Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 2, 3, and 4, to List and Trade Shares of the Gabelli Small Cap Growth Fund and the Gabelli RBI Fund Under Nasdaq Rule 5745, 22038-22042 [2017-09530]
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Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09531 Filed 5–10–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80614; File No. SR–
NASDAQ–2017–029]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule
Change, as Modified by Amendment
Nos. 2, 3, and 4, to List and Trade
Shares of the Gabelli Small Cap
Growth Fund and the Gabelli RBI Fund
Under Nasdaq Rule 5745
May 5, 2017.
I. Introduction
On March 17, 2017, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade common shares (‘‘Shares’’)
of the Gabelli Small Cap Growth
NextSharesTM (‘‘Gabelli Small Cap
Growth Fund’’) and the Gabelli RBI
NextSharesTM (‘‘Gabelli RBI Fund’’)
(each, a ‘‘Fund,’’ and collectively, the
‘‘Funds’’) under Nasdaq Rule 5745. The
proposed rule change was published for
comment in the Federal Register on
March 31, 2017.3 On April 13, 2017, the
Exchange filed Amendment No. 2 to the
proposed rule change; on April 24,
2017, the Exchange filed Amendment
No. 3 to the proposed rule change; and
on May 3, 2017, the Exchange filed
Amendment No. 4 to the proposed rule
change.4 The Commission received no
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80315
(March 27, 2017), 82 FR 16075 (‘‘Notice’’).
4 On April 11, 2017, the Exchange filed
Amendment No. 1 to the proposed rule change and,
on April 13, 2017, the Exchange withdrew
Amendment No. 1. Amendment No. 2 to the
proposed rule change replaces and supersedes the
original filing in its entirety. In Amendment No. 2,
the Exchange: (a) Represents that the Adviser will
maintain a fire wall with respect to its affiliated
broker-dealer regarding access to information
concerning the composition of, and/or changes to,
each Fund’s portfolio; (b) represents that personnel
who make decisions on each Fund’s portfolio
composition must be subject to procedures
designed to prevent the use and dissemination of
material, non-public information regarding each
Fund’s portfolio; (c) provides additional detail
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2 17
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comments on the proposed rule change.
This order grants approval of the
proposed rule change, as modified by
Amendment Nos. 2, 3, and 4.
II. Exchange’s Description of the
Proposed Rule Change
The Exchange proposes to list and
trade the Shares of the Funds under
Nasdaq Rule 5745, which governs the
listing and trading of Exchange-Traded
Managed Fund Shares, as defined in
Nasdaq Rule 5745(c)(1). Each Fund is a
series of the Gabelli NextSharesTM Trust
(‘‘Trust’’).5 The Exchange represents
that the Trust is registered with the
Commission as an open-end investment
company and that it has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission with respect to the Funds.6
Gabelli Funds, LLC (‘‘Adviser’’) will
be the Adviser to the Funds.
regarding the investments of each Fund; (d)
modifies the continued listing representations to
conform to Nasdaq rules; and (e) makes other
technical, non-substantive corrections in the
proposed rule change. Amendment No. 2 is
available at: https://www.sec.gov/comments/srnasdaq-2017–029/nasdaq2017029–1701356–
149968.pdf. Amendment Nos. 3 to the proposed
rule change is a partial amendment in which the
Exchange clarifies that, under normal market
conditions, the Gabelli RBI Fund invests primarily
in equity securities, such as common stock, of
domestic and foreign services and equipment
companies focused on physical asset development,
including roads, bridges, and infrastructure (RBI).
Amendment No. 3 is available at: https://
www.sec.gov/comments/sr-nasdaq-2017–029/
nasdaq2017029–1717445–150417.pdf. Amendment
No. 4 to the proposed rule change is a partial
amendment in which the Exchange clarifies that the
Reporting Authority (as defined in Nasdaq Rule
5745) will implement and maintain, or ensure that
the Composition File (as defined in Nasdaq Rule
5745) will be subject to, procedures designed to
prevent the use and dissemination of material nonpublic information regarding the Fund’s portfolio
positions and changes in the positions. Amendment
No. 4 is available at: https://www.sec.gov/
comments/sr-nasdaq-2017–029/nasdaq2017029–
1734987–150973.pdf. Because Amendment Nos. 2,
3, and 4 to the proposed rule change do not
materially alter the substance of the proposed rule
change or raise unique or novel regulatory issues,
Amendment Nos. 2, 3, and 4 are not subject to
notice and comment.
5 According to the Exchange, the Commission has
issued an order granting the Trust and certain
affiliates of the Trust exemptive relief under the
Investment Company Act of 1940 (‘‘1940 Act’’). See
Investment Company Act Release No. 31608 (May
19, 2015) (File No. 812–14438). The Exchange
represents that, in compliance with Nasdaq Rule
5745(b)(5), which applies to Shares based on an
international or global portfolio, the Trust’s
application for exemptive relief under the 1940 Act
states that 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.
6 See Registration Statement on Form N–1A for
the Trust dated March 14, 2017 (File Nos. 333–
211881 and 811–23160).
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G.distributors, LLC, will be the
principal underwriter and distributor of
the Funds’ Shares. The Bank of New
York Mellon will act as custodian and
transfer agent. BNY Mellon Investment
Servicing (US) Inc. will act as the subadministrator to the Funds. Interactive
Data Pricing and Reference Data, Inc.
will calculate the Intraday Indicative
Value (as described below) for the
Funds.
The Exchange has made the following
representations and statements in
describing the Funds.7 According to the
Exchange, each Fund will be actively
managed and will pursue the various
principal investment strategies
described below.8
A. Principal Investment Strategies
1. The Gabelli Small Cap Growth Fund
The Gabelli Small Cap Growth Fund
seeks to provide a high level of capital
appreciation. Under normal market
conditions, the Gabelli Small Cap
Growth Fund invests at least 80% of its
net assets, plus borrowings for
investment purposes, in equity
securities of companies that are
considered to be small companies at the
time the Gabelli Small Cap Growth
Fund makes its investment. The Gabelli
Small Cap Growth Fund invests
primarily in the common stocks of
companies, which the Adviser believes
are likely to have rapid growth in
revenues and above average rates of
earnings growth. The Adviser currently
characterizes small companies for the
Gabelli Small Cap Growth Fund as those
with total common stock market values
of $3 billion or less at the time of
investment.
2. The Gabelli RBI Fund
The Gabelli RBI Fund seeks to
provide above average capitalappreciation. Under normal market
conditions, the Gabelli RBI Fund
primarily invests in equity securities,
such as common stock, of domestic and
foreign services and equipment
companies focused on physical asset
development, including roads, bridges,
and infrastructure (RBI). The Adviser
7 The Commission notes that additional
information regarding the Trust, the Funds, and the
Shares, including investment strategies, risks,
creation and redemption procedures, calculation of
net asset value (‘‘NAV’’), fees, distributions, and
taxes, among other things, can be found in the
Notice, Amendment Nos. 2, 3, and 4, and
Registration Statement, as applicable. See supra
notes 3, 4, and 6, respectively, and accompanying
text.
8 According to the Exchange, additional
information regarding the Funds will be available
on one of two free public Web sites
(www.gabelli.com or www.nextshares.com), as well
as in the Registration Statement for the Funds.
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selects companies which it believes are
currently undervalued and have the
potential to benefit from domestic and
global reinvestment and development of
physical assets, including roads,
bridges, and other infrastructure-related
industries.
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B. Portfolio Disclosure and Composition
File
Consistent with the disclosure
requirements that apply to traditional
open-end investment companies, a
complete list of each Fund’s current
portfolio positions will be made
available at least once each calendar
quarter, with a reporting lag of not more
than 60 days. The Funds may provide
more frequent disclosures of portfolio
positions at its discretion.
As defined in Nasdaq Rule 5745(c)(3),
the ‘‘Composition File’’ is the specified
portfolio of securities and/or cash that a
Fund will accept as a deposit in issuing
a creation unit of Shares, and the
specified portfolio of securities and/or
cash that a Fund will deliver in a
redemption of a creation unit of Shares.
The Composition File will be
disseminated through the National
Securities Clearing Corporation once
each business day before the open of
trading in Shares on that day and also
will be made available to the public
each day on a free Web site.9 Because
each Fund seeks to preserve the
confidentiality of its current portfolio
trading program, a Fund’s Composition
File generally will not be a pro rata
reflection of the Fund’s investment
positions. Each security included in the
Composition File will be a current
holding of a Fund, but the Composition
File generally will not include all of the
securities in the Fund’s portfolio or
match the weightings of the included
securities in the portfolio. Securities
that the Adviser is in the process of
acquiring for a Fund generally will not
be represented in the Fund’s
Composition File until their purchase
has been completed. Similarly,
securities that are held in a Fund’s
portfolio but are in the process of being
sold may not be removed from its
Composition File until the sale is
substantially completed. A Fund
creating and redeeming Shares in kind
will use cash amounts to supplement
the in-kind transactions to the extent
necessary to ensure that creation units
are purchased and redeemed at NAV.
The Composition File also may consist
entirely of cash, in which case it will
9 The Exchange represents that the free Web site
containing the Composition File will be
www.nextshares.com.
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not include any of the securities in a
Fund’s portfolio.10
C. Intraday Indicative Value
For each Fund, an estimated value of
an individual Share, defined in Nasdaq
Rule 5745(c)(2) as the ‘‘Intraday
Indicative Value’’ (‘‘IIV’’) will be
calculated and disseminated at intervals
of not more than 15 minutes throughout
the Regular Market Session 11 when
Shares trade on the Exchange. The
Exchange will obtain a representation
from the issuer of the Shares that the IIV
will be calculated on an intraday basis
and provided to Nasdaq for
dissemination via the Nasdaq Global
Index Service. The IIV will be based on
current information regarding the value
of the securities and other assets held by
a Fund.12 The purpose of the IIV 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.13
D. 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 a Fund’s nextdetermined NAV using a trading
protocol called ‘‘NAV-Based Trading.’’
All bids, offers, and execution prices of
Shares will be expressed as a premium/
discount (which may be zero) to a
Fund’s next-determined NAV (e.g.,
NAV¥$0.01, NAV+$0.01).14 A Fund’s
10 In determining whether a Fund will issue or
redeem creation units entirely on a cash basis, the
key consideration will be the benefit that would
accrue to the Fund and its investors.
11 See Nasdaq Rule 4120(b)(4) (describing the
three trading sessions on the Exchange: (1) PreMarket Session from 4:00 a.m. to 9:30 a.m. Eastern
Time (‘‘E.T.’’); (2) Regular Market Session from 9:30
a.m. to 4:00 p.m. or 4:15 p.m. E.T.; and (3) PostMarket Session from 4:00 p.m. or 4:15 p.m. to 8:00
p.m. E.T.).
12 IIVs disseminated throughout each trading day
would be based on the same portfolio as used to
calculate that day’s NAV. Each Fund will reflect
purchases and sales of portfolio positions in its
NAV the next business day after trades are
executed.
13 In NAV-Based Trading, prices of executed
trades are not determined until the reference NAV
is calculated, so 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 Exchange represents that the
Registration Statement, Web site and any
advertising or marketing materials will include
prominent disclosure of this fact. The Exchange
states that 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.
14 According to the Exchange, the premium or
discount to NAV at which Share prices are quoted
and transactions are executed will vary depending
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22039
NAV will be determined each business
day, normally as of 4:00 p.m., E.T. Trade
executions will be binding at the time
orders are matched on Nasdaq’s
facilities, with the transaction prices
contingent upon the determination of
NAV. Nasdaq represents that all Shares
listed on the Exchange will have a
unique identifier associated with their
ticker symbols, which will indicate that
the Shares are traded using NAV-Based
Trading.
According to the Exchange, member
firms will utilize certain existing order
types and interfaces to transmit Share
bids and offers to Nasdaq, which will
process Share trades like trades in
shares of other listed securities.15 In the
systems used to transmit and process
transactions in Shares, a Fund’s nextdetermined NAV will be represented by
a proxy price (e.g., 100.00) and a
premium/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).
To avoid potential investor confusion,
Nasdaq represents that it will work with
member firms and providers of market
data services to seek to ensure that
representations of intraday bids, offers,
and execution prices of Shares that are
made available to the investing public
follow the ‘‘NAV¥$0.01/NAV+$0.01’’
(or similar) display format. Specifically,
the Exchange will use the NASDAQ
Basic and NASDAQ Last Sale data feeds
to disseminate intraday price and quote
data for Shares in real time in the
‘‘NAV¥$0.01/NAV+$0.01’’ (or similar)
display format. Member firms may use
the NASDAQ Basic and NASDAQ Last
Sale data feeds to source intraday Share
prices for presentation to the investing
public in the ‘‘NAV¥$0.01/
NAV+$0.01’’ (or similar) display format.
Alternatively, member firms may
source intraday Share prices in proxy
price format from the Consolidated Tape
and other Nasdaq data feeds (e.g.,
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.
15 According to the Exchange, all orders to buy or
sell Shares that are not executed on the day the
order is submitted will be automatically cancelled
as of the close of trading on that day. Prior to the
commencement of trading in a Fund, the Exchange
will inform its members in an Information Circular
of the effect of this characteristic on existing order
types.
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Nasdaq TotalView and Nasdaq Level 2)
and use a simple algorithm to convert
prices into the ‘‘NAV¥$0.01/
NAV+$0.01’’ (or similar) display format.
Prior to the commencement of trading in
a Fund, the Exchange will inform its
members in an Information Circular of
the identities of the specific Nasdaq data
feeds from which intraday Share prices
in proxy price format may be obtained.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the Exchange’s proposal to list
and trade the Shares is consistent with
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.16 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,17 which requires,
among other things, that the Exchange’s
rules be designed to prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Shares will be subject to Rule
5745, which sets forth the initial and
continued listing criteria applicable to
Exchange-Traded Managed Fund
Shares. A minimum of 50,000 Shares for
each Fund and no less than two creation
units of each Fund will be outstanding
at the commencement of trading on the
Exchange.
Nasdaq deems the Shares to be equity
securities, thus rendering trading in the
Shares subject to Nasdaq’s existing rules
governing the trading of equity
securities. Every order to trade Shares of
the Funds is subject to the proxy price
protection threshold of plus/minus
$1.00, which determines the lower and
upper thresholds for the life of the order
and provides that the order will be
cancelled at any point if it exceeds
$101.00 or falls below $99.00.18 With
certain exceptions, each order also must
contain the applicable order attributes,
including routing instructions and timein-force information, as described in
Nasdaq Rule 4703.19
Nasdaq also represents that trading in
the Shares will be subject to the existing
16 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
17 15 U.S.C. 78f(b)(5).
18 See Nasdaq Rule 5745(h).
19 See Nasdaq Rule 5745(b)(6).
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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.20 The Exchange
represents that these surveillance
procedures are adequate to properly
monitor trading of Shares on the
Exchange and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
FINRA, on behalf of the Exchange, will
communicate as needed with, and may
obtain information from, other markets
and entities that are members of the
Intermarket Surveillance Group
(‘‘ISG’’) 21 regarding trading in the
Shares, and in exchange-traded
securities and instruments held by the
Funds (to the extent those exchangetraded securities and instruments are
known through the publication of the
Composition File and periodic public
disclosures of a Fund’s portfolio
holdings). In addition, the Exchange
may obtain information regarding
trading in the Shares, and in exchangetraded securities and instruments held
by the Funds (to the extent those
exchange-traded securities and
instruments are known through the
publication of the Composition File and
periodic public disclosures of a Fund’s
portfolio holdings), from markets and
other entities that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
Prior to the commencement of trading
in a 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: (a) The
procedures for purchases and
redemptions of Shares in creation units
(and that Shares are not individually
redeemable); (b) Nasdaq Rule 2111A,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (c) how
information regarding the IIV and
Composition File is disseminated; (d)
the requirement that members deliver a
prospectus to investors purchasing
20 The Exchange states that FINRA provides
surveillance of trading on the Exchange pursuant to
a regulatory services agreement, and that the
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
21 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of a Fund’s portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
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Shares prior to or concurrently with the
confirmation of a transaction; and (e)
information regarding NAV-Based
Trading protocols.
The Information Circular also will
identify the specific Nasdaq data feeds
from which intraday Share prices in
proxy price format may be obtained. As
noted above, all orders to buy or sell
Shares that are not executed on the day
the order is submitted will be
automatically cancelled as of the close
of trading on that day, and the
Information Circular will discuss the
effect of this characteristic on existing
order types. In addition, Nasdaq intends
to provide its members with a detailed
explanation of NAV-Based Trading
through a Trading Alert issued prior to
the commencement of trading in Shares
on the Exchange.
Nasdaq states that the Adviser is not
a registered broker-dealer; however, it is
is affiliated with a broker-dealer and has
implemented and will maintain a fire
wall with respect to its affiliated brokerdealer regarding access to information
concerning the composition of, and/or
changes to, each Fund’s portfolio.22 The
Reporting Authority 23 will implement
and maintain, or ensure that the
Composition File will be subject to,
procedures designed to prevent the use
and dissemination of material nonpublic information regarding a Fund’s
portfolio positions and changes in the
positions.24 In the event that (a) the
Adviser registers as a broker-dealer or
becomes newly affiliated with a brokerdealer, or (b) any new adviser or sub22 See Amendment No. 2, supra note 4. The
Exchange further represents that an investment
adviser to an open-end fund is required to be
registered under the Investment Advisers Act of
1940 (‘‘Advisers Act’’). As a result, the Adviser and
its related personnel are subject to the provisions
of Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as
well as compliance with other applicable securities
laws. Accordingly, procedures designed to prevent
the communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has: (i) Adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above. See Amendment No.
2, supra note 4, at note 9.
23 See Nasdaq Rule 5745(c)(4).
24 See Amendment No. 4, supra note 4.
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adviser to a Fund is a registered brokerdealer or becomes affiliated with a
broker-dealer, such new adviser or subadviser will implement and maintain a
fire wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, as the case may be, regarding
access to information concerning the
composition of, and/or changes to, a
Fund’s portfolio, and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
portfolio.25
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,26 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. 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. 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 27 and separately
disseminated to member firms and
market data services through the
Exchange data feeds.
Once a Fund’s daily NAV has been
calculated and disseminated, Nasdaq
will price each Share trade entered into
during the day at the Fund’s NAV plus/
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 a File Transfer
Protocol (‘‘FTP’’) file 28 that will be
created for exchange-traded managed
funds and will be confirmed to the
25 See
Amendment No. 2, supra note 4.
U.S.C. 78k–1(a)(1)(C)(iii).
27 Due to systems limitations, the Consolidated
Tape will report intraday execution prices and
quotes for Shares using a proxy price format.
Nasdaq has represented that it 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 will 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.
28 According to Nasdaq, 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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member firms participating in the trade
to supplement the previously provided
information with final pricing.
The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily (on each business day
that the New York Stock Exchange is
open for trading) and provided to
Nasdaq via the Mutual Fund Quotation
Service (‘‘MFQS’’) by the fund
accounting agent. As soon as the NAV
is entered into the MFQS, Nasdaq will
disseminate the NAV to market
participants and market data vendors
via the Mutual Fund Dissemination
Service so that all firms will receive the
NAV per share at the same time.
The Exchange further represents that
it may consider all relevant factors in
exercising its discretion to halt or
suspend trading in the Shares. The
Exchange will halt trading in the Shares
under the conditions specified in
Nasdaq Rule 4120 and in Nasdaq Rule
5745(d)(2)(C). Additionally, the
Exchange may cease trading the Shares
if other unusual conditions or
circumstances exist that, in the opinion
of the Exchange, make further dealings
on the exchange 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.
Prior to the commencement of market
trading in the Shares, the Funds will be
required to establish and maintain a
public Web site through which its
current prospectus may be
downloaded.29 A separate Web site
(www.nextshares.com) will include
additional information concerning the
Funds updated on a daily basis,
including the prior business day’s NAV,
and the following trading information
for that 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 (‘‘Closing
Bid/Ask Midpoint’’); and (c) the spread
between highest bid and lowest offer
prices as of the close of Exchange
trading (‘‘Closing Bid/Ask Spread.’’).
The www.nextshares.com Web site will
also contain charts showing the
frequency distribution and range of
values of trading prices, Closing Bid/
29 The Exchange represents that the Web site
containing this information will be
www.gabelli.com.
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Fmt 4703
Sfmt 4703
22041
Ask Midpoints, and Closing Bid/Ask
Spreads over time.
The Exchange represents that all
statements and representations made in
the filing regarding: (a) The description
of the Funds’ portfolio, (b) limitations
on portfolio holdings or reference assets,
(c) dissemination and availability of the
reference asset or intraday indicative
values, or (d) the applicability of
Exchange listing rules shall constitute
continued listing requirements for
listing the Shares on the Exchange. The
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by either 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.30 If a
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures for the Fund under the
Nasdaq 5800 Series.
This approval order is based on all of
the Exchange’s representations,
including those set forth above, in the
Notice, and Amendment Nos. 2, 3, and
4,31 and the Exchange’s description of
the Funds. The Commission notes that
the Funds and the Shares must comply
with the requirements of Nasdaq Rule
5745 and the conditions set forth in this
proposed rule change to be listed and
traded on the Exchange on an initial and
continuing basis.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 2, 3, and 4, is consistent with
Section 6(b)(5) 32 and Section
11A(a)(1)(C)(iii) of the Act,33 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,34 that the
proposed rule change (SR–NASDAQ–
2017–029), as modified by Amendment
30 The Commission notes that certain other
proposals for the listing and trading of Managed
Fund Shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of a fund’s compliance
with the continued listing requirements. Therefore,
the Commission does not view ‘‘monitor’’ as a more
or less stringent obligation than ‘‘surveil’’ with
respect to the continued listing requirements.
31 See supra notes 3 and 4.
32 15 U.S.C. 78f(b)(5).
33 15 U.S.C. 78k–1(a)(1)(C)(iii).
34 15 U.S.C. 78s(b)(2).
E:\FR\FM\11MYN1.SGM
11MYN1
22042
Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices
Nos. 2, 3, and 4, be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09530 Filed 5–10–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80606; File No. SR–
NYSEArca-2017–05]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of Direxion Daily Crude Oil Bull 3x
Shares and Direxion Daily Crude Oil
Bear 3x Shares Under NYSE Arca
Equities Rule 8.200
May 5, 2017.
I. Introduction
On January 23, 2017, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) 1 of the Securities
Exchange Act of 1934 (‘‘Act’’) 2 and Rule
19b–4 thereunder,3 a proposed rule
change to list and trade shares
(‘‘Shares’’) of Direxion Daily Crude Oil
Bull 3x Shares and Direxion Daily
Crude Oil Bear 3x Shares (each a
‘‘Fund,’’ and collectively the ‘‘Funds’’)
under NYSE Arca Equities Rule 8.200.
The proposed rule change was
published for comment in the Federal
Register on February 7, 2017.4 On
March 16, 2017, pursuant to Section
19(b)(2) of the Act,5 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.6 The Commission has
received no comments on the proposed
rule change. This order institutes
proceedings under Section 19(b)(2)(B) of
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 79916
(February 1, 2017), 82 FR 9608 (‘‘Notice’’).
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 80265
(March 22, 2017), 82 FR 14778. The Commission
designated May 8, 2017 as the date by which the
Commission shall either approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1 15
VerDate Sep<11>2014
16:52 May 10, 2017
Jkt 241001
the Act 7 to determine whether to
approve or disapprove the proposed
rule change.
II. Exchange’s Description of the
Proposal
The Exchange proposes to list and
trade Shares of the Funds under NYSE
Arca Equities Rule 8.200, Commentary
.02, which governs the listing and
trading of Trust Issued Receipts.8 Each
Fund is a series of the Direxion Shares
ETF Trust II (‘‘Trust’’), a Delaware
statutory trust.9 The Trust and the
Funds are managed and controlled by
Direxion Asset Management, LLC
(‘‘Sponsor’’).10 Bank of New York
Mellon will be the custodian and
transfer agent for the Funds. U.S.
Bancorp Fund Services, LLC is the
administrator for the Funds. Foreside
Fund Services, LLC serves as the
distributor of the Shares.
The Exchange has made the following
representations and statements in
describing the Funds and their
investment strategies, including the
Funds’ portfolio holdings and
investment restrictions.11
A. Investment Objectives of the Funds
The investment objective of the
Direxion Daily Crude Oil Bull 3X Shares
is to seek, on a daily basis,12 investment
7 15
U.S.C. 78s(b)(2)(B).
.02 to NYSE Arca Equities Rule
8.200 applies to Trust Issued Receipts that invest
in ‘‘Financial Instruments.’’ The term ‘‘Financial
Instruments,’’ as defined in Commentary .02(b)(4) to
NYSE Arca Equities Rule 8.200, means any
combination of investments, including cash;
securities; options on securities and indices; futures
contracts; options on futures contracts; forward
contracts; equity caps, collars, and floors; and swap
agreements.
9 According to the Exchange, on December 14,
2016, the Trust filed with the Commission a
registration statement on Form S–1 under the
Securities Act of 1933, as amended, relating to the
Funds (File No. 333–215091) (‘‘Registration
Statement’’).
10 According to the Exchange, the Sponsor is
registered as a commodity pool operator with the
Commodity Futures Trading Commission and is a
member of the National Futures Association. See
Notice, supra note 4, 82 FR at 9608.
11 The Commission notes that additional
information regarding the Trust, the Funds, and the
Shares, including investment strategies, risks, net
asset value (‘‘NAV’’) calculation, creation and
redemption procedures, fees, availability of
information, trading rules and halts, surveillance,
information bulletins, distributions, and taxes,
among other information, is included in the Notice
and the Registration Statement, as applicable. See
Notice and Registration Statement, supra notes 4
and 9, respectively.
12 According to the Exchange, the Funds do not
seek to achieve their investment objectives over a
period greater than a single trading day. The
Exchange states that a single trading day is
measured from the time a Fund calculates its NAV
to the time of a Fund’s next NAV calculation. The
Exchange states that the return of a Fund for a
period longer than a single trading day is the result
8 Commentary
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
results that correspond (before fees and
expenses) to a multiple three times (3x)
of the daily performance of the
Bloomberg WTI Crude Oil SubindexSM
(a subindex of the Bloomberg
Commodity IndexSM) (‘‘Benchmark’’).13
The investment objective of the
Direxion Daily Crude Oil Bear 3X
Shares is to seek, on a daily basis,14
investment results that correspond
(before fees and expenses) to three times
(3x) the inverse of the performance of
the Benchmark. The Benchmark is
intended to reflect the performance of
crude oil as measured by the price of
West Texas Intermediate crude oil
futures contracts traded on the New
York Mercantile Exchange (which is
part of the Chicago Mercantile
Exchange), including the impact of
rolling,15 without regard to income
earned on cash positions. According to
the Exchange, the Funds will not be
directly linked to the ‘‘spot’’ price of
crude oil.16
B. Investments of the Funds
In seeking to achieve the Funds’
investment objectives, the Exchange
states that the Sponsor will utilize a
mathematical approach to determine the
type, quantity, and mix of investment
positions that the Sponsor believes, in
combination, should produce daily
returns consistent with the Funds’
respective objectives.17 The Sponsor
would rely on a pre-determined model
to generate orders that result in
repositioning the Funds’ investments in
accordance with their respective
investment objectives.
According to the Exchange, each
Fund will seek to achieve its investment
objectives by investing, under normal
market conditions,18 substantially all of
of its return for each day compounded over the
period and thus will usually differ from a Fund’s
multiple times the return of the Benchmark for the
same period. See Notice, supra note 4, 82 FR at
9609.
13 According to the Exchange, the Benchmark is
a ‘‘rolling index,’’ which means that the index does
not take physical possession of any commodities.
See id. at 9609 n.7.
14 See supra note 12.
15 The Exchange states that futures contracts held
by the Funds near expiration are generally closed
out and replaced by contracts with a later
expiration as required by the Benchmark. The
Exchange states that this process is referred to as
‘‘rolling,’’ and that the Funds do not intend to hold
futures contracts through expiration, but instead to
‘‘roll’’ their respective positions. See Notice, supra
note 4, 82 FR at 9609 n.8.
16 See id. at 9609.
17 See id.
18 The Exchange states that the term ‘‘normal
market conditions’’ includes, but is not limited to,
the absence of trading halts in the applicable
financial markets generally; operational issues (e.g.,
systems failure) causing dissemination of inaccurate
market information; or force majeure type events
E:\FR\FM\11MYN1.SGM
11MYN1
]]>Agencies
[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22038-22042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09530]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80614; File No. SR-NASDAQ-2017-029]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment
Nos. 2, 3, and 4, to List and Trade Shares of the Gabelli Small Cap
Growth Fund and the Gabelli RBI Fund Under Nasdaq Rule 5745
May 5, 2017.
I. Introduction
On March 17, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade common shares (``Shares'') of
the Gabelli Small Cap Growth NextSharesTM (``Gabelli Small
Cap Growth Fund'') and the Gabelli RBI NextSharesTM
(``Gabelli RBI Fund'') (each, a ``Fund,'' and collectively, the
``Funds'') under Nasdaq Rule 5745. The proposed rule change was
published for comment in the Federal Register on March 31, 2017.\3\ On
April 13, 2017, the Exchange filed Amendment No. 2 to the proposed rule
change; on April 24, 2017, the Exchange filed Amendment No. 3 to the
proposed rule change; and on May 3, 2017, the Exchange filed Amendment
No. 4 to the proposed rule change.\4\ The Commission received no
comments on the proposed rule change. This order grants approval of the
proposed rule change, as modified by Amendment Nos. 2, 3, and 4.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 80315 (March 27,
2017), 82 FR 16075 (``Notice'').
\4\ On April 11, 2017, the Exchange filed Amendment No. 1 to the
proposed rule change and, on April 13, 2017, the Exchange withdrew
Amendment No. 1. Amendment No. 2 to the proposed rule change
replaces and supersedes the original filing in its entirety. In
Amendment No. 2, the Exchange: (a) Represents that the Adviser will
maintain a fire wall with respect to its affiliated broker-dealer
regarding access to information concerning the composition of, and/
or changes to, each Fund's portfolio; (b) represents that personnel
who make decisions on each Fund's portfolio composition must be
subject to procedures designed to prevent the use and dissemination
of material, non-public information regarding each Fund's portfolio;
(c) provides additional detail regarding the investments of each
Fund; (d) modifies the continued listing representations to conform
to Nasdaq rules; and (e) makes other technical, non-substantive
corrections in the proposed rule change. Amendment No. 2 is
available at: https://www.sec.gov/comments/sr-nasdaq-2017-029/nasdaq2017029-1701356-149968.pdf. Amendment Nos. 3 to the proposed
rule change is a partial amendment in which the Exchange clarifies
that, under normal market conditions, the Gabelli RBI Fund invests
primarily in equity securities, such as common stock, of domestic
and foreign services and equipment companies focused on physical
asset development, including roads, bridges, and infrastructure
(RBI). Amendment No. 3 is available at: https://www.sec.gov/comments/sr-nasdaq-2017-029/nasdaq2017029-1717445-150417.pdf.
Amendment No. 4 to the proposed rule change is a partial amendment
in which the Exchange clarifies that the Reporting Authority (as
defined in Nasdaq Rule 5745) will implement and maintain, or ensure
that the Composition File (as defined in Nasdaq Rule 5745) will be
subject to, procedures designed to prevent the use and dissemination
of material non-public information regarding the Fund's portfolio
positions and changes in the positions. Amendment No. 4 is available
at: https://www.sec.gov/comments/sr-nasdaq-2017-029/nasdaq2017029-1734987-150973.pdf. Because Amendment Nos. 2, 3, and 4 to the
proposed rule change do not materially alter the substance of the
proposed rule change or raise unique or novel regulatory issues,
Amendment Nos. 2, 3, and 4 are not subject to notice and comment.
---------------------------------------------------------------------------
II. Exchange's Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares of the Funds
under Nasdaq Rule 5745, which governs the listing and trading of
Exchange-Traded Managed Fund Shares, as defined in Nasdaq Rule
5745(c)(1). Each Fund is a series of the Gabelli
NextSharesTM Trust (``Trust'').\5\ The Exchange represents
that the Trust is registered with the Commission as an open-end
investment company and that it has filed a registration statement on
Form N-1A (``Registration Statement'') with the Commission with respect
to the Funds.\6\
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\5\ According to the Exchange, the Commission has issued an
order granting the Trust and certain affiliates of the Trust
exemptive relief under the Investment Company Act of 1940 (``1940
Act''). See Investment Company Act Release No. 31608 (May 19, 2015)
(File No. 812-14438). The Exchange represents that, in compliance
with Nasdaq Rule 5745(b)(5), which applies to Shares based on an
international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that 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.
\6\ See Registration Statement on Form N-1A for the Trust dated
March 14, 2017 (File Nos. 333-211881 and 811-23160).
---------------------------------------------------------------------------
Gabelli Funds, LLC (``Adviser'') will be the Adviser to the Funds.
G.distributors, LLC, will be the principal underwriter and distributor
of the Funds' Shares. The Bank of New York Mellon will act as custodian
and transfer agent. BNY Mellon Investment Servicing (US) Inc. will act
as the sub-administrator to the Funds. Interactive Data Pricing and
Reference Data, Inc. will calculate the Intraday Indicative Value (as
described below) for the Funds.
The Exchange has made the following representations and statements
in describing the Funds.\7\ According to the Exchange, each Fund will
be actively managed and will pursue the various principal investment
strategies described below.\8\
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\7\ The Commission notes that additional information regarding
the Trust, the Funds, and the Shares, including investment
strategies, risks, creation and redemption procedures, calculation
of net asset value (``NAV''), fees, distributions, and taxes, among
other things, can be found in the Notice, Amendment Nos. 2, 3, and
4, and Registration Statement, as applicable. See supra notes 3, 4,
and 6, respectively, and accompanying text.
\8\ According to the Exchange, additional information regarding
the Funds will be available on one of two free public Web sites
(www.gabelli.com or www.nextshares.com), as well as in the
Registration Statement for the Funds.
---------------------------------------------------------------------------
A. Principal Investment Strategies
1. The Gabelli Small Cap Growth Fund
The Gabelli Small Cap Growth Fund seeks to provide a high level of
capital appreciation. Under normal market conditions, the Gabelli Small
Cap Growth Fund invests at least 80% of its net assets, plus borrowings
for investment purposes, in equity securities of companies that are
considered to be small companies at the time the Gabelli Small Cap
Growth Fund makes its investment. The Gabelli Small Cap Growth Fund
invests primarily in the common stocks of companies, which the Adviser
believes are likely to have rapid growth in revenues and above average
rates of earnings growth. The Adviser currently characterizes small
companies for the Gabelli Small Cap Growth Fund as those with total
common stock market values of $3 billion or less at the time of
investment.
2. The Gabelli RBI Fund
The Gabelli RBI Fund seeks to provide above average capital-
appreciation. Under normal market conditions, the Gabelli RBI Fund
primarily invests in equity securities, such as common stock, of
domestic and foreign services and equipment companies focused on
physical asset development, including roads, bridges, and
infrastructure (RBI). The Adviser
[[Page 22039]]
selects companies which it believes are currently undervalued and have
the potential to benefit from domestic and global reinvestment and
development of physical assets, including roads, bridges, and other
infrastructure-related industries.
B. Portfolio Disclosure and Composition File
Consistent with the disclosure requirements that apply to
traditional open-end investment companies, a complete list of each
Fund's current portfolio positions will be made available at least once
each calendar quarter, with a reporting lag of not more than 60 days.
The Funds may provide more frequent disclosures of portfolio positions
at its discretion.
As defined in Nasdaq Rule 5745(c)(3), the ``Composition File'' is
the specified portfolio of securities and/or cash that a Fund will
accept as a deposit in issuing a creation unit of Shares, and the
specified portfolio of securities and/or cash that a Fund will deliver
in a redemption of a creation unit of Shares. The Composition File will
be disseminated through the National Securities Clearing Corporation
once each business day before the open of trading in Shares on that day
and also will be made available to the public each day on a free Web
site.\9\ Because each Fund seeks to preserve the confidentiality of its
current portfolio trading program, a Fund's Composition File generally
will not be a pro rata reflection of the Fund's investment positions.
Each security included in the Composition File will be a current
holding of a Fund, but the Composition File generally will not include
all of the securities in the Fund's portfolio or match the weightings
of the included securities in the portfolio. Securities that the
Adviser is in the process of acquiring for a Fund generally will not be
represented in the Fund's Composition File until their purchase has
been completed. Similarly, securities that are held in a Fund's
portfolio but are in the process of being sold may not be removed from
its Composition File until the sale is substantially completed. A Fund
creating and redeeming Shares in kind will use cash amounts to
supplement the in-kind transactions to the extent necessary to ensure
that creation units are purchased and redeemed at NAV. The Composition
File also may consist entirely of cash, in which case it will not
include any of the securities in a Fund's portfolio.\10\
---------------------------------------------------------------------------
\9\ The Exchange represents that the free Web site containing
the Composition File will be www.nextshares.com.
\10\ In determining whether a Fund will issue or redeem creation
units entirely on a cash basis, the key consideration will be the
benefit that would accrue to the Fund and its investors.
---------------------------------------------------------------------------
C. Intraday Indicative Value
For each Fund, an estimated value of an individual Share, defined
in Nasdaq Rule 5745(c)(2) as the ``Intraday Indicative Value''
(``IIV'') will be calculated and disseminated at intervals of not more
than 15 minutes throughout the Regular Market Session \11\ when Shares
trade on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the IIV will be calculated on an intraday
basis and provided to Nasdaq for dissemination via the Nasdaq Global
Index Service. The IIV will be based on current information regarding
the value of the securities and other assets held by a Fund.\12\ The
purpose of the IIV 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.\13\
---------------------------------------------------------------------------
\11\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to
9:30 a.m. Eastern Time (``E.T.''); (2) Regular Market Session from
9:30 a.m. to 4:00 p.m. or 4:15 p.m. E.T.; and (3) Post-Market
Session from 4:00 p.m. or 4:15 p.m. to 8:00 p.m. E.T.).
\12\ IIVs disseminated throughout each trading day would be
based on the same portfolio as used to calculate that day's NAV.
Each Fund will reflect purchases and sales of portfolio positions in
its NAV the next business day after trades are executed.
\13\ In NAV-Based Trading, prices of executed trades are not
determined until the reference NAV is calculated, so 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 Exchange represents that the Registration Statement, Web site
and any advertising or marketing materials will include prominent
disclosure of this fact. The Exchange states that 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.
---------------------------------------------------------------------------
D. 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 a Fund's next-determined NAV using a trading protocol called
``NAV-Based Trading.'' All bids, offers, and execution prices of Shares
will be expressed as a premium/discount (which may be zero) to a Fund's
next-determined NAV (e.g., NAV-$0.01, NAV+$0.01).\14\ A Fund's NAV will
be determined each business day, normally as of 4:00 p.m., E.T. Trade
executions will be binding at the time orders are matched on Nasdaq's
facilities, with the transaction prices contingent upon the
determination of NAV. Nasdaq represents that all Shares listed on the
Exchange will have a unique identifier associated with their ticker
symbols, which will indicate that the Shares are traded using NAV-Based
Trading.
---------------------------------------------------------------------------
\14\ According to the Exchange, the premium or discount to NAV
at which Share prices are quoted and transactions are executed will
vary depending on market factors, including the balance of supply
and demand for Shares among investors, transaction fees, and other
costs in connection with creating and redeeming creation units of
Shares, the cost and availability of borrowing Shares, competition
among market makers, the Share inventory positions and inventory
strategies of market makers, the profitability requirements and
business objectives of market makers, and the volume of Share
trading.
---------------------------------------------------------------------------
According to the Exchange, member firms will utilize certain
existing order types and interfaces to transmit Share bids and offers
to Nasdaq, which will process Share trades like trades in shares of
other listed securities.\15\ In the systems used to transmit and
process transactions in Shares, a Fund's next-determined NAV will be
represented by a proxy price (e.g., 100.00) and a premium/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).
---------------------------------------------------------------------------
\15\ According to the Exchange, all orders to buy or sell Shares
that are not executed on the day the order is submitted will be
automatically cancelled as of the close of trading on that day.
Prior to the commencement of trading in a Fund, the Exchange will
inform its members in an Information Circular of the effect of this
characteristic on existing order types.
---------------------------------------------------------------------------
To avoid potential investor confusion, Nasdaq represents that it
will work with member firms and providers of market data services to
seek to ensure that representations of intraday bids, offers, and
execution prices of Shares that are made available to the investing
public follow the ``NAV-$0.01/NAV+$0.01'' (or similar) display format.
Specifically, the Exchange will use the NASDAQ Basic and NASDAQ Last
Sale data feeds to disseminate intraday price and quote data for Shares
in real time in the ``NAV-$0.01/NAV+$0.01'' (or similar) display
format. Member firms may use the NASDAQ Basic and NASDAQ Last Sale data
feeds to source intraday Share prices for presentation to the investing
public in the ``NAV-$0.01/NAV+$0.01'' (or similar) display format.
Alternatively, member firms may source intraday Share prices in
proxy price format from the Consolidated Tape and other Nasdaq data
feeds (e.g.,
[[Page 22040]]
Nasdaq TotalView and Nasdaq Level 2) and use a simple algorithm to
convert prices into the ``NAV-$0.01/NAV+$0.01'' (or similar) display
format. Prior to the commencement of trading in a Fund, the Exchange
will inform its members in an Information Circular of the identities of
the specific Nasdaq data feeds from which intraday Share prices in
proxy price format may be obtained.
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\16\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\17\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
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The Shares will be subject to Rule 5745, which sets forth the
initial and continued listing criteria applicable to Exchange-Traded
Managed Fund Shares. A minimum of 50,000 Shares for each Fund and no
less than two creation units of each Fund will be outstanding at the
commencement of trading on the Exchange.
Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Every order to trade Shares of the Funds
is subject to the proxy price protection threshold of plus/minus $1.00,
which determines the lower and upper thresholds for the life of the
order and provides that the order will be cancelled at any point if it
exceeds $101.00 or falls below $99.00.\18\ With certain exceptions,
each order also must contain the applicable order attributes, including
routing instructions and time-in-force information, as described in
Nasdaq Rule 4703.\19\
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\18\ See Nasdaq Rule 5745(h).
\19\ See Nasdaq Rule 5745(b)(6).
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Nasdaq also represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
the Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\20\ The Exchange
represents that these surveillance procedures are adequate to properly
monitor trading of Shares on the Exchange and to deter and detect
violations of Exchange rules and applicable federal securities laws.
FINRA, on behalf of the Exchange, will communicate as needed with, and
may obtain information from, other markets and entities that are
members of the Intermarket Surveillance Group (``ISG'') \21\ regarding
trading in the Shares, and in exchange-traded securities and
instruments held by the Funds (to the extent those exchange-traded
securities and instruments are known through the publication of the
Composition File and periodic public disclosures of a Fund's portfolio
holdings). In addition, the Exchange may obtain information regarding
trading in the Shares, and in exchange-traded securities and
instruments held by the Funds (to the extent those exchange-traded
securities and instruments are known through the publication of the
Composition File and periodic public disclosures of a Fund's portfolio
holdings), from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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\20\ The Exchange states that FINRA provides surveillance of
trading on the Exchange pursuant to a regulatory services agreement,
and that the Exchange is responsible for FINRA's performance under
this regulatory services agreement.
\21\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of a
Fund's portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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Prior to the commencement of trading in a 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: (a)
The procedures for purchases and redemptions of Shares in creation
units (and that Shares are not individually redeemable); (b) Nasdaq
Rule 2111A, which imposes suitability obligations on Nasdaq members
with respect to recommending transactions in the Shares to customers;
(c) how information regarding the IIV and Composition File is
disseminated; (d) the requirement that members deliver a prospectus to
investors purchasing Shares prior to or concurrently with the
confirmation of a transaction; and (e) information regarding NAV-Based
Trading protocols.
The Information Circular also will identify the specific Nasdaq
data feeds from which intraday Share prices in proxy price format may
be obtained. As noted above, all orders to buy or sell Shares that are
not executed on the day the order is submitted will be automatically
cancelled as of the close of trading on that day, and the Information
Circular will discuss the effect of this characteristic on existing
order types. In addition, Nasdaq intends to provide its members with a
detailed explanation of NAV-Based Trading through a Trading Alert
issued prior to the commencement of trading in Shares on the Exchange.
Nasdaq states that the Adviser is not a registered broker-dealer;
however, it is is affiliated with a broker-dealer and has implemented
and will maintain a fire wall with respect to its affiliated broker-
dealer regarding access to information concerning the composition of,
and/or changes to, each Fund's portfolio.\22\ The Reporting Authority
\23\ will implement and maintain, or ensure that the Composition File
will be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding a Fund's
portfolio positions and changes in the positions.\24\ In the event that
(a) the Adviser registers as a broker-dealer or becomes newly
affiliated with a broker-dealer, or (b) any new adviser or sub-
[[Page 22041]]
adviser to a Fund is a registered broker-dealer or becomes affiliated
with a broker-dealer, such new adviser or sub-adviser will implement
and maintain a fire wall with respect to its relevant personnel and/or
such broker-dealer affiliate, as the case may be, regarding access to
information concerning the composition of, and/or changes to, a Fund's
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding the
portfolio.\25\
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\22\ See Amendment No. 2, supra note 4. The Exchange further
represents that an investment adviser to an open-end fund is
required to be registered under the Investment Advisers Act of 1940
(``Advisers Act''). As a result, the Adviser and its related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has: (i) Adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above. See Amendment No.
2, supra note 4, at note 9.
\23\ See Nasdaq Rule 5745(c)(4).
\24\ See Amendment No. 4, supra note 4.
\25\ See Amendment No. 2, supra note 4.
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\26\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. 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. 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 \27\ and separately disseminated to member firms
and market data services through the Exchange data feeds.
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\26\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\27\ Due to systems limitations, the Consolidated Tape will
report intraday execution prices and quotes for Shares using a proxy
price format. Nasdaq has represented that it 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 will 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.
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Once a Fund's daily NAV has been calculated and disseminated,
Nasdaq will price each Share trade entered into during the day at the
Fund's NAV plus/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 a File Transfer Protocol
(``FTP'') file \28\ that will be created for exchange-traded managed
funds and will be confirmed to the member firms participating in the
trade to supplement the previously provided information with final
pricing.
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\28\ According to Nasdaq, FTP is a standard network protocol
used to transfer computer files on the Internet. Nasdaq will arrange
for the daily dissemination of an FTP file with executed Share
trades to member firms and market data services.
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The Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily (on each
business day that the New York Stock Exchange is open for trading) and
provided to Nasdaq via the Mutual Fund Quotation Service (``MFQS'') by
the fund accounting agent. As soon as the NAV is entered into the MFQS,
Nasdaq will disseminate the NAV to market participants and market data
vendors via the Mutual Fund Dissemination Service so that all firms
will receive the NAV per share at the same time.
The Exchange further represents that it may consider all relevant
factors in exercising its discretion to halt or suspend trading in the
Shares. The Exchange will halt trading in the Shares under the
conditions specified in Nasdaq Rule 4120 and in Nasdaq Rule
5745(d)(2)(C). Additionally, the Exchange may cease trading the Shares
if other unusual conditions or circumstances exist that, in the opinion
of the Exchange, make further dealings on the exchange detrimental to
the maintenance of a fair and orderly market. To manage the risk of a
non-regulatory Share trading halt, Nasdaq has in place back-up
processes and procedures to ensure orderly trading. Prior to the
commencement of market trading in the Shares, the Funds will be
required to establish and maintain a public Web site through which its
current prospectus may be downloaded.\29\ A separate Web site
(www.nextshares.com) will include additional information concerning the
Funds updated on a daily basis, including the prior business day's NAV,
and the following trading information for that 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 (``Closing Bid/Ask
Midpoint''); and (c) the spread between highest bid and lowest offer
prices as of the close of Exchange trading (``Closing Bid/Ask
Spread.''). The www.nextshares.com 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.
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\29\ The Exchange represents that the Web site containing this
information will be www.gabelli.com.
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The Exchange represents that all statements and representations
made in the filing regarding: (a) The description of the Funds'
portfolio, (b) limitations on portfolio holdings or reference assets,
(c) dissemination and availability of the reference asset or intraday
indicative values, or (d) the applicability of Exchange listing rules
shall constitute continued listing requirements for listing the Shares
on the Exchange. The issuer has represented to the Exchange that it
will advise the Exchange of any failure by either 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.\30\ If a Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures for the Fund under the
Nasdaq 5800 Series.
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\30\ The Commission notes that certain other proposals for the
listing and trading of Managed Fund Shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015-
100). In the context of this representation, it is the Commission's
view that ``monitor'' and ``surveil'' both mean ongoing oversight of
a fund's compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
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This approval order is based on all of the Exchange's
representations, including those set forth above, in the Notice, and
Amendment Nos. 2, 3, and 4,\31\ and the Exchange's description of the
Funds. The Commission notes that the Funds and the Shares must comply
with the requirements of Nasdaq Rule 5745 and the conditions set forth
in this proposed rule change to be listed and traded on the Exchange on
an initial and continuing basis.
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\31\ See supra notes 3 and 4.
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 2, 3, and 4, is consistent
with Section 6(b)(5) \32\ and Section 11A(a)(1)(C)(iii) of the Act,\33\
and the rules and regulations thereunder applicable to a national
securities exchange.
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\32\ 15 U.S.C. 78f(b)(5).
\33\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-NASDAQ-2017-029), as
modified by Amendment
[[Page 22042]]
Nos. 2, 3, and 4, be, and it hereby is, approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09530 Filed 5-10-17; 8:45 am]
BILLING CODE 8011-01-P
