Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Nasdaq Rule 5760 To Permit the Listing and Trading of Managed Portfolio Shares, 23460-23471 [2021-09024]
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Federal Register / Vol. 86, No. 83 / Monday, May 3, 2021 / Notices
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 such
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–BOX–2021–05, and should
be submitted on or before May 24, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09020 Filed 4–30–21; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–91675; File No. SR–
NASDAQ–2021–023]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt
Nasdaq Rule 5760 To Permit the
Listing and Trading of Managed
Portfolio Shares
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April 26, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 14,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20:34 Apr 30, 2021
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
The Exchange proposes to add new
Nasdaq Rule 5760 for the purpose of
permitting the listing and trading, or
trading pursuant to unlisted trading
privileges, of Managed Portfolio Shares,
which are securities issued by an
actively managed open-end
management investment company. This
proposed rule change to add new
Nasdaq Rule 5760 is substantially
similar to the recently approved rule
change by Cboe BZX Exchange, Inc.
(‘‘Cboe BZX’’) to adopt rule 14.11(k).3
Proposed Listing Rules
Proposed Nasdaq Rule 5760(a)
provides that the Exchange will
consider for trading, whether by listing
or pursuant to unlisted trading
3 See Securities and Exchange Act Release No.
87759 (December 16, 2019) 84 FR 70223 (December
20, 2019) (SR–CboeBZX–2019–047).
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
Nasdaq Rule 5760 to permit the listing
and trading of Managed Portfolio
Shares, which are shares of actively
managed exchange-traded funds for
which the portfolio is disclosed in
accordance with standard mutual fund
disclosure rules.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
17 17
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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privileges, Managed Portfolio Shares
that meet the criteria of Nasdaq Rule
5760.
Proposed Nasdaq Rule 5760(b)
provides that Nasdaq Rule 5760 is
applicable only to Managed Portfolio
Shares and that, except to the extent
inconsistent with Nasdaq Rule 5760, or
unless the context otherwise requires,
the rules and procedures of the
Exchange’s Board of Directors shall be
applicable to the trading on the
Exchange of such securities. Proposed
Nasdaq Rule 5760(b) provides further
that Managed Portfolio Shares are
included within the definition of
‘‘security’’ or ‘‘securities’’ as such terms
are used in the Rules of the Exchange.
Proposed Nasdaq Rule 5760(b)(1)
provides that the Exchange will file
separate proposals under Section 19(b)
of the Act before the listing and trading
of a series of Managed Portfolio Shares.
Additionally, that all statements or
representations regarding (a) the
description of the portfolio or reference
assets; (b) limitations on portfolio
holdings or reference assets; (c)
dissemination and availability of the
reference asset or intraday indicative
values and Verified Intraday Indicative
Values (‘‘VIIV’’) (as applicable); or (d)
the applicability of Nasdaq listing rules
specified in such proposals shall
constitute continued listing standards.
Proposed Nasdaq Rule 5760(b)(2)
provides that transactions in Managed
Portfolio Shares will occur throughout
the Exchange’s System Hours.4
Proposed Nasdaq Rule 5760(b)(3)
provides that the minimum price
variation for quoting and entry of orders
in Managed Portfolio Shares is $0.01.
Proposed Nasdaq Rule 5760(b)(4)
provides that the Exchange will
implement and maintain written
surveillance procedures for Managed
Portfolio Shares. As part of these
surveillance procedures, the Investment
Company’s investment adviser will
upon request by the Exchange or
FINRA, on behalf of the Exchange, make
available to the Exchange or FINRA the
daily portfolio holdings of each series of
Managed Portfolio Shares.
Proposed Nasdaq Rule 5760(b)(5)
provides that, if the investment adviser
to the Investment Company issuing
Managed Portfolio Shares is registered
as a broker-dealer or is affiliated with a
broker-dealer, such investment adviser
will erect and maintain a ‘‘fire wall’’
between the investment adviser and
4 See Nasdaq Equity Rules Equity 1. Section
1(a)(9). The term ‘‘System Hours’’ is defined as the
period of time beginning at 4:00 a.m. E.T. and
ending at 8:00 p.m. E.T. (or such earlier time as may
be designated by Nasdaq on a day when Nasdaq
closes early).
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Federal Register / Vol. 86, No. 83 / Monday, May 3, 2021 / Notices
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
concerning the composition of and/or
changes to such Investment Company
portfolio and/or the Creation Basket.
Any person related to the investment
adviser or Investment Company who
makes decisions pertaining to the
Investment Company’s portfolio
composition or has access to
information regarding the Investment
Company’s portfolio composition or
changes thereto or the Creation Basket
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the applicable Investment
Company portfolio or changes thereto or
the Creation Basket.
Proposed Nasdaq Rule 5760(b)(6)
provides that any person or entity,
including an AP Representative,
custodian, Reporting Authority,
distributor, or administrator, who has
access to information regarding the
Investment Company’s portfolio
composition or changes thereto or the
Creation Basket, must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Investment Company
portfolio or changes thereto or the
Creation Basket. Moreover, if any such
person or entity is registered as a brokerdealer or affiliated with a broker-dealer,
such person or entity will erect and
maintain a ‘‘fire wall’’ between the
person or entity and the broker-dealer
with respect to access to information
concerning the composition and/or
changes to such Investment Company
portfolio or Creation Basket.
Proposed Nasdaq Rule 5760(c)(1)
defines the term ‘‘Managed Portfolio
Share’’ as a security that (a) represents
an interest in an investment company
registered under the Investment
Company Act of 1940 (‘‘Investment
Company’’) organized as an open-end
management investment company, that
invests in a portfolio of securities
selected by the Investment Company’s
investment adviser consistent with the
Investment Company’s investment
objectives and policies; (b) is issued in
a Creation Unit, or multiples thereof, in
return for a designated portfolio of
instruments (and/or an amount of cash)
with a value equal to the next
determined net asset value (‘‘NAV’’) and
delivered to the Authorized Participant
(as defined in the Investment
Company’s Form N–1A filed with the
SEC) through a Confidential Account;
(c) when aggregated into a Redemption
Unit, or multiples thereof, may be
redeemed for a designated portfolio of
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instruments (and/or an amount of cash)
with a value equal to the next
determined NAV delivered to the
Confidential Account for the benefit of
the Authorized Participant; and (d) the
portfolio holdings for which are
disclosed within at least 60 days
following the end of every fiscal
quarter.5
Proposed Nasdaq Rule 5760(c)(2)
defines the term ‘‘Verified Intraday
Indicative Value’’ as the indicative
value of a Managed Portfolio Share
based on all of the holdings of a series
of Managed Portfolio Shares as of the
close of business on the prior business
day and, for corporate actions, based on
the applicable holdings as of the
opening of business on the current
business day, priced and disseminated
in one second intervals during Nasdaq’s
regular market session by the Reporting
Authority.
Proposed Nasdaq Rule 5760(c)(3)
defines the term ‘‘AP Representative’’ as
an unaffiliated broker-dealer, with
which an Authorized Participant has
signed an agreement to establish a
Confidential Account for the benefit of
such Authorized Participant, that will
deliver or receive, on behalf of the
Authorized Participant, all
consideration to or from the Investment
Company in a creation or redemption.
An AP Representative will not be
permitted to disclose the Creation
Basket to any person, including the
Authorized Participants.
Proposed Nasdaq Rule 5760(c)(4)
defines the term ‘‘Confidential
Account’’ as an account owned by an
Authorized Participant and held with an
AP Representative on behalf of the
Authorized Participant. The account
will be established and governed by
contractual agreement between the AP
Representative and the Authorized
Participant solely for the purposes of
creation and redemption, while keeping
confidential the Creation Basket
constituents of each series of Managed
Portfolio Shares, including from the
Authorized Participant. The books and
records of the Confidential Account will
be maintained by the AP Representative
on behalf of the Authorized Participant.
Proposed Nasdaq Rule 5760(c)(5)
defines the term ‘‘Creation Basket’’ as on
any given business day the names and
quantities of the specified instruments
and/or an amount of cash that are
required for an AP Representative to
deposit in-kind on behalf of an
5 For purposes of this filing, references to a series
of Managed Portfolio Shares are referred to
interchangeably as a series of Managed Portfolio
Shares or as a ‘‘Fund’’ and shares of a series of
Managed Portfolio Shares are generally referred to
as the ‘‘Shares’’.
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Authorized Participant in exchange for
a Creation Unit and the names and
quantities of the specified instruments
and/or an amount of cash that will be
transferred in-kind to an AP
Representative on behalf of an
Authorized Participant in exchange for
a Redemption Unit, which will be
identical and will be transmitted to each
AP Representative before the
commencement of trading.
Proposed Nasdaq Rule 5760(c)(6)
defines the term ‘‘Creation Unit’’ as a
specified minimum number of Managed
Portfolio Shares issued by an
Investment Company at the request of
an Authorized Participant in return for
a designated portfolio of instruments
and/or cash.
Proposed Nasdaq Rule 5760(c)(7)
defines the term ‘‘Redemption Unit’’ as
a specified minimum number of
Managed Portfolio Shares that may be
redeemed to an Investment Company at
the request of an Authorized Participant
in return for a portfolio of instruments
and/or cash.
Proposed Nasdaq Rule 5760(c)(8)
defines the term ‘‘Reporting Authority’’
in respect of a particular series of
Managed Portfolio Shares means the
Exchange, the exchange that lists a
particular series of Managed Portfolio
Shares (if the Exchange is trading such
series pursuant to unlisted trading
privileges), an institution, or a reporting
service designated by the Investment
Company as the official source for
calculating and reporting information
relating to such series, including, the
NAV, the VIIV, or other information
relating to the issuance, redemption or
trading of Managed Portfolio Shares. A
series of Managed Portfolio Shares may
have more than one Reporting
Authority, each having different
functions.
Proposed Nasdaq Rule 5760(c)(9)
provides that the term ‘‘Normal Market
Conditions’’ includes, but is not limited
to, the absence of trading halts in the
applicable financial markets generally;
operational issues (e.g., systems failure)
causing dissemination of inaccurate
market information; or force majeure
type events such as natural or manmade
disaster, act of God, armed conflict, act
of terrorism, riot or labor disruption or
any similar intervening circumstance.
Proposed Nasdaq Rule 5760(d)(1) sets
forth initial listing criteria applicable to
Managed Portfolio Shares. Proposed
Nasdaq Rule 5760(d)(1)(A) provides
that, for each series of Managed
Portfolio Shares, the Exchange will
establish a minimum number of
Managed Portfolio Shares required to be
outstanding at the time of
commencement of trading on the
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Exchange. In addition, proposed Nasdaq
Rule 5760(d)(1)(B) provides that the
Exchange will obtain a representation
from the Investment Company that
issues each series of Managed Portfolio
Shares that the NAV per share for the
series will be calculated daily and that
the NAV will be made available to all
market participants at the same time.
Proposed Nasdaq Rule 5760(d)(1)(C)
provides that all Managed Portfolio
Shares shall have a stated investment
objective, which shall be adhered to
under Normal Market Conditions.
Proposed Nasdaq Rule 5760(d)(2)
provides that each series of Managed
Portfolio Shares will be listed and
traded subject to application of the
following continued listing criteria.
Proposed Nasdaq Rule 5760(d)(2)(A)
provides that the VIIV for Managed
Portfolio Shares will be widely
disseminated by the Reporting
Authority and/or by one or more major
market data vendors in one second
intervals during Nasdaq’s regular market
session, and will be disseminated to all
market participants at the same time.
Proposed Nasdaq Rule 5760(d)(2)(B)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under the Nasdaq Rule
5800 Series, for a series of Managed
Portfolio Shares, under any of the
following circumstances: (i) If, following
the initial twelve-month period after
commencement of trading on the
Exchange of a series of Managed
Portfolio Shares, there are fewer than 50
beneficial holders of the series of
Managed Portfolio Shares for 30 or more
consecutive trading days; (ii) if the
Exchange has halted trading in a series
of Managed Portfolio Shares because the
VIIV is interrupted pursuant to Nasdaq
Rule 5760(d)(2)(C)(ii) and such
interruption persists past the trading
day in which it occurred or is no longer
available; (iii) if the Exchange has halted
trading in a series of Managed Portfolio
Shares because the NAV with respect to
such series of Managed Portfolio Shares
is not disseminated to all market
participants at the same time, the
holdings of such series of Managed
Portfolio Shares are not made available
on at least a quarterly basis as required
under the Investment Company Act of
1940 (‘‘1940 Act’’), or such holdings are
not made available to all market
participants at the same time pursuant
to Nasdaq Rule 5760(d)(2)(C)(ii) and
such issue persists past the trading day
in which it occurred; (iv) if the
Exchange has halted trading in a series
of Managed Portfolio Shares pursuant to
Nasdaq Rule 5760(d)(2)(C)(i), such issue
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persists past the trading day in which it
occurred; (v) if the Investment Company
issuing the Managed Portfolio Shares
has failed to file any filings required by
the Commission or if the Exchange is
aware that the Investment Company is
not in compliance with the conditions
of any currently applicable exemptive
order or no-action relief granted by the
Commission or Commission staff to the
Investment Company with respect to the
series of Managed Portfolio Shares; (vi)
if any of the continued listing
requirements set forth in Nasdaq Rule
5760 are not continuously maintained;
(vii) if the series of Managed Portfolio
Shares is not in compliance with any
statements or representations included
in the applicable rule proposal under
Section 19(b) regarding: (a) The
description of the portfolio or reference
assets; (b) limitations on portfolio
holdings or reference assets; (c)
dissemination and availability of the
reference asset or intraday indicative
values and VIIVs; or (d) the applicability
of Nasdaq listing rules specified in such
proposals; or (viii) if such other event
shall occur or condition exists which, in
the opinion of the Exchange, makes
further dealings on the Exchange
inadvisable.
Proposed Nasdaq Rule 5760(d)(2)(C)(i)
provides that the Exchange may
consider all relevant factors in
exercising its discretion to halt trading
in a series of Managed Portfolio Shares.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the series of Managed Portfolio
Shares inadvisable. These may include:
(a) The extent to which trading is not
occurring in the securities and/or the
financial instruments composing the
portfolio; or (b) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present.
Proposed Nasdaq Rule
5760(d)(2)(C)(ii) provides that, if the
Exchange becomes aware that: (a) The
VIIV of a series of Managed Portfolio
Shares is not being calculated or
disseminated in one second intervals, as
required; (b) the NAV with respect to a
series of Managed Portfolio Shares is not
disseminated to all market participants
at the same time; (c) the holdings of a
series of Managed Portfolio Shares are
not made available on at least a
quarterly basis as required under the
1940 Act; or (d) such holdings are not
made available to all market
participants at the same time (except as
otherwise permitted under the currently
applicable exemptive order or no-action
relief granted by the Commission or
Commission staff to the Investment
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Company with respect to the series of
Managed Portfolio Shares), it will halt
trading in such series until such time as
the VIIV, the NAV, or the holdings are
available, as required.
Proposed Nasdaq Rule 5760(d)(2)(D)
provides that, upon termination of an
Investment Company, the Exchange
requires that Managed Portfolio Shares
issued in connection with such entity be
removed from Exchange listing.
Proposed Nasdaq Rule 5760(d)(2)(E)
provides that voting rights shall be as
set forth in the applicable Investment
Company prospectus and/or statement
of additional information.
Proposed Nasdaq Rule 5760(e), which
relates to limitation of Exchange
liability, provides that neither the
Exchange, the Reporting Authority,
when the Exchange is acting in the
capacity of a Reporting Authority, nor
any agent of the Exchange shall have
any liability for damages, claims, losses
or expenses caused by any errors,
omissions, or delays in calculating or
disseminating any current portfolio
value; the current value of the portfolio
of securities required to be deposited to
the open-end management investment
company in connection with issuance of
Managed Portfolio Shares; the VIIV; the
amount of any dividend equivalent
payment or cash distribution to holders
of Managed Portfolio Shares; NAV; or
other information relating to the
purchase, redemption, or trading of
Managed Portfolio Shares, resulting
from any negligent act or omission by
the Exchange, the Reporting Authority
when the Exchange is acting in the
capacity of a Reporting Authority, or
any agent of the Exchange, or any act,
condition, or cause beyond the
reasonable control of the Exchange, its
agent, or the Reporting Authority, when
the Exchange is acting in the capacity of
a Reporting Authority, including, but
not limited to, an act of God; fire; flood;
extraordinary weather conditions; war;
insurrection; riot; strike; accident;
action of government; communications
or power failure; equipment or software
malfunction; or any error, omission, or
delay in the reports of transactions in
one or more underlying securities.
Proposed Nasdaq Rule 5760(f), which
relates to disclosures, provides that the
provisions of this subparagraph apply
only to series of Managed Portfolio
Shares that are the subject of an order
by the Commission exempting such
series from certain prospectus delivery
requirements under Section 24(d) of the
1940 Act and are not otherwise subject
to prospectus delivery requirements
under the Securities Act of 1933. The
Exchange will inform its Members
regarding application of this
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subparagraph to a particular series of
Managed Portfolio Shares by means of
an information circular prior to
commencement of trading in such
series.
The Exchange requires that Members
provide to all purchasers of a series of
Managed Portfolio Shares a written
description of the terms and
characteristics of those securities, in a
form prepared by the open-end
management investment company
issuing such securities, not later than
the time a confirmation of the first
transaction in such series is delivered to
such purchaser. In addition, Members
shall include such a written description
with any sales material relating to a
series of Managed Portfolio Shares that
is provided to customers or the public.
Any other written materials provided by
a Member to customers or the public
making specific reference to a series of
Managed Portfolio Shares as an
investment vehicle must include a
statement in substantially the following
form: ‘‘A circular describing the terms
and characteristics of (the series of
Managed Portfolio Shares) has been
prepared by the (open-end management
investment company name) and is
available from your broker. It is
recommended that you obtain and
review such circular before purchasing
(the series of Managed Portfolio
Shares).’’
A Member carrying an omnibus
account for a non-Member broker-dealer
is required to inform such non-Member
that execution of an order to purchase
a series of Managed Portfolio Shares for
such omnibus account will be deemed
to constitute agreement by the nonMember to make such written
description available to its customers on
the same terms as are directly applicable
to Members under this rule.
Upon request of a customer, a
Member shall also provide a prospectus
for the particular series of Managed
Portfolio Shares.
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Key Features of Managed Portfolio
Shares
While each series of Managed
Portfolio Shares will be actively
managed and, to that extent, similar to
Managed Fund Shares (as defined in
Nasdaq Rule 5735),6 Managed Portfolio
Shares differ from Managed Fund
Shares in the following important
6 The Commission approved a proposed rule
change to adopt generic listing standards for
Managed Fund Shares. See Securities Exchange Act
Release No. 78918 (Sept. 23, 2016), 81 FR 67033
(Sept. 29, 2016 (SR–NASDAQ–2016–104) (order
approving proposed rule change to amend Nasdaq
Rule 5735 to adopt generic listing standards for
Managed Fund Shares).
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respects. First, in contrast to Managed
Fund Shares, which require a
‘‘Disclosed Portfolio’’ to be
disseminated at least once daily,7 the
portfolio for a series of Managed
Portfolio Shares will be disclosed at
least quarterly in accordance with
normal disclosure requirements
otherwise applicable to open-end
investment companies registered under
the 1940 Act.8 The composition of the
portfolio of a series of Managed
Portfolio Shares would not be available
at commencement of Exchange listing
and/or trading. Second, in connection
with the creation and redemption of
shares in Creation Unit or Redemption
Unit size (as described below), the
delivery of any portfolio securities in
kind will be effected through a
Confidential Account (as described
below) for the benefit of the creating or
redeeming AP (as described further
below in ‘‘Creation and Redemption of
Shares’’) without disclosing the identity
of such securities to the AP.
For each series of Managed Portfolio
Shares, the VIIV will be disseminated
reflecting an estimated intraday value of
a fund’s portfolio. Specifically, the VIIV
will be based upon all of a series’
holdings as of the close of the prior
business day and, for corporate actions,
based on the applicable holdings as of
the opening of business on the current
business day, and will be widely
disseminated by the Reporting
Authority and/or one or more major
market data vendors in one second
intervals during the regular market
session. The dissemination of the VIIV
will allow investors to determine the
estimated intra-day value of the
underlying portfolio of a series of
Managed Portfolio Shares and will
provide a close estimate of that value
throughout the trading day.
The Exchange, after consulting with
various Designated Liquidity Providers
7 Nasdaq Rule 5735(c)(2) defines the term
‘‘Disclosed Portfolio’’ as the identities and
quantities of the securities and other assets held by
the Investment Company that will form the basis for
the Investment Company’s calculation of NAV at
the end of the business day. Nasdaq Rule
5735(d)(1)(B) and Nasdaq Rule 5735(d)(2)(B)(i)
requires that the Disclosed Portfolio will be
disseminated at least once daily and will be made
available to all market participants at the same time.
8 Form N–PORT requires reporting of a fund’s
complete portfolio holdings on a position-byposition basis on a quarterly basis within 60 days
after fiscal quarter end. Investors can obtain a
fund’s Statement of Additional Information, its
Shareholder Reports, its Form N–CSR, filed twice
a year, and its Form N–CEN, filed annually. A
fund’s SAI and Shareholder Reports are available
free upon request from the Investment Company,
and those documents and the Form N–PORT, Form
N–CSR, and Form N–CEN may be viewed on-screen
or downloaded from the Commission’s website at
www.sec.gov.
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23463
(‘‘DLPs’’) 9 that trade exchange-traded
funds (‘‘ETFs’’) on the Exchange,
believes that market makers will be able
to make efficient and liquid markets
priced near the ETF’s intraday value as
long as a VIIV is disseminated in one
second intervals, and market makers
employ market making techniques such
as ‘‘statistical arbitrage,’’ including
correlation hedging, beta hedging, and
dispersion trading, which is currently
used throughout the financial services
industry, to make efficient markets in
exchange-traded products.10 For
Managed Portfolio Shares, market
makers may use the knowledge of a
Fund’s means of achieving its
investment objective, as described in the
applicable Fund registration statement
(the ‘‘Registration Statement’’), to
construct a hedging proxy for a Fund to
manage a market maker’s quoting risk in
connection with trading Fund Shares.
Market makers can then conduct
statistical arbitrage between their
hedging proxy (for example, the Russell
1000 Index) and Shares of a Fund,
buying and selling one against the other
over the course of the trading day. This
ability should permit market makers to
make efficient markets in an issue of
Managed Portfolio Shares without
9 As defined in Nasdaq Equity 7 Sec. 114(f)(2), the
term DLP means a registered Nasdaq market maker
for a ‘‘Qualified Security’’ that has committed to
maintain minimum performance standards. As
defined in Nasdaq Equity 7 Sec. 114(f)(1), the term
‘‘Qualified Security’’ means an ETP that has at least
one DLP. The performance measurement is the
percent of time at the NBBO.
10 Statistical arbitrage enables a trader to
construct an accurate proxy for another instrument,
allowing it to hedge the other instrument or buy or
sell the instrument when it is cheap or expensive
in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on
trading data without regard to other fundamental
drivers. These correlations are a function of
differentials, over time, between one instrument or
group of instruments and one or more other
instruments. Once the nature of these price
deviations have been quantified, a universe of
securities is searched in an effort to, in the case of
a hedging strategy, minimize the differential. Once
a suitable hedging proxy has been identified, a
trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the
performance of this hedge throughout the trade
period making corrections where warranted. In the
case of correlation hedging, the analysis seeks to
find a proxy that matches the pricing behavior of
a fund. In the case of beta hedging, the analysis
seeks to determine the relationship between the
price movement over time of a fund and that of
another stock. Dispersion trading is a hedged
strategy designed to take advantage of relative value
differences in implied volatilities between an index
and the component stocks of that index. Such
trading strategies will allow market participants to
engage in arbitrage between series of Managed
Portfolio Shares and other instruments, both
through the creation and redemption process and
strictly through arbitrage without such processes.
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precise knowledge 11 of a fund’s
underlying portfolio.12 This is similar to
certain other existing exchange traded
products (for example, ETFs that invest
in foreign securities that do not trade
during U.S. trading hours), in which
spreads may be generally wider in the
early days of trading and then narrow as
market makers gain more confidence in
their real-time hedges.
To protect the identity and weightings
of the portfolio holdings, a series of
Managed Portfolio Shares would sell
and redeem their shares in Creation
Units and Redemption Units to APs
only through an AP Representative. As
such, on each business day, before
commencement of trading in Shares on
the Exchange, each series of Managed
Portfolio Shares will provide to an AP
Representative of each AP the names
and quantities of the instruments
comprising a Creation Basket, i.e. the
Deposit Instruments or ‘‘Redemption
Instruments’’ and the estimated
‘‘Balancing Amount’’ (if any),13 for that
day (as further described below). This
information will permit APs to purchase
Creation Units or redeem Redemption
Units through an in-kind transaction
with a Fund, as described below.
Creations and Redemptions of Shares
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In connection with the creation and
redemption of Creation Units and
Redemption Units, the delivery or
receipt of any portfolio securities inkind will be required to be effected
11 Using the various trading methodologies
described above, both APs and other market
participants will be able to hedge exposures by
trading correlative portfolios, securities or other
proxy instruments, thereby enabling an arbitrage
functionality throughout the trading day. For
example, if an AP believes that Shares of a Fund
are trading at a price that is higher than the value
of its underlying portfolio based on the VIIV, the
AP may sell Shares short and purchase securities
that the AP believes will track the movements of a
Fund’s portfolio until the spread narrows and the
AP executes offsetting orders or the AP enters an
order through its AP Representative to create Fund
Shares. Upon the completion of the Creation Unit,
the AP will unwind its correlative hedge. Similarly,
a non-AP market participant would be able to
perform an identical function but, because it would
not be able to create or redeem directly, would have
to employ an AP to create or redeem Shares on its
behalf.
12 APs that enter into their own separate
Confidential Accounts shall have enough
information to ensure that they are able to comply
with applicable regulatory requirements. For
example, for purposes of net capital requirements,
the maximum securities haircut applicable to the
securities in a Creation Basket, as determined under
Rule 15c3–1, will be disclosed daily on each Fund’s
website.
13 The Balancing Amount is the cash amount
necessary for the applicable Fund to receive or pay
to compensate for the difference between the value
of the securities delivered as part of a redemption
and the NAV, to the extent that such values are
different.
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through a Confidential Account 14 with
an AP Representative,15 which will be a
broker-dealer for the benefit of an AP.16
An AP must be a Depository Trust
Company (‘‘DTC’’) Participant that has
executed a ‘‘Participant Agreement’’
with the applicable distributor (the
‘‘Distributor’’) with respect to the
creation and redemption of Creation
Units and Redemption Units and
formed a Confidential Account for its
benefit in accordance with the terms of
the Participant Agreement. For purposes
of creations or redemptions, all
transactions will be effected through the
respective AP’s Confidential Account,
for the benefit of the AP without
disclosing the identity of such securities
to the AP. The Funds will offer and
redeem Creation Units and Redemption
Units on a continuous basis at the NAV
per Share next determined after receipt
of an order in proper form. The NAV per
Share of each Fund will be determined
as of the close of regular trading each
business day. Funds will sell and
redeem Creation Units and Redemption
Units only on business days.
Each AP Representative will be given,
before the commencement of trading
each business day, the Creation Basket
for that day. The published Creation
Basket will apply until a new Creation
Basket is announced on the following
business day, and there will be no intraday changes to the Creation Basket
except to correct errors in the published
Creation Basket. In order to keep costs
low and permit Funds to be as fully
invested as possible, Shares will be
14 Transacting through a Confidential Account is
designed to be very similar to transacting through
any broker-dealer account, except that the AP
Representative will be bound to keep the names and
weights of the portfolio securities confidential. Each
service provider that has access to the identity and
weightings of securities in a Fund’s Creation Basket
or portfolio securities, such as a Fund’s custodian
or pricing verification agent, shall be restricted
contractually from disclosing that information to
any other person, or using that information for any
purpose other than providing services to the Fund.
To comply with certain recordkeeping requirements
applicable to APs, the AP Representative will
maintain and preserve, and make available to the
Commission, certain required records related to the
securities held in the Confidential Account.
15 Each AP shall enter into its own separate
Confidential Account with an AP Representative.
16 Each Fund will identify one or more entities to
enter into a contractual arrangement with the Fund
to serve as an AP Representative. In selecting
entities to serve as AP Representatives, a Fund will
obtain representations from the entity related to the
confidentiality of the Fund’s Creation Basket and
portfolio securities, the effectiveness of information
barriers, and the adequacy of insider trading
policies and procedures. In addition, as a brokerdealer, Section 15(g) of the Act requires the AP
Representative to establish, maintain, and enforce
written policies and procedures reasonably
designed to prevent the misuse of material,
nonpublic information by the AP Representative or
any person associated with the AP Representative.
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purchased and redeemed in Creation
Units and Redemption Units and
generally on an in-kind basis.
Accordingly, except where the purchase
or redemption will include cash under
the circumstances required or
determined permissible by the Fund,
APs will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and APs
redeeming their Shares will receive an
in-kind transfer of Redemption
Instruments through the AP
Representative in their Confidential
Account.17
In the case of a creation, the AP 18
would enter into an irrevocable creation
order with a Fund and then direct the
AP Representative to purchase the
necessary basket of portfolio securities.
The AP Representative would then
purchase the necessary securities in the
Confidential Account. In purchasing the
necessary securities, the AP
Representative would use methods such
as breaking the purchase into multiple
purchases and transacting in multiple
marketplaces. Once the necessary basket
of securities has been acquired, the
purchased securities held in the
Confidential Account would be
contributed in-kind to the applicable
Fund.
Other market participants that are not
APs will not have the ability to create
or redeem shares directly with a Fund.
Rather, if other market participants wish
to create or redeem Shares in a Fund,
they will have to do so through an AP.
Placement of Purchase Orders
Each Fund will issue Shares through
the Distributor on a continuous basis at
NAV. The Exchange represents that the
issuance of Shares will operate in a
manner substantially similar to that of
other ETFs. Each Fund will issue Shares
only at the NAV per Share next
determined after an order in proper
form is received.
The Distributor will furnish
acknowledgements to those placing
orders that the orders have been
accepted, but the Distributor may reject
any order which is not submitted in
proper form, as described in a Fund’s
prospectus or Statement of Additional
17 Funds must comply with the federal securities
laws in accepting Deposit Instruments and
satisfying redemptions with Redemption
Instruments, including that the Deposit Instruments
and Redemption Instruments are sold in
transactions that would be exempt from registration
under the Securities Act of 1933.
18 An AP will issue execution instructions to the
AP Representative and be responsible for all
associated profit or losses. Like a traditional ETF,
the AP has the ability to sell the basket securities
at any point during the regular market session.
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Information (‘‘SAI’’). The NAV of each
Fund is expected to be determined once
each business day at a time determined
by the board of the Investment Company
(‘‘Board’’), currently anticipated to be as
of the close of the regular trading
session on the NYSE (ordinarily 4:00
p.m. E.T.) (the ‘‘Valuation Time’’). Each
Fund will establish a cut-off time
(‘‘Order Cut-Off Time’’) for purchase
orders in proper form. To initiate a
purchase of Shares, an AP must submit
to the Distributor an irrevocable order to
purchase such Shares after the most
recent prior Valuation Time.
Purchases of Shares will be settled inkind and/or cash for an amount equal to
the applicable NAV per Share
purchased plus applicable ‘‘Transaction
Fees,’’ as discussed below.
Generally, all orders to purchase
Creation Units must be received by the
Distributor no later than the end of the
regular market session on the date such
order is placed (‘‘Transmittal Date’’) in
order for the purchaser to receive the
NAV per Share determined on the
Transmittal Date. In the case of custom
orders made in connection with
creations or redemptions in whole or in
part in cash, the order must be received
by the Distributor, no later than the
Order Cut-Off Time.19
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Authorized Participant Redemption
The Shares may be redeemed to a
Fund in Redemption Unit size or
multiples thereof as described below.
Redemption orders of Redemption Units
must be placed by or through an AP
(‘‘AP Redemption Order’’). Each Fund
will establish an Order Cut-Off Time for
redemption orders of Redemption Units
in proper form. Redemption Units of a
Fund will be redeemable at their NAV
per Share next determined after receipt
of a request for redemption by the
Investment Company in the manner
specified below before the Order Cut-Off
Time. To initiate an AP Redemption
Order, an AP must submit to the
Distributor an irrevocable order to
redeem such Redemption Unit after the
most recent prior Valuation Time but
not later than the Order Cut-Off Time.
In the case of a redemption, the AP
would enter into an irrevocable
redemption order, and then instruct the
AP Representative to sell the underlying
basket of securities that it will receive
in the redemption. As with the purchase
of securities, the AP Representative
would be required to obfuscate the sale
of the portfolio securities it will receive
19 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis, as provided in the Registration
Statement.
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as redemption proceeds using similar
tactics.
Consistent with the provisions of
Section 22(e) of the 1940 Act and Rule
22e–2 thereunder, the right to redeem
will not be suspended, nor payment
upon redemption delayed, except for:
(1) Any period during which the
Exchange is closed other than
customary weekend and holiday
closings, (2) any period during which
trading on the Exchange is restricted, (3)
any period during which an emergency
exists as a result of which disposal by
a Fund of securities owned by it is not
reasonably practicable or it is not
reasonably practicable for a Fund to
determine its NAV, and (4) for such
other periods as the Commission may by
order permit for the protection of
shareholders.
It is expected that redemptions will
occur primarily in-kind, although
redemption payments may also be made
partly or wholly in cash. The Participant
Agreement signed by each AP will
require establishment of a Confidential
Account to receive distributions of
securities in-kind upon redemption.20
Each AP will be required to open a
Confidential Account with an AP
Representative in order to facilitate
orderly processing of redemptions.
After receipt of a Redemption Order,
a Fund’s custodian (‘‘Custodian’’) will
typically deliver securities to the
Confidential Account with a value
approximately equal to the value of the
Shares 21 tendered for redemption at the
Cut-Off time. The Custodian will make
delivery of the securities by appropriate
entries on its books and records
transferring ownership of the securities
to the AP’s Confidential Account,
subject to delivery of the Shares
redeemed. The AP Representative of the
Confidential Account will in turn
liquidate the securities based on
instructions from the AP. The AP
Representative will pay the liquidation
proceeds net of expenses plus or minus
any cash Balancing Amount to the AP
20 The terms of each Confidential Account will be
set forth as an exhibit to the applicable Participant
Agreement, which will be signed by each AP. The
Authorized Participant will be free to choose an AP
Representative for its Confidential Account from a
list of broker-dealers that have signed
confidentiality agreements with the Fund. The
Authorized Participant will be free to negotiate
account fees and brokerage charges with its selected
AP Representative. The Authorized Participant will
be responsible to pay all fees and expenses charged
by the AP Representative of its Confidential
Account.
21 If the NAV of the Shares redeemed differs from
the value of the securities delivered to the
applicable Confidential Account, the applicable
Fund will receive or pay a cash Balancing Amount
to compensate for the difference between the value
of the securities delivered and the NAV.
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23465
through DTC. The redemption securities
that the Confidential Account receives
are expected to mirror the portfolio
holdings of a Fund pro rata. To the
extent a Fund distributes portfolio
securities through an in-kind
distribution to more than one
Confidential Account for the benefit of
the accounts’ respective APs, each Fund
expects to distribute a pro rata portion
of the portfolio securities selected for
distribution to each redeeming AP.
If the AP would receive a security that
it is restricted from receiving, for
example if the AP is engaged in a
distribution of the security, a Fund will
deliver cash equal to the value of that
security. APs will provide the AP
Representative with a list of restricted
securities applicable to the AP on a
daily basis, and a Fund will substitute
cash for those securities in the
applicable Confidential Account.
The Investment Company will accept
a Redemption Order in proper form. A
Redemption Order is subject to
acceptance by the Investment Company
and must be preceded or accompanied
by an irrevocable commitment to deliver
the requisite number of Shares. At the
time of settlement, an AP will initiate a
delivery of the Shares plus or minus any
cash Balancing Amounts, and less the
expenses of liquidation.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of
Managed Portfolio Shares on the
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and the applicable
federal securities laws. Trading of
Managed Portfolio Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products. The Exchange will
require the issuer of each series of
Managed Portfolio Shares, upon initial
listing and periodically thereafter, to
provide a representation that it is in
compliance with Nasdaq Rule 5760. In
addition, the Exchange will require
issuers to represent that they will notify
the Exchange of any failure to comply
with the terms of applicable exemptive
and no-action relief. As part of its
surveillance procedures, the Exchange
will rely on the foregoing procedures to
become aware of any non-compliance
with the requirements of Nasdaq Rule
5760.
The Exchange will require each issuer
of a Fund to represent that it will advise
the Exchange of any failure by a Fund
to comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
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Act, the Exchange will monitor for
compliance with the continued listing
requirements. If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
the Nasdaq Rule 5800 Series.
Specifically, the Exchange will
implement real-time surveillances that
monitor for the continued dissemination
of the VIIV. The Exchange will also have
surveillances designed to alert Exchange
personnel where shares of a series of
Managed Portfolio Shares are trading
away from the VIIV. As noted in
proposed Nasdaq Rule 5760(b)(4), the
Investment Company’s investment
adviser will upon request by the
Exchange or FINRA, on behalf of the
Exchange, make available to the
Exchange or FINRA the daily portfolio
holdings of each series of Managed
Portfolio Shares. The Exchange believes
that this is appropriate because it will
provide the Exchange or FINRA, on
behalf of the Exchange, with access to
the daily portfolio holdings of any series
of Managed Portfolio Shares upon
request on an as needed basis. The
Exchange believes that the ability to
access the information on an as needed
basis will provide it with sufficient
information to perform the necessary
regulatory functions associated with
listing and trading series of Managed
Portfolio Shares on the Exchange,
including the ability to monitor
compliance with the initial and
continued listing requirements as well
as the ability to surveil for manipulation
of the shares.
The Exchange notes that any equity
instruments or futures held by a Fund
operating under an exemptive order
would trade on markets that are a
member of Intermarket Surveillance
Group (‘‘ISG’’) or affiliated with a
member of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.22 While
future exemptive relief applicable to
Managed Portfolio Shares may expand
the investable universe, the Exchange
notes that proposed Nasdaq Rule
5760(b)(1) would require the Exchange
to file separate proposals under Section
19(b) of the Act before listing and
trading any series of Managed Portfolio
Shares and such proposal would
describe the investable universe for any
such series of Managed Portfolio Shares
along with the Exchange’s surveillance
procedures applicable to such series.
22 For a list of the current members of ISG, see
www.isgportal.com. The Exchange notes that cash
equivalents may trade on markets that are members
of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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FINRA, on behalf of the Exchange, or
the regulatory staff of the Exchange, or
both, will communicate as needed
regarding trading in the Shares and
underlying exchange-traded instruments
with other markets and other entities
that are members of the ISG, and
FINRA, on behalf of the Exchange, or
the regulatory staff of the Exchange, or
both, may obtain trading information
regarding trading such securities from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares and underlying exchange-traded
instruments from other markets and
other entities that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Trading Halts
As proposed above, the Exchange may
consider all relevant factors in
exercising its discretion to halt trading
in a series of Managed Portfolio Shares.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange make trading
in the series of Managed Portfolio
Shares inadvisable. These may include:
(a) The extent to which trading is not
occurring in the securities and/or the
financial instruments composing the
portfolio; or (b) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present. Additionally, the
Exchange would halt trading as soon as
practicable where the Exchange
becomes aware that: (a) The VIIV of a
series of Managed Portfolio Shares is not
being calculated or disseminated in one
second intervals, as required; (b) the
NAV with respect to a series of Managed
Portfolio Shares is not disseminated to
all market participants at the same time;
(c) the holdings of a series of Managed
Portfolio Shares are not made available
on at least a quarterly basis as required
under the 1940 Act; or (d) such holdings
are not made available to all market
participants at the same time, (except as
otherwise permitted under the currently
applicable exemptive order or no-action
relief granted by the Commission or
Commission staff to the Investment
Company with respect to the series of
Managed Portfolio Shares) (collectively,
‘‘Availability of Information Halts’’).
The Exchange would halt trading in
such series of Managed Portfolio Shares
until such time as the VIIV, the NAV, or
the holdings are available, as required.
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Availability of Information
As noted above, Form N–PORT
requires reporting of a fund’s complete
portfolio holdings on a position-byposition basis on a quarterly basis
within 60 days after fiscal quarter end.
Investors can obtain a fund’s Statement
of Additional Information, its
Shareholder Reports, its Form N–CSR,
filed twice a year, and its Form N–CEN,
filed annually. A fund’s SAI and
Shareholder Reports are available free
upon request from the Investment
Company, and those documents and the
Form N–PORT, Form N–CSR, and Form
N–CEN may be viewed on-screen or
downloaded from the Commission’s
website at www.sec.gov.
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. 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. Quotation and
last sale information for the Shares will
be available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line. In
addition, the VIIV, as defined in
proposed Nasdaq Rule 5760(c)(2), will
be widely disseminated by the
Reporting Authority and/or one or more
major market data vendors in one
second intervals during the regular
market session.
Trading Rules
The Exchange deems Managed
Portfolio Shares to be equity securities,
thus rendering trading in the Shares
subject to the Exchange’s existing rules
governing the trading of equity
securities. Transactions in Managed
Portfolio Shares will occur throughout
the Exchange’s System Hours as
provided in proposed Nasdaq Rule
5760(b)(2). As provided in Nasdaq Rule
5760(b)(3), the minimum price variation
for quoting and entry of orders in
Managed Portfolio Shares traded on the
Exchange is $0.01.
Information Circular
Prior to the commencement of trading
of a series of Managed Portfolio Shares,
the Exchange will inform its Members
in an Information Circular (‘‘Circular’’)
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Circular will discuss
the following: (1) The procedures for
purchases and redemptions of Shares;
(2) Members and associated persons of
a Member shall comply with FINRA
Rule 2111, which imposes suitability
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obligations on Exchange members with
respect to recommending transactions in
the Managed Portfolio Shares to
customers, as if such rule were part of
Nasdaq’s rules; (3) how information
regarding the VIIV is disseminated; (4)
the requirement that Members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; (5) trading information; and
(6) that the portfolio holdings of the
Shares are not disclosed on a daily
basis.
In addition, the Circular will
reference that Funds are subject to
various fees and expenses described in
the Registration Statement. The Circular
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Act. The Circular will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each
trading day.
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2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 23 in general and Section
6(b)(5) of the Act 24 in particular in that
it is 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
investors and the public interest.
The Exchange believes that proposed
Nasdaq Rule 5760 is designed to prevent
fraudulent and manipulative acts and
practices in that the proposed rules
relating to listing and trading of
Managed Portfolio Shares provide
specific initial and continued listing
criteria required to be met by such
securities. Proposed Nasdaq Rule
5760(d) sets forth initial and continued
listing criteria applicable to Managed
Portfolio Shares. Proposed Nasdaq Rule
5760(d)(1)(A) provides that, for each
series of Managed Portfolio Shares, the
Exchange will establish a minimum
number of Managed Portfolio Shares
required to be outstanding at the time of
commencement of trading on the
Exchange. In addition, proposed Nasdaq
Rule 5760(d)(1)(B) provides that the
Exchange will obtain a representation
from the Investment Company that
issues each series of Managed Portfolio
Shares that the NAV per share for the
series will be calculated daily and that
the NAV will be made available to all
23 15
24 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
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market participants at the same time.25
Proposed Nasdaq Rule 5760(d)(1)(C)
provides that all Managed Portfolio
Shares shall have a stated investment
objective, which shall be adhered to
under Normal Market Conditions (as
defined in the rule).
Proposed Nasdaq Rule 5760(d)(2)
provides that each series of Managed
Portfolio Shares will be listed and
traded subject to application of the
specified continued listing criteria, as
described above. Proposed Nasdaq Rule
5760(d)(2)(A) provides that the VIIV for
Managed Portfolio Shares will be widely
disseminated by the Reporting
Authority and/or by one or more major
market data vendors in one second
intervals during the regular market
session and will be disseminated to all
market participants at the same time.
Proposed Nasdaq Rule 5760(d)(2)(B)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under the Nasdaq Rule
5800 Series, for a series of Managed
Portfolio Shares, under any of the
following circumstances: (i) If, following
the initial twelve-month period after
commencement of trading on the
Exchange of a series of Managed
Portfolio Shares, there are fewer than 50
beneficial holders of the series of
Managed Portfolio Shares for 30 or more
consecutive trading days; (ii) if the
Exchange has halted trading in a series
of Managed Portfolio Shares because the
VIIV is interrupted pursuant to Nasdaq
Rule 5760(d)(2)(C)(ii) and such
interruption persists past the trading
day in which it occurred or is no longer
available; (iii) if the Exchange has halted
trading in a series of Managed Portfolio
Shares because the NAV with respect to
such series of Managed Portfolio Shares
is not disseminated to all market
participants at the same time, the
holdings of such series of Managed
Portfolio Shares are not made available
on at least a quarterly basis as required
under the Investment Company Act of
1940, or such holdings are not made
available to all market participants at
the same time pursuant to Nasdaq Rule
5760(d)(2)(C)(ii) and such issue persists
past the trading day in which it
occurred; (iv) if the Exchange has halted
trading in a series of Managed Portfolio
Shares pursuant to Nasdaq Rule
5760(d)(2)(C)(i), such issue persists past
the trading day in which it occurred; (v)
25 Proposed Nasdaq Rule 5760(d)(2)(C)(ii)
provides that if the Exchange becomes aware that
the NAV with respect to a series of Managed
Portfolio Shares is not disseminated to all market
participants at the same time, it will halt trading in
such series until such time as the NAV is available
to all market participants at the same time.
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if the Investment Company issuing the
Managed Portfolio Shares has failed to
file any filings required by the
Commission or if the Exchange is aware
that the Investment Company is not in
compliance with the conditions of any
currently applicable exemptive order or
no-action relief granted by the
Commission or Commission staff to the
Investment Company with respect to the
series of Managed Portfolio Shares; (vi)
if any of the continued listing
requirements set forth in Nasdaq Rule
5760 are not continuously maintained;
(vii) if the series of Managed Portfolio
Shares is not in compliance with any
statements or representations included
in the applicable rule proposal under
Section 19(b) regarding: (a) The
description of the portfolio or reference
assets; (b) limitations on portfolio
holdings or reference assets; (c)
dissemination and availability of the
reference asset or intraday indicative
values and VIIVs; or (d) the applicability
of Nasdaq listing rules specified in such
proposals; or (viii) if such other event
shall occur or condition exists which, in
the opinion of the Exchange, makes
further dealings on the Exchange
inadvisable.
Proposed Nasdaq Rule 5760(d)(2)(C)(i)
provides that the Exchange may
consider all relevant factors in
exercising its discretion to halt trading
in a series of Managed Portfolio Shares.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the series of Managed Portfolio
Shares inadvisable. These may include:
(a) The extent to which trading is not
occurring in the securities and/or the
financial instruments composing the
portfolio; or (b) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present.
Proposed Nasdaq Rule
5760(d)(2)(C)(ii) provides that, if the
Exchange becomes aware that: (a) The
VIIV of a series of Managed Portfolio
Shares is not being calculated or
disseminated in one second intervals, as
required; (b) the NAV with respect to a
series of Managed Portfolio Shares is not
disseminated to all market participants
at the same time; (c) the holdings of a
series of Managed Portfolio Shares are
not made available on at least a
quarterly basis as required under the
1940 Act; or (d) such holdings are not
made available to all market
participants at the same time (except as
otherwise permitted under the currently
applicable exemptive order or no-action
relief granted by the Commission or
Commission staff to the Investment
Company with respect to the series of
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Managed Portfolio Shares), it will halt
trading in such series until such time as
the VIIV, the NAV, or the holdings are
available, as required.
Proposed Nasdaq Rule 5760(d)(2)(D)
provides that, upon termination of an
Investment Company, the Exchange
requires that Managed Portfolio Shares
issued in connection with such entity be
removed from Exchange listing.
Proposed Nasdaq Rule 5760(d)(2)(E)
provides that voting rights shall be as
set forth in the applicable Investment
Company prospectus and/or Statement
of Additional Information. The
Exchange also notes that an issuer must
comply with Regulation Fair Disclosure,
which prohibits selective disclosure of
any material non-public information,
which otherwise does not apply to
issuers of Managed Fund Shares.
Proposed Nasdaq Rule 5760(b)(3)
provides that the minimum price
variation for quoting and entry of orders
in Managed Portfolio Shares is $0.01.
Proposed Nasdaq Rule 5760(b)(4)
provides that the Exchange will
implement and maintain written
surveillance procedures for Managed
Portfolio Shares. As part of these
surveillance procedures, the Investment
Company’s investment adviser will
upon request by the Exchange or
FINRA, on behalf of the Exchange, make
available to the Exchange or FINRA the
daily portfolio holdings of each series of
Managed Portfolio Shares.
Proposed Nasdaq Rule 5760(b)(5)
provides that, if the investment adviser
to the Investment Company issuing
Managed Portfolio Shares is registered
as a broker-dealer or is affiliated with a
broker-dealer, such investment adviser
will erect and maintain a ‘‘fire wall’’
between the investment adviser and
personnel of the broker-dealer or brokerdealer affiliate, as applicable, with
respect to access to information
concerning the composition of and/or
changes to such Investment Company
portfolio and/or the Creation Basket.
Any person related to the investment
adviser or Investment Company who
makes decisions pertaining to the
Investment Company’s portfolio
composition or has access to
information regarding the Investment
Company’s portfolio composition or
changes thereto or the Creation Basket
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the applicable Investment
Company portfolio or changes thereto or
the Creation Basket.
Proposed Nasdaq Rule 5760(b)(6)
provides that any person or entity,
including an AP Representative,
custodian, Reporting Authority,
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distributor, or administrator, who has
access to information regarding the
Investment Company’s portfolio
composition or changes thereto or the
Creation Basket, must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Investment Company
portfolio or changes thereto or the
Creation Basket. Moreover, if any such
person or entity is registered as a brokerdealer or affiliated with a broker-dealer,
such person or entity will erect and
maintain a ‘‘fire wall’’ between the
person or entity and the broker-dealer
with respect to access to information
concerning the composition and/or
changes to such Investment Company
portfolio or Creation Basket.
The Exchange believes that these
proposed rules are designed to prevent
fraudulent and manipulative acts and
practices related to the listing and
trading of Managed Portfolio Shares
because they provide meaningful
requirements about both the data that
will be made publicly available about
the Shares as well as the information
that will only be available to certain
parties and the controls on such
information.
Specifically, the Exchange believes
that the requirements related to
information protection enumerated
under proposed Nasdaq Rule
5760(b)(6) 26 will act as a strong
safeguard against any misuse and
improper dissemination of information
related to a Fund’s portfolio
composition, the Creation Basket, or
changes thereto. The requirement that
any person or entity implement
procedures to prevent the use and
dissemination of material nonpublic
information regarding the portfolio or
Creation Basket will act to prevent any
individual or entity from sharing such
information externally and the internal
‘‘fire wall’’ requirements applicable
where an entity is a registered brokerdealer or affiliated with a broker-dealer
26 As described above, proposed Nasdaq Rule
5760(b)(6) provides that any person or entity,
including an AP Representative, custodian,
Reporting Authority, distributor, or administrator,
who has access to information regarding the
Investment Company’s portfolio composition or
changes thereto or the Creation Basket, must be
subject to procedures designed to prevent the use
and dissemination of material nonpublic
information regarding the applicable Investment
Company portfolio or changes thereto or the
Creation Basket. Moreover, if any such person or
entity is registered as a broker-dealer or affiliated
with a broker-dealer, such person or entity will
erect and maintain a ‘‘fire wall’’ between the person
or entity and the broker-dealer with respect to
access to information concerning the composition
and/or changes to such Investment Company
portfolio or Creation Basket.
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will act to make sure that no entity will
be able to misuse the data for their own
purposes. As such, the Exchange
believes that this proposal is designed to
prevent fraudulent and manipulative
acts and practices.
The Exchange, after consulting with
various DLPs s that trade ETFs on the
Exchange, believes that market makers
will be able to make efficient and liquid
markets priced near the VIIV, as long as
market makers have knowledge of a
Fund’s means of achieving its
investment objective, even without
daily disclosure of a fund’s underlying
portfolio. The Exchange believes that
market makers will employ riskmanagement techniques to make
efficient markets in exchange traded
products. This ability should permit
market makers to make efficient markets
in shares without knowledge of a fund’s
underlying portfolio.
The Exchange understands that
traders use statistical analysis to derive
correlations between different sets of
instruments to identify opportunities to
buy or sell one set of instruments when
it is mispriced relative to the others. For
Managed Portfolio Shares, market
makers utilizing statistical arbitrage use
the knowledge of a fund’s means of
achieving its investment objective, as
described in the applicable fund
registration statement, to construct a
hedging proxy for a fund to manage a
market maker’s quoting risk in
connection with trading fund shares.
Market makers will then conduct
statistical arbitrage between their
hedging proxy (for example, the Russell
1000 Index) and shares of a fund,
buying and selling one against the other
over the course of the trading day.
Eventually, at the end of each day, they
will evaluate how their proxy performed
in comparison to the price of a fund’s
shares, and use that analysis as well as
knowledge of risk metrics, such as
volatility and turnover, to enhance their
proxy calculation to make it a more
efficient hedge.
Market makers have indicated to the
Exchange that there will be sufficient
data to run a statistical analysis which
will lead to spreads being tightened
substantially around the VIIV. This is
similar to certain other existing
exchange traded products (for example,
ETFs that invest in foreign securities
that do not trade during U.S. trading
hours), in which spreads may be
generally wider in the early days of
trading and then narrow as market
makers gain more confidence in their
real-time hedges.
The DLPs also indicated that, as with
some other new exchange-traded
products, spreads would tend to narrow
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as market makers gain more confidence
in the accuracy of their hedges and their
ability to adjust these hedges in realtime relative to the published VIIV and
gain an understanding of the applicable
market risk metrics such as volatility
and turnover, and as natural buyers and
sellers enter the market. Other relevant
factors cited by DLPs were that a fund’s
investment objectives are clearly
disclosed in the applicable prospectus,
the existence of quarterly portfolio
disclosure and the ability to create
shares in creation unit size or redeem in
redemption unit size through an AP.
The real-time dissemination of a
Fund’s VIIV together with the right of
APs to create and redeem each day at
the NAV will be sufficient for market
participants to value and trade Shares in
a manner that will not lead to
significant deviations between the
shares’ Bid/Ask Price and NAV.
The pricing efficiency with respect to
trading a series of Managed Portfolio
Shares will generally rest on the ability
of market participants to arbitrage
between the Shares and a fund’s
portfolio, in addition to the ability of
market participants to assess a fund’s
underlying value accurately enough
throughout the trading day in order to
hedge positions in shares effectively.
Professional traders can buy Shares that
they perceive to be trading at a price
less than that which will be available at
a subsequent time, and sell Shares they
perceive to be trading at a price higher
than that which will be available at a
subsequent time.
It is expected that, as part of their
normal day-to-day trading activity,
market makers assigned to Shares by the
Exchange, off-exchange market makers,
firms that specialize in electronic
trading, hedge funds and other
professionals specializing in short-term,
non-fundamental trading strategies will
assume the risk of being ‘‘long’’ or
‘‘short’’ shares through such trading and
will hedge such risk wholly or partly by
simultaneously taking positions in
correlated assets 27 or by netting the
exposure against other, offsetting
trading positions—much as such firms
27 Price correlation trading is used throughout the
financial industry. It is used to discover both
trading opportunities to be exploited, such as
currency pairs and statistical arbitrage, as well as
for risk mitigation such as dispersion trading and
beta hedging. These correlations are a function of
differentials, over time, between one or multiple
securities pricing. Once the nature of these price
deviations have been quantified, a universe of
securities is searched in an effort to, in the case of
a hedging strategy, minimize the differential. Once
a suitable hedging basket has been identified, a
trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the
performance of this hedge throughout the trade
period, making corrections where warranted.
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do with existing ETFs and other
equities. Disclosure of a fund’s
investment objective and principal
investment strategies in its prospectus
and SAI, along with the dissemination
of the VIIV in one second intervals,
should permit professional investors to
engage easily in this type of hedging
activity.28
With respect to trading of the Shares,
the ability of market participants to buy
and sell Shares at prices near the VIIV
is dependent upon their assessment that
the VIIV is a reliable, indicative realtime value for a Fund’s underlying
holdings. Market participants are
expected to accept the VIIV as a reliable,
indicative real-time value because (1)
the VIIV will be calculated and
disseminated based on a Fund’s actual
portfolio holdings, (2) the securities in
which a Fund plans to invest are
generally highly liquid and actively
traded and therefore generally have
accurate real time pricing available, and
(3) market participants will have a daily
opportunity to evaluate whether the
VIIV at or near the close of trading is
indeed predictive of the actual NAV.
In a typical index-based ETF, it is
standard for APs to know what
securities must be delivered in a
creation or will be received in a
redemption. For Managed Portfolio
Shares, however, APs do not need to
know the securities comprising the
portfolio of a Fund since creations and
redemptions are handled through the
Confidential Account mechanism. In28 With respect to trading in the Shares, market
participants would manage risk in a variety of ways.
It is expected that market participants will be able
to determine how to trade Shares at levels
approximating the VIIV without taking undue risk
by gaining experience with how various market
factors (e.g., general market movements, sensitivity
of the VIIV to intraday movements in interest rates
or commodity prices, etc.) affect VIIV, and by
finding hedges for their long or short positions in
Shares using instruments correlated with such
factors. Market participants will likely initially
determine the VIIV’s correlation to a major large
capitalization equity benchmark with active
derivative contracts, such as the Russell 1000 Index,
and the degree of sensitivity of the VIIV to changes
in that benchmark. For example, using hypothetical
numbers for illustrative purposes, market
participants should be able to determine quickly
that price movements in the Russell 1000 Index
predict movements in a Fund’s VIIV 95% of the
time (an acceptably high correlation) but that the
VIIV generally moves approximately half as much
as the Russell 1000 Index with each price
movement. This information is sufficient for market
participants to construct a reasonable hedge—buy
or sell an amount of futures, swaps or ETFs that
track the Russell 1000 equal to half the opposite
exposure taken with respect to Shares. Market
participants will also continuously compare the
intraday performance of their hedge to a Fund’s
VIIV. If the intraday performance of the hedge is
correlated with the VIIV to the expected degree,
market participants will feel comfortable they are
appropriately hedged and can rely on the VIIV as
appropriately indicative of a Fund’s performance.
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23469
kind creations and redemptions through
a Confidential Account are expected to
preserve the integrity of the active
investment strategy and reduce the
potential for ‘‘free riding’’ or ‘‘frontrunning,’’ while still providing investors
with the advantages of the ETF
structure.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the
Investment Company that issues each
series of Managed Portfolio Shares that
the NAV per share of a fund will be
calculated daily and that the NAV will
be made available to all market
participants at the same time. Investors
can also obtain a fund’s Statement of
Additional Information, its Shareholder
Reports, its Form N–CSR, filed twice a
year, and its Form N–CEN, filed
annually. A fund’s SAI and Shareholder
Reports are available free upon request
from the Investment Company, and
those documents and the Form N–
PORT, Form N–CSR, and Form N–CEN
may be viewed on-screen or
downloaded from the Commission’s
website at www.sec.gov. In addition, a
large amount of information will be
publicly available regarding the Funds
and the Shares, thereby promoting
market transparency. Quotation and last
sale information for the Shares will be
available via the CTA high-speed line.
Information regarding the VIIV will be
widely disseminated in one second
intervals throughout the regular market
session by the Reporting Authority and/
or one or more major market data
vendors. The website for each Fund 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, updated on a daily basis.
Moreover, prior to the commencement
of trading, the Exchange will inform its
Members in a Circular of the special
characteristics and risks associated with
trading the Shares.
The Exchange further believes that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices related to the listing and
trading of Managed Portfolio Shares and
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange
would halt trading under certain
circumstances under which trading in
the shares of a Fund may be inadvisable.
These may include: (a) The extent to
which trading is not occurring in the
securities and/or the financial
instruments composing the portfolio; or
(b) whether other unusual conditions or
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circumstances detrimental to the
maintenance of a fair and orderly
market are present. Specifically, the
Exchange would halt trading as soon as
practicable under the following
circumstances: (a) The VIIV of a series
of Managed Portfolio Shares is not being
calculated or disseminated in one
second intervals, as required; (b) the
NAV with respect to a series of Managed
Portfolio Shares is not disseminated to
all market participants at the same time;
(c) the holdings of a series of Managed
Portfolio Shares are not made available
on at least a quarterly basis as required
under the 1940 Act; or (d) such holdings
are not made available to all market
participants at the same time (except as
otherwise permitted under the currently
applicable exemptive order or no-action
relief granted by the Commission or
Commission staff to the Investment
Company with respect to the series of
Managed Portfolio Shares), it will halt
trading in such series until such time as
the VIIV, the NAV, or the holdings are
available, as required.
The Exchange is proposing to retain
discretion to halt trading in a series of
Managed Portfolio Shares based on
market conditions or where the
Exchange determines that trading in
such series is inadvisable (each a
‘‘Discretionary Halt’’) and is also
proposing the four Availability of
Information Halts described above. The
Exchange believes that retaining
discretion to implement a Discretionary
Halt as specified is consistent with the
Act. The proposed rule retaining
discretion related to halts is designed to
ensure the maintenance of a fair and
orderly market and protect investors
and the public interest in that it
provides the Exchange with the ability
to halt when it determines that trading
in the shares is inadvisable. This could
be based on the Exchange’s own
analysis of market conditions being
detrimental to a fair and orderly market
and/or information provided by the
Investment Company or its agent. There
are certain circumstances related to the
trading and dissemination of
information related to the underlying
holdings of a series of Managed
Portfolio Shares, such as the extent to
which trading is not occurring in the
securities and/or financial instruments
composing the portfolio, that the
Exchange may not be in a position to
know or become aware of as
expeditiously as the Investment
Company or its agent.
Also, as noted above, there are certain
circumstances under which trading in
the Shares of a Fund may be inadvisable
or where the Investment Company or its
agent will request that the Exchange halt
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trading in the applicable series of
Managed Portfolio Shares. Upon receipt
of information and/or a request from the
Investment Company, the Exchange
would consider the information and/or
circumstances leading to the request as
well as other factors both specific to
such issue of Managed Portfolio Shares
and the broader market in determining
whether trading in the series of
Managed Portfolio Shares is inadvisable
and that halting trading is necessary in
order to maintain a fair and orderly
market. As such, the Exchange believes
that the proposal to provide the
Exchange with discretion to implement
a Discretionary Halt is consistent with
the Act.
The Exchange believes that the
proposed Availability of Information
Halts to halt trading in shares of a series
of Managed Portfolio Shares are
consistent with the Act because: (i) The
Commission has already determined
that the requirement that the VIIV be
disseminated every second is
appropriate; (ii) the other Availability of
Information Halts are generally
consistent with and designed to address
the same concerns about asymmetry of
information that Nasdaq Rule
5735(d)(2)(D) related to trading halts in
Managed Fund Shares 29 is intended to
address, specifically that the availability
of such information is intended to
reduce the potential for manipulation
and help ensure a fair and orderly
market in Managed Portfolio Shares; 30
29 Nasdaq Rule 5735(d)(2)(C)(ii) provides that
‘‘Nasdaq will consider the suspension of trading in,
and will initiate delisting proceedings under the
Rule 5800 Series of, a series of Managed Fund
Shares under any of the following circumstances:
. . . if the Disclosed Portfolio is not made available
to all market participants at the same time;’’ and
(d)(2)(D) provides that ‘‘If Nasdaq becomes aware
that the net asset value or the Disclosed Portfolio
with respect to a series of Managed Fund Shares is
not disseminated to all market participants at the
same time, it will halt trading in such series until
such time as the net asset value or the Disclosed
Portfolio is available to all market participants.’’
These are generally consistent with the proposed
Availability of Information Halts, specifically as it
relates to whether the NAV or Disclosed Portfolio
is not being made available to all market
participants at the same time.
30 See, e.g., Securities Exchange Act Release No.
80169 (March 7, 2017), 82 FR 13536 (March 13,
2017); Securities Exchange Act Release Nos. 54739
(November 9, 2006), 71 FR 66993, 66997 (November
17, 2006) (SR–AMEX–2006–78) (approving generic
listing standards for Portfolio Depositary Receipts
and Index Fund Shares based on international or
global indexes, and stating that ‘‘the proposed
listing standards are designed to preclude ETFs
from becoming surrogates for trading in
unregistered securities’’ and that ‘‘the requirement
that each component security underlying an ETF be
listed on an exchange and subject to last-sale
reporting should contribute to the transparency of
the market for ETFs’’ and that ‘‘by requiring pricing
information for both the relevant underlying index
and the ETF to be readily available and
disseminated, the proposal is designed to ensure a
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and (iii) the quarterly disclosure of
portfolio holdings is a fundamental
component of Managed Portfolio Shares
that allows market participants to better
understand the strategy of the funds and
to monitor how closely trading in the
funds is tracking the value of the
underlying portfolio and when such
information is not being disclosed as
required, trading in the shares is
inadvisable and it is necessary and
appropriate to halt trading. The
Exchange notes, however, that an
Investment Company that issues
Managed Portfolio Shares will still be
subject to Nasdaq Rule 5701, which
requires that a ‘‘A Company with
securities listed under this Rule 5700
Series must provide Nasdaq with
prompt notification after the Company
becomes aware of any noncompliance
by the Company with the requirements
of the Rule 5700 Series.’’
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. FINRA, on behalf of the
Exchange, or the regulatory staff of the
Exchange, or both, will communicate as
needed regarding trading in the Shares
and the underlying exchange-traded
instruments with other markets and
other entities that are members of the
ISG, and FINRA, on behalf of the
Exchange, or the regulatory staff of the
Exchange, or both, may obtain trading
information regarding trading such
instruments from such markets and
other entities. In addition, the Exchange
may obtain information regarding
trading in the Shares and the underlying
exchange-traded instruments from
markets and other entities that are
members of ISG or with which the
fair and orderly market for ETFs’’); 53142 (January
19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR–
NASD–2006–001) (approving generic listing
standards for Index-Linked Securities and stating
that ‘‘[t]he Commission believes that by requiring
pricing information for both the relevant underlying
index or indexes and the Index Security to be
readily available and disseminated, the proposed
listing standards should help ensure a fair and
orderly market for Index Securities’’).
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Exchange has in place a comprehensive
surveillance sharing agreement.
Additionally, any equity instruments
or futures held by a Fund operating
under an exemptive order would trade
on markets that are a member of ISG or
affiliated with a member of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. While future exemptive
relief applicable to Managed Portfolio
Shares may expand the investable
universe, the Exchange notes that
proposed Nasdaq Rule 5760(b)(1) would
require the Exchange to file separate
proposals under Section 19(b) of the Act
before listing and trading any series of
Managed Portfolio Shares and that all of
the statements or representations
regarding (a) the description of the
portfolio or reference assets; (b)
limitations on portfolio holdings or
reference assets; (c) dissemination and
availability of the reference asset or
intraday indicative values and VIIVs; or
(d) the applicability of Nasdaq listing
rules specified in such proposals shall
constitute continued listing standards.
Also, such proposal would describe the
investable universe for any such series
of Managed Portfolio Shares along with
the Exchange’s surveillance procedures
applicable to such series. In addition, as
noted above, investors will have ready
access to information regarding the VIIV
and quotation and last sale information
for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
jbell on DSKJLSW7X2PROD with NOTICES
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of a new type of activelymanaged exchange-traded product that
will enhance competition among both
market participants and listing venues,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
VerDate Sep<11>2014
20:34 Apr 30, 2021
Jkt 253001
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 31 and
subparagraph (f)(6) of Rule 19b–4
thereunder.32
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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–
NASDAQ–2021–023 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2021–023. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
31 15
U.S.C. 78s(b)(3)(A)(iii).
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.
32 17
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
23471
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–NASDAQ–2021–023 and
should be submitted on or before May
24, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09024 Filed 4–30–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91691; File No. SR–IEX–
2021–07]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change to Extend the
Expiration Date of the Temporary
Amendments Set Forth in SR–IEX–
2020–20
April 27, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on April 21, 2021, Investors Exchange
LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\03MYN1.SGM
03MYN1
]]>Agencies
[Federal Register Volume 86, Number 83 (Monday, May 3, 2021)]
[Notices]
[Pages 23460-23471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09024]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91675; File No. SR-NASDAQ-2021-023]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Nasdaq Rule 5760 To Permit the Listing and Trading of Managed
Portfolio Shares
April 26, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 14, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Nasdaq Rule 5760 to permit the
listing and trading of Managed Portfolio Shares, which are shares of
actively managed exchange-traded funds for which the portfolio is
disclosed in accordance with standard mutual fund disclosure rules.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add new Nasdaq Rule 5760 for the purpose
of permitting the listing and trading, or trading pursuant to unlisted
trading privileges, of Managed Portfolio Shares, which are securities
issued by an actively managed open-end management investment company.
This proposed rule change to add new Nasdaq Rule 5760 is substantially
similar to the recently approved rule change by Cboe BZX Exchange, Inc.
(``Cboe BZX'') to adopt rule 14.11(k).\3\
---------------------------------------------------------------------------
\3\ See Securities and Exchange Act Release No. 87759 (December
16, 2019) 84 FR 70223 (December 20, 2019) (SR-CboeBZX-2019-047).
---------------------------------------------------------------------------
Proposed Listing Rules
Proposed Nasdaq Rule 5760(a) provides that the Exchange will
consider for trading, whether by listing or pursuant to unlisted
trading privileges, Managed Portfolio Shares that meet the criteria of
Nasdaq Rule 5760.
Proposed Nasdaq Rule 5760(b) provides that Nasdaq Rule 5760 is
applicable only to Managed Portfolio Shares and that, except to the
extent inconsistent with Nasdaq Rule 5760, or unless the context
otherwise requires, the rules and procedures of the Exchange's Board of
Directors shall be applicable to the trading on the Exchange of such
securities. Proposed Nasdaq Rule 5760(b) provides further that Managed
Portfolio Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange.
Proposed Nasdaq Rule 5760(b)(1) provides that the Exchange will
file separate proposals under Section 19(b) of the Act before the
listing and trading of a series of Managed Portfolio Shares.
Additionally, that all statements or representations regarding (a) the
description of the portfolio or reference assets; (b) limitations on
portfolio holdings or reference assets; (c) dissemination and
availability of the reference asset or intraday indicative values and
Verified Intraday Indicative Values (``VIIV'') (as applicable); or (d)
the applicability of Nasdaq listing rules specified in such proposals
shall constitute continued listing standards.
Proposed Nasdaq Rule 5760(b)(2) provides that transactions in
Managed Portfolio Shares will occur throughout the Exchange's System
Hours.\4\
---------------------------------------------------------------------------
\4\ See Nasdaq Equity Rules Equity 1. Section 1(a)(9). The term
``System Hours'' is defined as the period of time beginning at 4:00
a.m. E.T. and ending at 8:00 p.m. E.T. (or such earlier time as may
be designated by Nasdaq on a day when Nasdaq closes early).
---------------------------------------------------------------------------
Proposed Nasdaq Rule 5760(b)(3) provides that the minimum price
variation for quoting and entry of orders in Managed Portfolio Shares
is $0.01.
Proposed Nasdaq Rule 5760(b)(4) provides that the Exchange will
implement and maintain written surveillance procedures for Managed
Portfolio Shares. As part of these surveillance procedures, the
Investment Company's investment adviser will upon request by the
Exchange or FINRA, on behalf of the Exchange, make available to the
Exchange or FINRA the daily portfolio holdings of each series of
Managed Portfolio Shares.
Proposed Nasdaq Rule 5760(b)(5) provides that, if the investment
adviser to the Investment Company issuing Managed Portfolio Shares is
registered as a broker-dealer or is affiliated with a broker-dealer,
such investment adviser will erect and maintain a ``fire wall'' between
the investment adviser and
[[Page 23461]]
personnel of the broker-dealer or broker-dealer affiliate, as
applicable, with respect to access to information concerning the
composition of and/or changes to such Investment Company portfolio and/
or the Creation Basket. Any person related to the investment adviser or
Investment Company who makes decisions pertaining to the Investment
Company's portfolio composition or has access to information regarding
the Investment Company's portfolio composition or changes thereto or
the Creation Basket must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Investment Company portfolio or changes thereto or the
Creation Basket.
Proposed Nasdaq Rule 5760(b)(6) provides that any person or entity,
including an AP Representative, custodian, Reporting Authority,
distributor, or administrator, who has access to information regarding
the Investment Company's portfolio composition or changes thereto or
the Creation Basket, must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Investment Company portfolio or changes thereto or the
Creation Basket. Moreover, if any such person or entity is registered
as a broker-dealer or affiliated with a broker-dealer, such person or
entity will erect and maintain a ``fire wall'' between the person or
entity and the broker-dealer with respect to access to information
concerning the composition and/or changes to such Investment Company
portfolio or Creation Basket.
Proposed Nasdaq Rule 5760(c)(1) defines the term ``Managed
Portfolio Share'' as a security that (a) represents an interest in an
investment company registered under the Investment Company Act of 1940
(``Investment Company'') organized as an open-end management investment
company, that invests in a portfolio of securities selected by the
Investment Company's investment adviser consistent with the Investment
Company's investment objectives and policies; (b) is issued in a
Creation Unit, or multiples thereof, in return for a designated
portfolio of instruments (and/or an amount of cash) with a value equal
to the next determined net asset value (``NAV'') and delivered to the
Authorized Participant (as defined in the Investment Company's Form N-
1A filed with the SEC) through a Confidential Account; (c) when
aggregated into a Redemption Unit, or multiples thereof, may be
redeemed for a designated portfolio of instruments (and/or an amount of
cash) with a value equal to the next determined NAV delivered to the
Confidential Account for the benefit of the Authorized Participant; and
(d) the portfolio holdings for which are disclosed within at least 60
days following the end of every fiscal quarter.\5\
---------------------------------------------------------------------------
\5\ For purposes of this filing, references to a series of
Managed Portfolio Shares are referred to interchangeably as a series
of Managed Portfolio Shares or as a ``Fund'' and shares of a series
of Managed Portfolio Shares are generally referred to as the
``Shares''.
---------------------------------------------------------------------------
Proposed Nasdaq Rule 5760(c)(2) defines the term ``Verified
Intraday Indicative Value'' as the indicative value of a Managed
Portfolio Share based on all of the holdings of a series of Managed
Portfolio Shares as of the close of business on the prior business day
and, for corporate actions, based on the applicable holdings as of the
opening of business on the current business day, priced and
disseminated in one second intervals during Nasdaq's regular market
session by the Reporting Authority.
Proposed Nasdaq Rule 5760(c)(3) defines the term ``AP
Representative'' as an unaffiliated broker-dealer, with which an
Authorized Participant has signed an agreement to establish a
Confidential Account for the benefit of such Authorized Participant,
that will deliver or receive, on behalf of the Authorized Participant,
all consideration to or from the Investment Company in a creation or
redemption. An AP Representative will not be permitted to disclose the
Creation Basket to any person, including the Authorized Participants.
Proposed Nasdaq Rule 5760(c)(4) defines the term ``Confidential
Account'' as an account owned by an Authorized Participant and held
with an AP Representative on behalf of the Authorized Participant. The
account will be established and governed by contractual agreement
between the AP Representative and the Authorized Participant solely for
the purposes of creation and redemption, while keeping confidential the
Creation Basket constituents of each series of Managed Portfolio
Shares, including from the Authorized Participant. The books and
records of the Confidential Account will be maintained by the AP
Representative on behalf of the Authorized Participant.
Proposed Nasdaq Rule 5760(c)(5) defines the term ``Creation
Basket'' as on any given business day the names and quantities of the
specified instruments and/or an amount of cash that are required for an
AP Representative to deposit in-kind on behalf of an Authorized
Participant in exchange for a Creation Unit and the names and
quantities of the specified instruments and/or an amount of cash that
will be transferred in-kind to an AP Representative on behalf of an
Authorized Participant in exchange for a Redemption Unit, which will be
identical and will be transmitted to each AP Representative before the
commencement of trading.
Proposed Nasdaq Rule 5760(c)(6) defines the term ``Creation Unit''
as a specified minimum number of Managed Portfolio Shares issued by an
Investment Company at the request of an Authorized Participant in
return for a designated portfolio of instruments and/or cash.
Proposed Nasdaq Rule 5760(c)(7) defines the term ``Redemption
Unit'' as a specified minimum number of Managed Portfolio Shares that
may be redeemed to an Investment Company at the request of an
Authorized Participant in return for a portfolio of instruments and/or
cash.
Proposed Nasdaq Rule 5760(c)(8) defines the term ``Reporting
Authority'' in respect of a particular series of Managed Portfolio
Shares means the Exchange, the exchange that lists a particular series
of Managed Portfolio Shares (if the Exchange is trading such series
pursuant to unlisted trading privileges), an institution, or a
reporting service designated by the Investment Company as the official
source for calculating and reporting information relating to such
series, including, the NAV, the VIIV, or other information relating to
the issuance, redemption or trading of Managed Portfolio Shares. A
series of Managed Portfolio Shares may have more than one Reporting
Authority, each having different functions.
Proposed Nasdaq Rule 5760(c)(9) provides that the term ``Normal
Market Conditions'' includes, but is not limited to, the absence of
trading halts in the applicable financial markets generally;
operational issues (e.g., systems failure) causing dissemination of
inaccurate market information; or force majeure type events such as
natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
Proposed Nasdaq Rule 5760(d)(1) sets forth initial listing criteria
applicable to Managed Portfolio Shares. Proposed Nasdaq Rule
5760(d)(1)(A) provides that, for each series of Managed Portfolio
Shares, the Exchange will establish a minimum number of Managed
Portfolio Shares required to be outstanding at the time of commencement
of trading on the
[[Page 23462]]
Exchange. In addition, proposed Nasdaq Rule 5760(d)(1)(B) provides that
the Exchange will obtain a representation from the Investment Company
that issues each series of Managed Portfolio Shares that the NAV per
share for the series will be calculated daily and that the NAV will be
made available to all market participants at the same time. Proposed
Nasdaq Rule 5760(d)(1)(C) provides that all Managed Portfolio Shares
shall have a stated investment objective, which shall be adhered to
under Normal Market Conditions.
Proposed Nasdaq Rule 5760(d)(2) provides that each series of
Managed Portfolio Shares will be listed and traded subject to
application of the following continued listing criteria. Proposed
Nasdaq Rule 5760(d)(2)(A) provides that the VIIV for Managed Portfolio
Shares will be widely disseminated by the Reporting Authority and/or by
one or more major market data vendors in one second intervals during
Nasdaq's regular market session, and will be disseminated to all market
participants at the same time. Proposed Nasdaq Rule 5760(d)(2)(B)
provides that the Exchange will consider the suspension of trading in,
and will commence delisting proceedings under the Nasdaq Rule 5800
Series, for a series of Managed Portfolio Shares, under any of the
following circumstances: (i) If, following the initial twelve-month
period after commencement of trading on the Exchange of a series of
Managed Portfolio Shares, there are fewer than 50 beneficial holders of
the series of Managed Portfolio Shares for 30 or more consecutive
trading days; (ii) if the Exchange has halted trading in a series of
Managed Portfolio Shares because the VIIV is interrupted pursuant to
Nasdaq Rule 5760(d)(2)(C)(ii) and such interruption persists past the
trading day in which it occurred or is no longer available; (iii) if
the Exchange has halted trading in a series of Managed Portfolio Shares
because the NAV with respect to such series of Managed Portfolio Shares
is not disseminated to all market participants at the same time, the
holdings of such series of Managed Portfolio Shares are not made
available on at least a quarterly basis as required under the
Investment Company Act of 1940 (``1940 Act''), or such holdings are not
made available to all market participants at the same time pursuant to
Nasdaq Rule 5760(d)(2)(C)(ii) and such issue persists past the trading
day in which it occurred; (iv) if the Exchange has halted trading in a
series of Managed Portfolio Shares pursuant to Nasdaq Rule
5760(d)(2)(C)(i), such issue persists past the trading day in which it
occurred; (v) if the Investment Company issuing the Managed Portfolio
Shares has failed to file any filings required by the Commission or if
the Exchange is aware that the Investment Company is not in compliance
with the conditions of any currently applicable exemptive order or no-
action relief granted by the Commission or Commission staff to the
Investment Company with respect to the series of Managed Portfolio
Shares; (vi) if any of the continued listing requirements set forth in
Nasdaq Rule 5760 are not continuously maintained; (vii) if the series
of Managed Portfolio Shares is not in compliance with any statements or
representations included in the applicable rule proposal under Section
19(b) regarding: (a) The description of the portfolio or reference
assets; (b) limitations on portfolio holdings or reference assets; (c)
dissemination and availability of the reference asset or intraday
indicative values and VIIVs; or (d) the applicability of Nasdaq listing
rules specified in such proposals; or (viii) if such other event shall
occur or condition exists which, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable.
Proposed Nasdaq Rule 5760(d)(2)(C)(i) provides that the Exchange
may consider all relevant factors in exercising its discretion to halt
trading in a series of Managed Portfolio Shares. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the series of Managed Portfolio Shares
inadvisable. These may include: (a) The extent to which trading is not
occurring in the securities and/or the financial instruments composing
the portfolio; or (b) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.
Proposed Nasdaq Rule 5760(d)(2)(C)(ii) provides that, if the
Exchange becomes aware that: (a) The VIIV of a series of Managed
Portfolio Shares is not being calculated or disseminated in one second
intervals, as required; (b) the NAV with respect to a series of Managed
Portfolio Shares is not disseminated to all market participants at the
same time; (c) the holdings of a series of Managed Portfolio Shares are
not made available on at least a quarterly basis as required under the
1940 Act; or (d) such holdings are not made available to all market
participants at the same time (except as otherwise permitted under the
currently applicable exemptive order or no-action relief granted by the
Commission or Commission staff to the Investment Company with respect
to the series of Managed Portfolio Shares), it will halt trading in
such series until such time as the VIIV, the NAV, or the holdings are
available, as required.
Proposed Nasdaq Rule 5760(d)(2)(D) provides that, upon termination
of an Investment Company, the Exchange requires that Managed Portfolio
Shares issued in connection with such entity be removed from Exchange
listing.
Proposed Nasdaq Rule 5760(d)(2)(E) provides that voting rights
shall be as set forth in the applicable Investment Company prospectus
and/or statement of additional information.
Proposed Nasdaq Rule 5760(e), which relates to limitation of
Exchange liability, provides that neither the Exchange, the Reporting
Authority, when the Exchange is acting in the capacity of a Reporting
Authority, nor any agent of the Exchange shall have any liability for
damages, claims, losses or expenses caused by any errors, omissions, or
delays in calculating or disseminating any current portfolio value; the
current value of the portfolio of securities required to be deposited
to the open-end management investment company in connection with
issuance of Managed Portfolio Shares; the VIIV; the amount of any
dividend equivalent payment or cash distribution to holders of Managed
Portfolio Shares; NAV; or other information relating to the purchase,
redemption, or trading of Managed Portfolio Shares, resulting from any
negligent act or omission by the Exchange, the Reporting Authority when
the Exchange is acting in the capacity of a Reporting Authority, or any
agent of the Exchange, or any act, condition, or cause beyond the
reasonable control of the Exchange, its agent, or the Reporting
Authority, when the Exchange is acting in the capacity of a Reporting
Authority, including, but not limited to, an act of God; fire; flood;
extraordinary weather conditions; war; insurrection; riot; strike;
accident; action of government; communications or power failure;
equipment or software malfunction; or any error, omission, or delay in
the reports of transactions in one or more underlying securities.
Proposed Nasdaq Rule 5760(f), which relates to disclosures,
provides that the provisions of this subparagraph apply only to series
of Managed Portfolio Shares that are the subject of an order by the
Commission exempting such series from certain prospectus delivery
requirements under Section 24(d) of the 1940 Act and are not otherwise
subject to prospectus delivery requirements under the Securities Act of
1933. The Exchange will inform its Members regarding application of
this
[[Page 23463]]
subparagraph to a particular series of Managed Portfolio Shares by
means of an information circular prior to commencement of trading in
such series.
The Exchange requires that Members provide to all purchasers of a
series of Managed Portfolio Shares a written description of the terms
and characteristics of those securities, in a form prepared by the
open-end management investment company issuing such securities, not
later than the time a confirmation of the first transaction in such
series is delivered to such purchaser. In addition, Members shall
include such a written description with any sales material relating to
a series of Managed Portfolio Shares that is provided to customers or
the public. Any other written materials provided by a Member to
customers or the public making specific reference to a series of
Managed Portfolio Shares as an investment vehicle must include a
statement in substantially the following form: ``A circular describing
the terms and characteristics of (the series of Managed Portfolio
Shares) has been prepared by the (open-end management investment
company name) and is available from your broker. It is recommended that
you obtain and review such circular before purchasing (the series of
Managed Portfolio Shares).''
A Member carrying an omnibus account for a non-Member broker-dealer
is required to inform such non-Member that execution of an order to
purchase a series of Managed Portfolio Shares for such omnibus account
will be deemed to constitute agreement by the non-Member to make such
written description available to its customers on the same terms as are
directly applicable to Members under this rule.
Upon request of a customer, a Member shall also provide a
prospectus for the particular series of Managed Portfolio Shares.
Key Features of Managed Portfolio Shares
While each series of Managed Portfolio Shares will be actively
managed and, to that extent, similar to Managed Fund Shares (as defined
in Nasdaq Rule 5735),\6\ Managed Portfolio Shares differ from Managed
Fund Shares in the following important respects. First, in contrast to
Managed Fund Shares, which require a ``Disclosed Portfolio'' to be
disseminated at least once daily,\7\ the portfolio for a series of
Managed Portfolio Shares will be disclosed at least quarterly in
accordance with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act.\8\ The
composition of the portfolio of a series of Managed Portfolio Shares
would not be available at commencement of Exchange listing and/or
trading. Second, in connection with the creation and redemption of
shares in Creation Unit or Redemption Unit size (as described below),
the delivery of any portfolio securities in kind will be effected
through a Confidential Account (as described below) for the benefit of
the creating or redeeming AP (as described further below in ``Creation
and Redemption of Shares'') without disclosing the identity of such
securities to the AP.
---------------------------------------------------------------------------
\6\ The Commission approved a proposed rule change to adopt
generic listing standards for Managed Fund Shares. See Securities
Exchange Act Release No. 78918 (Sept. 23, 2016), 81 FR 67033 (Sept.
29, 2016 (SR-NASDAQ-2016-104) (order approving proposed rule change
to amend Nasdaq Rule 5735 to adopt generic listing standards for
Managed Fund Shares).
\7\ Nasdaq Rule 5735(c)(2) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of NAV at the end of the
business day. Nasdaq Rule 5735(d)(1)(B) and Nasdaq Rule
5735(d)(2)(B)(i) requires that the Disclosed Portfolio will be
disseminated at least once daily and will be made available to all
market participants at the same time.
\8\ Form N-PORT requires reporting of a fund's complete
portfolio holdings on a position-by-position basis on a quarterly
basis within 60 days after fiscal quarter end. Investors can obtain
a fund's Statement of Additional Information, its Shareholder
Reports, its Form N-CSR, filed twice a year, and its Form N-CEN,
filed annually. A fund's SAI and Shareholder Reports are available
free upon request from the Investment Company, and those documents
and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website at www.sec.gov.
---------------------------------------------------------------------------
For each series of Managed Portfolio Shares, the VIIV will be
disseminated reflecting an estimated intraday value of a fund's
portfolio. Specifically, the VIIV will be based upon all of a series'
holdings as of the close of the prior business day and, for corporate
actions, based on the applicable holdings as of the opening of business
on the current business day, and will be widely disseminated by the
Reporting Authority and/or one or more major market data vendors in one
second intervals during the regular market session. The dissemination
of the VIIV will allow investors to determine the estimated intra-day
value of the underlying portfolio of a series of Managed Portfolio
Shares and will provide a close estimate of that value throughout the
trading day.
The Exchange, after consulting with various Designated Liquidity
Providers (``DLPs'') \9\ that trade exchange-traded funds (``ETFs'') on
the Exchange, believes that market makers will be able to make
efficient and liquid markets priced near the ETF's intraday value as
long as a VIIV is disseminated in one second intervals, and market
makers employ market making techniques such as ``statistical
arbitrage,'' including correlation hedging, beta hedging, and
dispersion trading, which is currently used throughout the financial
services industry, to make efficient markets in exchange-traded
products.\10\ For Managed Portfolio Shares, market makers may use the
knowledge of a Fund's means of achieving its investment objective, as
described in the applicable Fund registration statement (the
``Registration Statement''), to construct a hedging proxy for a Fund to
manage a market maker's quoting risk in connection with trading Fund
Shares.
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\9\ As defined in Nasdaq Equity 7 Sec. 114(f)(2), the term DLP
means a registered Nasdaq market maker for a ``Qualified Security''
that has committed to maintain minimum performance standards. As
defined in Nasdaq Equity 7 Sec. 114(f)(1), the term ``Qualified
Security'' means an ETP that has at least one DLP. The performance
measurement is the percent of time at the NBBO.
\10\ Statistical arbitrage enables a trader to construct an
accurate proxy for another instrument, allowing it to hedge the
other instrument or buy or sell the instrument when it is cheap or
expensive in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on trading data
without regard to other fundamental drivers. These correlations are
a function of differentials, over time, between one instrument or
group of instruments and one or more other instruments. Once the
nature of these price deviations have been quantified, a universe of
securities is searched in an effort to, in the case of a hedging
strategy, minimize the differential. Once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. The trader then can monitor the
performance of this hedge throughout the trade period making
corrections where warranted. In the case of correlation hedging, the
analysis seeks to find a proxy that matches the pricing behavior of
a fund. In the case of beta hedging, the analysis seeks to determine
the relationship between the price movement over time of a fund and
that of another stock. Dispersion trading is a hedged strategy
designed to take advantage of relative value differences in implied
volatilities between an index and the component stocks of that
index. Such trading strategies will allow market participants to
engage in arbitrage between series of Managed Portfolio Shares and
other instruments, both through the creation and redemption process
and strictly through arbitrage without such processes.
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Market makers can then conduct statistical arbitrage between their
hedging proxy (for example, the Russell 1000 Index) and Shares of a
Fund, buying and selling one against the other over the course of the
trading day. This ability should permit market makers to make efficient
markets in an issue of Managed Portfolio Shares without
[[Page 23464]]
precise knowledge \11\ of a fund's underlying portfolio.\12\ This is
similar to certain other existing exchange traded products (for
example, ETFs that invest in foreign securities that do not trade
during U.S. trading hours), in which spreads may be generally wider in
the early days of trading and then narrow as market makers gain more
confidence in their real-time hedges.
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\11\ Using the various trading methodologies described above,
both APs and other market participants will be able to hedge
exposures by trading correlative portfolios, securities or other
proxy instruments, thereby enabling an arbitrage functionality
throughout the trading day. For example, if an AP believes that
Shares of a Fund are trading at a price that is higher than the
value of its underlying portfolio based on the VIIV, the AP may sell
Shares short and purchase securities that the AP believes will track
the movements of a Fund's portfolio until the spread narrows and the
AP executes offsetting orders or the AP enters an order through its
AP Representative to create Fund Shares. Upon the completion of the
Creation Unit, the AP will unwind its correlative hedge. Similarly,
a non-AP market participant would be able to perform an identical
function but, because it would not be able to create or redeem
directly, would have to employ an AP to create or redeem Shares on
its behalf.
\12\ APs that enter into their own separate Confidential
Accounts shall have enough information to ensure that they are able
to comply with applicable regulatory requirements. For example, for
purposes of net capital requirements, the maximum securities haircut
applicable to the securities in a Creation Basket, as determined
under Rule 15c3-1, will be disclosed daily on each Fund's website.
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To protect the identity and weightings of the portfolio holdings, a
series of Managed Portfolio Shares would sell and redeem their shares
in Creation Units and Redemption Units to APs only through an AP
Representative. As such, on each business day, before commencement of
trading in Shares on the Exchange, each series of Managed Portfolio
Shares will provide to an AP Representative of each AP the names and
quantities of the instruments comprising a Creation Basket, i.e. the
Deposit Instruments or ``Redemption Instruments'' and the estimated
``Balancing Amount'' (if any),\13\ for that day (as further described
below). This information will permit APs to purchase Creation Units or
redeem Redemption Units through an in-kind transaction with a Fund, as
described below.
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\13\ The Balancing Amount is the cash amount necessary for the
applicable Fund to receive or pay to compensate for the difference
between the value of the securities delivered as part of a
redemption and the NAV, to the extent that such values are
different.
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Creations and Redemptions of Shares
In connection with the creation and redemption of Creation Units
and Redemption Units, the delivery or receipt of any portfolio
securities in-kind will be required to be effected through a
Confidential Account \14\ with an AP Representative,\15\ which will be
a broker-dealer for the benefit of an AP.\16\ An AP must be a
Depository Trust Company (``DTC'') Participant that has executed a
``Participant Agreement'' with the applicable distributor (the
``Distributor'') with respect to the creation and redemption of
Creation Units and Redemption Units and formed a Confidential Account
for its benefit in accordance with the terms of the Participant
Agreement. For purposes of creations or redemptions, all transactions
will be effected through the respective AP's Confidential Account, for
the benefit of the AP without disclosing the identity of such
securities to the AP. The Funds will offer and redeem Creation Units
and Redemption Units on a continuous basis at the NAV per Share next
determined after receipt of an order in proper form. The NAV per Share
of each Fund will be determined as of the close of regular trading each
business day. Funds will sell and redeem Creation Units and Redemption
Units only on business days.
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\14\ Transacting through a Confidential Account is designed to
be very similar to transacting through any broker-dealer account,
except that the AP Representative will be bound to keep the names
and weights of the portfolio securities confidential. Each service
provider that has access to the identity and weightings of
securities in a Fund's Creation Basket or portfolio securities, such
as a Fund's custodian or pricing verification agent, shall be
restricted contractually from disclosing that information to any
other person, or using that information for any purpose other than
providing services to the Fund. To comply with certain recordkeeping
requirements applicable to APs, the AP Representative will maintain
and preserve, and make available to the Commission, certain required
records related to the securities held in the Confidential Account.
\15\ Each AP shall enter into its own separate Confidential
Account with an AP Representative.
\16\ Each Fund will identify one or more entities to enter into
a contractual arrangement with the Fund to serve as an AP
Representative. In selecting entities to serve as AP
Representatives, a Fund will obtain representations from the entity
related to the confidentiality of the Fund's Creation Basket and
portfolio securities, the effectiveness of information barriers, and
the adequacy of insider trading policies and procedures. In
addition, as a broker-dealer, Section 15(g) of the Act requires the
AP Representative to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the misuse of
material, nonpublic information by the AP Representative or any
person associated with the AP Representative.
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Each AP Representative will be given, before the commencement of
trading each business day, the Creation Basket for that day. The
published Creation Basket will apply until a new Creation Basket is
announced on the following business day, and there will be no intra-day
changes to the Creation Basket except to correct errors in the
published Creation Basket. In order to keep costs low and permit Funds
to be as fully invested as possible, Shares will be purchased and
redeemed in Creation Units and Redemption Units and generally on an in-
kind basis. Accordingly, except where the purchase or redemption will
include cash under the circumstances required or determined permissible
by the Fund, APs will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and APs redeeming their Shares will receive an in-kind transfer of
Redemption Instruments through the AP Representative in their
Confidential Account.\17\
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\17\ Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933.
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In the case of a creation, the AP \18\ would enter into an
irrevocable creation order with a Fund and then direct the AP
Representative to purchase the necessary basket of portfolio
securities. The AP Representative would then purchase the necessary
securities in the Confidential Account. In purchasing the necessary
securities, the AP Representative would use methods such as breaking
the purchase into multiple purchases and transacting in multiple
marketplaces. Once the necessary basket of securities has been
acquired, the purchased securities held in the Confidential Account
would be contributed in-kind to the applicable Fund.
---------------------------------------------------------------------------
\18\ An AP will issue execution instructions to the AP
Representative and be responsible for all associated profit or
losses. Like a traditional ETF, the AP has the ability to sell the
basket securities at any point during the regular market session.
---------------------------------------------------------------------------
Other market participants that are not APs will not have the
ability to create or redeem shares directly with a Fund. Rather, if
other market participants wish to create or redeem Shares in a Fund,
they will have to do so through an AP.
Placement of Purchase Orders
Each Fund will issue Shares through the Distributor on a continuous
basis at NAV. The Exchange represents that the issuance of Shares will
operate in a manner substantially similar to that of other ETFs. Each
Fund will issue Shares only at the NAV per Share next determined after
an order in proper form is received.
The Distributor will furnish acknowledgements to those placing
orders that the orders have been accepted, but the Distributor may
reject any order which is not submitted in proper form, as described in
a Fund's prospectus or Statement of Additional
[[Page 23465]]
Information (``SAI''). The NAV of each Fund is expected to be
determined once each business day at a time determined by the board of
the Investment Company (``Board''), currently anticipated to be as of
the close of the regular trading session on the NYSE (ordinarily 4:00
p.m. E.T.) (the ``Valuation Time''). Each Fund will establish a cut-off
time (``Order Cut-Off Time'') for purchase orders in proper form. To
initiate a purchase of Shares, an AP must submit to the Distributor an
irrevocable order to purchase such Shares after the most recent prior
Valuation Time.
Purchases of Shares will be settled in-kind and/or cash for an
amount equal to the applicable NAV per Share purchased plus applicable
``Transaction Fees,'' as discussed below.
Generally, all orders to purchase Creation Units must be received
by the Distributor no later than the end of the regular market session
on the date such order is placed (``Transmittal Date'') in order for
the purchaser to receive the NAV per Share determined on the
Transmittal Date. In the case of custom orders made in connection with
creations or redemptions in whole or in part in cash, the order must be
received by the Distributor, no later than the Order Cut-Off Time.\19\
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\19\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis, as provided in the
Registration Statement.
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Authorized Participant Redemption
The Shares may be redeemed to a Fund in Redemption Unit size or
multiples thereof as described below. Redemption orders of Redemption
Units must be placed by or through an AP (``AP Redemption Order'').
Each Fund will establish an Order Cut-Off Time for redemption orders of
Redemption Units in proper form. Redemption Units of a Fund will be
redeemable at their NAV per Share next determined after receipt of a
request for redemption by the Investment Company in the manner
specified below before the Order Cut-Off Time. To initiate an AP
Redemption Order, an AP must submit to the Distributor an irrevocable
order to redeem such Redemption Unit after the most recent prior
Valuation Time but not later than the Order Cut-Off Time.
In the case of a redemption, the AP would enter into an irrevocable
redemption order, and then instruct the AP Representative to sell the
underlying basket of securities that it will receive in the redemption.
As with the purchase of securities, the AP Representative would be
required to obfuscate the sale of the portfolio securities it will
receive as redemption proceeds using similar tactics.
Consistent with the provisions of Section 22(e) of the 1940 Act and
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor
payment upon redemption delayed, except for: (1) Any period during
which the Exchange is closed other than customary weekend and holiday
closings, (2) any period during which trading on the Exchange is
restricted, (3) any period during which an emergency exists as a result
of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund to determine
its NAV, and (4) for such other periods as the Commission may by order
permit for the protection of shareholders.
It is expected that redemptions will occur primarily in-kind,
although redemption payments may also be made partly or wholly in cash.
The Participant Agreement signed by each AP will require establishment
of a Confidential Account to receive distributions of securities in-
kind upon redemption.\20\ Each AP will be required to open a
Confidential Account with an AP Representative in order to facilitate
orderly processing of redemptions.
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\20\ The terms of each Confidential Account will be set forth as
an exhibit to the applicable Participant Agreement, which will be
signed by each AP. The Authorized Participant will be free to choose
an AP Representative for its Confidential Account from a list of
broker-dealers that have signed confidentiality agreements with the
Fund. The Authorized Participant will be free to negotiate account
fees and brokerage charges with its selected AP Representative. The
Authorized Participant will be responsible to pay all fees and
expenses charged by the AP Representative of its Confidential
Account.
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After receipt of a Redemption Order, a Fund's custodian
(``Custodian'') will typically deliver securities to the Confidential
Account with a value approximately equal to the value of the Shares
\21\ tendered for redemption at the Cut-Off time. The Custodian will
make delivery of the securities by appropriate entries on its books and
records transferring ownership of the securities to the AP's
Confidential Account, subject to delivery of the Shares redeemed. The
AP Representative of the Confidential Account will in turn liquidate
the securities based on instructions from the AP. The AP Representative
will pay the liquidation proceeds net of expenses plus or minus any
cash Balancing Amount to the AP through DTC. The redemption securities
that the Confidential Account receives are expected to mirror the
portfolio holdings of a Fund pro rata. To the extent a Fund distributes
portfolio securities through an in-kind distribution to more than one
Confidential Account for the benefit of the accounts' respective APs,
each Fund expects to distribute a pro rata portion of the portfolio
securities selected for distribution to each redeeming AP.
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\21\ If the NAV of the Shares redeemed differs from the value of
the securities delivered to the applicable Confidential Account, the
applicable Fund will receive or pay a cash Balancing Amount to
compensate for the difference between the value of the securities
delivered and the NAV.
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If the AP would receive a security that it is restricted from
receiving, for example if the AP is engaged in a distribution of the
security, a Fund will deliver cash equal to the value of that security.
APs will provide the AP Representative with a list of restricted
securities applicable to the AP on a daily basis, and a Fund will
substitute cash for those securities in the applicable Confidential
Account.
The Investment Company will accept a Redemption Order in proper
form. A Redemption Order is subject to acceptance by the Investment
Company and must be preceded or accompanied by an irrevocable
commitment to deliver the requisite number of Shares. At the time of
settlement, an AP will initiate a delivery of the Shares plus or minus
any cash Balancing Amounts, and less the expenses of liquidation.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of Managed Portfolio Shares on the
Exchange during all trading sessions and to deter and detect violations
of Exchange rules and the applicable federal securities laws. Trading
of Managed Portfolio Shares through the Exchange will be subject to the
Exchange's surveillance procedures for derivative products. The
Exchange will require the issuer of each series of Managed Portfolio
Shares, upon initial listing and periodically thereafter, to provide a
representation that it is in compliance with Nasdaq Rule 5760. In
addition, the Exchange will require issuers to represent that they will
notify the Exchange of any failure to comply with the terms of
applicable exemptive and no-action relief. As part of its surveillance
procedures, the Exchange will rely on the foregoing procedures to
become aware of any non-compliance with the requirements of Nasdaq Rule
5760.
The Exchange will require each issuer of a Fund to represent that
it will advise the Exchange of any failure by a Fund to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the
[[Page 23466]]
Act, the Exchange will monitor for compliance with the continued
listing requirements. If a Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under the Nasdaq Rule 5800 Series.
Specifically, the Exchange will implement real-time surveillances
that monitor for the continued dissemination of the VIIV. The Exchange
will also have surveillances designed to alert Exchange personnel where
shares of a series of Managed Portfolio Shares are trading away from
the VIIV. As noted in proposed Nasdaq Rule 5760(b)(4), the Investment
Company's investment adviser will upon request by the Exchange or
FINRA, on behalf of the Exchange, make available to the Exchange or
FINRA the daily portfolio holdings of each series of Managed Portfolio
Shares. The Exchange believes that this is appropriate because it will
provide the Exchange or FINRA, on behalf of the Exchange, with access
to the daily portfolio holdings of any series of Managed Portfolio
Shares upon request on an as needed basis. The Exchange believes that
the ability to access the information on an as needed basis will
provide it with sufficient information to perform the necessary
regulatory functions associated with listing and trading series of
Managed Portfolio Shares on the Exchange, including the ability to
monitor compliance with the initial and continued listing requirements
as well as the ability to surveil for manipulation of the shares.
The Exchange notes that any equity instruments or futures held by a
Fund operating under an exemptive order would trade on markets that are
a member of Intermarket Surveillance Group (``ISG'') or affiliated with
a member of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\22\ While future exemptive relief
applicable to Managed Portfolio Shares may expand the investable
universe, the Exchange notes that proposed Nasdaq Rule 5760(b)(1) would
require the Exchange to file separate proposals under Section 19(b) of
the Act before listing and trading any series of Managed Portfolio
Shares and such proposal would describe the investable universe for any
such series of Managed Portfolio Shares along with the Exchange's
surveillance procedures applicable to such series.
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\22\ For a list of the current members of ISG, see
www.isgportal.com. The Exchange notes that cash equivalents may
trade on markets that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement.
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FINRA, on behalf of the Exchange, or the regulatory staff of the
Exchange, or both, will communicate as needed regarding trading in the
Shares and underlying exchange-traded instruments with other markets
and other entities that are members of the ISG, and FINRA, on behalf of
the Exchange, or the regulatory staff of the Exchange, or both, may
obtain trading information regarding trading such securities from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and underlying exchange-
traded instruments from other markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Trading Halts
As proposed above, the Exchange may consider all relevant factors
in exercising its discretion to halt trading in a series of Managed
Portfolio Shares. Trading may be halted because of market conditions or
for reasons that, in the view of the Exchange make trading in the
series of Managed Portfolio Shares inadvisable. These may include: (a)
The extent to which trading is not occurring in the securities and/or
the financial instruments composing the portfolio; or (b) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Additionally, the Exchange would
halt trading as soon as practicable where the Exchange becomes aware
that: (a) The VIIV of a series of Managed Portfolio Shares is not being
calculated or disseminated in one second intervals, as required; (b)
the NAV with respect to a series of Managed Portfolio Shares is not
disseminated to all market participants at the same time; (c) the
holdings of a series of Managed Portfolio Shares are not made available
on at least a quarterly basis as required under the 1940 Act; or (d)
such holdings are not made available to all market participants at the
same time, (except as otherwise permitted under the currently
applicable exemptive order or no-action relief granted by the
Commission or Commission staff to the Investment Company with respect
to the series of Managed Portfolio Shares) (collectively,
``Availability of Information Halts''). The Exchange would halt trading
in such series of Managed Portfolio Shares until such time as the VIIV,
the NAV, or the holdings are available, as required.
Availability of Information
As noted above, Form N-PORT requires reporting of a fund's complete
portfolio holdings on a position-by-position basis on a quarterly basis
within 60 days after fiscal quarter end. Investors can obtain a fund's
Statement of Additional Information, its Shareholder Reports, its Form
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's
SAI and Shareholder Reports are available free upon request from the
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the
Commission's website at www.sec.gov.
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. 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. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. In addition, the VIIV, as defined in
proposed Nasdaq Rule 5760(c)(2), will be widely disseminated by the
Reporting Authority and/or one or more major market data vendors in one
second intervals during the regular market session.
Trading Rules
The Exchange deems Managed Portfolio Shares to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
Transactions in Managed Portfolio Shares will occur throughout the
Exchange's System Hours as provided in proposed Nasdaq Rule 5760(b)(2).
As provided in Nasdaq Rule 5760(b)(3), the minimum price variation for
quoting and entry of orders in Managed Portfolio Shares traded on the
Exchange is $0.01.
Information Circular
Prior to the commencement of trading of a series of Managed
Portfolio Shares, the Exchange will inform its Members in an
Information Circular (``Circular'') of the special characteristics and
risks associated with trading the Shares. Specifically, the Circular
will discuss the following: (1) The procedures for purchases and
redemptions of Shares; (2) Members and associated persons of a Member
shall comply with FINRA Rule 2111, which imposes suitability
[[Page 23467]]
obligations on Exchange members with respect to recommending
transactions in the Managed Portfolio Shares to customers, as if such
rule were part of Nasdaq's rules; (3) how information regarding the
VIIV is disseminated; (4) the requirement that Members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; (5) trading
information; and (6) that the portfolio holdings of the Shares are not
disclosed on a daily basis.
In addition, the Circular will reference that Funds are subject to
various fees and expenses described in the Registration Statement. The
Circular will discuss any exemptive, no-action, and interpretive relief
granted by the Commission from any rules under the Act. The Circular
will also disclose that the NAV for the Shares will be calculated after
4:00 p.m., E.T. each trading day.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in
particular in that it is 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 investors and the public interest.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that proposed Nasdaq Rule 5760 is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Managed Portfolio
Shares provide specific initial and continued listing criteria required
to be met by such securities. Proposed Nasdaq Rule 5760(d) sets forth
initial and continued listing criteria applicable to Managed Portfolio
Shares. Proposed Nasdaq Rule 5760(d)(1)(A) provides that, for each
series of Managed Portfolio Shares, the Exchange will establish a
minimum number of Managed Portfolio Shares required to be outstanding
at the time of commencement of trading on the Exchange. In addition,
proposed Nasdaq Rule 5760(d)(1)(B) provides that the Exchange will
obtain a representation from the Investment Company that issues each
series of Managed Portfolio Shares that the NAV per share for the
series will be calculated daily and that the NAV will be made available
to all market participants at the same time.\25\ Proposed Nasdaq Rule
5760(d)(1)(C) provides that all Managed Portfolio Shares shall have a
stated investment objective, which shall be adhered to under Normal
Market Conditions (as defined in the rule).
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\25\ Proposed Nasdaq Rule 5760(d)(2)(C)(ii) provides that if the
Exchange becomes aware that the NAV with respect to a series of
Managed Portfolio Shares is not disseminated to all market
participants at the same time, it will halt trading in such series
until such time as the NAV is available to all market participants
at the same time.
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Proposed Nasdaq Rule 5760(d)(2) provides that each series of
Managed Portfolio Shares will be listed and traded subject to
application of the specified continued listing criteria, as described
above. Proposed Nasdaq Rule 5760(d)(2)(A) provides that the VIIV for
Managed Portfolio Shares will be widely disseminated by the Reporting
Authority and/or by one or more major market data vendors in one second
intervals during the regular market session and will be disseminated to
all market participants at the same time. Proposed Nasdaq Rule
5760(d)(2)(B) provides that the Exchange will consider the suspension
of trading in, and will commence delisting proceedings under the Nasdaq
Rule 5800 Series, for a series of Managed Portfolio Shares, under any
of the following circumstances: (i) If, following the initial twelve-
month period after commencement of trading on the Exchange of a series
of Managed Portfolio Shares, there are fewer than 50 beneficial holders
of the series of Managed Portfolio Shares for 30 or more consecutive
trading days; (ii) if the Exchange has halted trading in a series of
Managed Portfolio Shares because the VIIV is interrupted pursuant to
Nasdaq Rule 5760(d)(2)(C)(ii) and such interruption persists past the
trading day in which it occurred or is no longer available; (iii) if
the Exchange has halted trading in a series of Managed Portfolio Shares
because the NAV with respect to such series of Managed Portfolio Shares
is not disseminated to all market participants at the same time, the
holdings of such series of Managed Portfolio Shares are not made
available on at least a quarterly basis as required under the
Investment Company Act of 1940, or such holdings are not made available
to all market participants at the same time pursuant to Nasdaq Rule
5760(d)(2)(C)(ii) and such issue persists past the trading day in which
it occurred; (iv) if the Exchange has halted trading in a series of
Managed Portfolio Shares pursuant to Nasdaq Rule 5760(d)(2)(C)(i), such
issue persists past the trading day in which it occurred; (v) if the
Investment Company issuing the Managed Portfolio Shares has failed to
file any filings required by the Commission or if the Exchange is aware
that the Investment Company is not in compliance with the conditions of
any currently applicable exemptive order or no-action relief granted by
the Commission or Commission staff to the Investment Company with
respect to the series of Managed Portfolio Shares; (vi) if any of the
continued listing requirements set forth in Nasdaq Rule 5760 are not
continuously maintained; (vii) if the series of Managed Portfolio
Shares is not in compliance with any statements or representations
included in the applicable rule proposal under Section 19(b) regarding:
(a) The description of the portfolio or reference assets; (b)
limitations on portfolio holdings or reference assets; (c)
dissemination and availability of the reference asset or intraday
indicative values and VIIVs; or (d) the applicability of Nasdaq listing
rules specified in such proposals; or (viii) if such other event shall
occur or condition exists which, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable.
Proposed Nasdaq Rule 5760(d)(2)(C)(i) provides that the Exchange
may consider all relevant factors in exercising its discretion to halt
trading in a series of Managed Portfolio Shares. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the series of Managed Portfolio Shares
inadvisable. These may include: (a) The extent to which trading is not
occurring in the securities and/or the financial instruments composing
the portfolio; or (b) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.
Proposed Nasdaq Rule 5760(d)(2)(C)(ii) provides that, if the
Exchange becomes aware that: (a) The VIIV of a series of Managed
Portfolio Shares is not being calculated or disseminated in one second
intervals, as required; (b) the NAV with respect to a series of Managed
Portfolio Shares is not disseminated to all market participants at the
same time; (c) the holdings of a series of Managed Portfolio Shares are
not made available on at least a quarterly basis as required under the
1940 Act; or (d) such holdings are not made available to all market
participants at the same time (except as otherwise permitted under the
currently applicable exemptive order or no-action relief granted by the
Commission or Commission staff to the Investment Company with respect
to the series of
[[Page 23468]]
Managed Portfolio Shares), it will halt trading in such series until
such time as the VIIV, the NAV, or the holdings are available, as
required.
Proposed Nasdaq Rule 5760(d)(2)(D) provides that, upon termination
of an Investment Company, the Exchange requires that Managed Portfolio
Shares issued in connection with such entity be removed from Exchange
listing. Proposed Nasdaq Rule 5760(d)(2)(E) provides that voting rights
shall be as set forth in the applicable Investment Company prospectus
and/or Statement of Additional Information. The Exchange also notes
that an issuer must comply with Regulation Fair Disclosure, which
prohibits selective disclosure of any material non-public information,
which otherwise does not apply to issuers of Managed Fund Shares.
Proposed Nasdaq Rule 5760(b)(3) provides that the minimum price
variation for quoting and entry of orders in Managed Portfolio Shares
is $0.01. Proposed Nasdaq Rule 5760(b)(4) provides that the Exchange
will implement and maintain written surveillance procedures for Managed
Portfolio Shares. As part of these surveillance procedures, the
Investment Company's investment adviser will upon request by the
Exchange or FINRA, on behalf of the Exchange, make available to the
Exchange or FINRA the daily portfolio holdings of each series of
Managed Portfolio Shares.
Proposed Nasdaq Rule 5760(b)(5) provides that, if the investment
adviser to the Investment Company issuing Managed Portfolio Shares is
registered as a broker-dealer or is affiliated with a broker-dealer,
such investment adviser will erect and maintain a ``fire wall'' between
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information
concerning the composition of and/or changes to such Investment Company
portfolio and/or the Creation Basket. Any person related to the
investment adviser or Investment Company who makes decisions pertaining
to the Investment Company's portfolio composition or has access to
information regarding the Investment Company's portfolio composition or
changes thereto or the Creation Basket must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the applicable Investment Company portfolio or
changes thereto or the Creation Basket.
Proposed Nasdaq Rule 5760(b)(6) provides that any person or entity,
including an AP Representative, custodian, Reporting Authority,
distributor, or administrator, who has access to information regarding
the Investment Company's portfolio composition or changes thereto or
the Creation Basket, must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Investment Company portfolio or changes thereto or the
Creation Basket. Moreover, if any such person or entity is registered
as a broker-dealer or affiliated with a broker-dealer, such person or
entity will erect and maintain a ``fire wall'' between the person or
entity and the broker-dealer with respect to access to information
concerning the composition and/or changes to such Investment Company
portfolio or Creation Basket.
The Exchange believes that these proposed rules are designed to
prevent fraudulent and manipulative acts and practices related to the
listing and trading of Managed Portfolio Shares because they provide
meaningful requirements about both the data that will be made publicly
available about the Shares as well as the information that will only be
available to certain parties and the controls on such information.
Specifically, the Exchange believes that the requirements related
to information protection enumerated under proposed Nasdaq Rule
5760(b)(6) \26\ will act as a strong safeguard against any misuse and
improper dissemination of information related to a Fund's portfolio
composition, the Creation Basket, or changes thereto. The requirement
that any person or entity implement procedures to prevent the use and
dissemination of material nonpublic information regarding the portfolio
or Creation Basket will act to prevent any individual or entity from
sharing such information externally and the internal ``fire wall''
requirements applicable where an entity is a registered broker-dealer
or affiliated with a broker-dealer will act to make sure that no entity
will be able to misuse the data for their own purposes. As such, the
Exchange believes that this proposal is designed to prevent fraudulent
and manipulative acts and practices.
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\26\ As described above, proposed Nasdaq Rule 5760(b)(6)
provides that any person or entity, including an AP Representative,
custodian, Reporting Authority, distributor, or administrator, who
has access to information regarding the Investment Company's
portfolio composition or changes thereto or the Creation Basket,
must be subject to procedures designed to prevent the use and
dissemination of material nonpublic information regarding the
applicable Investment Company portfolio or changes thereto or the
Creation Basket. Moreover, if any such person or entity is
registered as a broker-dealer or affiliated with a broker-dealer,
such person or entity will erect and maintain a ``fire wall''
between the person or entity and the broker-dealer with respect to
access to information concerning the composition and/or changes to
such Investment Company portfolio or Creation Basket.
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The Exchange, after consulting with various DLPs s that trade ETFs
on the Exchange, believes that market makers will be able to make
efficient and liquid markets priced near the VIIV, as long as market
makers have knowledge of a Fund's means of achieving its investment
objective, even without daily disclosure of a fund's underlying
portfolio. The Exchange believes that market makers will employ risk-
management techniques to make efficient markets in exchange traded
products. This ability should permit market makers to make efficient
markets in shares without knowledge of a fund's underlying portfolio.
The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Managed Portfolio Shares, market
makers utilizing statistical arbitrage use the knowledge of a fund's
means of achieving its investment objective, as described in the
applicable fund registration statement, to construct a hedging proxy
for a fund to manage a market maker's quoting risk in connection with
trading fund shares. Market makers will then conduct statistical
arbitrage between their hedging proxy (for example, the Russell 1000
Index) and shares of a fund, buying and selling one against the other
over the course of the trading day. Eventually, at the end of each day,
they will evaluate how their proxy performed in comparison to the price
of a fund's shares, and use that analysis as well as knowledge of risk
metrics, such as volatility and turnover, to enhance their proxy
calculation to make it a more efficient hedge.
Market makers have indicated to the Exchange that there will be
sufficient data to run a statistical analysis which will lead to
spreads being tightened substantially around the VIIV. This is similar
to certain other existing exchange traded products (for example, ETFs
that invest in foreign securities that do not trade during U.S. trading
hours), in which spreads may be generally wider in the early days of
trading and then narrow as market makers gain more confidence in their
real-time hedges.
The DLPs also indicated that, as with some other new exchange-
traded products, spreads would tend to narrow
[[Page 23469]]
as market makers gain more confidence in the accuracy of their hedges
and their ability to adjust these hedges in real-time relative to the
published VIIV and gain an understanding of the applicable market risk
metrics such as volatility and turnover, and as natural buyers and
sellers enter the market. Other relevant factors cited by DLPs were
that a fund's investment objectives are clearly disclosed in the
applicable prospectus, the existence of quarterly portfolio disclosure
and the ability to create shares in creation unit size or redeem in
redemption unit size through an AP.
The real-time dissemination of a Fund's VIIV together with the
right of APs to create and redeem each day at the NAV will be
sufficient for market participants to value and trade Shares in a
manner that will not lead to significant deviations between the shares'
Bid/Ask Price and NAV.
The pricing efficiency with respect to trading a series of Managed
Portfolio Shares will generally rest on the ability of market
participants to arbitrage between the Shares and a fund's portfolio, in
addition to the ability of market participants to assess a fund's
underlying value accurately enough throughout the trading day in order
to hedge positions in shares effectively. Professional traders can buy
Shares that they perceive to be trading at a price less than that which
will be available at a subsequent time, and sell Shares they perceive
to be trading at a price higher than that which will be available at a
subsequent time.
It is expected that, as part of their normal day-to-day trading
activity, market makers assigned to Shares by the Exchange, off-
exchange market makers, firms that specialize in electronic trading,
hedge funds and other professionals specializing in short-term, non-
fundamental trading strategies will assume the risk of being ``long''
or ``short'' shares through such trading and will hedge such risk
wholly or partly by simultaneously taking positions in correlated
assets \27\ or by netting the exposure against other, offsetting
trading positions--much as such firms do with existing ETFs and other
equities. Disclosure of a fund's investment objective and principal
investment strategies in its prospectus and SAI, along with the
dissemination of the VIIV in one second intervals, should permit
professional investors to engage easily in this type of hedging
activity.\28\
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\27\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
\28\ With respect to trading in the Shares, market participants
would manage risk in a variety of ways. It is expected that market
participants will be able to determine how to trade Shares at levels
approximating the VIIV without taking undue risk by gaining
experience with how various market factors (e.g., general market
movements, sensitivity of the VIIV to intraday movements in interest
rates or commodity prices, etc.) affect VIIV, and by finding hedges
for their long or short positions in Shares using instruments
correlated with such factors. Market participants will likely
initially determine the VIIV's correlation to a major large
capitalization equity benchmark with active derivative contracts,
such as the Russell 1000 Index, and the degree of sensitivity of the
VIIV to changes in that benchmark. For example, using hypothetical
numbers for illustrative purposes, market participants should be
able to determine quickly that price movements in the Russell 1000
Index predict movements in a Fund's VIIV 95% of the time (an
acceptably high correlation) but that the VIIV generally moves
approximately half as much as the Russell 1000 Index with each price
movement. This information is sufficient for market participants to
construct a reasonable hedge--buy or sell an amount of futures,
swaps or ETFs that track the Russell 1000 equal to half the opposite
exposure taken with respect to Shares. Market participants will also
continuously compare the intraday performance of their hedge to a
Fund's VIIV. If the intraday performance of the hedge is correlated
with the VIIV to the expected degree, market participants will feel
comfortable they are appropriately hedged and can rely on the VIIV
as appropriately indicative of a Fund's performance.
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With respect to trading of the Shares, the ability of market
participants to buy and sell Shares at prices near the VIIV is
dependent upon their assessment that the VIIV is a reliable, indicative
real-time value for a Fund's underlying holdings. Market participants
are expected to accept the VIIV as a reliable, indicative real-time
value because (1) the VIIV will be calculated and disseminated based on
a Fund's actual portfolio holdings, (2) the securities in which a Fund
plans to invest are generally highly liquid and actively traded and
therefore generally have accurate real time pricing available, and (3)
market participants will have a daily opportunity to evaluate whether
the VIIV at or near the close of trading is indeed predictive of the
actual NAV.
In a typical index-based ETF, it is standard for APs to know what
securities must be delivered in a creation or will be received in a
redemption. For Managed Portfolio Shares, however, APs do not need to
know the securities comprising the portfolio of a Fund since creations
and redemptions are handled through the Confidential Account mechanism.
In-kind creations and redemptions through a Confidential Account are
expected to preserve the integrity of the active investment strategy
and reduce the potential for ``free riding'' or ``front-running,''
while still providing investors with the advantages of the ETF
structure.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the Investment
Company that issues each series of Managed Portfolio Shares that the
NAV per share of a fund will be calculated daily and that the NAV will
be made available to all market participants at the same time.
Investors can also obtain a fund's Statement of Additional Information,
its Shareholder Reports, its Form N-CSR, filed twice a year, and its
Form N-CEN, filed annually. A fund's SAI and Shareholder Reports are
available free upon request from the Investment Company, and those
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed
on-screen or downloaded from the Commission's website at www.sec.gov.
In addition, a large amount of information will be publicly available
regarding the Funds and the Shares, thereby promoting market
transparency. Quotation and last sale information for the Shares will
be available via the CTA high-speed line. Information regarding the
VIIV will be widely disseminated in one second intervals throughout the
regular market session by the Reporting Authority and/or one or more
major market data vendors. The website for each Fund 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, updated on a daily basis. Moreover, prior to the
commencement of trading, the Exchange will inform its Members in a
Circular of the special characteristics and risks associated with
trading the Shares.
The Exchange further believes that the proposal is designed to
prevent fraudulent and manipulative acts and practices related to the
listing and trading of Managed Portfolio Shares and to promote just and
equitable principles of trade and to protect investors and the public
interest in that the Exchange would halt trading under certain
circumstances under which trading in the shares of a Fund may be
inadvisable. These may include: (a) The extent to which trading is not
occurring in the securities and/or the financial instruments composing
the portfolio; or (b) whether other unusual conditions or
[[Page 23470]]
circumstances detrimental to the maintenance of a fair and orderly
market are present. Specifically, the Exchange would halt trading as
soon as practicable under the following circumstances: (a) The VIIV of
a series of Managed Portfolio Shares is not being calculated or
disseminated in one second intervals, as required; (b) the NAV with
respect to a series of Managed Portfolio Shares is not disseminated to
all market participants at the same time; (c) the holdings of a series
of Managed Portfolio Shares are not made available on at least a
quarterly basis as required under the 1940 Act; or (d) such holdings
are not made available to all market participants at the same time
(except as otherwise permitted under the currently applicable exemptive
order or no-action relief granted by the Commission or Commission staff
to the Investment Company with respect to the series of Managed
Portfolio Shares), it will halt trading in such series until such time
as the VIIV, the NAV, or the holdings are available, as required.
The Exchange is proposing to retain discretion to halt trading in a
series of Managed Portfolio Shares based on market conditions or where
the Exchange determines that trading in such series is inadvisable
(each a ``Discretionary Halt'') and is also proposing the four
Availability of Information Halts described above. The Exchange
believes that retaining discretion to implement a Discretionary Halt as
specified is consistent with the Act. The proposed rule retaining
discretion related to halts is designed to ensure the maintenance of a
fair and orderly market and protect investors and the public interest
in that it provides the Exchange with the ability to halt when it
determines that trading in the shares is inadvisable. This could be
based on the Exchange's own analysis of market conditions being
detrimental to a fair and orderly market and/or information provided by
the Investment Company or its agent. There are certain circumstances
related to the trading and dissemination of information related to the
underlying holdings of a series of Managed Portfolio Shares, such as
the extent to which trading is not occurring in the securities and/or
financial instruments composing the portfolio, that the Exchange may
not be in a position to know or become aware of as expeditiously as the
Investment Company or its agent.
Also, as noted above, there are certain circumstances under which
trading in the Shares of a Fund may be inadvisable or where the
Investment Company or its agent will request that the Exchange halt
trading in the applicable series of Managed Portfolio Shares. Upon
receipt of information and/or a request from the Investment Company,
the Exchange would consider the information and/or circumstances
leading to the request as well as other factors both specific to such
issue of Managed Portfolio Shares and the broader market in determining
whether trading in the series of Managed Portfolio Shares is
inadvisable and that halting trading is necessary in order to maintain
a fair and orderly market. As such, the Exchange believes that the
proposal to provide the Exchange with discretion to implement a
Discretionary Halt is consistent with the Act.
The Exchange believes that the proposed Availability of Information
Halts to halt trading in shares of a series of Managed Portfolio Shares
are consistent with the Act because: (i) The Commission has already
determined that the requirement that the VIIV be disseminated every
second is appropriate; (ii) the other Availability of Information Halts
are generally consistent with and designed to address the same concerns
about asymmetry of information that Nasdaq Rule 5735(d)(2)(D) related
to trading halts in Managed Fund Shares \29\ is intended to address,
specifically that the availability of such information is intended to
reduce the potential for manipulation and help ensure a fair and
orderly market in Managed Portfolio Shares; \30\ and (iii) the
quarterly disclosure of portfolio holdings is a fundamental component
of Managed Portfolio Shares that allows market participants to better
understand the strategy of the funds and to monitor how closely trading
in the funds is tracking the value of the underlying portfolio and when
such information is not being disclosed as required, trading in the
shares is inadvisable and it is necessary and appropriate to halt
trading. The Exchange notes, however, that an Investment Company that
issues Managed Portfolio Shares will still be subject to Nasdaq Rule
5701, which requires that a ``A Company with securities listed under
this Rule 5700 Series must provide Nasdaq with prompt notification
after the Company becomes aware of any noncompliance by the Company
with the requirements of the Rule 5700 Series.''
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\29\ Nasdaq Rule 5735(d)(2)(C)(ii) provides that ``Nasdaq will
consider the suspension of trading in, and will initiate delisting
proceedings under the Rule 5800 Series of, a series of Managed Fund
Shares under any of the following circumstances: . . . if the
Disclosed Portfolio is not made available to all market participants
at the same time;'' and (d)(2)(D) provides that ``If Nasdaq becomes
aware that the net asset value or the Disclosed Portfolio with
respect to a series of Managed Fund Shares is not disseminated to
all market participants at the same time, it will halt trading in
such series until such time as the net asset value or the Disclosed
Portfolio is available to all market participants.'' These are
generally consistent with the proposed Availability of Information
Halts, specifically as it relates to whether the NAV or Disclosed
Portfolio is not being made available to all market participants at
the same time.
\30\ See, e.g., Securities Exchange Act Release No. 80169 (March
7, 2017), 82 FR 13536 (March 13, 2017); Securities Exchange Act
Release Nos. 54739 (November 9, 2006), 71 FR 66993, 66997 (November
17, 2006) (SR-AMEX-2006-78) (approving generic listing standards for
Portfolio Depositary Receipts and Index Fund Shares based on
international or global indexes, and stating that ``the proposed
listing standards are designed to preclude ETFs from becoming
surrogates for trading in unregistered securities'' and that ``the
requirement that each component security underlying an ETF be listed
on an exchange and subject to last-sale reporting should contribute
to the transparency of the market for ETFs'' and that ``by requiring
pricing information for both the relevant underlying index and the
ETF to be readily available and disseminated, the proposal is
designed to ensure a fair and orderly market for ETFs''); 53142
(January 19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR-NASD-
2006-001) (approving generic listing standards for Index-Linked
Securities and stating that ``[t]he Commission believes that by
requiring pricing information for both the relevant underlying index
or indexes and the Index Security to be readily available and
disseminated, the proposed listing standards should help ensure a
fair and orderly market for Index Securities'').
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The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. FINRA, on behalf of the Exchange, or
the regulatory staff of the Exchange, or both, will communicate as
needed regarding trading in the Shares and the underlying exchange-
traded instruments with other markets and other entities that are
members of the ISG, and FINRA, on behalf of the Exchange, or the
regulatory staff of the Exchange, or both, may obtain trading
information regarding trading such instruments from such markets and
other entities. In addition, the Exchange may obtain information
regarding trading in the Shares and the underlying exchange-traded
instruments from markets and other entities that are members of ISG or
with which the
[[Page 23471]]
Exchange has in place a comprehensive surveillance sharing agreement.
Additionally, any equity instruments or futures held by a Fund
operating under an exemptive order would trade on markets that are a
member of ISG or affiliated with a member of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
While future exemptive relief applicable to Managed Portfolio Shares
may expand the investable universe, the Exchange notes that proposed
Nasdaq Rule 5760(b)(1) would require the Exchange to file separate
proposals under Section 19(b) of the Act before listing and trading any
series of Managed Portfolio Shares and that all of the statements or
representations regarding (a) the description of the portfolio or
reference assets; (b) limitations on portfolio holdings or reference
assets; (c) dissemination and availability of the reference asset or
intraday indicative values and VIIVs; or (d) the applicability of
Nasdaq listing rules specified in such proposals shall constitute
continued listing standards. Also, such proposal would describe the
investable universe for any such series of Managed Portfolio Shares
along with the Exchange's surveillance procedures applicable to such
series. In addition, as noted above, investors will have ready access
to information regarding the VIIV and quotation and last sale
information for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
a new type of actively-managed exchange-traded product that will
enhance competition among both market participants and listing venues,
to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
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 \31\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\32\
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\31\ 15 U.S.C. 78s(b)(3)(A)(iii).
\32\ 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.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
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 [email protected]. Please include
File Number SR-NASDAQ-2021-023 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2021-023. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet 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-NASDAQ-2021-023 and should be submitted
on or before May 24, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09024 Filed 4-30-21; 8:45 am]
BILLING CODE 8011-01-P
