Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of a Proposed Rule Change To List and Trade, Under Nasdaq Rule 5705, the Shares of the Horizons Russell 2000 Covered Call ETF, 17462-17467 [2018-08153]

Download as PDF 17462 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices 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 Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 5 and subparagraph (f)(6) of Rule 19b–4 thereunder.6 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2018–012 on the subject line. daltland on DSKBBV9HB2PROD with NOTICES 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–BX–2018–012. This file 5 15 U.S.C. 78s(b)(3)(A)(iii). 6 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. VerDate Sep<11>2014 17:49 Apr 18, 2018 Jkt 244001 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 website (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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX–2018–012 and should be submitted on or before May 10, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–08154 Filed 4–18–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83046; File No. SR– NASDAQ–2018–012] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of a Proposed Rule Change To List and Trade, Under Nasdaq Rule 5705, the Shares of the Horizons Russell 2000 Covered Call ETF April 13, 2018. I. Introduction On February 9, 2018, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission 7 17 PO 00000 CFR 200.30–3(a)(12). Frm 00104 Fmt 4703 Sfmt 4703 (‘‘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 shares (‘‘Shares’’) of the Horizons Russell 2000 Covered Call ETF (‘‘Fund’’). The proposed rule change was published for comment in the Federal Register on February 28, 2018.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade Shares of the Fund under Rule 5705, which governs the listing and trading of Index Fund Shares on the Exchange. The Shares will be offered by the Fund, which will be a passively managed exchange-traded fund (‘‘ETF’’) that seeks to track the performance of the CBOE Russell 2000 30-Delta BuyWrite V2 Index (‘‘Benchmark Index’’).4 The Fund is a series of the Horizons ETF Trust I (‘‘Trust’’).5 Horizons ETF Management (US), LLC will serve as the investment adviser (‘‘Adviser’’) to the Fund.6 Foreside Fund 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 82761 (Feb. 22, 2018), 83 FR 8719 (‘‘Notice’’). 4 The Benchmark Index methodology is available at: https://www.cboe.com/products/strategybenchmark-indexes/buywrite-indexes/cboe-russell2000-30-delta-buywrite-index-bxrd. The Chicago Board Options Exchange, Incorporated (n/k/a Cboe Exchange, Inc.) (‘‘CBOE’’) is the index calculation agent for the Benchmark Index. 5 The Trust is registered with the Commission as an open-end management investment company and has filed a post-effective amendment to its registration statement on Form N–1A (‘‘Registration Statement’’) on behalf of the Fund. See Registration Statement for the Trust, filed on June 22, 2017 (File No. 333–183155). In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 31961 (Jan. 19, 2016) (File No. 812–14461) (‘‘Exemptive Order’’). 6 The Exchange represents that the Adviser is not a broker-dealer; however, it is affiliated with two broker-dealers. A fire wall exists around the respective personnel at the Adviser and affiliated broker-dealers who have access to information concerning changes and adjustments to the composition and/or changes to the Fund’s portfolio. In addition, such personnel will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Fund’s portfolio. The Exchange represents that in the event (a) the Adviser, any subadviser, or the Index Provider (as discussed herein) becomes registered as a broker-dealer or is newly affiliated with a broker dealer, or (b) any new adviser, sub-adviser, or Index Provider is a registered broker-dealer or becomes affiliated with a broker dealer, then the Adviser, sub-adviser or Index Provider will implement a fire wall with respect to its relevant personnel or such broker dealer affiliate, as applicable, regarding access to information concerning the composition or changes to the portfolio or concerning changes and adjustments to the Benchmark Index and will be 2 17 E:\FR\FM\19APN1.SGM 19APN1 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices Services, LLC will serve as the principal underwriter and distributor of the Fund’s Shares. U.S. Bank National Association will act as the custodian for the Fund. U.S. Bancorp Fund Services, LLC will serve as the administrator, transfer agent and fund accounting agent for the Fund. The Benchmark Index was developed by and is maintained by FTSE International Limited and Frank Russell Company (‘‘Index Provider’’).7 The Exchange has made the following representations and statements in describing the Fund and its investment strategies, including other assets and investment restrictions.8 A. Exchange’s Description of the Fund’s Principal Investments daltland on DSKBBV9HB2PROD with NOTICES According to the Exchange, the Fund’s investment objective is to seek to track the investment results that correspond (before fees and expenses) generally to the performance of the Benchmark Index provided by the Index Provider. The Fund will pursue its objective by investing at least 80% of its total assets in all of the equity securities in the Russell 2000 Index and a single written one-month out-of-the-money covered call option on the Russell 2000 Index. The market value of the option strategy may be up to 20% of the Fund’s overall net asset value. The market value of the call options included in the Benchmark Index will not represent more than 10% of the total weight of the Benchmark Index. According to the Exchange, the component securities of the Benchmark Index meet all requirements of Nasdaq Rule 5705(b)(3)(A)(i) except that the Benchmark Index includes call options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS.9 subject to procedures designed to prevent the use and dissemination of material, nonpublic information regarding the Fund’s portfolio. According to the Exchange, the Fund does not currently intend to use a sub-adviser. 7 The Exchange represents that the Index Provider is not a broker-dealer and it is not affiliated with a broker-dealer. A fire wall exists around its personnel who have access to information concerning changes and adjustments to the Benchmark Index. In addition, such personnel will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Benchmark Index. 8 Additional information regarding the Trust, the Fund, and the Shares, including information relating to the underlying Index, investment strategies, risks, net asset value (‘‘NAV’’) calculation, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions, and taxes, among other information, is included in the Notice and the Registration Statement, as applicable. See Notice, supra note 3 and Registration Statement, supra note 5. 9 See Notice, supra note 3, 83 FR at 8720. VerDate Sep<11>2014 17:49 Apr 18, 2018 Jkt 244001 In pursuing its investment objective, under normal market conditions,10 the Fund will seek investment results that, before fees and expenses, generally correspond to the performance of the Benchmark Index. The Fund seeks correlation of 0.90 or better between its performance and the performance of the Benchmark Index. A figure of 1.00 would represent perfect correlation. The call option written is at the strike nearest to the 30 Delta between 10:30 a.m. and 11:00 a.m. CT on the roll date (the third Friday of every month). The Benchmark Index is a benchmark index that measures the performance of a theoretical portfolio that holds the stocks included in the Russell 2000 Index and writes (or sells) a single onemonth out-of-the-money Russell 2000 Index covered call option. The call option written for the Benchmark Index is at the strike nearest to the 30 Delta between 10:30 a.m. and 11:00 a.m. CT on the roll date (the third Friday of every month). The Russell 2000 Index measures the performance of the small capitalization sector of the U.S. equity market, as defined by the Index Provider. The Russell 2000 Index is a subset of the Russell 3000 Index, which measures the performance of the broad U.S. equity market, as determined by the Index Provider. The Russell 2000 Index is a float-adjusted capitalizationweighted index of equity securities issued by the approximately 2000 smallest issuers in the Russell 3000 Index. Preferred and convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights, installment receipts and trust receipts are not included in the Russell 2000 Index. According to the Exchange, because a covered call strategy generates income in the form of premiums on the written call options, the Benchmark Index is generally expected to provide higher total returns with lower volatility than the Russell 2000 Index in most market environments, with the exception of when the equity market is rallying rapidly. The Exchange states that each 10 The term ‘‘under normal market conditions’’ as used herein includes, but is not limited to, the absence of adverse market, economic, political or other conditions, including extreme volatility or trading halts in the securities markets or the financial markets generally; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. In periods of extreme market disturbance, the Fund may take temporary defensive positions, by overweighting its portfolio in cash/cash-like instruments; however, to the extent possible, the Adviser would continue to seek to achieve the Fund’s investment objective. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 17463 single call option in the Benchmark Index will be traded on national securities exchanges, such as the CBOE. According to the Exchange, as of October 31, 2017, the Russell 2000 Index included common stocks of 1984 companies, with an average market capitalization of approximately $2.3 billion.11 The Fund will generally use a replication methodology, meaning it will invest in all of the securities and the call option comprising the Benchmark Index in proportion to the weightings in the Benchmark Index. However, the Fund may, from time-totime, utilize a sampling methodology under various circumstances where it may not be possible or practicable to purchase all of the equity securities comprising the Benchmark Index. The Exchange represents that the equity securities in which the Fund will invest and the option that the Fund will write will be limited to U.S. exchangetraded securities and call options, respectively, and that such securities will trade in markets that are members of the Intermarket Surveillance Group (‘‘ISG’’) or which are parties to a comprehensive surveillance sharing agreement with the Exchange.12 The equity securities held by the Fund will be rebalanced quarterly. The call option portion of the portfolio will consist of a single U.S. exchange-traded one-month covered call on the Russell 2000 Index that is written by the Fund slightly out-of-the-money. A call option will give the holder the right to buy the securities underlying the call options written at a predetermined strike price from the Fund. The notional value of the covered call options written (including the financial instruments in the Exchange’s description of the Fund’s Other Investments below) will be generally 100% of the overall Fund. The Fund will utilize options in accordance with Rule 4.5 of the Commodity Exchange Act (‘‘CEA’’). The Trust, on behalf of the Fund, has filed a notice of eligibility for exclusion from the definition of the term ‘‘commodity pool operator’’ in accordance with Rule 4.5 so that the Fund is not subject to registration or regulation as a commodity pool operator under the CEA. B. Exchange’s Description of the Fund’s Other Investments According to the Exchange, the Fund may invest no more than 20% of its net 11 See Notice, supra note 3, 83 FR at 8721. id. A list of ISG members is available at www.isgportal.org. 12 See E:\FR\FM\19APN1.SGM 19APN1 17464 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES assets in the instruments described below. The Fund may invest in ETFs, which shall be registered as investment companies under the 1940 Act and trade on a U.S. national securities exchange. The Fund may also buy and sell individual large capitalization equity securities that do not comprise the Russell 2000 Index and are traded on a U.S. national securities exchange. The Fund may invest in U.S. exchange-listed futures contracts based on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed to track the Benchmark Index or Russell 2000 Index. In addition, the Fund may invest in forward contracts based on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed to track the Benchmark Index or Russell 2000 Index. The Fund may also buy and sell OTC options on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed to track the Benchmark Index or Russell 2000 Index. Moreover, the Fund may enter into dividend and total return swap transactions (including equity swap transactions) based on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed to track the Benchmark Index or Russell 2000 Index.13 The Fund also may engage in interest rate swap transactions. The Fund would use interest rate swap transactions to manage or hedge exposure to interest rate fluctuations. The Exchange represents that the Fund’s short positions and its investments in swaps, futures contracts, forward contracts and options based on the Benchmark Index and Russell 2000 Index and ETFs designed to track the Benchmark Index or Russell 2000 Index will be backed by investments in cash, high-quality short-term debt securities and money-market instruments in an amount equal to the Fund’s maximum liability under the applicable position or contract, or will otherwise be offset in accordance with Section 18 of the 1940 Act.14 13 The Exchange represents that the Fund will transact only with swap dealers that have in place an International Swaps and Derivatives Association (‘‘ISDA’’) agreement with the Fund. See id. at 8721 n.10. According to the Exchange, where practicable, the Fund intends to invest in swaps cleared through a central clearing house (‘‘Cleared Swaps’’). Currently, only certain of the interest rate swaps in which the Fund intends to invest are Cleared Swaps, while the dividend and total return swaps (including equity swaps) in which the Fund may invest are currently not Cleared Swaps. See id. at 8721 n.11. 14 The Exchange represents that the Fund will seek, where possible, to use counterparties, as applicable, whose financial status is such that the risk of default is reduced; however, the risk of losses resulting from default is still possible. The Adviser will evaluate the creditworthiness of VerDate Sep<11>2014 17:49 Apr 18, 2018 Jkt 244001 The Fund will attempt to limit counterparty risk in non-cleared swaps, forwards, and OTC option contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund’s exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund’s exposure to each counterparty on an ongoing basis. The Fund may invest in short-term debt securities, money market instruments and shares of money market funds to the extent permitted under the 1940 Act. Short-term debt securities and money market instruments include shares of fixed income or money market mutual funds, commercial paper, certificates of deposit, bankers’ acceptances, U.S. government securities (including securities issued or guaranteed by the U.S. government or its authorities, agencies, or instrumentalities) and, repurchase agreements.15 Short-term debt securities include bonds that are rated BBB or higher. The Exchange represents that the Fund’s investments described above in this section will be consistent with the Fund’s investment objective and with the requirements of the 1940 Act.16 counterparties on an ongoing basis. In addition to information provided by credit agencies, the Adviser will evaluate each approved counterparty using various methods of analysis, such as, for example, the counterparty’s liquidity in the event of default, the counterparty’s reputation, the Adviser’s past experience with the counterparty, and the counterparty’s share of market participation. See id. at 8721 n.12. 15 The Fund may enter into repurchase agreements with banks and broker-dealers. A repurchase agreement is an agreement under which securities are acquired by a fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the fund is delayed or prevented from exercising its rights to dispose of the collateral securities. 16 The Exchange represents that, to limit the potential risk associated with such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board of Trustees and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations arising from such transactions. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of the Fund may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk, the Adviser will segregate or ‘‘earmark’’ liquid assets or otherwise cover the transactions that may give rise to such risk the 1940 Act. The Exchange further represents that the Fund will not make investments in securities to seek to achieve a multiple or inverse multiple of an index and they will not be used to enhance leverage. See Notice, supra note 3, 83 FR at 8722 n.14. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment). The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund’s net assets are held in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets, as determined in accordance with Commission staff guidance. The Exchange states that the Fund will not invest in assets that are not described in this proposed rule change. The Fund seeks to track the Benchmark Index, which itself may have concentration in certain regions, economies, markets, industries or sectors. The Fund may concentrate its investments in a particular industry or group of industries to the extent that the Russell 2000 Index concentrates in an industry or group of industries.17 According to the Exchange, by concentrating its investments in an industry or sector, the Fund faces more risks than if it were diversified broadly over numerous industries or sectors. III. Discussion and Commission’s Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 18 and the rules and regulations thereunder applicable to a national securities exchange.19 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,20 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 remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect 17 See Registration Statement, supra note 5, Item 9. The Commission has taken the position that a fund is concentrated if it invests more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). 18 15 U.S.C. 78f. 19 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). 20 15 U.S.C. 78f(b)(5). E:\FR\FM\19APN1.SGM 19APN1 daltland on DSKBBV9HB2PROD with NOTICES Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices investors and the public interest. The Commission also finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,21 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. Quotation and last-sale information for the Shares will be available via Nasdaq proprietary quote and trade services, as well as in accordance with the Unlisted Trading Privileges and the Consolidated Tape Association plans for the Shares. With respect to the securities and other assets held by the Fund, the intra-day, executable price quotations on such securities will be available from major broker-dealer firms or on the exchange on which they are traded, as applicable. Intra-day price information will also be available through subscription services, such as Bloomberg, Markit and Thomson Reuters, which can be accessed by Authorized Participants and other investors. Specifically, the intra-day, closing and settlement prices of the portfolio securities and other Fund investments, including exchange-listed equity securities, exchange-listed futures, and exchange-listed options, will be readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, and, with respect to OTC options, swaps, and forwards, from third party pricing sources, or on-line information services such as Bloomberg or Reuters. Price information regarding ETFs will be available from on-line information services and from the website for the applicable investment company security. The intra-day, closing and settlement prices of shortterm debt securities and money market instruments will be readily available from published and other public sources or on-line information services. Money market funds are typically priced once each business day and their prices will be available through the applicable fund’s website or from major market data vendors. The value of the Benchmark Index will be published by one or more major market data vendors every 15 seconds during the Regular Market Session.22 21 15 U.S.C. 78k–1(a)(1)(C)(iii). 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. Eastern 22 See VerDate Sep<11>2014 17:49 Apr 18, 2018 Jkt 244001 Information about the Benchmark Index constituents, the weighting of the constituents, the Benchmark Index’s methodology, and the Benchmark Index’s rules will be available at no charge on the Index Provider’s website. In addition, for the Fund, an estimated value, defined in Rule 5705(b)(3)(C) as the ‘‘Intraday Indicative Value,’’ that reflects an estimated intraday value of the Fund’s portfolio, will be disseminated. The Intraday Indicative Value, available on the NASDAQ Information LLC proprietary index data service,23 will be based upon the current value for the components of the Disclosed Portfolio (as discussed herein) and will be updated and widely disseminated and broadly displayed at least every 15 seconds during the Regular Market Session. The Intraday Indicative Value will be based on quotes and closing prices from the assets’ local market and may not reflect events that occur subsequent to the local market’s close. Premiums and discounts between the Intraday Indicative Value and the market price may occur. On each business day, before commencement of trading in Shares in the Regular Market Session on the Exchange, the Fund will disclose on its website the identities and quantities of the portfolio of securities and other assets (the ‘‘Disclosed Portfolio’’) held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day.24 The NAV of the Fund’s Shares generally will be calculated once daily Monday through Friday as of the close of regular trading on the Nasdaq Stock Exchange, generally 4:00 p.m. Eastern time. In time; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 4:15 p.m. Eastern time; and (3) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m. Eastern time). 23 Currently, the NASDAQ Global Index Data Service (‘‘GIDS’’) is the NASDAQ global index data feed service, offering real-time updates, daily summary messages, and access to widely followed indexes and Intraday Indicative Values for ETFs. GIDS provides investment professionals with the daily information needed to track or trade NASDAQ indexes, listed ETFs, or third-party partner indexes and ETFs. 24 On a daily basis, the Fund will disclose on the Fund’s website (www.us.horizonsetfs.com) the following information regarding each portfolio holding, as applicable to the type of holding: Ticker symbol; CUSIP number or other identifier, if any; a description of the holding (including the type of holding); with respect to holdings in derivatives, the identity of the security, index, or other asset upon which the derivative is based; for options, the option strike price, quantity held (as measured by, for example, par value, notional value or number of shares, contracts or units), and expiration of call option; maturity date, if any; coupon rate; if any; effective date, if any; market value of the holding; percentage weighting of the holding in the Fund’s portfolio; and cash equivalents and the amount of cash held. The website information will be publicly available at no charge. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 17465 addition, a basket composition file, which includes the asset names, amounts and share quantities, as applicable, required to be delivered in exchange for the Fund’s Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of Nasdaq, via the National Securities Clearing Corporation. The basket will represent one Creation Unit of the Fund. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. The Fund’s website will include a form of the prospectus for the Fund that may be downloaded and additional data relating to NAV and other applicable quantitative information. The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time.25 Nasdaq will halt or pause trading in the Shares under the conditions specified in Nasdaq Rules 4120 and 4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.26 If the Intraday Indicative Value, the Benchmark Index value or the value of the Disclosed Portfolio is not being disseminated as required, the Exchange may halt trading during the day in which the disruption occurs; if the interruption persists past the day in which it occurred, the Exchange will 25 See Notice, supra note 3, 83 FR at 8724. may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments constituting the Disclosed Portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. Trading in the Shares also will be subject to Nasdaq Rule 5705(b)(1)(B)(iv), which sets forth circumstances under which Shares of the Fund may be halted. 26 These E:\FR\FM\19APN1.SGM 19APN1 17466 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices halt trading no later than the beginning of the trading day following the interruption. The Exchange also states that it has a general policy prohibiting the distribution of material, non-public information by its employees.27 In addition, the Exchange states that the Adviser is not a broker-dealer; however, it is affiliated with two broker-dealers. The Exchange states that the Adviser represents that a fire wall exists around the respective personnel at the Adviser and affiliated broker-dealers who have access to information concerning changes and adjustments to the composition and/or changes to the Fund’s portfolio.28 In addition, the Exchange represents that such personnel will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Fund’s portfolio.29 The Exchange further states that the Index Provider is not a brokerdealer and it is not affiliated with a broker-dealer, and it has represented that a fire wall exists around personnel who have access to information concerning changes and adjustments to the Benchmark Index, and such personnel will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Benchmark Index.30 The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and also the Financial Industry Regulatory 27 See Notice, supra note 3, 83 FR at 8725. supra note 6. The Commission also notes that 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, 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 the Advisers Act and Rule 204A–1 thereunder. 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. 29 See Notice, supra note 3, 83 FR at 8720. 30 See id. daltland on DSKBBV9HB2PROD with NOTICES 28 See VerDate Sep<11>2014 17:49 Apr 18, 2018 Jkt 244001 Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.31 FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, in the equity securities in which the Fund will invest, and in the U.S. exchange-traded options and futures which the Fund will buy and write with other markets and other entities that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement,32 and FINRA may obtain trading information regarding trading in the Shares and in such equity securities and U.S. exchange-traded options and futures from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and in such equity securities and U.S. exchange-traded options and futures from markets and other entities that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange may also obtain information from the Trade Reporting and Compliance Engine (‘‘TRACE’’), which is the FINRA developed vehicle that facilitates mandatory reporting of OTC secondary market transactions in eligible fixed income securities. The Commission notes that the Shares and the Fund must comply with the initial and continued listing criteria in Rule 5705 for the Shares to be listed and traded on the Exchange. The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made the following representations: (1) The Shares will be subject to Rule 5705, which sets forth the initial and continued listing criteria applicable to Index Fund Shares.33 (2) The component securities of the Benchmark Index meet all requirements of Nasdaq Rule 5705(b)(3)(A)(i) except that the Benchmark Index includes call options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS.34 31 FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 32 For a list of the current members of ISG, see supra note 12. 33 See Notice, supra note 3, 83 FR at 8724. 34 See id. at 8720. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 (3) The Exchange has the appropriate rules to facilitate transactions in the Shares during all trading sessions.35 (4) Trading in the Shares will be subject to the existing trading surveillances, administered by Nasdaq and FINRA on behalf of the Exchange.36 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.37 (5) FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares, in the equity securities in which the Fund will invest, and in the U.S. exchange-traded options and futures which the Fund will buy and write with other markets and other entities that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA may obtain trading information regarding trading in the Shares and in such equity securities and U.S. exchange-traded options and futures from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and in such equity securities and U.S. exchange-traded options and futures from markets and other entities that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange may also obtain information from FINRA’s TRACE.38 (6) For initial and/or continued listing, the Fund must be in compliance with Rule 10A–3 39 under the Act.40 (7) Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (c) how information regarding the Benchmark Index value and Intraday Indicative Value is disseminated; (d) the risks involved in trading the Shares during the Pre-Market and Post-Market 35 See id. at 8724. id. 37 See id. at 8725. 38 See id. 39 See 17 CFR 240.10A–3. 40 See Notice, supra note 3, 83 FR at 8724. 36 See E:\FR\FM\19APN1.SGM 19APN1 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES Sessions when an updated Benchmark Index value and Intraday Indicative Value will not be calculated or publicly disseminated; (e) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.41 (8) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment).42 (9) Each single call option in the Benchmark Index will be traded on national securities exchanges.43 (10) The equity securities in which the Fund will invest, and the option that the Fund will write, will be limited to U.S. exchange-traded securities and call options, respectively, and such securities will trade in markets that are members of the ISG or which are parties to a comprehensive surveillance sharing agreement with the Exchange.44 (11) The Fund will invest at least 80% of its total assets in all of the equity securities in the Russell 2000 Index and a single written one-month out-of-themoney covered call option on the Russell 2000 Index, and the market value of the option strategy may be up to 20% of the Fund’s overall net asset value.45 (12) The Fund will utilize options in accordance with Rule 4.5 of the CEA.46 (13) The Fund will transact only with swap dealers that have in place an ISDA agreement with the Fund.47 (14) The Fund’s short positions and its investments in swaps, futures contracts, forward contracts and options based on the Benchmark Index and Russell 2000 Index and ETFs designed to track the Benchmark Index or Russell 2000 Index will be backed by investments in cash, high-quality shortterm debt securities and money-market instruments in an amount equal to the Fund’s maximum liability under the applicable position or contract, or will otherwise be offset in accordance with Section 18 of the 1940 Act.48 (15) The Fund will attempt to limit counterparty risk in non-cleared swaps, forwards, and OTC option contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund’s exposure to each counterparty. The id. at 8725. id. at 8722. 43 See id. at 8721. 44 See id. 45 See id. at 8720. 46 See id. at 8721. 47 See id. at 8721 n.10. 48 See id. at 8721. Adviser will monitor the creditworthiness of each counterparty and the Fund’s exposure to each counterparty on an ongoing basis.49 (16) To limit the potential risk associated with such transactions, the Fund will segregate or ‘‘earmark’’ assets determined to be liquid by the Adviser in accordance with procedures established by the Trust’s Board of Trustees and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations arising from such transactions. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk.50 (17) The Fund will not make investments in securities to seek to achieve a multiple or inverse multiple of an index and they will not be used to enhance leverage.51 (18) The Fund will not invest in assets that are not described in the proposed rule change.52 (19) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.53 The Exchange further represents that all statements and representations made in this filing regarding the description of the portfolio, limitations on portfolio holdings or reference assets, dissemination and availability of the reference asset and intraday indicative values, and 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 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.54 This approval order is based on all of the Exchange’s representations, including those set forth above and in the Notice. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 55 and the rules and 41 See 42 See VerDate Sep<11>2014 17:49 Apr 18, 2018 id. at 8722. id. at 8722 n.14. 51 See id. 52 See id. at 8722. 53 See id. at 8724. 54 See id. at 8725. 55 15 U.S.C. 78f(b)(5). regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,56 that the proposed rule change (SR–NASDAQ– 2018–012) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.57 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–08153 Filed 4–18–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83048; File No. SR–IEX– 2018–07] Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 11.190(g) To Incrementally Optimize and Enhance the Effectiveness of the Quote Instability Calculation in Determining Whether a Crumbling Quote Exists April 13, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 3, 2018, the Investors Exchange LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the self-regulatory organization. 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 Pursuant to the provisions of Section 19(b)(1) under the Act,3 and Rule 19b– 4 thereunder,4 IEX is filing with the Commission a proposed rule change to amend Rule 11.190(g) to incrementally optimize and enhance the effectiveness of the quote instability calculation in determining whether a crumbling quote exists. The Exchange has designated this proposal as non-controversial and 49 See 50 See Jkt 244001 PO 00000 Frm 00109 Fmt 4703 56 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(1). 4 17 CFR 240.19b–4. 57 17 Sfmt 4703 17467 E:\FR\FM\19APN1.SGM 19APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 76 (Thursday, April 19, 2018)]
[Notices]
[Pages 17462-17467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08153]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83046; File No. SR-NASDAQ-2018-012]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change To List and Trade, Under
Nasdaq Rule 5705, the Shares of the Horizons Russell 2000 Covered Call
ETF

April 13, 2018.

I. Introduction

On February 9, 2018, 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 shares (``Shares'') of the
Horizons Russell 2000 Covered Call ETF (``Fund''). The proposed rule
change was published for comment in the Federal Register on February
28, 2018.\3\ The Commission received no comments on the proposal. This
order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 82761 (Feb. 22,
2018), 83 FR 8719 (``Notice'').
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II. Description of the Proposed Rule Change

The Exchange proposes to list and trade Shares of the Fund under
Rule 5705, which governs the listing and trading of Index Fund Shares
on the Exchange. The Shares will be offered by the Fund, which will be
a passively managed exchange-traded fund (``ETF'') that seeks to track
the performance of the CBOE Russell 2000 30-Delta BuyWrite V2 Index
(``Benchmark Index'').\4\ The Fund is a series of the Horizons ETF
Trust I (``Trust'').\5\ Horizons ETF Management (US), LLC will serve as
the investment adviser (``Adviser'') to the Fund.\6\ Foreside Fund

[[Page 17463]]

Services, LLC will serve as the principal underwriter and distributor
of the Fund's Shares. U.S. Bank National Association will act as the
custodian for the Fund. U.S. Bancorp Fund Services, LLC will serve as
the administrator, transfer agent and fund accounting agent for the
Fund. The Benchmark Index was developed by and is maintained by FTSE
International Limited and Frank Russell Company (``Index
Provider'').\7\
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\4\ The Benchmark Index methodology is available at: https://www.cboe.com/products/strategy-benchmark-indexes/buywrite-indexes/cboe-russell-2000-30-delta-buywrite-index-bxrd. The Chicago Board
Options Exchange, Incorporated (n/k/a Cboe Exchange, Inc.)
(``CBOE'') is the index calculation agent for the Benchmark Index.
\5\ The Trust is registered with the Commission as an open-end
management investment company and has filed a post-effective
amendment to its registration statement on Form N-1A (``Registration
Statement'') on behalf of the Fund. See Registration Statement for
the Trust, filed on June 22, 2017 (File No. 333-183155). In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 31961 (Jan. 19, 2016) (File No. 812-14461)
(``Exemptive Order'').
\6\ The Exchange represents that the Adviser is not a broker-
dealer; however, it is affiliated with two broker-dealers. A fire
wall exists around the respective personnel at the Adviser and
affiliated broker-dealers who have access to information concerning
changes and adjustments to the composition and/or changes to the
Fund's portfolio. In addition, such personnel will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding the Fund's portfolio. The Exchange
represents that in the event (a) the Adviser, any sub-adviser, or
the Index Provider (as discussed herein) becomes registered as a
broker-dealer or is newly affiliated with a broker dealer, or (b)
any new adviser, sub-adviser, or Index Provider is a registered
broker-dealer or becomes affiliated with a broker dealer, then the
Adviser, sub-adviser or Index Provider will implement a fire wall
with respect to its relevant personnel or such broker dealer
affiliate, as applicable, regarding access to information concerning
the composition or changes to the portfolio or concerning changes
and adjustments to the Benchmark Index and will be subject to
procedures designed to prevent the use and dissemination of
material, nonpublic information regarding the Fund's portfolio.
According to the Exchange, the Fund does not currently intend to use
a sub-adviser.
\7\ The Exchange represents that the Index Provider is not a
broker-dealer and it is not affiliated with a broker-dealer. A fire
wall exists around its personnel who have access to information
concerning changes and adjustments to the Benchmark Index. In
addition, such personnel will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the Benchmark Index.
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The Exchange has made the following representations and statements
in describing the Fund and its investment strategies, including other
assets and investment restrictions.\8\
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\8\ Additional information regarding the Trust, the Fund, and
the Shares, including information relating to the underlying Index,
investment strategies, risks, net asset value (``NAV'') calculation,
creation and redemption procedures, fees, portfolio holdings
disclosure policies, distributions, and taxes, among other
information, is included in the Notice and the Registration
Statement, as applicable. See Notice, supra note 3 and Registration
Statement, supra note 5.
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A. Exchange's Description of the Fund's Principal Investments

According to the Exchange, the Fund's investment objective is to
seek to track the investment results that correspond (before fees and
expenses) generally to the performance of the Benchmark Index provided
by the Index Provider. The Fund will pursue its objective by investing
at least 80% of its total assets in all of the equity securities in the
Russell 2000 Index and a single written one-month out-of-the-money
covered call option on the Russell 2000 Index. The market value of the
option strategy may be up to 20% of the Fund's overall net asset value.
The market value of the call options included in the Benchmark Index
will not represent more than 10% of the total weight of the Benchmark
Index. According to the Exchange, the component securities of the
Benchmark Index meet all requirements of Nasdaq Rule 5705(b)(3)(A)(i)
except that the Benchmark Index includes call options, which are not
NMS Stocks as defined in Rule 600 of Regulation NMS.\9\
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\9\ See Notice, supra note 3, 83 FR at 8720.
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In pursuing its investment objective, under normal market
conditions,\10\ the Fund will seek investment results that, before fees
and expenses, generally correspond to the performance of the Benchmark
Index. The Fund seeks correlation of 0.90 or better between its
performance and the performance of the Benchmark Index. A figure of
1.00 would represent perfect correlation. The call option written is at
the strike nearest to the 30 Delta between 10:30 a.m. and 11:00 a.m. CT
on the roll date (the third Friday of every month).
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\10\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the securities markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. In periods of
extreme market disturbance, the Fund may take temporary defensive
positions, by overweighting its portfolio in cash/cash-like
instruments; however, to the extent possible, the Adviser would
continue to seek to achieve the Fund's investment objective.
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The Benchmark Index is a benchmark index that measures the
performance of a theoretical portfolio that holds the stocks included
in the Russell 2000 Index and writes (or sells) a single one-month out-
of-the-money Russell 2000 Index covered call option. The call option
written for the Benchmark Index is at the strike nearest to the 30
Delta between 10:30 a.m. and 11:00 a.m. CT on the roll date (the third
Friday of every month). The Russell 2000 Index measures the performance
of the small capitalization sector of the U.S. equity market, as
defined by the Index Provider. The Russell 2000 Index is a subset of
the Russell 3000 Index, which measures the performance of the broad
U.S. equity market, as determined by the Index Provider. The Russell
2000 Index is a float-adjusted capitalization-weighted index of equity
securities issued by the approximately 2000 smallest issuers in the
Russell 3000 Index. Preferred and convertible preferred stock,
redeemable shares, participating preferred stock, warrants, rights,
installment receipts and trust receipts are not included in the Russell
2000 Index.
According to the Exchange, because a covered call strategy
generates income in the form of premiums on the written call options,
the Benchmark Index is generally expected to provide higher total
returns with lower volatility than the Russell 2000 Index in most
market environments, with the exception of when the equity market is
rallying rapidly. The Exchange states that each single call option in
the Benchmark Index will be traded on national securities exchanges,
such as the CBOE. According to the Exchange, as of October 31, 2017,
the Russell 2000 Index included common stocks of 1984 companies, with
an average market capitalization of approximately $2.3 billion.\11\
---------------------------------------------------------------------------

\11\ See Notice, supra note 3, 83 FR at 8721.
---------------------------------------------------------------------------

The Fund will generally use a replication methodology, meaning it
will invest in all of the securities and the call option comprising the
Benchmark Index in proportion to the weightings in the Benchmark Index.
However, the Fund may, from time-to-time, utilize a sampling
methodology under various circumstances where it may not be possible or
practicable to purchase all of the equity securities comprising the
Benchmark Index.
The Exchange represents that the equity securities in which the
Fund will invest and the option that the Fund will write will be
limited to U.S. exchange-traded securities and call options,
respectively, and that such securities will trade in markets that are
members of the Intermarket Surveillance Group (``ISG'') or which are
parties to a comprehensive surveillance sharing agreement with the
Exchange.\12\
---------------------------------------------------------------------------

\12\ See id. A list of ISG members is available at
www.isgportal.org.
---------------------------------------------------------------------------

The equity securities held by the Fund will be rebalanced
quarterly. The call option portion of the portfolio will consist of a
single U.S. exchange-traded one-month covered call on the Russell 2000
Index that is written by the Fund slightly out-of-the-money. A call
option will give the holder the right to buy the securities underlying
the call options written at a predetermined strike price from the Fund.
The notional value of the covered call options written (including the
financial instruments in the Exchange's description of the Fund's Other
Investments below) will be generally 100% of the overall Fund.
The Fund will utilize options in accordance with Rule 4.5 of the
Commodity Exchange Act (``CEA''). The Trust, on behalf of the Fund, has
filed a notice of eligibility for exclusion from the definition of the
term ``commodity pool operator'' in accordance with Rule 4.5 so that
the Fund is not subject to registration or regulation as a commodity
pool operator under the CEA.

B. Exchange's Description of the Fund's Other Investments

According to the Exchange, the Fund may invest no more than 20% of
its net

[[Page 17464]]

assets in the instruments described below.
The Fund may invest in ETFs, which shall be registered as
investment companies under the 1940 Act and trade on a U.S. national
securities exchange. The Fund may also buy and sell individual large
capitalization equity securities that do not comprise the Russell 2000
Index and are traded on a U.S. national securities exchange.
The Fund may invest in U.S. exchange-listed futures contracts based
on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed
to track the Benchmark Index or Russell 2000 Index. In addition, the
Fund may invest in forward contracts based on (1) the Benchmark Index
or Russell 2000 Index and (2) ETFs designed to track the Benchmark
Index or Russell 2000 Index. The Fund may also buy and sell OTC options
on (1) the Benchmark Index or Russell 2000 Index and (2) ETFs designed
to track the Benchmark Index or Russell 2000 Index. Moreover, the Fund
may enter into dividend and total return swap transactions (including
equity swap transactions) based on (1) the Benchmark Index or Russell
2000 Index and (2) ETFs designed to track the Benchmark Index or
Russell 2000 Index.\13\ The Fund also may engage in interest rate swap
transactions. The Fund would use interest rate swap transactions to
manage or hedge exposure to interest rate fluctuations.
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\13\ The Exchange represents that the Fund will transact only
with swap dealers that have in place an International Swaps and
Derivatives Association (``ISDA'') agreement with the Fund. See id.
at 8721 n.10. According to the Exchange, where practicable, the Fund
intends to invest in swaps cleared through a central clearing house
(``Cleared Swaps''). Currently, only certain of the interest rate
swaps in which the Fund intends to invest are Cleared Swaps, while
the dividend and total return swaps (including equity swaps) in
which the Fund may invest are currently not Cleared Swaps. See id.
at 8721 n.11.
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The Exchange represents that the Fund's short positions and its
investments in swaps, futures contracts, forward contracts and options
based on the Benchmark Index and Russell 2000 Index and ETFs designed
to track the Benchmark Index or Russell 2000 Index will be backed by
investments in cash, high-quality short-term debt securities and money-
market instruments in an amount equal to the Fund's maximum liability
under the applicable position or contract, or will otherwise be offset
in accordance with Section 18 of the 1940 Act.\14\
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\14\ The Exchange represents that the Fund will seek, where
possible, to use counterparties, as applicable, whose financial
status is such that the risk of default is reduced; however, the
risk of losses resulting from default is still possible. The Adviser
will evaluate the creditworthiness of counterparties on an ongoing
basis. In addition to information provided by credit agencies, the
Adviser will evaluate each approved counterparty using various
methods of analysis, such as, for example, the counterparty's
liquidity in the event of default, the counterparty's reputation,
the Adviser's past experience with the counterparty, and the
counterparty's share of market participation. See id. at 8721 n.12.
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The Fund will attempt to limit counterparty risk in non-cleared
swaps, forwards, and OTC option contracts by entering into such
contracts only with counterparties the Adviser believes are
creditworthy and by limiting the Fund's exposure to each counterparty.
The Adviser will monitor the creditworthiness of each counterparty and
the Fund's exposure to each counterparty on an ongoing basis.
The Fund may invest in short-term debt securities, money market
instruments and shares of money market funds to the extent permitted
under the 1940 Act. Short-term debt securities and money market
instruments include shares of fixed income or money market mutual
funds, commercial paper, certificates of deposit, bankers' acceptances,
U.S. government securities (including securities issued or guaranteed
by the U.S. government or its authorities, agencies, or
instrumentalities) and, repurchase agreements.\15\ Short-term debt
securities include bonds that are rated BBB or higher.
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\15\ The Fund may enter into repurchase agreements with banks
and broker-dealers. A repurchase agreement is an agreement under
which securities are acquired by a fund from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The
acquiring fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the
fund is delayed or prevented from exercising its rights to dispose
of the collateral securities.
---------------------------------------------------------------------------

The Exchange represents that the Fund's investments described above
in this section will be consistent with the Fund's investment objective
and with the requirements of the 1940 Act.\16\
---------------------------------------------------------------------------

\16\ The Exchange represents that, to limit the potential risk
associated with such transactions, the Fund will segregate or
``earmark'' assets determined to be liquid by the Adviser in
accordance with procedures established by the Trust's Board of
Trustees and in accordance with the 1940 Act (or, as permitted by
applicable regulation, enter into certain offsetting positions) to
cover its obligations arising from such transactions. In addition,
the Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk
that certain transactions of the Fund may give rise to leverage,
causing the Fund to be more volatile than if it had not been
leveraged. To mitigate leveraging risk, the Adviser will segregate
or ``earmark'' liquid assets or otherwise cover the transactions
that may give rise to such risk the 1940 Act. The Exchange further
represents that the Fund will not make investments in securities to
seek to achieve a multiple or inverse multiple of an index and they
will not be used to enhance leverage. See Notice, supra note 3, 83
FR at 8722 n.14.
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The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment).
The Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an adequate level
of liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities. Illiquid securities include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets, as determined in
accordance with Commission staff guidance.
The Exchange states that the Fund will not invest in assets that
are not described in this proposed rule change.
The Fund seeks to track the Benchmark Index, which itself may have
concentration in certain regions, economies, markets, industries or
sectors. The Fund may concentrate its investments in a particular
industry or group of industries to the extent that the Russell 2000
Index concentrates in an industry or group of industries.\17\ According
to the Exchange, by concentrating its investments in an industry or
sector, the Fund faces more risks than if it were diversified broadly
over numerous industries or sectors.
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\17\ See Registration Statement, supra note 5, Item 9. The
Commission has taken the position that a fund is concentrated if it
invests more than 25% of the value of its total assets in any one
industry. See, e.g., Investment Company Act Release No. 9011
(October 30, 1975), 40 FR 54241 (November 21, 1975).
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III. Discussion and Commission's Findings

After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \18\
and the rules and regulations thereunder applicable to a national
securities exchange.\19\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\20\ 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 remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect

[[Page 17465]]

investors and the public interest. The Commission also finds that the
proposal to list and trade the Shares on the Exchange is consistent
with Section 11A(a)(1)(C)(iii) of the Act,\21\ 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.
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\18\ 15 U.S.C. 78f.
\19\ 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).
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Quotation and last-sale information for the Shares will be
available via Nasdaq proprietary quote and trade services, as well as
in accordance with the Unlisted Trading Privileges and the Consolidated
Tape Association plans for the Shares. With respect to the securities
and other assets held by the Fund, the intra-day, executable price
quotations on such securities will be available from major broker-
dealer firms or on the exchange on which they are traded, as
applicable. Intra-day price information will also be available through
subscription services, such as Bloomberg, Markit and Thomson Reuters,
which can be accessed by Authorized Participants and other investors.
Specifically, the intra-day, closing and settlement prices of the
portfolio securities and other Fund investments, including exchange-
listed equity securities, exchange-listed futures, and exchange-listed
options, will be readily available from the national securities
exchanges trading such securities, automated quotation systems,
published or other public sources, and, with respect to OTC options,
swaps, and forwards, from third party pricing sources, or on-line
information services such as Bloomberg or Reuters. Price information
regarding ETFs will be available from on-line information services and
from the website for the applicable investment company security. The
intra-day, closing and settlement prices of short-term debt securities
and money market instruments will be readily available from published
and other public sources or on-line information services. Money market
funds are typically priced once each business day and their prices will
be available through the applicable fund's website or from major market
data vendors.
The value of the Benchmark Index will be published by one or more
major market data vendors every 15 seconds during the Regular Market
Session.\22\ Information about the Benchmark Index constituents, the
weighting of the constituents, the Benchmark Index's methodology, and
the Benchmark Index's rules will be available at no charge on the Index
Provider's website. In addition, for the Fund, an estimated value,
defined in Rule 5705(b)(3)(C) as the ``Intraday Indicative Value,''
that reflects an estimated intraday value of the Fund's portfolio, will
be disseminated. The Intraday Indicative Value, available on the NASDAQ
Information LLC proprietary index data service,\23\ will be based upon
the current value for the components of the Disclosed Portfolio (as
discussed herein) and will be updated and widely disseminated and
broadly displayed at least every 15 seconds during the Regular Market
Session. The Intraday Indicative Value will be based on quotes and
closing prices from the assets' local market and may not reflect events
that occur subsequent to the local market's close. Premiums and
discounts between the Intraday Indicative Value and the market price
may occur.
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\22\ 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. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
\23\ Currently, the NASDAQ Global Index Data Service (``GIDS'')
is the NASDAQ global index data feed service, offering real-time
updates, daily summary messages, and access to widely followed
indexes and Intraday Indicative Values for ETFs. GIDS provides
investment professionals with the daily information needed to track
or trade NASDAQ indexes, listed ETFs, or third-party partner indexes
and ETFs.
---------------------------------------------------------------------------

On each business day, before commencement of trading in Shares in
the Regular Market Session on the Exchange, the Fund will disclose on
its website the identities and quantities of the portfolio of
securities and other assets (the ``Disclosed Portfolio'') held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the business day.\24\ The NAV of the Fund's Shares generally
will be calculated once daily Monday through Friday as of the close of
regular trading on the Nasdaq Stock Exchange, generally 4:00 p.m.
Eastern time. In addition, a basket composition file, which includes
the asset names, amounts and share quantities, as applicable, required
to be delivered in exchange for the Fund's Shares, together with
estimates and actual cash components, will be publicly disseminated
daily prior to the opening of Nasdaq, via the National Securities
Clearing Corporation. The basket will represent one Creation Unit of
the Fund.
---------------------------------------------------------------------------

\24\ On a daily basis, the Fund will disclose on the Fund's
website (www.us.horizonsetfs.com) the following information
regarding each portfolio holding, as applicable to the type of
holding: Ticker symbol; CUSIP number or other identifier, if any; a
description of the holding (including the type of holding); with
respect to holdings in derivatives, the identity of the security,
index, or other asset upon which the derivative is based; for
options, the option strike price, quantity held (as measured by, for
example, par value, notional value or number of shares, contracts or
units), and expiration of call option; maturity date, if any; coupon
rate; if any; effective date, if any; market value of the holding;
percentage weighting of the holding in the Fund's portfolio; and
cash equivalents and the amount of cash held. The website
information will be publicly available at no charge.
---------------------------------------------------------------------------

Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services, and
information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. The Fund's website will include a form
of the prospectus for the Fund that may be downloaded and additional
data relating to NAV and other applicable quantitative information.
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time.\25\ Nasdaq will halt or pause trading in
the Shares under the conditions specified in Nasdaq Rules 4120 and
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and
(12). Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable.\26\ If the Intraday Indicative Value, the Benchmark Index
value or the value of the Disclosed Portfolio is not being disseminated
as required, the Exchange may halt trading during the day in which the
disruption occurs; if the interruption persists past the day in which
it occurred, the Exchange will

[[Page 17466]]

halt trading no later than the beginning of the trading day following
the interruption. The Exchange also states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees.\27\ In addition, the Exchange states that the Adviser is not
a broker-dealer; however, it is affiliated with two broker-dealers. The
Exchange states that the Adviser represents that a fire wall exists
around the respective personnel at the Adviser and affiliated broker-
dealers who have access to information concerning changes and
adjustments to the composition and/or changes to the Fund's
portfolio.\28\ In addition, the Exchange represents that such personnel
will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding the Fund's
portfolio.\29\ The Exchange further states that the Index Provider is
not a broker-dealer and it is not affiliated with a broker-dealer, and
it has represented that a fire wall exists around personnel who have
access to information concerning changes and adjustments to the
Benchmark Index, and such personnel will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding the Benchmark Index.\30\
---------------------------------------------------------------------------

\25\ See Notice, supra note 3, 83 FR at 8724.
\26\ These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
constituting the Disclosed Portfolio of the Fund; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. With respect
to trading halts, the Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares
of the Fund. Trading in the Shares also will be subject to Nasdaq
Rule 5705(b)(1)(B)(iv), which sets forth circumstances under which
Shares of the Fund may be halted.
\27\ See Notice, supra note 3, 83 FR at 8725.
\28\ See supra note 6. The Commission also notes that 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, 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 the Advisers Act and Rule 204A-1 thereunder. 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.
\29\ See Notice, supra note 3, 83 FR at 8720.
\30\ See id.
---------------------------------------------------------------------------

The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\31\ FINRA, on behalf of
the Exchange, will communicate as needed regarding trading in the
Shares, in the equity securities in which the Fund will invest, and in
the U.S. exchange-traded options and futures which the Fund will buy
and write with other markets and other entities that are members of the
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement,\32\ and FINRA may obtain trading
information regarding trading in the Shares and in such equity
securities and U.S. exchange-traded options and futures from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and in such equity
securities and U.S. exchange-traded options and futures from markets
and other entities that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
The Exchange may also obtain information from the Trade Reporting and
Compliance Engine (``TRACE''), which is the FINRA developed vehicle
that facilitates mandatory reporting of OTC secondary market
transactions in eligible fixed income securities.
---------------------------------------------------------------------------

\31\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
\32\ For a list of the current members of ISG, see supra note
12.
---------------------------------------------------------------------------

The Commission notes that the Shares and the Fund must comply with
the initial and continued listing criteria in Rule 5705 for the Shares
to be listed and traded on the Exchange.
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. In support of this
proposal, the Exchange has made the following representations:
(1) The Shares will be subject to Rule 5705, which sets forth the
initial and continued listing criteria applicable to Index Fund
Shares.\33\
---------------------------------------------------------------------------

\33\ See Notice, supra note 3, 83 FR at 8724.
---------------------------------------------------------------------------

(2) The component securities of the Benchmark Index meet all
requirements of Nasdaq Rule 5705(b)(3)(A)(i) except that the Benchmark
Index includes call options, which are not NMS Stocks as defined in
Rule 600 of Regulation NMS.\34\
---------------------------------------------------------------------------

\34\ See id. at 8720.
---------------------------------------------------------------------------

(3) The Exchange has the appropriate rules to facilitate
transactions in the Shares during all trading sessions.\35\
---------------------------------------------------------------------------

\35\ See id. at 8724.
---------------------------------------------------------------------------

(4) Trading in the Shares will be subject to the existing trading
surveillances, administered by Nasdaq and FINRA on behalf of the
Exchange.\36\ The Exchange represents that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws.\37\
---------------------------------------------------------------------------

\36\ See id.
\37\ See id. at 8725.
---------------------------------------------------------------------------

(5) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, in the equity securities in which the
Fund will invest, and in the U.S. exchange-traded options and futures
which the Fund will buy and write with other markets and other entities
that are members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. FINRA may obtain trading
information regarding trading in the Shares and in such equity
securities and U.S. exchange-traded options and futures from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and in such equity
securities and U.S. exchange-traded options and futures from markets
and other entities that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
The Exchange may also obtain information from FINRA's TRACE.\38\
---------------------------------------------------------------------------

\38\ See id.
---------------------------------------------------------------------------

(6) For initial and/or continued listing, the Fund must be in
compliance with Rule 10A-3 \39\ under the Act.\40\
---------------------------------------------------------------------------

\39\ See 17 CFR 240.10A-3.
\40\ See Notice, supra note 3, 83 FR at 8724.
---------------------------------------------------------------------------

(7) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) The procedures for
purchases and redemptions of Shares in Creation Units (and that Shares
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how information regarding
the Benchmark Index value and Intraday Indicative Value is
disseminated; (d) the risks involved in trading the Shares during the
Pre-Market and Post-Market

[[Page 17467]]

Sessions when an updated Benchmark Index value and Intraday Indicative
Value will not be calculated or publicly disseminated; (e) the
requirement that members deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (f) trading information.\41\
---------------------------------------------------------------------------

\41\ See id. at 8725.
---------------------------------------------------------------------------

(8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of
investment).\42\
---------------------------------------------------------------------------

\42\ See id. at 8722.
---------------------------------------------------------------------------

(9) Each single call option in the Benchmark Index will be traded
on national securities exchanges.\43\
---------------------------------------------------------------------------

\43\ See id. at 8721.
---------------------------------------------------------------------------

(10) The equity securities in which the Fund will invest, and the
option that the Fund will write, will be limited to U.S. exchange-
traded securities and call options, respectively, and such securities
will trade in markets that are members of the ISG or which are parties
to a comprehensive surveillance sharing agreement with the
Exchange.\44\
---------------------------------------------------------------------------

\44\ See id.
---------------------------------------------------------------------------

(11) The Fund will invest at least 80% of its total assets in all
of the equity securities in the Russell 2000 Index and a single written
one-month out-of-the-money covered call option on the Russell 2000
Index, and the market value of the option strategy may be up to 20% of
the Fund's overall net asset value.\45\
---------------------------------------------------------------------------

\45\ See id. at 8720.
---------------------------------------------------------------------------

(12) The Fund will utilize options in accordance with Rule 4.5 of
the CEA.\46\
---------------------------------------------------------------------------

\46\ See id. at 8721.
---------------------------------------------------------------------------

(13) The Fund will transact only with swap dealers that have in
place an ISDA agreement with the Fund.\47\
---------------------------------------------------------------------------

\47\ See id. at 8721 n.10.
---------------------------------------------------------------------------

(14) The Fund's short positions and its investments in swaps,
futures contracts, forward contracts and options based on the Benchmark
Index and Russell 2000 Index and ETFs designed to track the Benchmark
Index or Russell 2000 Index will be backed by investments in cash,
high-quality short-term debt securities and money-market instruments in
an amount equal to the Fund's maximum liability under the applicable
position or contract, or will otherwise be offset in accordance with
Section 18 of the 1940 Act.\48\
---------------------------------------------------------------------------

\48\ See id. at 8721.
---------------------------------------------------------------------------

(15) The Fund will attempt to limit counterparty risk in non-
cleared swaps, forwards, and OTC option contracts by entering into such
contracts only with counterparties the Adviser believes are
creditworthy and by limiting the Fund's exposure to each counterparty.
The Adviser will monitor the creditworthiness of each counterparty and
the Fund's exposure to each counterparty on an ongoing basis.\49\
---------------------------------------------------------------------------

\49\ See id. at 8722.
---------------------------------------------------------------------------

(16) To limit the potential risk associated with such transactions,
the Fund will segregate or ``earmark'' assets determined to be liquid
by the Adviser in accordance with procedures established by the Trust's
Board of Trustees and in accordance with the 1940 Act (or, as permitted
by applicable regulation, enter into certain offsetting positions) to
cover its obligations arising from such transactions. In addition, the
Fund will include appropriate risk disclosure in its offering
documents, including leveraging risk.\50\
---------------------------------------------------------------------------

\50\ See id. at 8722 n.14.
---------------------------------------------------------------------------

(17) The Fund will not make investments in securities to seek to
achieve a multiple or inverse multiple of an index and they will not be
used to enhance leverage.\51\
---------------------------------------------------------------------------

\51\ See id.
---------------------------------------------------------------------------

(18) The Fund will not invest in assets that are not described in
the proposed rule change.\52\
---------------------------------------------------------------------------

\52\ See id. at 8722.
---------------------------------------------------------------------------

(19) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.\53\
---------------------------------------------------------------------------

\53\ See id. at 8724.
---------------------------------------------------------------------------

The Exchange further represents that all statements and
representations made in this filing regarding the description of the
portfolio, limitations on portfolio holdings or reference assets,
dissemination and availability of the reference asset and intraday
indicative values, and 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 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.\54\
---------------------------------------------------------------------------

\54\ See id. at 8725.
---------------------------------------------------------------------------

This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice. For
the foregoing reasons, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act \55\ and the rules
and regulations thereunder applicable to a national securities
exchange.
---------------------------------------------------------------------------

\55\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\56\ that the proposed rule change (SR-NASDAQ-2018-012) be, and it
hereby is, approved.
---------------------------------------------------------------------------

\56\ 15 U.S.C. 78s(b)(2).
\57\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08153 Filed 4-18-18; 8:45 am]
BILLING CODE 8011-01-P

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