81 FR 49341 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to List and Trade Exchange-Traded Managed Funds

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 144 (July 27, 2016)

Page Range		49341-49347
FR Document		2016-17671
Federal Register, Volume 81 Issue 144 (Wednesday, July 27, 2016)
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Notices]
[Pages 49341-49347]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17671]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78385; File No. SR-NASDAQ-2016-103]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, to List and Trade Exchange-Traded Managed Funds

July 21, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 13, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
On July 14, 2016, the Exchange filed Amendment No. 1 to the proposed 
rule change, which amended and replaced the original filing in its 
entirety. The Commission is publishing this notice to solicit comments 
on the proposed rule change, as modified by Amendment No. 1 thereto, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade under Nasdaq Rule 5745 
(Exchange-Traded Managed Fund Shares (``NextShares'')) the common 
shares (``Shares'') of the exchange-traded managed funds described 
herein (each, a ``Fund,'' and collectively, the ``Funds'').

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of each Fund 
under Nasdaq Rule 5745, which governs the listing and trading of 
exchange-traded managed fund shares, as defined in Nasdaq Rule 
5745(c)(1), on the Exchange.\3\ Each Fund listed below will be advised 
by an investment adviser registered under the Investment Advisers Act 
of 1940 (``Adviser''), as described below. Each Fund will be actively 
managed and will pursue various principal investment strategies, as 
noted below.\4\
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    \3\ The Commission approved Nasdaq Rule 5745 in Securities 
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov. 
14, 2014) (SR-NASDAQ-2014-020).
    \4\ Additional information regarding the Funds will be available 
on one of two free public Web sites (www.ivyinvestments.com or 
www.nextshares.com, as indicated more fully below), as well as in 
the Registration Statement for the Funds.
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Ivy NextShares^TM
    Ivy NextShares^TM (the ``Trust'') is registered with the 
Commission as an open-end investment company and has filed a 
registration statement on Form N-1A (``Registration Statement'') with 
the Commission.\5\ Each of the following Funds is a series of the 
Trust.\6\
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    \5\ See Registration Statement on Form N-1A for the Trust dated 
April 18, 2016 (File Nos. 333-210814 and 811-23155).
    \6\ The Commission has issued an order granting the Trust and 
certain affiliates exemptive relief under the Investment Company 
Act. See Investment Company Act Release No. 31816 (Sept. 9, 2015) 
(File No. 812-14526).
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    Ivy Investment Management Company (``IICO'' or the ``Adviser'') 
will be the adviser to the Funds. IICO is not a registered broker-
dealer, although it is affiliated with a broker-dealer. IICO has 
implemented a fire wall with respect to its affiliated broker-dealer 
regarding access to information concerning the composition and/or 
changes to each Fund's portfolio.\7\ In the future event

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that (a) IICO registers as a broker-dealer or becomes newly affiliated 
with a broker-dealer, or (b) any new adviser or a sub-adviser to a Fund 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant 
personnel and/or such broker-dealer affiliate, if applicable, regarding 
access to information concerning the composition and/or changes to the 
relevant Fund's portfolio and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    ALPS Distributors, Inc. will be the principal underwriter and 
distributor of each Fund's Shares. Waddell & Reed Services Company, 
doing business as WI Services Company (``WISC''), will act as the 
administrator and accounting agent to the Funds. State Street Bank and 
Trust Company (``State Street'') will act as the custodian and transfer 
agent to the Funds. In addition, it has entered into agreements with 
WISC pursuant to which State Street will serve as sub-administrator and 
sub-accounting agent to the Funds.
Ivy Focused Growth NextShares^TM
    The investment objective of this Fund is to provide growth of 
capital. The Fund normally will invest primarily in a portfolio of 
common stocks issued by large-capitalization, growth-oriented companies 
with above-average levels of profitability and that IICO believes have 
the ability to sustain growth over the long term. Although the Fund 
primarily will invest in securities issued by large-capitalization 
companies (defined as companies with market capitalizations of at least 
$10 billion at the time of acquisition), it may invest in securities 
issued by companies of any size.
Ivy Focused Value NextShares^TM
    The investment objective of this Fund is to provide capital 
appreciation, with a secondary objective of providing current income. 
The Fund normally will invest in the common stocks of companies that 
IICO believes are undervalued, trading at a significant discount 
relative to the intrinsic value of the company as estimated by IICO 
and/or are out of favor in the financial markets but have a favorable 
outlook for capital appreciation. Although the Fund will often invest 
in securities issued by large-capitalization companies (defined as 
companies with market capitalizations of at least $10 billion at the 
time of acquisition), it may invest in securities issued by companies 
of any size.
Ivy Energy NextShares^TM
    The investment objective of this Fund is to provide capital growth 
and appreciation. The Fund will invest, under normal circumstances, at 
least 80% of its net assets in the common stock of companies within the 
energy sector, which includes all aspects of the energy industry, such 
as exploration, discovery, production, distribution or infrastructure 
of energy and/or alternative energy sources.
Creations and Redemptions of Shares
    Shares will be issued and redeemed on a daily basis for each Fund 
at the Fund's next-determined net asset value (``NAV'') \8\ in 
specified blocks of Shares called ``Creation Units.'' A Creation Unit 
will consist of at least 25,000 Shares. Creation Units may be purchased 
and redeemed by or through ``Authorized Participants.'' \9\ Purchases 
and sales of Shares in amounts less than a Creation Unit may be 
effected only in the secondary market, as described below, and not 
directly with a Fund.
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    \8\ As with other registered open-end investment companies, NAV 
generally will be calculated daily Monday through Friday as of the 
close of regular trading on the New York Stock Exchange, normally 
4:00 p.m. E.T. NAV will be calculated by dividing a Fund's net asset 
value by the number of Shares outstanding. Information regarding the 
valuation of investments in calculating a Fund's NAV will be 
contained in the Registration Statement for its Shares.
    \9\ ``Authorized Participants'' will be either: (1) 
``participating parties,'' i.e., brokers or other participants in 
the Continuous Net Settlement System (``CNS System'') of the 
National Securities Clearing Corporation (``NSCC''), a clearing 
agency registered with the Commission and affiliated with the 
Depository Trust Company (``DTC''), or (2) DTC participants, which 
in either case have executed participant agreements with the Funds' 
distributor and transfer agent regarding the creation and redemption 
of Creation Units. Investors will not have to be Authorized 
Participants in order to transact in Creation Units, but must place 
an order through and make appropriate arrangements with an 
Authorized Participant for such transactions.
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    The creation and redemption process for Funds may be effected ``in 
kind,'' in cash, or in a combination of securities and cash. Creation 
``in kind'' means that an Authorized Participant--usually a brokerage 
house or large institutional investor--purchases the Creation Unit with 
a basket of securities equal in value to the aggregate NAV of the 
Shares in the Creation Unit. When an Authorized Participant redeems a 
Creation Unit in kind, it receives a basket of securities equal in 
value to the aggregate NAV of the Shares in the Creation Unit.\10\
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    \10\ In compliance with Nasdaq Rule 5745(b)(5), which applies to 
Shares based on an international or global portfolio, the Trust's 
application for exemptive relief under the Investment Company Act 
states that each Fund will comply with the federal securities laws 
in accepting securities for deposits and satisfying redemptions with 
securities, including that the securities accepted for deposits and 
the securities used to satisfy redemption requests are sold in 
transactions that would be exempt from registration under the 
Securities Act of 1933, as amended (15 U.S.C. 77a) (``Securities 
Act'').
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Composition File
    As defined in Nasdaq Rule 5745(c)(3), the Composition File is the 
specified portfolio of securities and/or cash that a Fund will accept 
as a deposit in issuing a Creation Unit of Shares, and the specified 
portfolio of securities and/or cash that a Fund will deliver in a 
redemption of a Creation Unit of Shares. The Composition File will be 
disseminated through the NSCC once each business day before the open of 
trading in Shares on such day and also will be made available to the 
public each day on a free Web site.\11\ Because the Funds seek to 
preserve the confidentiality of their current portfolio trading 
program, a Fund's Composition File generally will not be a pro rata 
reflection of the Fund's investment positions. Each security included 
in the Composition File will be a current holding of the Fund, but the 
Composition File generally will not include all of the securities in 
the Fund's portfolio or match the weightings of the included securities 
in the portfolio. Securities that the Adviser is in the process of 
acquiring for a Fund generally will not be represented in the Fund's 
Composition File until their purchase has been completed. Similarly, 
securities that are held in a Fund's portfolio but in the process of 
being sold may not be removed from its Composition File until the sale 
program is substantially completed. Funds creating and redeeming Shares 
in kind will use cash amounts to supplement the in-kind transactions to 
the extent necessary to ensure that Creation Units are purchased and 
redeemed at NAV. The Composition File also may consist entirely of 
cash, in which case it will

[[Page 49343]]

not include any of the securities in the Fund's portfolio.\12\
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    \11\ The free Web site containing the Composition File will be 
www.nextshares.com.
    \12\ In determining whether a Fund will issue or redeem Creation 
Units entirely on a cash basis, the key consideration will be the 
benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution for a Fund than Authorized Participants because of 
the Adviser's size, experience and potentially stronger 
relationships in the fixed-income markets.
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Transaction Fees
    All persons purchasing or redeeming Creation Units of a Fund are 
expected to incur a transaction fee to cover the estimated cost to that 
Fund of processing the transaction, including the costs of clearance 
and settlement charged to it by NSCC or DTC, and the estimated trading 
costs (i.e., brokerage commissions, bid-ask spread and market impact) 
to be incurred in converting the Composition File to or from the 
desired portfolio holdings. The transaction fee is determined daily and 
will be limited to amounts determined by the Adviser to be appropriate 
to defray the expenses that a Fund incurs in connection with the 
purchase or redemption of Creation Units. The purpose of transaction 
fees is to protect a Fund's existing shareholders from the dilutive 
costs associated with the purchase and redemption of Creation Units. 
Transaction fees will differ among Funds and may vary over time for a 
given Fund depending on the estimated trading costs for its portfolio 
positions and Composition File, processing costs and other 
considerations. Funds that specify greater amounts of cash in their 
Composition File may impose higher transaction fees. In addition, Funds 
that include in their Composition File instruments that clear through 
DTC may impose higher transaction fees than Funds whose Composition 
File consists solely of instruments that clear through NSCC, because 
DTC may charge more than NSCC in connection with Creation Unit 
transactions.\13\ The transaction fees applicable to each Fund's 
purchases and redemptions on a given business day will be disseminated 
through the NSCC prior to the open of market trading on that day and 
also will be made available to the public each day on a free Web 
site.\14\ In all cases, the transaction fees will be limited in 
accordance with the requirements of the Commission applicable to open-
end management investment companies offering redeemable securities.
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    \13\ Authorized Participants that participate in the CNS System 
of the NSCC are expected to be able to use the enhanced NSCC/CNS 
process for effecting in-kind purchases and redemptions of ETFs (the 
``NSCC Process'') to purchase and redeem Creation Units of Funds 
that limit the composition of their baskets to include only NSCC 
Process-eligible instruments (generally domestic equity securities 
and cash). Because the NSCC Process is generally more efficient than 
the DTC clearing process, NSCC is likely to charge a Fund less than 
DTC to settle purchases and redemptions of Creation Units.
    \14\ The free Web site will be www.nextshares.com.
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NAV-Based Trading
    Because Shares will be listed and traded on the Exchange, Shares 
will be available for purchase and sale on an intraday basis. Shares 
will be purchased and sold in the secondary market at prices directly 
linked to a Fund's next-determined NAV using a new trading protocol 
called ``NAV-Based Trading.'' \15\ All bids, offers and execution 
prices of Shares will be expressed as a premium/discount (which may be 
zero) to a Fund's next-determined NAV (e.g., NAV-$0.01, NAV+$0.01). A 
Fund's NAV will be determined each business day, normally as of 4:00 
p.m. E.T. Trade executions will be binding at the time orders are 
matched on Nasdaq's facilities, with the transaction prices contingent 
upon the determination of NAV.
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    \15\ Aspects of NAV-Based Trading are protected intellectual 
property subject to issued and pending U.S. patents held by 
NextShares Solutions LLC (``NextShares Solutions''), a wholly owned 
subsidiary of Eaton Vance Corp. Nasdaq has entered into a license 
agreement with NextShares Solutions to allow for NAV-Based Trading 
on the Exchange of exchange-traded managed funds that have 
themselves entered into license agreements with NextShares 
Solutions.
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Trading Premiums and Discounts
    Bid and offer prices for Shares will be quoted throughout the day 
relative to NAV. The premium or discount to NAV at which Share prices 
are quoted and transactions are executed will vary depending on market 
factors, including the balance of supply and demand for Shares among 
investors, transaction fees and other costs in connection with creating 
and redeeming Creation Units of Shares, the cost and availability of 
borrowing Shares, competition among market makers, the Share inventory 
positions and inventory strategies of market makers, the profitability 
requirements and business objectives of market makers, and the volume 
of Share trading. Reflecting such market factors, prices for Shares in 
the secondary market may be above, at or below NAV. Funds with higher 
transaction fees may trade at wider premiums or discounts to NAV than 
other Funds with lower transaction fees, reflecting the added costs to 
market makers of managing their Share inventory positions through 
purchases and redemptions of Creation Units.
    Because making markets in Shares will be simple to manage and low 
risk, competition among market makers seeking to earn reliable, low-
risk profits should enable the Shares to routinely trade at tight bid-
ask spreads and narrow premiums/discounts to NAV. As noted below, the 
Funds will maintain a public Web site that will be updated on a daily 
basis to show current and historical trading spreads and premiums/
discounts of Shares trading in the secondary market.\16\
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    \16\ The Web site containing this information will be 
www.ivyinvestments.com.
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Transmitting and Processing Orders
    Member firms will utilize certain existing order types and 
interfaces to transmit Share bids and offers to Nasdaq, which will 
process Share trades like trades in shares of other listed 
securities.\17\ In the systems used to transmit and process 
transactions in Shares, a Fund's next-determined NAV will be 
represented by a proxy price (e.g., 100.00) and a premium/discount of a 
stated amount to the next-determined NAV to be represented by the same 
increment/decrement from the proxy price used to denote NAV (e.g., NAV-
$0.01 would be represented as 99.99; NAV+$0.01 as 100.01).
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    \17\ As noted below, all orders to buy or sell Shares that are 
not executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. Prior to the 
commencement of trading in a Fund, the Exchange will inform its 
members in an Information Circular of the effect of this 
characteristic on existing order types.
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    To avoid potential investor confusion, Nasdaq will work with member 
firms and providers of market data services to seek to ensure that 
representations of intraday bids, offers and execution prices of Shares 
that are made available to the investing public follow the ``NAV-$0.01/
NAV+$0.01'' (or similar) display format. All Shares listed on the 
Exchange will have a unique identifier associated with their ticker 
symbols, which would indicate that the Shares are traded using NAV-
Based Trading. Nasdaq makes available to member firms and market data 
services certain proprietary data feeds that are designed to supplement 
the market information disseminated through the consolidated tape 
(``Consolidated Tape''). Specifically, the Exchange will use the NASDAQ 
Basic and NASDAQ Last Sale data feeds to disseminate intraday price and 
quote data for Shares in real time in the ``NAV-$0.01/NAV+$0.01'' (or 
similar) display format. Member firms could use the NASDAQ Basic and 
NASDAQ Last Sale data feeds to source intraday Share prices for 
presentation to the investing public in the ``NAV-$0.01/

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NAV+$0.01'' (or similar) display format. Alternatively, member firms 
could source intraday Share prices in proxy price format from the 
Consolidated Tape and other Nasdaq data feeds (e.g., Nasdaq TotalView 
and Nasdaq Level 2) and use a simple algorithm to convert prices into 
the ``NAV-$0.01/NAV+$0.01'' (or similar) display format. As noted 
below, prior to the commencement of trading in a Fund, the Exchange 
will inform its members in an Information Circular of the identities of 
the specific Nasdaq data feeds from which intraday Share prices in 
proxy price format may be obtained.
Intraday Reporting of Quotes and Trades
    All bids and offers for Shares and all Share trade executions will 
be reported intraday in real time by the Exchange to the Consolidated 
Tape \18\ and separately disseminated to member firms and market data 
services through the Exchange data feeds listed above. The Exchange 
will also provide the member firms participating in each Share trade 
with a contemporaneous notice of trade execution, indicating the number 
of Shares bought or sold and the executed premium/discount to NAV.\19\
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    \18\ Due to systems limitations, the Consolidated Tape will 
report intraday execution prices and quotes for Shares using a proxy 
price format. As noted, Nasdaq will separately report real-time 
execution prices and quotes to member firms and providers of market 
data services in the ``NAV-$0.01/NAV+$0.01'' (or similar) display 
format, and otherwise seek to ensure that representations of 
intraday bids, offers and execution prices for Shares that are made 
available to the investing public follow the same display format.
    \19\ All orders to buy or sell Shares that are not executed on 
the day the order is submitted will be automatically cancelled as of 
the close of trading on such day.
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Final Trade Pricing, Reporting and Settlement
    All executed Share trades will be recorded and stored intraday by 
Nasdaq to await the calculation of such Fund's end-of-day NAV and the 
determination of final trade pricing. After a Fund's NAV is calculated 
and provided to the Exchange, Nasdaq will price each Share trade 
entered into during the day at the Fund's NAV plus/minus the trade's 
executed premium/discount. Using the final trade price, each executed 
Share trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.\20\ After the pricing is finalized, Nasdaq will deliver the 
Share trading data to NSCC for clearance and settlement, following the 
same processes used for the clearance and settlement of trades in other 
exchange-traded securities.
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    \20\ File Transfer Protocol (``FTP'') is a standard network 
protocol used to transfer computer files on the Internet. Nasdaq 
will arrange for the daily dissemination of an FTP file with 
executed Share trades to member firms and market data services.
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Availability of Information
    Prior to the commencement of market trading in Shares, the Funds 
will be required to establish and maintain a public Web site through 
which the current prospectus for each Fund may be downloaded.\21\ In 
addition, a separate Web site (www.nextshares.com) will include 
additional Fund information updated on a daily basis, including the 
prior business day's NAV, and the following trading information for 
such business day expressed as premiums/discounts to NAV: (a) Intraday 
high, low, average and closing prices of Shares in Exchange trading; 
(b) the midpoint of the highest bid and lowest offer prices as of the 
close of Exchange trading, expressed as a premium/discount to NAV (the 
``Closing Bid/Ask Midpoint''); and (c) the spread between highest bid 
and lowest offer prices as of the close of Exchange trading (the 
``Closing Bid/Ask Spread.''). The Web site at www.nextshares.com will 
also contain charts showing the frequency distribution and range of 
values of trading prices, Closing Bid/Ask Midpoints and Closing Bid/Ask 
Spreads over time.
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    \21\ See footnote 16.
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    The Composition File will be disseminated through the NSCC before 
the open of trading in Shares on each business day and also will be 
made available to the public each day on a free Web site as noted 
above.\22\ Consistent with the disclosure requirements that apply to 
traditional open-end investment companies, a complete list of current 
Fund portfolio positions will be made available at least once each 
calendar quarter, with a reporting lag of not more than 60 days. Funds 
may provide more frequent disclosures of portfolio positions at their 
discretion.
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    \22\ See footnote 11.
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    Reports of Share transactions will be disseminated to the market 
and delivered to the member firms participating in the trade 
contemporaneous with execution. Once a Fund's daily NAV has been 
calculated and disseminated, Nasdaq will price each Share trade entered 
into during the day at the Fund's NAV plus/minus the trade's executed 
premium/discount. Using the final trade price, each executed Share 
trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.
    Information regarding NAV-based trading prices, best bids and 
offers for Shares, and volume of Shares traded will be continuously 
available on a real-time basis throughout each trading day on brokers' 
computer screens and other electronic services.
Initial and Continued Listing
    Shares will conform to the initial and continued listing criteria 
as set forth under Nasdaq Rule 5745. A minimum of 50,000 Shares and no 
less than two Creation Units of each Fund will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily (on each business day that the New York Stock 
Exchange is open for trading) and provided to Nasdaq via the Mutual 
Fund Quotation Service (``MFQS'') by the fund accounting agent. As soon 
as the NAV is entered into MFQS, Nasdaq will disseminate the value to 
market participants and market data vendors via the Mutual Fund 
Dissemination Service (``MFDS'') so all firms will receive the NAV per 
share at the same time. The Reporting Authority \23\ also will ensure 
that the Composition File will implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding each Fund's portfolio 
positions and changes in the positions.
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    \23\ See Nasdaq Rule 5745(c)(4).
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    For each Fund, an estimated value of an individual Share, defined 
in Nasdaq Rule 5745(c)(2) as the ``Intraday Indicative Value,'' will be 
calculated and disseminated at intervals of not more than 15 minutes 
throughout the Regular Market Session \24\ when Shares trade on the 
Exchange. The Exchange will obtain a representation from the issuer of 
the Shares that the IIV will be calculated on an intraday basis and 
provided to Nasdaq for dissemination via the Nasdaq Global Index 
Service (``GIDS''). The IIV will be based on current information 
regarding the value

[[Page 49345]]

of the securities and other assets held by a Fund.\25\ The purpose of 
the IIVs is to enable investors to estimate the next-determined NAV so 
they can determine the number of Shares to buy or sell if they want to 
transact in an approximate dollar amount (e.g., if an investor wants to 
acquire approximately $5,000 of a Fund, how many Shares should the 
investor buy?).\26\
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    \24\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
    \25\ IIVs disseminated throughout each trading day would be 
based on the same portfolio as used to calculate that day's NAV. 
Funds will reflect purchases and sales of portfolio positions in 
their NAV the next business day after trades are executed.
    \26\ Because, in NAV-Based Trading, prices of executed trades 
are not determined until the reference NAV is calculated, buyers and 
sellers of Shares during the trading day will not know the final 
value of their purchases and sales until the end of the trading day. 
A Fund's Registration Statement, Web site and any advertising or 
marketing materials will include prominent disclosure of this fact. 
Although IIVs may provide useful estimates of the value of intraday 
trades, they cannot be used to calculate with precision the dollar 
value of the Shares to be bought or sold.
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    The Adviser is not a registered broker-dealer, although it is 
affiliated with a broker-dealer. The Adviser has implemented a fire 
wall with respect to its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to each Fund's 
portfolio. In the future event that (a) the Adviser registers as a 
broker-dealer or becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or a sub-adviser to a Fund is a registered broker-
dealer or becomes affiliated with a broker-dealer, it will implement a 
fire wall with respect to its relevant personnel and/or such broker-
dealer affiliate, if applicable, regarding access to information 
concerning the composition and/or changes to the relevant Fund's 
portfolio and will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
portfolio.
Trading Halts
    The Exchange may consider all relevant factors in exercising its 
discretion to halt or suspend trading in Shares. Nasdaq will halt 
trading in Shares under the conditions specified in Nasdaq Rule 4120 
and in Nasdaq Rule 5745(d)(2)(C). Additionally, Nasdaq may cease 
trading Shares if other unusual conditions or circumstances exist 
which, in the opinion of Nasdaq, make further dealings on Nasdaq 
detrimental to the maintenance of a fair and orderly market. To manage 
the risk of a non-regulatory Share trading halt, Nasdaq has in place 
back-up processes and procedures to ensure orderly trading. Because, in 
NAV-Based Trading, all trade execution prices are linked to end-of-day 
NAV, buyers and sellers of Shares should be less exposed to risk of 
loss due to intraday trading halts than buyers and sellers of 
conventional exchange-traded funds (``ETFs'') and other exchange-traded 
securities.
Trading Rules
    Nasdaq deems Shares to be equity securities, thus rendering trading 
in Shares to be subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in Shares from 
9:30 a.m. until 4:00 p.m. E.T.
    Every order to trade Shares of the Funds is subject to the proxy 
price protection threshold of plus/minus $1.00, which determines the 
lower and upper threshold for the life of the order and whereby the 
order will be cancelled at any point if it exceeds $101.00 or falls 
below $99.00, the established thresholds.\27\ With certain exceptions, 
each order also must contain the applicable order attributes, including 
routing instructions and time-in-force information, as described in 
Nasdaq Rule 4703.\28\
---------------------------------------------------------------------------

    \27\ See Nasdaq Rule 5745(h).
    \28\ See Nasdaq Rule 5745(b)(6).
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in Shares will be subject to 
the existing trading surveillances, administered by both Nasdaq and the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\29\ The Exchange represents 
that these procedures are adequate to properly monitor trading of 
Shares on the Exchange and to deter and detect violations of Exchange 
rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \29\ FINRA provides surveillance of trading on the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG'') \30\ regarding trading in Shares, and in 
exchange-traded securities and instruments held by the Funds (to the 
extent such exchange-traded securities and instruments are known 
through the publication of the Composition File and periodic public 
disclosures of a Fund's portfolio holdings), and FINRA may obtain 
trading information regarding such trading from other markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in Shares, and in exchange-traded securities and instruments 
held by the Funds (to the extent such exchange-traded securities and 
instruments are known through the publication of the Composition File 
and periodic public disclosures of a Fund's portfolio holdings), from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \30\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of a 
Fund's portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material non-public information by its employees.
Information Circular
    Prior to the commencement of trading in a Fund, the Exchange will 
inform its members in an Information Circular of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Circular will discuss the following: (1) 
The procedures for purchases and redemptions of Shares in Creation 
Units (and noting that Shares are not individually redeemable); (2) 
Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq 
members with respect to recommending transactions in Shares to 
customers; (3) how information regarding the IIV and Composition File 
is disseminated; (4) the requirement that members deliver a prospectus 
to investors purchasing Shares prior to or concurrently with the 
confirmation of a transaction; and (5) information regarding NAV-Based 
Trading protocols.
    As noted above, all orders to buy or sell Shares that are not 
executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. The Information 
Circular will discuss the effect of this characteristic on existing 
order types. The Information Circular also will

[[Page 49346]]

identify the specific Nasdaq data feeds from which intraday Share 
prices in proxy price format may be obtained.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Funds. Members purchasing Shares from a Fund for 
resale to investors will deliver a summary prospectus to such 
investors. The Information Circular will also discuss any exemptive, 
no-action and interpretive relief granted by the Commission from any 
rules under the Act.
    The Information Circular also will reference that the Funds are 
subject to various fees and expenses described in the Registration 
Statements. The Information Circular will also disclose the trading 
hours of the Shares and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares will be publicly available at www.nextshares.com.
    Information regarding Fund trading protocols will be disseminated 
to Nasdaq members in accordance with current processes for newly listed 
products. Nasdaq intends to provide its members with a detailed 
explanation of NAV-Based Trading through a Trading Alert issued prior 
to the commencement of trading in Shares on the Exchange.
Continued Listing Representations
    All statements and representations made in this filing regarding 
(a) the description of the Funds' portfolios, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules and surveillance procedures shall constitute continued 
listing requirements for listing the Shares of the Funds on the 
Exchange. The issuer has represented to the Exchange that it will 
advise the Exchange of any failure by any Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will monitor for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Nasdaq Rule 5800, et. seq.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \31\ in general, and Section 6(b)(5) of the Act \32\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares would be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5745. The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of Shares on Nasdaq and to deter and 
detect violations of Exchange rules and the applicable federal 
securities laws. The Adviser is not registered as a broker-dealer, but 
it is affiliated with a broker-dealer. The Adviser has implemented a 
``fire wall'' between the Adviser and its broker-dealer affiliate with 
respect to access to information concerning the composition and/or 
changes to the Funds' portfolio holdings. The Exchange may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement, to the extent necessary.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
The Exchange will obtain a representation from each issuer of Shares 
that the NAV per Share will be calculated on each business day that the 
New York Stock Exchange is open for trading and that the NAV will be 
made available to all market participants at the same time. In 
addition, a large amount of information would be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency.
    Prior to the commencement of market trading in Shares, the Funds 
will be required to establish and maintain a public Web site through 
which the current prospectus for each Fund may be downloaded.\33\ In 
addition, a separate Web site (www.nextshares.com) will include 
additional Fund information updated on a daily basis, including the 
prior business day's NAV, and the following trading information for 
such business day expressed as premiums/discounts to NAV: (a) Intraday 
high, low, average and closing prices of Shares in Exchange trading; 
(b) the Closing Bid/Ask Midpoint; and (c) the Closing Bid/Ask Spread. 
The Web site at www.nextshares.com will also contain charts showing the 
frequency distribution and range of values of trading prices, Closing 
Bid/Ask Midpoints and Closing Bid/Ask Spreads over time.
---------------------------------------------------------------------------

    \33\ See footnote 16.
---------------------------------------------------------------------------

    The Composition File will be disseminated through the NSCC before 
the open of trading in Shares on each business day and also will be 
made available to the public each day on a free Web site.\34\ The 
Exchange will obtain a representation from the issuer of the Shares 
that the IIV will be calculated and disseminated on an intraday basis 
at intervals of not more than 15 minutes during trading on the Exchange 
and provided to Nasdaq for dissemination via GIDS. A complete list of 
current portfolio positions for the Funds will be made available at 
least once each calendar quarter, with a reporting lag of not more than 
60 days. Funds may provide more frequent disclosures of portfolio 
positions at their discretion.
---------------------------------------------------------------------------

    \34\ See footnote 11.
---------------------------------------------------------------------------

    Transactions in Shares will be reported to the Consolidated Tape at 
the time of execution in proxy price format and will be disseminated to 
member firms and market data services through Nasdaq's trading service 
and market data interfaces, as defined above. Once each Fund's daily 
NAV has been calculated and the final price of its intraday Share 
trades has been determined, Nasdaq will deliver a confirmation with 
final pricing to the transacting parties. At the end of the day, Nasdaq 
will also post a newly created FTP file with the final transaction data 
for the trading and market data services. The Exchange expects that 
information regarding NAV-based trading prices and volumes of Shares 
traded will be continuously available on a real-time basis throughout 
each trading day on brokers' computer screens and other electronic 
services. Because Shares will trade at prices based on the next-
determined NAV, investors will be able to buy and sell individual 
Shares at a known premium or discount to NAV that they can limit by 
transacting using limit orders at the time of order entry. Trading in 
Shares will be subject to Nasdaq Rules 5745(d)(2)(B) and (C), which 
provide for the suspension of trading or trading halts under certain 
circumstances, including if, in the view of the Exchange, trading in 
Shares becomes inadvisable.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect

[[Page 49347]]

investors and the public interest in that it will facilitate the 
listing and trading of the Funds, which seek to provide investors with 
access to a broad range of actively managed investment strategies in a 
structure that offers the cost and tax efficiencies and shareholder 
protections of ETFs, while removing the requirement for daily portfolio 
holdings disclosure to ensure a tight relationship between market 
trading prices and NAV.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the introduction of the Funds would promote 
competition by making available to investors a broad range of actively 
managed investment strategies in a structure that offers the cost and 
tax efficiencies and shareholder protections of ETFs, while removing 
the requirement for daily portfolio holdings disclosure to ensure a 
tight relationship between market trading prices and NAV. Moreover, the 
Exchange believes that the proposed method of Share trading would 
provide investors with transparency of trading costs, and the ability 
to control trading costs using limit orders, that is not available for 
conventionally traded ETFs.
    These developments could significantly enhance competition to the 
benefit of the markets and investors.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(a) By order approve or disapprove such proposed rule change; or (b) 
institute proceedings to determine whether the proposed rule change 
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-103 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-103. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-103 and should 
be submitted on or before August 17, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17671 Filed 7-26-16; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices 49341

IV. Solicitation of Comments For the Commission, by the Division of Exchange has prepared summaries, set
Trading and Markets, pursuant to delegated forth in sections A, B, and C below, of
Interested persons are invited to authority.18 the most significant aspects of such
submit written data, views, and Robert W. Errett, statements.
arguments concerning the foregoing, Deputy Secretary.
including whether the proposed rule A. Self-Regulatory Organization’s
[FR Doc. 2016–17676 Filed 7–26–16; 8:45 am]
change is consistent with the Act. Statement of the Purpose of, and the
BILLING CODE 8011–01–P
Statutory Basis for, the Proposed Rule
Comments may be submitted by any of
Change
the following methods:
SECURITIES AND EXCHANGE 1. Purpose
Electronic Comments COMMISSION The Exchange proposes to list and
• Use the Commission’s Internet [Release No. 34–78385; File No. SR– trade the Shares of each Fund under
comment form (http://www.sec.gov/ NASDAQ–2016–103] Nasdaq Rule 5745, which governs the
rules/sro.shtml); or listing and trading of exchange-traded
Self-Regulatory Organizations; The managed fund shares, as defined in
• Send an email to rule-comments@ Nasdaq Stock Market LLC; Notice of Nasdaq Rule 5745(c)(1), on the
sec.gov. Please include File Number SR– Filing of Proposed Rule Change, as Exchange.3 Each Fund listed below will
BOX–2016–33 on the subject line. Modified by Amendment No. 1 Thereto, be advised by an investment adviser
Paper Comments to List and Trade Exchange-Traded registered under the Investment
Managed Funds Advisers Act of 1940 (‘‘Adviser’’), as
• Send paper comments in triplicate described below. Each Fund will be
July 21, 2016.
to Secretary, Securities and Exchange actively managed and will pursue
Commission, 100 F Street NE., Pursuant to Section 19(b)(1) of the various principal investment strategies,
Securities Exchange Act of 1934 as noted below.4
Washington, DC 20549–1090.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
All submissions should refer to File notice is hereby given that on July 13, Ivy NextSharesTM
Number SR–BOX–2016–33. This file 2016, The Nasdaq Stock Market LLC Ivy NextSharesTM (the ‘‘Trust’’) is
number should be included on the (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the registered with the Commission as an
subject line if email is used. To help the Securities and Exchange Commission open-end investment company and has
Commission process and review your (‘‘SEC’’ or ‘‘Commission’’) the proposed filed a registration statement on Form
comments more efficiently, please use rule change as described in Items I and N–1A (‘‘Registration Statement’’) with
only one method. The Commission will II below, which Items have been the Commission.5 Each of the following
post all comments on the Commission’s prepared by the Exchange. On July 14, Funds is a series of the Trust.6
Internet Web site (http://www.sec.gov/ 2016, the Exchange filed Amendment Ivy Investment Management Company
rules/sro.shtml). Copies of the No. 1 to the proposed rule change, (‘‘IICO’’ or the ‘‘Adviser’’) will be the
submission, all subsequent which amended and replaced the adviser to the Funds. IICO is not a
amendments, all written statements original filing in its entirety. The registered broker-dealer, although it is
Commission is publishing this notice to affiliated with a broker-dealer. IICO has
with respect to the proposed rule
solicit comments on the proposed rule implemented a fire wall with respect to
change that are filed with the
change, as modified by Amendment No. its affiliated broker-dealer regarding
Commission, and all written 1 thereto, from interested persons. access to information concerning the
communications relating to the composition and/or changes to each
proposed rule change between the I. Self-Regulatory Organization’s
Fund’s portfolio.7 In the future event
Commission and any person, other than Statement of the Terms of Substance of
those that may be withheld from the the Proposed Rule Change 3 The Commission approved Nasdaq Rule 5745 in

public in accordance with the The Exchange proposes to list and Securities Exchange Act Release No. 34–73562
provisions of 5 U.S.C. 552, will be trade under Nasdaq Rule 5745 (Nov. 7, 2014), 79 FR 68309 (Nov. 14, 2014) (SR–
NASDAQ–2014–020).
available for Web site viewing and (Exchange-Traded Managed Fund 4 Additional information regarding the Funds will
printing in the Commission’s Public Shares (‘‘NextShares’’)) the common be available on one of two free public Web sites
Reference Room, 100 F Street NE., shares (‘‘Shares’’) of the exchange- (www.ivyinvestments.com or www.nextshares.com,
traded managed funds described herein as indicated more fully below), as well as in the
Washington, DC 20549 on official Registration Statement for the Funds.
business days between the hours of (each, a ‘‘Fund,’’ and collectively, the 5 See Registration Statement on Form N–1A for

10:00 a.m. and 3:00 p.m. Copies of such ‘‘Funds’’). the Trust dated April 18, 2016 (File Nos. 333–
filing also will be available for 210814 and 811–23155).
II. Self-Regulatory Organization’s 6 The Commission has issued an order granting
inspection and copying at the principal Statement of the Purpose of, and the Trust and certain affiliates exemptive relief
office of the Exchange. All comments Statutory Basis for, the Proposed Rule under the Investment Company Act. See Investment
received will be posted without change; Change Company Act Release No. 31816 (Sept. 9, 2015)
the Commission does not edit personal (File No. 812–14526).
In its filing with the Commission, the 7 An investment adviser to an open-end fund is
identifying information from Exchange included statements required to be registered under the Investment
submissions. You should submit only concerning the purpose of and basis for Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
information that you wish to make result, the Adviser and its related personnel are
sradovich on DSK3GMQ082PROD with NOTICES

the proposed rule change and discussed subject to the provisions of Rule 204A–1 under the
available publicly. All submissions any comments it received on the Advisers Act relating to codes of ethics. This Rule
should refer to File Number SR–BOX– proposed rule change. The text of these requires investment advisers to adopt a code of
2016–33, and should be submitted on or statements may be examined at the ethics that reflects the fiduciary nature of the
before August 17,2016. relationship to clients as well as compliance with
places specified in Item IV below. The other applicable securities laws. Accordingly,
procedures designed to prevent the communication
1 15 U.S.C. 78s(b)(1). and misuse of non-public information by an
18 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. Continued

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Document Created: 2018-02-08 08:02:28
Document Modified: 2018-02-08 08:02:28
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 49341