing a Creation Unit of Shares, and the specified
portfolio of securities and/or cash that the Fund will deliver in a
redemption of a Creation Unit of Shares. The Composition File will be
disseminated through the NSCC once each business day before the open of
trading in Shares on such day and also will be made available to the
public each day on a free Web site.\13\ Because the Fund seeks to
preserve the confidentiality of its current portfolio trading program,
the Fund's Composition File generally will not be a pro rata reflection
of the Fund's investment positions. Each security included in the
Composition File will be a current holding of the Fund, but the
Composition File generally will not include all of the securities in
the Fund's portfolio or match the weightings of the included securities
in the portfolio. Securities that the Adviser or the Sub-Adviser is in
the process of acquiring for the Fund generally will not be represented
in the Fund's Composition File until their purchase has been completed.
Similarly, securities that are held in the Fund's portfolio but in the
process of being sold may not be removed from its Composition File
until the sale program is substantially completed. To the extent that
the Fund creates or redeems Shares in kind, it will use cash amounts to
supplement the in-kind transactions to the extent necessary to ensure
that Creation Units are purchased and redeemed at NAV. The Composition
File also may consist entirely of cash, in which case it will not
include any of the securities in the Fund's portfolio.\14\
---------------------------------------------------------------------------
\13\ The free Web site containing the Composition File will be
www.hartfordfunds.com or wwww.nextshares.com [sic].
\14\ In determining whether the Fund will issue or redeem
Creation Units entirely on a cash basis, the key consideration will
be the benefit that would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser or the Sub-Adviser may
be able to obtain better execution for the Fund than Authorized
Participants because of the Adviser's or Sub-Adviser's size,
experience and potentially stronger relationships in the fixed-
income markets.
---------------------------------------------------------------------------
[[Page 14397]]
Transaction Fees
All persons purchasing or redeeming Creation Units are expected to
incur a transaction fee to cover the estimated cost to the Fund of
processing the transaction, including the costs of clearance and
settlement charged to it by NSCC or DTC, and the estimated trading
costs (i.e., brokerage commissions, bid-ask spread and market impact)
to be incurred in converting the Composition File to or from the
desired portfolio holdings. The transaction fee is determined daily and
will be limited to amounts approved by the board of trustees of the
Fund and determined by the Adviser to be appropriate to defray the
expenses that the Fund incurs in connection with the purchase or
redemption of Creation Units. The purpose of transaction fees is to
protect the Fund's existing shareholders from the dilutive costs
associated with the purchase and redemption of Creation Units.
Transaction fees may vary over time for the Fund depending on the
estimated trading costs for its portfolio positions and Composition
File, processing costs and other considerations. To the extent that the
Fund specifies greater amounts of cash in its Composition File, it may
impose higher transaction fees. In addition, to the extent that the
Fund includes in its Composition File instruments that clear through
DTC, it may impose higher transaction fees than when the Composition
File consists solely of instruments that clear through NSCC, because
DTC may charge more than NSCC in connection with Creation Unit
transactions.\15\ The transaction fees applicable to the Fund's
purchases and redemptions on a given business day will be disseminated
through the NSCC prior to the open of market trading on that day and
also will be made available to the public each day on a free Web
site.\16\ In all cases, the transaction fees will be limited in
accordance with the requirements of the Commission applicable to open-
end management investment companies offering redeemable securities.
---------------------------------------------------------------------------
\15\ Authorized Participants that participate in the CNS System
of the NSCC are expected to be able to use the enhanced NSCC/CNS
process for effecting in-kind purchases and redemptions of ETFs (the
``NSCC Process'') to purchase and redeem Creation Units of the Fund
that limit the composition of its baskets to include only NSCC
Process-eligible instruments (generally domestic equity securities
and cash). Because the NSCC Process is generally more efficient than
the DTC clearing process, NSCC is likely to charge the Fund less
than DTC to settle purchases and redemptions of Creation Units.
\16\ The free Web site will be www.hartfordfunds.com or
www.nextshares.com.
---------------------------------------------------------------------------
NAV-Based Trading
Because Shares will be listed and traded on the Exchange, Shares
will be available for purchase and sale on an intraday basis. Shares
will be purchased and sold in the secondary market at prices directly
linked to the Fund's next-determined NAV using a new trading protocol
called ``NAV-Based Trading.'' \17\ All bids, offers and execution
prices of Shares will be expressed as a premium/discount (which may be
zero) to the Fund's next-determined NAV (e.g., NAV-$0.01, NAV + $0.01).
The Fund's NAV will be determined each business day, normally as of
4:00 p.m. Eastern Time. Trade executions will be binding at the time
orders are matched on Nasdaq's facilities, with the transaction prices
contingent upon the determination of NAV.
---------------------------------------------------------------------------
\17\ Aspects of NAV-Based Trading are protected intellectual
property subject to issued and pending U.S. patents held by
NextShares Solutions LLC (``NextShares Solutions''), a wholly owned
subsidiary of Eaton Vance Corp. Nasdaq has entered into a license
agreement with NextShares Solutions to allow for NAV-Based Trading
on the Exchange of exchange-traded managed funds that have
themselves entered into license agreements with NextShares
Solutions.
---------------------------------------------------------------------------
Trading Premiums and Discounts
Bid and offer prices for Shares will be quoted throughout the day
relative to NAV. The premium or discount to NAV at which Share prices
are quoted and transactions are executed will vary depending on market
factors, including the balance of supply and demand for Shares among
investors, transaction fees and other costs in connection with creating
and redeeming Creation Units of Shares, the cost and availability of
borrowing Shares, competition among market makers, the Share inventory
positions and inventory strategies of market makers, the profitability
requirements and business objectives of market makers, and the volume
of Share trading. Reflecting such market factors, prices for Shares in
the secondary market may be above, at or below NAV. Funds with higher
transaction fees may trade at wider premiums or discounts to NAV than
Funds with lower transaction fees, reflecting the added costs to market
makers of managing their Share inventory positions through purchases
and redemptions of Creation Units.
Because making markets in Shares will be simple to manage and low
risk, competition among market makers seeking to earn reliable, low-
risk profits should enable the Shares to routinely trade at tight bid-
ask spreads and narrow premiums/discounts to NAV. As noted below, the
Fund will maintain a public Web site that will be updated on a daily
basis to show current and historical trading spreads and premiums/
discounts of Shares trading in the secondary market.\18\
---------------------------------------------------------------------------
\18\ The Web site containing this information will be
www.hartfordfunds.com or www.nextshares.com.
---------------------------------------------------------------------------
Transmitting and Processing Orders. Member firms will utilize
certain existing order types and interfaces to transmit Share bids and
offers to Nasdaq, which will process Share trades like trades in shares
of other listed securities.\19\ In the systems used to transmit and
process transactions in Shares, the Fund's next-determined NAV will be
represented by a proxy price (e.g., 100.00) and a premium/discount of a
stated amount to the next-determined NAV to be represented by the same
increment/decrement from the proxy price used to denote NAV (e.g., NAV-
$0.01 would be represented as 99.99; NAV + $0.01 as 100.01).
---------------------------------------------------------------------------
\19\ As noted below, all orders to buy or sell Shares that are
not executed on the day the order is submitted will be automatically
cancelled as of the close of trading on such day. Prior to the
commencement of trading in a Fund, the Exchange will inform its
members in an Information Circular of the effect of this
characteristic on existing order types.
---------------------------------------------------------------------------
To avoid potential investor confusion, Nasdaq will work with member
firms and providers of market data services to seek to ensure that
representations of intraday bids, offers and execution prices of Shares
that are made available to the investing public follow the ``NAV-$0.01/
NAV + $0.01'' (or similar) display format. All Shares listed on the
Exchange will have a unique identifier associated with their ticker
symbols, which would indicate that the Shares are traded using NAV-
Based Trading. Nasdaq makes available to member firms and market data
services certain proprietary data feeds that are designed to supplement
the market information disseminated through the consolidated tape
(``Consolidated Tape''). Specifically, the Exchange will use the NASDAQ
Basic and NASDAQ Last Sale data feeds to disseminate intraday price and
quote data for Shares in real time in the ``NAV-0.01/NAV + $0.01'' (or
similar) display format. Member firms could use the NASDAQ Basic and
NASDAQ Last Sale data feeds to source intraday Share prices for
presentation to the investing public in the ``NAV-$0.01/NAV + $0.01''
(or similar) display format. Alternatively, member firms could source
intraday Share prices in proxy price format from the Consolidated Tape
and other Nasdaq data feeds (e.g., Nasdaq TotalView and Nasdaq Level 2)
and use a simple algorithm to convert prices into the
[[Page 14398]]
``NAV-$0.01/NAV + $0.01'' (or similar) display format. As noted below,
prior to the commencement of trading in the Fund, the Exchange will
inform its members in an Information Circular of the identities of the
specific Nasdaq data feeds from which intraday Share prices in proxy
price format may be obtained.
Intraday Reporting of Quotes and Trades. All bids and offers for
Shares and all Share trade executions will be reported intraday in real
time by the Exchange to the Consolidated Tape \20\ and separately
disseminated to member firms and market data services through the
Exchange data feeds listed above. The Exchange will also provide the
member firms participating in each Share trade with a contemporaneous
notice of trade execution, indicating the number of Shares bought or
sold and the executed premium/discount to NAV.\21\
---------------------------------------------------------------------------
\20\ Due to systems limitations, the Consolidated Tape will
report intraday execution prices and quotes for Shares using a proxy
price format. As noted, Nasdaq will separately report real-time
execution prices and quotes to member firms and providers of market
data services in the ``NAV-$0.01/NAV+$0.01'' (or similar) display
format, and otherwise seek to ensure that representations of
intraday bids, offers and execution prices for Shares that are made
available to the investing public follow the same display format.
\21\ All orders to buy or sell Shares that are not executed on
the day the order is submitted will be automatically cancelled as of
the close of trading on such day.
---------------------------------------------------------------------------
Final Trade Pricing, Reporting and Settlement. All executed Share
trades will be recorded and stored intraday by Nasdaq to await the
calculation of the Fund's end-of- day NAV and the determination of
final trade pricing. After the Fund's NAV is calculated and provided to
the Exchange, Nasdaq will price each Share trade entered into during
the day at the Fund's NAV plus/minus the trade's executed premium/
discount. Using the final trade price, each executed Share trade will
then be disseminated to member firms and market data services via an
FTP file to be created for exchange-traded managed funds and confirmed
to the member firms participating in the trade to supplement the
previously provided information to include final pricing.\22\ After the
pricing is finalized, Nasdaq will deliver the Share trading data to
NSCC for clearance and settlement, following the same processes used
for the clearance and settlement of trades in other exchange-traded
securities.
---------------------------------------------------------------------------
\22\ File Transfer Protocol (``FTP'') is a standard network
protocol used to transfer computer files on the Internet. Nasdaq
will arrange for the daily dissemination of an FTP file with
executed Share trades to member firms and market data services.
---------------------------------------------------------------------------
Availability of Information
Prior to the commencement of market trading in Shares, the Fund
will be required to establish and maintain a public Web site through
which its current prospectus may be downloaded.\23\ The Web site will
include additional Fund information updated on a daily basis, including
the prior business day's NAV, and the following trading information for
such business day expressed as premiums/discounts to NAV: (a) Intraday
high, low, average and closing prices of Shares in Exchange trading;
(b) the midpoint of the highest bid and lowest offer prices as of the
close of Exchange trading, expressed as a premium/discount to NAV (the
``Closing Bid/Ask Midpoint''); and (c) the spread between highest bid
and lowest offer prices as of the close of Exchange trading (the
``Closing Bid/Ask Spread.''). The Web site will also contain charts
showing the frequency distribution and range of values of trading
prices, Closing Bid/Ask Midpoints and Closing Bid/Ask Spreads over
time.
---------------------------------------------------------------------------
\23\ The Web site containing this information will be
www.hartfordfunds.com or www.nextshares.com.
---------------------------------------------------------------------------
The Composition File will be disseminated through the NSCC before
the open of trading in Shares on each business day and also will be
made available to the public each day on a free Web site as noted
above. Consistent with the disclosure requirements that apply to
traditional open-end investment companies, a complete list of current
Fund portfolio positions will be made available at least once each
calendar quarter, with a reporting lag of not more than 60 days. The
Fund may provide more frequent disclosures of portfolio positions at
its discretion.
Reports of Share transactions will be disseminated to the market
and delivered to the member firms participating in the trade
contemporaneous with execution. Once the Fund's daily NAV has been
calculated and disseminated, Nasdaq will price each Share trade entered
into during the day at the Fund's NAV plus/minus the trade's executed
premium/discount. Using the final trade price, each executed Share
trade will then be disseminated to member firms and market data
services via an FTP file to be created for exchange-traded managed
funds and confirmed to the member firms participating in the trade to
supplement the previously provided information to include final
pricing.
Information regarding NAV-based trading prices, best bids and
offers for Shares, and volume of Shares traded will be continuously
available on a real-time basis throughout each trading day on brokers'
computer screens and other electronic services.
Initial and Continued Listing
Shares will conform to the initial and continued listing criteria
as set forth under Nasdaq Rule 5745. A minimum of 50,000 Shares and no
less than two Creation Units of the Fund will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily (on each day the New York Stock Exchange is
open for trading) and provided to Nasdaq via the Mutual Fund Quotation
Service (''MFQS'') by the fund accounting agent. As soon as the NAV is
entered into MFQS, Nasdaq will disseminate the value to market
participants and market data vendors via the Mutual Fund Dissemination
Service (``MFDS'') so all firms will receive the data element at the
same time. The Reporting Authority \24\ also will ensure that the
Composition File will implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material
non-public information regarding each Fund's portfolio positions and
changes in the positions.
---------------------------------------------------------------------------
\24\ See Nasdaq Rule 5745(c)(4).
---------------------------------------------------------------------------
For each series of Shares, an estimated value of an individual
Share, defined in Nasdaq Rule 5745(c)(2) as the ``Intraday Indicative
Value,'' will be calculated and disseminated at intervals of not more
than 15 minutes throughout the Regular Market Session \25\ when Shares
trade on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the IIV will be calculated on an intraday
basis and provided to Nasdaq for dissemination via the Nasdaq Global
Index Service (``GIDS'').
---------------------------------------------------------------------------
\25\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m.
to 8 p.m. E.T.).
---------------------------------------------------------------------------
The IIV will be based on current information regarding the value of
the securities and other assets held by the Fund.\26\ The purpose of
the IIVs is to enable investors to estimate the next-determined NAV so
they can determine the number of Shares to buy or sell if they want to
transact in an approximate dollar amount (e.g., if an investor wants
[[Page 14399]]
to acquire approximately $5,000 of a Fund, how many Shares should the
investor buy?).\27\
---------------------------------------------------------------------------
\26\ IIVs disseminated throughout each trading day would be
based on the same portfolio as used to calculate that day's NAV. The
Fund will reflect purchases and sales of portfolio positions in its
NAV the next business day after trades are executed.
\27\ Because, in NAV-Based Trading, prices of executed trades
are not determined until the reference NAV is calculated, buyers and
sellers of Shares during the trading day will not know the final
value of their purchases and sales until the end of the trading day.
The Fund's Registration Statement, Web site and any advertising or
marketing materials will include prominent disclosure of this fact.
Although IIVs may provide useful estimates of the value of intraday
trades, they cannot be used to calculate with precision the dollar
value of the Shares to be bought or sold.
---------------------------------------------------------------------------
Neither the Adviser nor the Su-Adviser [sic] is a registered
broker-dealer, although each is affiliated with a broker-dealer. Each
of the Adviser and the Sub-Adviser has implemented a fire wall with
respect to its broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the Fund's portfolio. In
the future event that (a) the Adviser or the Sub-Adviser registers as a
broker-dealer or becomes newly affiliated with a broker-dealer, or (b)
any new adviser or a sub-adviser to the Fund is a registered broker-
dealer or becomes affiliated with a broker-dealer, it will implement a
fire wall with respect to its relevant personnel and/or such broker-
dealer affiliate, if applicable, regarding access to information
concerning the composition and/or changes to the Fund's portfolio and
will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
Trading Halts
The Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in Shares. Nasdaq will halt
trading in Shares under the conditions specified in Nasdaq Rules 4120
and in Nasdaq Rule 5745(d)(2)(C). Additionally, Nasdaq may cease
trading Shares if other unusual conditions or circumstances exist
which, in the opinion of Nasdaq, make further dealings on Nasdaq
detrimental to the maintenance of a fair and orderly market. To manage
the risk of a non-regulatory Share trading halt, Nasdaq has in place
back-up processes and procedures to ensure orderly trading. Because, in
NAV-Based Trading, all trade execution prices are linked to end-of-day
NAV, buyers and sellers of Shares should be less exposed to risk of
loss due to intraday trading halts than buyers and sellers of
conventional exchange-traded funds (``ETFs'') and other exchange-traded
securities.
Every order to trade Shares of the Funds [sic] is subject to the
proxy price protection threshold of plus/minus $1.00, which determines
the lower and upper threshold for the life of the order and whereby the
order will be cancelled at any point if it exceeds $101.00 or falls
below $99.00, the established thresholds.\28\ With certain exceptions,
each order also must contain the applicable order attributes, including
routing instructions and time-in-force information, as described in
Nasdaq Rule 4703.\29\
---------------------------------------------------------------------------
\28\ See Nasdaq Rule 5745(h).
\29\ See Nasdaq Rule 5745(b)(6).
---------------------------------------------------------------------------
Trading Rules
Nasdaq deems Shares to be equity securities, thus rendering trading
in Shares to be subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in Shares from
9:30 a.m. until 4:00 p.m. Eastern Time.
Surveillance
The Exchange represents that trading in Shares will be subject to
the existing trading surveillances, administered by both Nasdaq and the
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\30\ The Exchange represents
that these procedures are adequate to properly monitor trading of
Shares on the Exchange and to deter and detect violations of Exchange
rules and applicable federal securities laws.
---------------------------------------------------------------------------
\30\ FINRA provides surveillance of trading on the Exchange
pursuant to a regulatory services agreement. The Exchange is
responsible for FINRA's performance under this regulatory services
agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed with
other markets and other entities that are members of the Intermarket
Surveillance Group (``ISG'') \31\ regarding trading in Shares, and in
exchange-traded securities and instruments held by the Fund (to the
extent such exchange-traded securities and instruments are known
through the publication of the Composition File and periodic public
disclosures of the Fund's portfolio holdings), and FINRA may obtain
trading information regarding such trading from other markets and other
entities. In addition, the Exchange may obtain information regarding
trading in Shares, and in exchange-traded securities and instruments
held by the Fund (to the extent such exchange-traded securities and
instruments are known through the publication of the Composition File
and periodic public disclosures of a [sic] Fund's portfolio holdings),
from markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
\31\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Fund's portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material non-public information by its employees.
Information Circular
Prior to the commencement of trading in the Fund, the Exchange will
inform its members in an Information Circular of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Circular will discuss the following: (1)
The procedures for purchases and redemptions of Shares in Creation
Units (and noting that Shares are not individually redeemable); (2)
Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq
members with respect to recommending transactions in Shares to
customers; (3) how information regarding the IIV and Composition File
is disseminated; (4) the requirement that members deliver a prospectus
to investors purchasing Shares prior to or concurrently with the
confirmation of a transaction; and (5) information regarding NAV-Based
Trading protocols.
As noted above, all orders to buy or sell Shares that are not
executed on the day the order is submitted will be automatically
cancelled as of the close of trading on such day. The Information
Circular will discuss the effect of this characteristic on existing
order types. The Information Circular also will identify the specific
Nasdaq data feeds from which intraday Share prices in proxy price
format may be obtained.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a summary prospectus to such
investors. The Information Circular will also
[[Page 14400]]
discuss any exemptive, no-action and interpretive relief granted by the
Commission from any rules under the Act.
The Information Circular also will reference that the Fund is
subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares and the applicable NAV calculation time for the
Shares. The Information Circular will disclose that information about
the Shares will be publicly available on the Fund's Web site.
Information regarding Fund trading protocols will be disseminated
to Nasdaq members in accordance with current processes for newly listed
products. Nasdaq intends to provide its members with a detailed
explanation of NAV-Based Trading through a Trading Alert issued prior
to the commencement of trading in Shares on the Exchange.
Continued Listing Representations
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange. In addition, the
issuer has represented to the Exchange that it will advise the Exchange
of any failure by the Fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will monitor for compliance with the continued
listing requirements. If the Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under the Nasdaq 5800 Series.
2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act \32\ in general, and Section 6(b)(5) of the Act \33\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares would be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5745. The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of Shares on Nasdaq and to deter and
detect violations of Exchange rules and the applicable federal
securities laws. Each of the Adviser and the Sub-Adviser is a
registered broker-dealer or affiliated with a broker-dealer, and each
of the Adviser and the Sub-Adviser has implemented a fire wall with
respect to its affiliated broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. The
Exchange may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement, to the extent necessary.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
The Exchange will obtain a representation from each issuer of Shares
that the NAV per Share will be calculated on each business day that the
New York Stock Exchange is open for trading and that the NAV will be
made available to all market participants at the same time. In
addition, a large amount of information would be publicly available
regarding the Fund and the Shares, thereby promoting market
transparency.
Prior to the commencement of market trading in Shares, the Fund
will be required to establish and maintain a public Web site through
which its current prospectus may be downloaded. The Web site will
display additional Fund information updated on a daily basis, including
the prior business day's NAV, and the following trading information for
such business day expressed as premiums/discounts to NAV: (a) Intraday
high, low, average and closing prices of Shares in Exchange trading;
(b) the Closing Bid/Ask Midpoint; and (c) the Closing Bid/Ask Spread.
The Web site will also contain charts showing the frequency
distribution and range of values of trading prices, Closing Bid/Ask
Midpoints and Closing Bid/Ask Spreads over time.
The Composition File will be disseminated through the NSCC before
the open of trading in Shares on each business day and also will be
made available to the public each day on a free Web site. The Exchange
will obtain a representation from the issuer of the Shares that the IIV
will be calculated and disseminated on an intraday basis at intervals
of not more than 15 minutes during trading on the Exchange and provided
to Nasdaq for dissemination via GIDS. A complete list of current
portfolio positions for the Fund will be made available at least once
each calendar quarter, with a reporting lag of not more than 60 days.
The Fund may provide more frequent disclosures of portfolio positions
at its discretion.
Transactions in Shares will be reported to the Consolidated Tape at
the time of execution in proxy price format and will be disseminated to
member firms and market data services through Nasdaq's trading service
and market data interfaces, as defined above. Once the Fund's daily NAV
has been calculated and the final price of its intraday Share trades
has been determined, Nasdaq will deliver a confirmation with final
pricing to the transacting parties. At the end of the day, Nasdaq will
also post a newly created FTP file with the final transaction data for
the trading and market data services. The Exchange expects that
information regarding NAV-based trading prices and volumes of Shares
traded will be continuously available on a real-time basis throughout
each trading day on brokers' computer screens and other electronic
services. Because Shares will trade at prices based on the next-
determined NAV, investors will be able to buy and sell individual
Shares at a known premium or discount to NAV that they can limit by
transacting using limit orders at the time of order entry. Trading in
Shares will be subject to Nasdaq Rules 5745(d)(2)(B) and (C), which
provide for the suspension of trading or trading halts under certain
circumstances, including if, in the view of the Exchange, trading in
Shares becomes inadvisable.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
the Fund, which seeks to provide investors with access to an actively
managed investment strategy in a structure that offers the cost and tax
efficiencies and shareholder protections of ETFs, while removing the
requirement for daily portfolio holdings disclosure to ensure a tight
relationship between market trading prices and NAV.
For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
[[Page 14401]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. In fact, the
Exchange believes that the introduction of the Fund would promote
competition by making available to investors an actively managed
investment strategy in a structure that offers the cost and tax
efficiencies and shareholder protections of ETFs, while removing the
requirement for daily portfolio holdings disclosure to ensure a tight
relationship between market trading prices and NAV. Moreover, the
Exchange believes that the proposed method of Share trading would
provide investors with transparency of trading costs, and the ability
to control trading costs using limit orders, that is not available for
conventionally traded ETFs.
These developments could significantly enhance competition to the
benefit of the markets and investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2017-025 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-2017-025. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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-2017-025 and should
be submitted on or before April 10, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-05404 Filed 3-17-17; 8:45 am]
BILLING CODE 8011-01-P
