81_FR_58132 81 FR 57968 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5735 To Adopt Generic Listing Standards for Managed Fund Shares

81 FR 57968 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5735 To Adopt Generic Listing Standards for Managed Fund Shares

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 164 (August 24, 2016)

Page Range57968-57977
FR Document2016-20210

Federal Register, Volume 81 Issue 164 (Wednesday, August 24, 2016)
[Federal Register Volume 81, Number 164 (Wednesday, August 24, 2016)]
[Notices]
[Pages 57968-57977]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-20210]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78616; File No. SR-NASDAQ-2016-104]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5735 To 
Adopt Generic Listing Standards for Managed Fund Shares

August 18, 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 August 16, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 amend Nasdaq Rule 5735 to adopt generic 
listing standards for Managed Fund Shares.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 5735 to adopt generic 
listing standards for Managed Fund Shares, as well as to make 
additional changes as described below. Under the Exchange's current 
rules, a proposed rule change must be filed with the Commission for the 
listing and trading of each new series of Managed Fund Shares. The 
Exchange believes that it is appropriate to codify certain rules within 
Rule 5735 that would generally eliminate the need for such proposed 
rule changes, which would create greater efficiency and promote uniform 
standards in the listing process.\3\
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    \3\ Except as noted below, this proposed rule change is 
substantively identical to changes approved by the Commission to 
NYSE Arca Equities Rule 8.600. See Securities Exchange Act Release 
No. 78397 (July 22, 2016) (SR-NYSEArca-2015-110) (order approving 
generic listing standards for Managed Fund Shares listed per NYSE 
Arca Equities Rule 8.600). The definition of ``Exchange Traded 
Derivative Securities'' provided in proposed Rule 5735(c)(6) is 
similar to, but more narrow than, the definition of ``Derivative 
Securities Product'' used in NYSE Arca Rule 8.600 because the 
proposed definition of Exchange Traded Derivative Securities does 
not include an Exchange rule comparable to NYSE Arca Equities Rule 
8.400 (Paired Trust Shares). In addition, non-substantive changes 
are made in order to conform the proposal to the structure of the 
Exchange's current rules. See also Securities Exchange Act Release 
No. 78396 (July 22, 2016) (SR-BATS-2015-100) (order approving 
generic BATS listing standards for Managed Fund Shares).
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Background
    Rule 5735 sets forth certain rules related to the listing and 
trading of Managed Fund Shares.\4\ Under Rule 5735(c)(1), the term 
``Managed Fund Share'' means a security that:
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    \4\ See Securities Exchange Act Release No. 57962 (June 13, 
2008), 73 FR 35175 (June 20, 2008) (SR-NASDAQ-2008-039) (order 
approving Nasdaq Rule 4420(o) and listing and trading of shares of 
certain issues of Managed Fund Shares) (the ``Approval Order''). The 
Approval Order approved, among other things, the rules permitting 
the listing and trading of Managed Fund Shares. Rule 4420(o) was 
subsequently relocated to Rule 5735. See Securities Exchange Act 
Release No. 59663 (March 31, 2009), 74 FR 15552 (April 6, 2009) (SR-
NASDAQ-2009-018).
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    (a) Represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management investment 
company or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser (hereafter 
``Adviser'') consistent with the Investment Company's investment 
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for 
a deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a specified 
portfolio of securities and/or cash with a value equal to the next 
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an 
actively-managed open-end Investment Company (i.e., an actively-managed 
exchange-traded fund (``ETF'')). Because Managed Fund Shares are 
actively-managed, they do not seek to replicate the performance of a 
specified passive index of securities. Instead, they generally use an 
active investment strategy to seek to meet their investment objectives. 
In contrast, an open-end Investment Company that issues Index Fund 
Shares, listed and traded on the Exchange pursuant to Nasdaq Rule 
5705(b), seeks to provide investment results that generally correspond 
to the price and yield performance of a specific foreign or domestic 
stock index, fixed income securities index, or combination thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 5735 
(including pursuant to unlisted trading privileges) are subject to the 
full panoply of Exchange rules and procedures that currently govern the 
trading of equity securities on the Exchange.\5\
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    \5\ See Approval Order, note 4 above, at 35177.
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    In addition, Rule 5735(d) currently provides for the criteria that 
Managed Fund Shares must satisfy for initial and continued listing on 
the Exchange, including, for example, that a minimum number of Managed 
Fund Shares are required to be outstanding at the time of commencement 
of trading on the Exchange. However, the current process for listing 
and trading new series of Managed Fund Shares on the Exchange requires 
that the Exchange submit a proposed rule change with the Commission. In 
this regard, Rule 5735(b)(1) specifies that the Exchange will file 
separate proposals under Section 19(b) of the Act (hereafter, a 
``proposed rule change'') before listing and trading shares of an issue 
of Managed Fund Shares.

[[Page 57969]]

Proposed Changes to Rule 5735
    The Exchange proposes to amend Rule 5735(b)(1) to specify that the 
Exchange may approve Managed Fund Shares for listing and/or trading 
(including pursuant to unlisted trading privileges) pursuant to SEC 
Rule 19b-4(e) under the Act, which pertains to derivative securities 
products (``SEC Rule 19b-4(e)'').\6\ SEC Rule 19b-4(e)(1) provides that 
the listing and trading of a new derivative securities product by a 
self-regulatory organization (``SRO'') is not deemed a proposed rule 
change, pursuant to paragraph (c)(1) of Rule 19b-4,\7\ if the 
Commission has approved, pursuant to section 19(b) of the Act, the 
SRO's trading rules, procedures, and listing standards for the product 
class that would include the new derivative securities product and the 
SRO has a surveillance program for the product class. This is the 
current method pursuant to which ``passive'' ETFs are listed under 
Nasdaq Rule 5705.
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    \6\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product, or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument.
    \7\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
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    The Exchange would also specify within Rule 5735(b)(1) that 
components of Managed Fund Shares listed pursuant to SEC Rule 19b-4(e) 
must satisfy, upon initial listing and on a continual basis, certain 
specific criteria, which the Exchange would include within Rule 
5735(b)(1), as described in greater detail below. As proposed, the 
Exchange would continue to file separate proposed rule changes before 
the listing and trading of Managed Fund Shares with components that do 
not satisfy the additional criteria described below or components other 
than those specified below. For example, if the components of a Managed 
Fund Share exceeded one of the applicable thresholds, the Exchange 
would file a separate proposed rule change before listing and trading 
such Managed Fund Share. Similarly, if the components of a Managed Fund 
Share included a security or asset that is not specified below, the 
Exchange would file a separate proposed rule change.
    The Exchange would also add to Rule 5735(c) to provide that the Web 
site for each series of Managed Fund Shares shall disclose certain 
information regarding the Disclosed Portfolio, to the extent 
applicable. The required information includes the following, to the 
extent applicable: Ticker symbol, CUSIP or other identifier, a 
description of the holding, identity of the asset upon which the 
derivative is based, the strike price for any options, the quantity of 
each security or other asset held as measured by select metrics, 
maturity date, coupon rate, effective date, market value, and 
percentage weight of the holding in the portfolio.\8\
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    \8\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding. See, e.g., Securities Exchange Act Release No. 77688 (April 
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (the 
``Elkhorn Dorsey Wright Commodity Rotation Portfolio of Elkhorn ETF 
Trust Approval''), generally and at 14147. See also Securities 
Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30, 
2014) (SR-NYSEArca-2013-122) (the ``PIMCO Total Return Use of 
Derivatives Approval''), generally and at 44227.
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    In addition, the Exchange would amend Rule 5735(d) to specify that 
all Managed Fund Shares must have a stated investment objective, which 
must be adhered to under normal market conditions.\9\
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    \9\ The Exchange would also add a new defined term under Rule 
5735(c)(5) to specify 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 a natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    Finally, the Exchange would also amend the continued listing 
requirement in Rule 5735(d)(2)(A) by changing the requirement that an 
Intraday Indicative Value for Managed Fund Shares be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange to a requirement that an Intraday Indicative Value be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Regular Market Session (as defined in Nasdaq Rule 
4120(b)).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed 
Fund Shares to qualify for listing and trading pursuant to SEC Rule 
19b-4(e). These standards would be grouped according to security or 
asset type. The Exchange notes that the standards proposed for a 
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. 
Component Stocks, Exchange Traded Derivative Securities, and Linked 
Securities are based in large part on the existing equity security 
standards applicable to Index Fund Shares in Rule 5705(b)(3).
    The standards proposed for a Managed Fund Share portfolio that 
holds fixed income securities are based in large part on the existing 
fixed income security standards applicable to Index Fund Shares in Rule 
5705(b)(4). Many of the standards proposed for other types of holdings 
in a Managed Fund Share portfolio are based on previous proposed rule 
changes for specific series of Managed Fund Shares.\10\
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    \10\ See, e.g., Securities Exchange Act Release No. 77688 (April 
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (order 
approving listing and trading of Elkhorn Dorsey Wright Commodity 
Rotation Portfolio of Elkhorn ETF Trust). See also Securities 
Exchange Act Release Nos. 72728 (July 31, 2014) 79 FR 45852 (August 
6, 2014) (SR-NASDAQ-2014-059) (order approving listing and trading 
of Global X Commodities Strategy ETF); 72506 (July 1, 2014), 79 FR 
38631 (July 8, 2014) (SR-NASDAQ-2014-050) (order approving listing 
and trading of First Trust Strategic Income ETF); 69464 (April 26, 
2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order 
approving listing and trading of First Trust Senior Loan Fund); and 
66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-
2012-004) (order approving listing and trading of WisdomTree 
Emerging Markets Corporate Bond Fund). See also Securities Exchange 
Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9, 
2012) (SR-NYSEArca-2011-95) (the ``PIMCO Total Return Approval''); 
69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-
2013-08) (the ``SPDR Blackstone/GSO Senior Loan Approval''); 68870 
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (the ``First Trust Preferred Securities and Income 
Approval''); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR-
NYSEArca-2013-33) (the ``International Bear Approval''); 61697 
(March 12, 2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-2010-04) 
(the ``WisdomTree Real Return Approval''); and 67054 (May 24, 2012), 
77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-25) (the ``WisdomTree 
Brazil Bond Approval''). Certain standards proposed herein for 
Managed Fund Shares are also based on previous proposed rule changes 
for specific series of Index Fund Shares for which Commission 
approval for listing was required due to the Index Fund Shares not 
satisfying certain standards of Rule 5705(b)(3) and 5705(b)(4). On 
NYSE Arca, similar products under NYSE Commentary .01 and .02 to 
NYSE Arca Equities Rule 5.2(j)(3) are called Investment Company 
Units. See, e.g., Securities Exchange Act Release No. 69373 (April 
15, 2013), 78 FR 23601 (April 19, 2013) (SR-NYSEArca-2012-108) (the 
``NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund 
Approval'').
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    Proposed Rule 5735(b)(1)(A) would describe the standards for a 
Managed Fund Share portfolio that holds equity securities, which are 
defined to be U.S. Component Stocks,\11\ Non-U.S. Component Stocks,\12\ 
Exchange Traded

[[Page 57970]]

Derivative Securities,\13\ and Linked Securities \14\ listed on a 
national securities exchange. For Exchange Traded Derivative Securities 
and Linked Securities, no more than 25% of the equity weight of the 
portfolio could include leveraged and/or inverse leveraged Exchange 
Traded Derivative Securities or Linked Securities. In addition, 
proposed rule 5735(b)(1)(A) would provide that, to the extent that a 
portfolio includes convertible securities, the equity security into 
which such security is converted would be required to meet the criteria 
of 5735(b)(1)(A) after converting.
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    \11\ For the purposes of Rule 5735(b)(1) and this proposal, the 
term ``U.S. Component Stocks'' would have the same meaning as 
defined in Rule 5705(b)(1)(D).
    \12\ For the purposes of Rule 5735(b)(1) and this proposal, the 
term ``Non-U.S. Component Stocks'' would have the same meaning as 
defined in Rule 5705(b)(1)(E).
    \13\ For the purposes of Rule 5735(b)(1)(A) and this proposal, 
proposed Rule 5735(c)(6) would define the term ``Exchange Traded 
Derivative Securities'' to mean the securities described in Nasdaq 
Rules 5705(a) (Portfolio Depository Receipts); 5705(b) (Index Fund 
Shares); 5720 (Trust Issued Receipts); 5711(d) (Commodity-Based 
Trust Shares); 5711(e) (Currency Trust Shares); 5711(f), (Commodity 
Index Trust Shares); 5711(g) (Commodity Futures Trust Shares); 
5711(h) (Partnership Units); 5711(i) (Trust Units); 5735 (Managed 
Fund Shares); and 5711(j) (Managed Trust Securities). This proposed 
definition is more narrow than the term ``Derivative Securities 
Product,'' as defined in Nasdaq Rule 4120(b)(4)(A) and used in Rule 
5705(b), because it excludes certain securities including 
NextShares. It is also more narrow than the term ``Derivative 
Securities Product'' as defined in commentary .01(a) to NYSE Arca 
Rule 8.600 because it excludes Paired Trust Shares.
    \14\ Linked Securities are securities that qualify for Exchange 
listing and trading under Rule 5710. The securities described in 
Rules 5705, 5710, and 5735(c)(6), as referenced above, would include 
securities listed on another national securities exchange pursuant 
to substantially equivalent listing rules.
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    As proposed in Rule 5735(b)(1)(A)(i), the component stocks of the 
equity portion of a portfolio that are U.S. Component Stocks shall meet 
the following criteria initially and on a continuing basis:
    (1) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum market value of at least $75 million; \15\
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    \15\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(i)a., except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (2) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum monthly trading volume of 250,000 shares or minimum 
notional volume traded per month of $25,000,000, averaged, over the 
last six months; \16\
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    \16\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(i)b., except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (3) The most heavily weighted component stock (excluding Exchange 
Traded Derivative Securities and Linked Securities) must not exceed 30% 
of the equity weight of the portfolio, and, to the extent applicable, 
the five most heavily weighted component stocks (excluding Exchange 
Traded Derivative Securities and Linked Securities) must not exceed 65% 
of the equity weight of the portfolio; \17\
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    \17\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(i)c., except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (4) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that there 
shall be no minimum number of component stocks if (a) one or more 
series of Exchange Traded Derivative Securities or Linked Securities 
constitute, at least in part, components underlying a series of Managed 
Fund Shares, or (b) one or more series of Exchange Traded Derivative 
Securities or Linked Securities account for 100% of the equity weight 
of the portfolio of a series of Managed Fund Shares; \18\
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    \18\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(i)d., except for the 
omission of the reference to ``index,'' which is not applicable, the 
addition of the reference to Linked Securities, the substitution of 
a more narrow exclusion for ``Exchange Traded Derivative 
Securities'' instead of for ``Derivative Securities Products,'' and 
the reference to the 100% limit applying to the ``equity portion'' 
of the portfolio.
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    (5) Except as provided in proposed Rule 5735(b)(1)(A), equity 
securities in the portfolio must be U.S. Component Stocks listed on a 
national securities exchange and must be NMS Stocks as defined in Rule 
600 of Regulation NMS; \19\ and
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    \19\ 17 CFR 240.600. This proposed text is substantively 
identical to the corresponding text of Rule 5705(b)(3)(A)(i)e., 
except for the addition of ``equity'' to make clear that the 
standard applies to ``equity securities,'' the exclusion of 
unsponsored ADRs, and the omission of the reference to ``index,'' 
which is not applicable.
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    (6) American Depositary Receipts (``ADRs'') may be exchange-traded 
or non-exchange-traded. However no more than 10% of the equity weight 
of the portfolio shall consist of non-exchange-traded ADRs.\20\
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    \20\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Shareholdings to include not more than 10% of net 
assets in unsponsored ADRs (which are not exchange-listed). See, 
e.g., Securities Exchange Act Release No. 73480 (October 31, 2014), 
79 FR 66022 (November 6, 2014) (SR-NASDAQ-2014-090) (order approving 
the Listing and Trading of Shares of the Validea Market Legends 
ETFs). See also Securities Exchange Act Release No. 71067 (December 
12, 2013), 78 FR 76669 (December 18, 2013) (order approving listing 
and trading of shares of the SPDR MFS Systematic Core Equity ETF, 
SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value 
Equity ETF under NYSE Arca Equities Rule 8.600).
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    As proposed in Rule 5735(b)(1)(A)(ii), the component stocks of the 
equity portion of a portfolio that are Non-U.S. Component Stocks shall 
meet the following criteria initially and on a continuing basis:
    (1) Non-U.S. Component Stocks each shall have a minimum market 
value of at least $100 million; \21\
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    \21\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 28, below. 
The proposed text is also substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(ii)a., except for the 
omission of the reference to ``index,'' which is not applicable, and 
that each Non-U.S. Component Stock must have a minimum market value 
of at least $100 million instead of the 90% required under Rule 
5705(b)(3)(A)(ii)a.
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    (2) Non-U.S. Component Stocks each shall have a minimum global 
monthly trading volume of 250,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \22\
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    \22\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 28, below. 
This proposed text also is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(ii)b., except for the 
omission of the reference to ``index,'' which is not applicable.
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    (3) The most heavily weighted Non-U.S. Component Stock shall not 
exceed 25% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted Non-U.S. Component Stocks 
shall not exceed 60% of the equity weight of the portfolio; \23\
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    \23\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(ii)c., except for the 
omission of the reference to ``index,'' which is not applicable.
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    (4) Where the equity portion of the portfolio includes Non-U.S. 
Component Stocks, the equity portion of the portfolio shall include a 
minimum of 20 component stocks; provided, however, that there shall be 
no minimum number of component stocks if (i) one or more series of 
Exchange Traded Derivative

[[Page 57971]]

Securities or Linked Securities constitute, at least in part, 
components underlying a series of Managed Fund Shares, or (ii) one or 
more series of Exchange Traded Derivative Securities or Linked 
Securities account for 100% of the equity weight of the portfolio of a 
series of Managed Fund Shares \24\; and
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    \24\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(3)(A)(ii)d., except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' the addition of the reference to Linked Securities, the 
reference to the equity portion of the portfolio including Non-U.S. 
Component Stocks, and the reference to the 100% limitation applying 
to the ``equity weight'' of the portfolio, which is included because 
the proposed standards in Rule 5735(b) permit the inclusion of non-
equity securities, whereas Rule 5705 applies only to equity 
securities.
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    (5) Each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting.\25\
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    \25\ This proposed text is substantively identical to Rule 
5705(b)(3)(A)(ii)e. as it relates to Non-U.S. Component Stocks.
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    The Exchange notes that it is not proposing to require that any of 
the equity portion of the equity portfolio composed of Non-U.S. 
Component Stocks be listed on markets that are either a member of the 
Intermarket Surveillance Group (``ISG'') or a market with which the 
Exchange has a comprehensive surveillance sharing agreement 
(``CSSA'').\26\ However, as further detailed below, the regulatory 
staff of the Exchange, or the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including U.S. securities exchanges on which the 
components are traded.
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    \26\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See 
www.isgportal.org. A list of ISG members is available at 
www.isgportal.org.
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    The Exchange notes that the generic listing standards for Index 
Fund Shares based on foreign indexes in Rule 5705 do not include 
specific ISG or CSSA requirements.\27\ In addition, the Commission has 
approved listing and trading on the Exchange of shares of an issue of 
Managed Fund Shares under Rule 5735 where non-U.S. equity securities in 
such issue's portfolio meet specified criteria and where there is no 
requirement that such non-U.S. equity securities are traded in markets 
that are members of ISG or with which the Exchange has in place a 
CSSA.\28\
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    \27\ Under Rule 5705(b)(3), Index Fund Shares with components 
that include Non-U.S. Component Stocks can hold a portfolio that is 
entirely composed of Non-U.S. Component Stocks that are listed on 
markets that are neither members of ISG, nor with which the Exchange 
has in place a CSSA.
    \28\ See, e.g., Securities Exchange Act Release No. 77548 (April 
6, 2016), 81 FR 21626 (April 12, 2016) (SR-NASDAQ-2015-161) (order 
approving listing and trading of the Shares of the First Trust 
RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia 
Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF, 
and First Trust RiverFront Dynamic Developed International ETF of 
First Trust Exchange-Traded Fund III) (the ``First Trust Approval 
Order''). See also Securities Exchange Act Release No. 75023 (May 
21, 2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order 
approving listing and trading on the Exchange of shares of the SPDR 
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 
8.600) (``SSgA Global Managed Volatility Release'').
---------------------------------------------------------------------------

    Proposed Rule 5735(b)(1)(B) would describe the standards for a 
Managed Fund Share portfolio that holds fixed income securities, which 
are debt securities \29\ that are notes, bonds, debentures, or evidence 
of indebtedness that include, but are not limited to, U.S. Department 
of Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof, investment grade and high yield corporate 
debt, bank loans, mortgage and asset backed securities, and commercial 
paper.
---------------------------------------------------------------------------

    \29\ Debt securities include a variety of fixed income 
obligations, including, but not limited to, corporate debt 
securities, government securities, municipal securities, convertible 
securities, and mortgage-backed securities. Debt securities include 
investment-grade securities, non-investment-grade securities, and 
unrated securities. Debt securities also include variable and 
floating rate securities.
---------------------------------------------------------------------------

    In addition, to the extent that a portfolio includes convertible 
securities, the fixed income security into which such security is 
converted would be required to meet the criteria of Rule 5735(b)(1)(B) 
after converting.
    The components of the fixed income portion of the portfolio must 
meet the following criteria initially and on a continuing basis:
    (1) Components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more; \30\
---------------------------------------------------------------------------

    \30\ This text of proposed Rule 5735(b)(1)(B)(i) is based on the 
corresponding text of Rule 5705(b)(4)(A)(ii).
---------------------------------------------------------------------------

    (2) No component fixed-income security (excluding Treasury 
Securities and GSE Securities) could represent more than 30% of the 
fixed income weight of the portfolio, and the five most heavily 
weighted component fixed income securities in the portfolio (excluding 
Treasury Securities and GSE Securities) must not in the aggregate 
account for more than 65% of the fixed income weight of the portfolio; 
\31\
---------------------------------------------------------------------------

    \31\ This proposed text is substantively identical to the 
corresponding text of 5705(b)(4)(A)(iv), except for the omission of 
the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) that 
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum 
number of non-affiliated issuers required for fixed income securities 
if at least 70% of the weight of the portfolio consists of equity 
securities as described in proposed Rule 5735(b)(1)(A).\32\
---------------------------------------------------------------------------

    \32\ This proposed text is substantively identical to the 
corresponding text of Rule 5705(b)(4)(A)(v), except for the omission 
of the reference to ``index,'' which is not applicable, the 
exclusion of the text ``consisting entirely of exempted securities'' 
and the provision that there shall be no minimum number of non-
affiliated issuers required for fixed income securities if at least 
70% of the weight of the portfolio consists of equity securities as 
described in proposed Rule 5735(b)(1)(A).
---------------------------------------------------------------------------

    (4) Component securities that in aggregate account for at least 90% 
of the fixed income weight of the portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 and 
15(d) of the Act; (b) from issuers that have a worldwide market value 
of its outstanding common equity held by non-affiliates of $700 million 
or more; (c) from issuers that have outstanding securities that are 
notes, bonds debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion \33\; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country; and
---------------------------------------------------------------------------

    \33\ With respect to subparagraphs (b) and (c) above, the 
special purpose vehicle (``SPV'') that issues the fixed income 
security (e.g., an asset-backed or mortgage-backed security) would 
itself be required to satisfy the $700 million and $1 billion 
criteria, respectively, and not the entity that controls, owns or is 
affiliated with the SPV.
---------------------------------------------------------------------------

    (5) Non-agency, non-GSE, and privately-issued mortgage-related and 
other asset-backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio.\34\
---------------------------------------------------------------------------

    \34\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include up to 20% of net assets in 
non-agency, non-GSE and privately-issued mortgage-related and other 
asset-backed securities. See, e.g., Securities Exchange Act Release 
No. 74742 (April 16, 2015) 80 FR 22584 (April 22, 2015) (SR-NASDAQ-
2015-011) (order approving the listing and trading of shares of the 
First Trust Strategic Floating Rate ETF of First Trust Exchange-
Traded Fund IV. See also, Securities Exchange Act Release No. 75566 
(July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-NYSEArca-2015-42) 
(order approving listing and trading of shares of Newfleet Multi-
Sector Unconstrained Bond ETF under Rule 8.600).

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[[Page 57972]]

    Proposed Rule 5735(b)(1)(C) would describe the standards for a 
Managed Fund Share portfolio that holds cash and cash equivalents.\35\ 
Specifically, the portfolio may hold short-term instruments with 
maturities of less than 3 months. There would be no limitation to the 
percentage of the portfolio invested in such holdings. Short-term 
instruments would include the following: \36\
---------------------------------------------------------------------------

    \35\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include cash and cash equivalents. 
See, e.g., note 10 above regarding approval of NYSE Arca's SPDR 
Blackstone/GSO Senior Loan, at 19768-69; and First Trust Preferred 
Securities and Income Approval, at 76150.
    \36\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly specified short-term instruments 
with respect to their inclusion in Managed Fund Share holdings. See, 
e.g., note 10 above, regarding NYSE Arca's First Trust Preferred 
Securities and Income Approval, at 76150-51.
---------------------------------------------------------------------------

    (1) U.S. Government securities, including bills, notes, and bonds 
differing as to maturity and rates of interest, which are either issued 
or guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities;
    (2) certificates of deposit issued against funds deposited in a 
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks 
or savings and loan associations for a stated period of time at a fixed 
rate of interest;
    (6) commercial paper, which are short-term unsecured promissory 
notes; and
    (7) money market funds.
    Proposed Rule 5735(b)(1)(D) would describe the standards for a 
Managed Fund Share portfolio that holds listed derivatives, including 
futures, options, and swaps on commodities, currencies, and financial 
instruments (e.g., stocks, fixed income, interest rates, and 
volatility) or a basket or index of any of the foregoing.\37\ There 
would be no limitation to the percentage of the portfolio invested in 
such holdings, subject to the following requirements:
---------------------------------------------------------------------------

    \37\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include listed derivatives. See, 
e.g., note 10 above, regarding NYSE Arca's WisdomTree Real Return 
Approval, at 13617; and WisdomTree Brazil Bond Approval, at 32163.
---------------------------------------------------------------------------

    (1) In the aggregate, at least 90% of the weight of such holdings 
invested in futures, exchange-traded options, and listed swaps shall, 
on both an initial and continuing basis, consist of futures, options, 
and swaps for which the Exchange may obtain information via the ISG 
from other members or affiliates of the ISG or for which the principal 
market is a market with which the Exchange has a comprehensive 
surveillance sharing agreement (For purposes of calculating this 
limitation, a portfolio's investment in listed derivatives will be 
calculated as the aggregate gross notional value of the listed 
derivatives.); and
    (2) the aggregate gross notional value of listed derivatives based 
on any five or fewer underlying reference assets shall not exceed 65% 
of the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based on 
any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).
    Proposed Rule 5735(b)(1)(E) would describe the standards for a 
Managed Fund Share portfolio that holds over the counter (``OTC'') 
derivatives, including forwards, options and swaps on commodities, 
currencies and financial instruments (e.g., stocks, fixed income, 
interest rates, and volatility) or a basket or index of any of the 
foregoing.\38\ Proposed Rule 5735(b)(1)(E) would provide that, on both 
an initial and continuing basis, no more than 20% of the assets in the 
portfolio may be invested in OTC derivatives. For purposes of 
calculating this limitation, a portfolio's investment in OTC 
derivatives will be calculated as the aggregate gross notional value of 
the OTC derivatives.
---------------------------------------------------------------------------

    \38\ A proposed rule change for series of Index Fund Shares 
previously listed and traded on the Exchange pursuant to Rule 5705 
similarly included the ability for such Index Fund Shares' holdings 
to include OTC derivatives, specifically OTC down-and-in put 
options, which are not NMS Stocks as defined in Rule 600 of 
Regulation NMS and therefore do not satisfy the requirements of Rule 
5705. See, e.g., note 10 above, regarding NYSE Arca U.S. Equity 
Synthetic Reverse Convertible Index Fund Approval, at 23602.
---------------------------------------------------------------------------

    Proposed Rule 5735(b)(1)(F) would provide that, to the extent that 
listed or OTC derivatives are used to gain exposure to individual 
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, the aggregate gross notional value of such 
exposure shall meet the criteria set forth in Rules 5735(b)(1)(A) and 
(B) (including gross notional exposures), respectively.
    The following examples illustrate how certain of the proposed 
generic criteria of Rule 5735 would be applied:
    1. An actively managed ETF holds non-agency MBS that represent 15% 
of the weight of the fixed income portion of the portfolio. The fixed 
income portion of the portfolio meets all the requirements of Rule 
5735(b)(1)(B). The ETF also holds an OTC swap on a non-agency MBS Index 
that represents 10% of the fixed income weight of the portfolio 
calculated on a notional value basis. Separately, the OTC swap and 
fixed income portion of the portfolio would meet the requirements of 
Rule 5735(b)(1). However, when the 15% weight in non-agency MBS and the 
10% weight in the non-agency MBS Index OTC swap are combined, as 
required by proposed 5735(b)(1)(F), the 25% total weight would exceed 
the 20% limit for non-agency GSE and privately-issued mortgage-related 
securities in 5735(b)(1)(B)(v). The portfolio, therefore, would not 
meet the proposed generic criteria of Rule 5735.
    2. An actively managed ETF holds a portfolio of non-U.S. equity 
securities, S&P 500 Index and gold futures. S&P 500 Index futures and 
the gold futures held by the fund are listed on an ISG member exchange. 
The equity portion of the portfolio consists of developed and emerging 
markets equity securities with a current aggregate market value of $15 
million and all components meet the requirements under Rule 
5735(b)(1)(A)(ii). The gold futures contract trading unit size is 100 
troy ounces and an ounce of gold is currently worth $1200. The fund 
holds 500 gold futures contracts with a notional value of $60 million 
(500*100*$1200). One S&P 500 contract represents 250 units of the S&P 
500 Index and the S&P 500 Index is trading at $2,000. The portfolio 
holds 50 contracts, so the notional value of the S&P 500 Index futures 
position is $25 million (50*250*$2000). The S&P 500 Index futures meet 
the requirement under Rule 5735(b)(1)(F), that is, the S&P 500 Index 
meets the criteria in Rule 5735(b)(1)(A). The weights of the components 
are as follows; equity securities represent 15% of the portfolio, gold 
futures represent 60% of the portfolio and S&P 500 Index futures 
represent 25% of the portfolio. The gold futures represent 60% of the 
portfolio and exceeds the 30% concentration limitation on any single 
underlying reference asset as outlined in proposed Rule 
5735(b)(1)(D)(ii). The portfolio, therefore, would not meet the 
proposed generic criteria of Rule 5735.

[[Page 57973]]

    3. An actively managed ETF holds a portfolio of equity securities 
and call option contracts on company XYZ. The equity portion of the 
portfolio meets the requirements under Rule 5735(b)(1)(A). Company XYZ 
represents 20% of the weight of the equity portion of the portfolio. 
The equity portion of the fund has a market value of $100 million and 
the market value of the fund's holdings in company XYZ has a market 
value of $20 million. The fund also holds 10,000 call option contracts 
on company XYZ which has a current market price of $50 a share and, 
therefore, a notional value of $50 million (50*100*10,000) (that is, 
the $50 market price per share times the multiplier of 100 times 10,000 
contracts). The option contracts are traded on an ISG member exchange. 
The total exposure to company XYZ is therefore $70 million and 
represents 46.7% ($70 million/$150 million=46.7%) of the portfolio. 
This fund would not meet the requirements of Rule 5735 because the 
exposure to XYZ at 46.7% exceeds the 30% concentration limitation of 
proposed Rule 5735(b)(1)(D)(ii).
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Managed Fund 
Shares. Additionally, the Exchange believes that the proposed portfolio 
standards for listing and trading Managed Fund Shares, many of which 
track existing Exchange rules relating to Index Fund Shares, are 
reasonably designed to promote a fair and orderly market for such 
Managed Fund Shares.\39\ These proposed standards would also work in 
conjunction with the existing initial and continued listing criteria 
related to surveillance procedures and trading guidelines.
---------------------------------------------------------------------------

    \39\ See note 4 above, Approval Order, at 35177.
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that: \40\
---------------------------------------------------------------------------

    \40\ The Exchange made similar representations in the Approval 
Order. See id. at 35177--35178.
---------------------------------------------------------------------------

    (1) The Managed Fund Shares will continue to conform to the initial 
and continued listing criteria under Rule 5735;
    (2) the Exchange's surveillance procedures are adequate to continue 
to properly monitor the trading of the Managed Fund Shares in all 
trading sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, which will include 
Managed Fund Shares, to monitor trading in the Managed Fund Shares;
    (3) prior to the commencement of trading of a particular series of 
Managed Fund Shares, the Exchange will inform its members in an 
information circular (``Circular'') of the special characteristics and 
risks associated with trading the Managed Fund Shares, including 
procedures for purchases and redemptions of Managed Fund Shares, 
suitability requirements under Rules 2090A and 2111A, the risks 
involved in trading the Managed Fund Shares during the Pre-Market and 
Post-Market Sessions when an updated Portfolio Indicative Value will 
not be calculated or publicly disseminated, information regarding the 
Portfolio Indicative Value and the Disclosed Portfolio, prospectus 
delivery requirements, and other trading information. In addition, the 
Circular will disclose that the Managed Fund Shares are subject to 
various fees and expenses, as described in the applicable registration 
statement, and will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. Finally, 
the Circular will disclose that the net asset value for the Managed 
Fund Shares will be calculated after 4 p.m., ET, each trading day; and
    (4) the issuer of a series of Managed Fund Shares will be required 
to comply with Rule 10A-3 under the Act for the initial and continued 
listing of Managed Fund Shares, as provided under the Nasdaq Rule 5600 
Series.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares generically listed pursuant to 
Rule 5735, and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 5735(b)(1): (1) Trading symbol and date of 
listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares or of an authorized participant to deliver shares, cash, or 
cash and financial instruments in connection with creation or 
redemption orders; and (3) a description of any failure of an issue of 
Managed Fund Shares to comply with Nasdaq Rule 5735.
    Prior to listing pursuant to proposed amended Rule 5735(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of Managed Fund Shares 
to comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq Rule 5800 
Series.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that members or issuers would have in complying with 
the proposed change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\41\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b).
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 because it would facilitate the listing and trading of 
additional Managed Fund Shares, which would enhance competition among 
market participants, to the benefit of investors and the marketplace.
    Specifically, after more than six years under the current process, 
whereby the Exchange is required to file a proposed rule change with 
the Commission for the listing and trading of each new series of 
Managed Fund Shares, the Exchange believes that it is appropriate to 
codify certain rules within Rule 5735 that would generally eliminate 
the need for separate proposed rule changes.
    The Exchange believes that this would facilitate the listing and 
trading of additional types of Managed Fund Shares that have investment 
portfolios that are similar to investment portfolios for Index Fund 
Shares, which have been approved for listing and trading, thereby 
creating greater efficiencies in the listing process for the Exchange 
and the Commission.
    In this regard, the Exchange notes that the standards proposed for 
Managed Fund Share portfolios that include U.S. Component Stocks, Non-
U.S. Component Stocks, Exchange Traded

[[Page 57974]]

Derivative Securities, and Linked Securities are based in large part on 
the existing equity security standards applicable to Index Fund Shares 
in Rule 5705(b)(3) and that the standards proposed for Managed Fund 
Share portfolios that include fixed income securities are based in 
large part on the existing fixed income standards applicable to Index 
Fund Shares in Rule 5705(b)(4). Additionally, many of the standards 
proposed for other types of holdings of series of Managed Fund Shares 
are based on previous proposed rule changes for specific series of 
Managed Fund Shares.\43\
---------------------------------------------------------------------------

    \43\ See note 10 above.
---------------------------------------------------------------------------

    With respect to the proposed addition to the criteria of Rule 
5735(c) to provide that the Web site for each series of Managed Fund 
Shares shall disclose certain information regarding the Disclosed 
Portfolio, to the extent applicable, the Exchange notes that proposed 
rule changes approved by the Commission for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding.\44\
---------------------------------------------------------------------------

    \44\ See note 8 above.
---------------------------------------------------------------------------

    With respect to the proposed definition of the term ``normal market 
conditions'' in proposed Rule 5735(c)(5), such definition is similar to 
the definition of normal market conditions approved by the Commission 
for other issues of Managed Fund Shares.\45\ In addition, proposed Rule 
5735(d)(1)(C), would specify that a series of Managed Fund Shares would 
be required to adhere to its stated investment objective during normal 
market conditions.
---------------------------------------------------------------------------

    \45\ See, e.g., Securities Exchange Act Release No. 73140 
(September 18, 2014) 79 FR 57144 (September 24, 2014) (SR-NASDAQ-
2014-073) (order approving listing and trading of the First Trust 
Emerging Markets Local Currency Bond ETF of First Trust Exchange-
Traded Fund III. See also, Securities Exchange Act Release No. 74338 
(February 20, 2015), 80 FR 10556 (February 26, 2015) (SR-NYSEArca-
2014-143) (order approving listing and trading of shares of the SPDR 
Doubletree Total Return Tactical ETF under NYSE Arca Equities Rule 
8.600).
---------------------------------------------------------------------------

    With respect to the proposed amendment to the continued listing 
requirement in Rule 5735(d)(2)(A) to require dissemination of a 
Portfolio Indicative Value at least every 15 seconds during the Regular 
Market Session (as defined in Rule 4120(b)), such requirement conforms 
to the requirement applicable to the dissemination of the Intraday 
Indicative Value for Index Fund Shares in Rule 5705(b)(3)(C). In 
addition, such dissemination is consistent with representations made in 
proposed rule changes for issues of Managed Fund Shares previously 
approved by the Commission.\46\
---------------------------------------------------------------------------

    \46\ See, e.g., Approval Order, note 4 above; and International 
Bear Approval, note 10 above.
---------------------------------------------------------------------------

    With respect to the proposed requirement in Rule 5735(b)(1)(A) that 
no more than 25% of the equity weight of the portfolio shall consist of 
leveraged and/or inverse leveraged Exchange Traded Derivative 
Securities or Linked Securities, such requirement would assure that 
only a relatively small proportion of a fund's investments could 
consist of such leveraged and/or inverse securities. In addition, such 
limitation would apply to both U.S. Component Stocks and Non-U.S. 
Component Stocks comprising the equity portion of a portfolio.
    With respect to the proposed provision in Rule 5735(b)(1)(A) that, 
to the extent a portfolio includes a convertible security, the equity 
security into which such security is converted must meet the criteria 
in Rule 5735(b)(1)(A) after converting, such requirement would assure 
that the equity securities into which a convertible security could be 
converted meet the liquidity and other criteria in Rule 5735(b)(1)(A) 
applicable to such equity securities.
    With respect to the proposed exclusion of Exchange Traded 
Derivatives Securities and Linked Securities from the requirements of 
proposed Rule 5735(b)(1)(A), the Exchange believes it is appropriate to 
exclude Linked Securities as well as Exchange Traded Derivative 
Securities from certain component stock eligibility criteria for 
Managed Fund Shares in so far as Exchange Traded Derivative Securities 
and Linked Securities are themselves subject to specific quantitative 
listing and continued listing requirements of a national securities 
exchange on which such securities are listed. Exchange Traded 
Derivative Securities and Linked Securities that are components of a 
fund's portfolio would have been listed and traded on a national 
securities exchange pursuant to a proposed rule change approved by the 
Commission pursuant to Section 19(b)(2) of the Act \47\ or submitted by 
a national securities exchange pursuant to Section 19(b)(3)(A) of the 
Act \48\ or would have been listed by a national securities exchange 
pursuant to the requirements of Rule 19b-4(e) under the Act.\49\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(2).
    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

    The Exchange also notes that Exchange Traded Derivative Securities 
and Linked Securities are derivatively priced, and, therefore, the 
Exchange believes that it would not be necessary to apply the proposed 
generic quantitative criteria (e.g., market capitalization, trading 
volume, or portfolio component weighting) applicable to equity 
securities other than Exchange Traded Derivative Securities or Linked 
Securities (e.g., common stocks) to such products.\50\
---------------------------------------------------------------------------

    \50\ See, e.g., Securities Exchange Act Release Nos. 57561 
(March 26, 2008), 73 FR 17390 (April 1, 2008) (SR-NYSEArca-2008-29) 
(notice of filing of proposed rule change to amend eligibility 
criteria for components of an index underlying Investment Company 
Units); 57751 (May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-
2008-29) (order approving proposed rule change to amend eligibility 
criteria for components of an index underlying Investment Company 
Units).
---------------------------------------------------------------------------

    With respect to the proposed criteria applicable to U.S. Component 
Stocks, the Exchange notes that such criteria are similar to those in 
Rule 5705(b)(3) relating to criteria applicable to an index or 
portfolio of U.S. Component Stocks. In addition, Non-U.S. Component 
Stocks also will be required to meet criteria similar to certain 
generic listing standards in Rule 5705(b)(3) relating to criteria 
applicable to an index or portfolio of U.S. Component Stocks and Non-
U.S. Component Stocks underlying a series of Index Fund Shares to be 
listed and traded on the Exchange pursuant to Rule 19b-4(e) under the 
Act.
    With respect to the proposed requirement in Rule 5735(b)(1)(A)(i)f. 
that no more than 10% of the equity weight of the portfolio shall 
consist of non-exchange-traded ADRs, the Exchange notes that such 
requirement will ensure that non-exchange-traded ADRs, which are traded 
OTC and which generally have less market transparency than exchange-
traded ADRs, could account for only a small percentage of the equity 
weight of a portfolio. Further, the requirement is consistent with 
representations made in proposed rule changes for issues of Managed 
Fund Shares previously approved by the Commission.\51\
---------------------------------------------------------------------------

    \51\ See note 20 above.
---------------------------------------------------------------------------

    With respect to the proposed provision in Rule 5735(b)(1)(B) that, 
to the extent a portfolio includes convertible securities, the fixed 
income security into which such security is converted must meet the 
criteria in paragraph (B) of Rule 5735(b)(1) after converting, such 
requirement would assure that the fixed income securities into which a 
convertible security could be converted meet the liquidity and other 
criteria in Rule 5735(b)(1)(B) applicable to fixed income securities.

[[Page 57975]]

    As proposed, pursuant to Rule 5735(b)(1)(B)(iii), an underlying 
portfolio (excluding exempted securities) that includes fixed income 
securities must include a minimum of 13 non-affiliated issuers, but 
there would be no minimum number of non-affiliated issuers required for 
fixed income securities if at least 70% of the weight of the portfolio 
consists of equity securities, as described in Rule 5735(b)(1)(A). The 
Exchange notes that, when evaluated in conjunction with proposed Rule 
5735(b)(1)(B)(ii), the proposed rule is consistent with Rules 
5705(b)(4)(A)(iv) and 5705(b)(4)(A)(v) in that it provides for a 
maximum weighting of a fixed income security in the fixed income 
portion of the portfolio of a fund that is comparable to the existing 
rules applicable to Index Fund Shares based on fixed income indexes.
    With respect to the proposed requirement in Rule 5735(b)(1)(B)(v) 
that non-agency, non-GSE and privately-issued mortgage-related and 
other asset-backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio, the Exchange notes that such 
requirement is consistent with representations made in proposed rule 
changes for issues of Managed Fund Shares previously approved by the 
Commission.\52\
---------------------------------------------------------------------------

    \52\ See note 34 above.
---------------------------------------------------------------------------

    With respect to the proposed amendment to Rule 5735(b)(1)(C) 
relating to cash and cash equivalents, while there is no limitation on 
the amount of cash and cash equivalents that can make up the portfolio, 
such instruments are short-term, highly liquid, and of high credit 
quality, making them less susceptible than other asset classes both to 
price manipulation and volatility. Further, the requirement is 
consistent with representations made in proposed rule changes for 
issues of Managed Fund Shares previously approved by the 
Commission.\53\
---------------------------------------------------------------------------

    \53\ See note 35 above.
---------------------------------------------------------------------------

    With respect to proposed Rule 5735(b)(1)(D)(i) relating to listed 
derivatives, the Exchange believes that it is appropriate that there be 
no limit to the percentage of a portfolio invested in such holdings, 
provided that, in the aggregate, at least 90% of the weight of such 
holdings invested in futures, exchange-traded options, and listed swaps 
would consist of futures, options, and swaps for which the Exchange may 
obtain information via ISG from other members or affiliates or for 
which the principal market is a market with which the Exchange has a 
CSSA. Such a requirement would facilitate information sharing among 
market participants trading shares of a series of Managed Fund Shares 
as well as futures and options that such series may hold. In addition, 
listed swaps would be centrally cleared, reducing counterparty risk and 
thereby furthering investor protection.\54\
---------------------------------------------------------------------------

    \54\ The Commission has noted that ``[c]entral clearing 
mitigates counterparty risk among dealers and other institutions by 
shifting that risk from individual counterparties to [central 
counterparties (``CCPs'')], thereby protecting CCPs from each 
other's potential failures.'' See Securities Exchange Act Release 
No. 67286 (June 28, 2012) (File No. S7-44-10) (Process for 
Submissions for Review of Security-Based Swaps for Mandatory 
Clearing and Notice Filing Requirements for Clearing Agencies).
---------------------------------------------------------------------------

    With respect to proposed Rule 5735(b)(1)(D)(ii), requiring 
percentage caps on the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets or 
based on any single underlying reference asset, the Exchange believes 
such requirements will help ensure that listed derivatives utilized by 
a fund are adequately diversified and not unduly concentrated.
    With respect to proposed Rule 5735(b)(1)(E) relating to OTC 
derivatives, the Exchange believes that the limitation to 20% of a 
fund's assets would assure that the preponderance of fund investments 
would not be in derivatives that are not listed and centrally cleared. 
The Exchange believes that such a limitation is sufficient to mitigate 
the risks associated with price manipulation because a 20% cap on OTC 
derivatives will ensure that any series of Managed Fund Shares will be 
sufficiently broad-based in scope to minimize potential manipulation 
associated with OTC derivatives and because the remaining 80% of the 
portfolio will consist of instruments subject to numerous restrictions 
designed to prevent manipulation, including equity securities (which, 
as proposed, would be subject to market cap, trading volume, and 
diversity requirements, among others), fixed income securities (which, 
as proposed, would be subject to principal amount outstanding, 
diversity, and issuer requirements, among others), cash and cash 
equivalents (which, as proposed, would be limited to short-term, highly 
liquid, and high credit quality instruments), and/or listed derivatives 
(which would be subject to the limitations in proposed Rule 
5735(b)(1)(D)).
    The Exchange notes that a fund's investments in derivative 
instruments would be subject to limits on leverage imposed by the 1940 
Act. Section 18(f) of the 1940 Act and related Commission guidance 
limit the amount of leverage an investment company can obtain. A fund's 
investments would be consistent with its investment objective and would 
not be used to enhance leverage. To limit the potential risk associated 
with a fund's use of derivatives, a fund will segregate or ``earmark'' 
assets determined to be liquid by a fund in accordance with the 1940 
Act (or, as permitted by applicable regulation, enter into certain 
offsetting positions) to cover its obligations under derivative 
instruments.
    With respect to proposed Rule 5735(b)(1)(F) relating to a fund's 
use of listed or OTC derivatives to gain exposure to individual 
equities and/or fixed income securities, or to indexes of equities and/
or indexes of fixed income securities, the Exchange notes that the 
aggregate gross notional value of such exposure would be required to 
meet the numerical and other criteria set forth in proposed Rules 
5735(b)(1)(A) and 5735(b)(1)(B) (including gross notional exposures), 
respectively.
    Quotation and other market information relating to listed futures 
and options is available from the exchanges listing such instruments as 
well as from market data vendors. With respect to centrally-cleared 
swaps \55\ and non-centrally-cleared swaps regulated by the CFTC,\56\ 
the Dodd-Frank Act mandates that swap information be reported to swap 
data repositories (``SDRs'').\57\ SDRs provide a central facility for 
swap data reporting and recordkeeping and are required to comply with 
data standards set by the CFTC, including real-time public reporting of 
swap transaction data to a derivatives clearing organization or 
SEF.\58\ SDRs require real-time reporting of all OTC and centrally 
cleared derivatives, including public reporting of the swap price and 
size. The parties responsible for reporting swaps information are CFTC-
registered swap dealers (``RSDs''), major swap participants, and swap 
execution facilities (``SEFs''). If swap counterparties do not fall 
into the above

[[Page 57976]]

categories, then one of the parties to the swap must report the trade 
to the SDR. Cleared swaps regulated by the CFTC must be executed on a 
Designated Contract Market (``DCM'') or SEF. Such cleared swaps have 
the same reporting requirements as futures, including end-of-day price, 
volume, and open interest. CFTC swaps reporting requirements require 
public dissemination of, among other items, product ID (if available); 
asset class; underlying reference asset, reference issuer, or reference 
index; termination date; date and time of execution; price, including 
currency; notional amounts, including currency; whether direct or 
indirect counterparties include an RSD; whether cleared or uncleared; 
and platform ID of where the contract was executed (if applicable).
---------------------------------------------------------------------------

    \55\ There are currently five categories of swaps eligible for 
central clearing: Interest rate swaps; credit default swaps; foreign 
exchange swaps; equity swaps; and commodity swaps. The following 
entities provide central clearing for OTC derivatives: ICE Clear 
Credit (US); ICE Clear (EU); CME Group; LCH.Clearnet; and Eurex.
    \56\ Pursuant to the Dodd-Frank Act, OTC and centrally-cleared 
swaps are regulated by the CFTC with the exception of security-based 
swaps, which are regulated by the Commission.
    \57\ The following entities are provisionally registered with 
the CFTC as SDRs: BSDR LLC., Chicago Mercantile Exchange, Inc., DTCC 
Data Repository, and ICE Trade Vault.
    \58\ Approximately eighteen entities are currently registered 
with the CFTC as SEFs.
---------------------------------------------------------------------------

    With respect to security-based swaps regulated by the Commission, 
the Commission has adopted Regulation SBSR under the Act implementing 
requirements for regulatory reporting and public dissemination of 
security-based swap transactions set forth in Title VII of the Dodd-
Frank Act. Regulation SBSR provides for the reporting of security-based 
swap information to registered security-based swap data repositories 
(``Registered SDRs'') or the Commission, and the public dissemination 
of security-based swap transaction, volume, and pricing information by 
Registered SDRs.\59\
---------------------------------------------------------------------------

    \59\ See Securities Exchange Act Release No. 74244 (February 11, 
2015), 80 FR 14564 (March 19, 2015) (Regulation SBSR--Reporting and 
Dissemination of Security-Based Swap Information).
---------------------------------------------------------------------------

    Price information relating to forwards and OTC options will be 
available from major market data vendors.
    A fund's investments will not be used to seek performance that is 
the multiple or inverse multiple (i.e., 2Xs and 3Xs) of a fund's broad-
based securities market index (as defined in Form N-1A).\60\ In 
addition, the Exchange notes that, under proposed Rule 5735(b)(1)(A), 
for Exchange Traded Derivative Securities and Linked Securities, no 
more than 25% of the equity weight of a fund's portfolio could include 
leveraged and/or inverse leveraged Exchange Traded Derivative 
Securities or Linked Securities.
---------------------------------------------------------------------------

    \60\ See, e.g., Securities Exchange Act Release No. 74842 (April 
29, 2015), 86 FR 25723 (May 5, 2015) (SR-NYSEArca-2014-89) (order 
approving listing and trading of shares of eight PIMCO exchange-
traded funds).
---------------------------------------------------------------------------

    The proposed rule change is also designed to protect investors and 
the public interest because Managed Fund Shares listed and traded 
pursuant to Rule 5735, including pursuant to the proposed new portfolio 
standards, would continue to be subject to the full panoply of Exchange 
rules and procedures that currently govern the trading of equity 
securities on the Exchange.\61\
---------------------------------------------------------------------------

    \61\ See note 4 above, Approval Order, at 35177.
---------------------------------------------------------------------------

    The proposed rule change is also designed to protect investors and 
the public interest as well as to promote just and equitable principles 
of trade in that any Non-U.S. Component Stocks will each meet the 
following criteria initially and on a continuing basis: (1) Have a 
minimum market value of at least $100 million; (2) have a minimum 
global monthly trading volume of 250,000 shares, or minimum global 
notional volume traded per month of $25,000,000, averaged over the last 
six months; (3) most heavily weighted Non-U.S. Component Stock shall 
not exceed 25% of the equity weight of the portfolio, and, to the 
extent applicable, the five most heavily weighted Non-U.S. Component 
Stocks shall not exceed 60% of the equity weight of the portfolio; and 
(4) each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting.
    The Exchange believes that such quantitative criteria are 
sufficient to mitigate any concerns that may arise on the basis of a 
series of Managed Fund Shares potentially holding 100% of its assets in 
Non-U.S. Component Stocks that are neither listed on members of ISG nor 
exchanges with which the Exchange has in place a CSSA because, as 
stated above, such criteria are either the same or more stringent than 
the portfolio requirements for Index Fund Shares that hold Non-U.S. 
Component Stocks and there are no such requirements related to such 
securities being listed on an exchange that is a member of ISG or with 
which the Exchange has in place a CSSA.
    Further, the Exchange has not encountered and is not aware of any 
instances of manipulation or other negative impact in any series of 
Index Fund Shares that has occurred by virtue of the Index Fund Shares 
holding such Non-U.S. Component Stocks. Therefore, the Exchange 
believes that there should be no difference in the portfolio 
requirements for Managed Fund Shares and Index Fund Shares as it 
relates to holding Non-U.S. Component Stocks that are not listed on an 
exchange that is a member of ISG or with which the Exchange has in 
place a CSSA.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Managed Fund Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in Rule 5735. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Managed Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. FINRA, on behalf of the Exchange, 
or the regulatory staff of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including all U.S. securities exchanges and futures 
exchanges on which the components are traded.
    In addition, the Exchange may obtain information regarding trading 
in Managed Fund Shares from other markets that are members of the ISG, 
including all U.S. securities exchanges and futures exchanges on which 
the components are traded, or with which the Exchange has in place a 
CSSA.
    The Exchange also believes that the proposed rule change would 
fulfill the intended objective of Rule 19b-4(e) under the Act by 
allowing Managed Fund Shares that satisfy the proposed listing 
standards to be listed and traded without separate Commission approval. 
However, as proposed, the Exchange would continue to file separate 
proposed rule changes before the listing and trading of Managed Fund 
Shares that do not satisfy the additional criteria described above.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares listed pursuant to Rule 
5735(b)(1), and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 5735(b)(1): (1) Trading symbol and date of 
listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares listed pursuant to Rule 5735(b)(1) or of an authorized 
participant to deliver shares, cash, or cash and financial instruments 
in connection with creation or redemption orders; and (3) a description 
of any failure of an issue of Managed Fund Shares to comply with Rule 
5735.
    Prior to listing pursuant to proposed amended Rule 5735(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of

[[Page 57977]]

Managed Fund Shares to comply with the continued listing requirements, 
and, pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. If the Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under the Nasdaq Rule 5800 Series.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\62\ 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 purposes of the Act. Instead, the Exchange believes that the 
proposed rule change would facilitate the listing and trading of 
additional types of Managed Fund Shares and result in a significantly 
more efficient process surrounding the listing and trading of Managed 
Fund Shares, which will enhance competition among market participants, 
to the benefit of investors and the marketplace. The Exchange believes 
that this would reduce the time frame for bringing Managed Fund Shares 
to market, thereby reducing the burdens on issuers and other market 
participants and promoting competition. In turn, the Exchange believes 
that the proposed change would make the process for listing Managed 
Fund Shares more competitive by applying uniform listing standards with 
respect to Managed Fund Shares.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-104 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-2016-104. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-104 and should 
be submitted on or before September 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20210 Filed 8-23-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                  57968                      Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices

                                                    For the Commission, by the Division of                the most significant aspects of such                     with the Investment Company’s
                                                  Trading and Markets, pursuant to delegated              statements.                                              investment objectives and policies;
                                                  authority.6
                                                                                                          A. Self-Regulatory Organization’s                           (b) is issued in a specified aggregate
                                                  Robert W. Errett,
                                                                                                          Statement of the Purpose of, and                         minimum number in return for a
                                                  Deputy Secretary.
                                                                                                          Statutory Basis for, the Proposed Rule                   deposit of a specified portfolio of
                                                  [FR Doc. 2016–20207 Filed 8–23–16; 8:45 am]
                                                                                                          Change                                                   securities and/or a cash amount with a
                                                  BILLING CODE 8011–01–P                                                                                           value equal to the next determined net
                                                                                                          1. Purpose                                               asset value; and
                                                  SECURITIES AND EXCHANGE                                    The Exchange proposes to amend                           (c) when aggregated in the same
                                                  COMMISSION                                              Nasdaq Rule 5735 to adopt generic                        specified minimum number, may be
                                                                                                          listing standards for Managed Fund                       redeemed at a holder’s request, which
                                                  [Release No. 34–78616; File No. SR–                     Shares, as well as to make additional                    holder will be paid a specified portfolio
                                                  NASDAQ–2016–104]                                        changes as described below. Under the                    of securities and/or cash with a value
                                                                                                          Exchange’s current rules, a proposed                     equal to the next determined net asset
                                                  Self-Regulatory Organizations; The                      rule change must be filed with the
                                                  Nasdaq Stock Market LLC; Notice of                                                                               value.
                                                                                                          Commission for the listing and trading
                                                  Filing of Proposed Rule Change To                       of each new series of Managed Fund                          Effectively, Managed Fund Shares are
                                                  Amend Nasdaq Rule 5735 To Adopt                         Shares. The Exchange believes that it is                 securities issued by an actively-
                                                  Generic Listing Standards for Managed                   appropriate to codify certain rules                      managed open-end Investment
                                                  Fund Shares                                             within Rule 5735 that would generally                    Company (i.e., an actively-managed
                                                                                                          eliminate the need for such proposed                     exchange-traded fund (‘‘ETF’’)). Because
                                                  August 18, 2016.
                                                                                                          rule changes, which would create                         Managed Fund Shares are actively-
                                                     Pursuant to Section 19(b)(1) of the                                                                           managed, they do not seek to replicate
                                                  Securities Exchange Act of 1934                         greater efficiency and promote uniform
                                                                                                          standards in the listing process.3                       the performance of a specified passive
                                                  (‘‘Act’’),1 and Rule 19b–4 thereunder,2                                                                          index of securities. Instead, they
                                                  notice is hereby given that on August                   Background                                               generally use an active investment
                                                  16, 2016, The Nasdaq Stock Market LLC                                                                            strategy to seek to meet their investment
                                                  (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the                Rule 5735 sets forth certain rules
                                                                                                          related to the listing and trading of                    objectives. In contrast, an open-end
                                                  Securities and Exchange Commission
                                                                                                          Managed Fund Shares.4 Under Rule                         Investment Company that issues Index
                                                  (‘‘Commission’’) the proposed rule
                                                                                                          5735(c)(1), the term ‘‘Managed Fund                      Fund Shares, listed and traded on the
                                                  change as described in Items I and II
                                                                                                          Share’’ means a security that:                           Exchange pursuant to Nasdaq Rule
                                                  below, which Items have been prepared
                                                                                                             (a) Represents an interest in a                       5705(b), seeks to provide investment
                                                  by the Exchange. The Commission is
                                                                                                          registered investment company                            results that generally correspond to the
                                                  publishing this notice to solicit
                                                                                                          (‘‘Investment Company’’) organized as                    price and yield performance of a
                                                  comments on the proposed rule change
                                                                                                          an open-end management investment                        specific foreign or domestic stock index,
                                                  from interested persons.
                                                                                                          company or similar entity, that invests                  fixed income securities index, or
                                                  I. Self-Regulatory Organization’s                       in a portfolio of securities selected by                 combination thereof.
                                                  Statement of the Terms of Substance of                  the Investment Company’s investment                         All Managed Fund Shares listed and/
                                                  the Proposed Rule Change                                adviser (hereafter ‘‘Adviser’’) consistent               or traded pursuant to Rule 5735
                                                     The Exchange proposes to amend                                                                                (including pursuant to unlisted trading
                                                  Nasdaq Rule 5735 to adopt generic                          3 Except as noted below, this proposed rule           privileges) are subject to the full
                                                  listing standards for Managed Fund                      change is substantively identical to changes             panoply of Exchange rules and
                                                  Shares.                                                 approved by the Commission to NYSE Arca
                                                                                                          Equities Rule 8.600. See Securities Exchange Act
                                                                                                                                                                   procedures that currently govern the
                                                     The text of the proposed rule change                 Release No. 78397 (July 22, 2016) (SR–NYSEArca–          trading of equity securities on the
                                                  is available on the Exchange’s Web site                 2015–110) (order approving generic listing               Exchange.5
                                                  at http://nasdaq.cchwallstreet.com, at                  standards for Managed Fund Shares listed per
                                                                                                                                                                      In addition, Rule 5735(d) currently
                                                  the principal office of the Exchange, and               NYSE Arca Equities Rule 8.600). The definition of
                                                                                                          ‘‘Exchange Traded Derivative Securities’’ provided       provides for the criteria that Managed
                                                  at the Commission’s Public Reference                    in proposed Rule 5735(c)(6) is similar to, but more      Fund Shares must satisfy for initial and
                                                  Room.                                                   narrow than, the definition of ‘‘Derivative Securities   continued listing on the Exchange,
                                                                                                          Product’’ used in NYSE Arca Rule 8.600 because
                                                  II. Self-Regulatory Organization’s                      the proposed definition of Exchange Traded               including, for example, that a minimum
                                                  Statement of the Purpose of, and                        Derivative Securities does not include an Exchange       number of Managed Fund Shares are
                                                  Statutory Basis for, the Proposed Rule                  rule comparable to NYSE Arca Equities Rule 8.400         required to be outstanding at the time of
                                                                                                          (Paired Trust Shares). In addition, non-substantive
                                                  Change                                                  changes are made in order to conform the proposal
                                                                                                                                                                   commencement of trading on the
                                                    In its filing with the Commission, the                to the structure of the Exchange’s current rules. See    Exchange. However, the current process
                                                  Exchange included statements                            also Securities Exchange Act Release No. 78396           for listing and trading new series of
                                                                                                          (July 22, 2016) (SR–BATS–2015–100) (order                Managed Fund Shares on the Exchange
                                                  concerning the purpose of and basis for                 approving generic BATS listing standards for
                                                  the proposed rule change and discussed                  Managed Fund Shares).
                                                                                                                                                                   requires that the Exchange submit a
                                                  any comments it received on the                            4 See Securities Exchange Act Release No. 57962       proposed rule change with the
                                                  proposed rule change. The text of these                 (June 13, 2008), 73 FR 35175 (June 20, 2008) (SR–        Commission. In this regard, Rule
                                                                                                          NASDAQ–2008–039) (order approving Nasdaq Rule            5735(b)(1) specifies that the Exchange
mstockstill on DSK3G9T082PROD with NOTICES




                                                  statements may be examined at the                       4420(o) and listing and trading of shares of certain
                                                  places specified in Item IV below. The                                                                           will file separate proposals under
                                                                                                          issues of Managed Fund Shares) (the ‘‘Approval
                                                  Exchange has prepared summaries, set                    Order’’). The Approval Order approved, among             Section 19(b) of the Act (hereafter, a
                                                  forth in sections A, B, and C below, of                 other things, the rules permitting the listing and       ‘‘proposed rule change’’) before listing
                                                                                                          trading of Managed Fund Shares. Rule 4420(o) was         and trading shares of an issue of
                                                                                                          subsequently relocated to Rule 5735. See Securities      Managed Fund Shares.
                                                    6 17 CFR 200.30–3(a)(31).                             Exchange Act Release No. 59663 (March 31, 2009),
                                                    1 15 U.S.C. 78s(b)(1).                                74 FR 15552 (April 6, 2009) (SR–NASDAQ–2009–
                                                    2 17 CFR 240.19b–4.                                   018).                                                     5 See   Approval Order, note 4 above, at 35177.



                                             VerDate Sep<11>2014   20:16 Aug 23, 2016   Jkt 238001   PO 00000   Frm 00092   Fmt 4703   Sfmt 4703   E:\FR\FM\24AUN1.SGM      24AUN1


                                                                             Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices                                                       57969

                                                  Proposed Changes to Rule 5735                           information includes the following, to                  existing equity security standards
                                                     The Exchange proposes to amend                       the extent applicable: Ticker symbol,                   applicable to Index Fund Shares in Rule
                                                  Rule 5735(b)(1) to specify that the                     CUSIP or other identifier, a description                5705(b)(3).
                                                  Exchange may approve Managed Fund                       of the holding, identity of the asset upon                The standards proposed for a
                                                  Shares for listing and/or trading                       which the derivative is based, the strike               Managed Fund Share portfolio that
                                                  (including pursuant to unlisted trading                 price for any options, the quantity of                  holds fixed income securities are based
                                                  privileges) pursuant to SEC Rule 19b–                   each security or other asset held as                    in large part on the existing fixed
                                                  4(e) under the Act, which pertains to                   measured by select metrics, maturity                    income security standards applicable to
                                                  derivative securities products (‘‘SEC                   date, coupon rate, effective date, market               Index Fund Shares in Rule 5705(b)(4).
                                                  Rule 19b–4(e)’’).6 SEC Rule 19b–4(e)(1)                 value, and percentage weight of the                     Many of the standards proposed for
                                                  provides that the listing and trading of                holding in the portfolio.8                              other types of holdings in a Managed
                                                  a new derivative securities product by a                   In addition, the Exchange would                      Fund Share portfolio are based on
                                                  self-regulatory organization (‘‘SRO’’) is               amend Rule 5735(d) to specify that all                  previous proposed rule changes for
                                                  not deemed a proposed rule change,                      Managed Fund Shares must have a                         specific series of Managed Fund
                                                  pursuant to paragraph (c)(1) of Rule                    stated investment objective, which must                 Shares.10
                                                  19b–4,7 if the Commission has                           be adhered to under normal market                         Proposed Rule 5735(b)(1)(A) would
                                                  approved, pursuant to section 19(b) of                  conditions.9                                            describe the standards for a Managed
                                                                                                             Finally, the Exchange would also                     Fund Share portfolio that holds equity
                                                  the Act, the SRO’s trading rules,
                                                                                                          amend the continued listing                             securities, which are defined to be U.S.
                                                  procedures, and listing standards for the
                                                                                                          requirement in Rule 5735(d)(2)(A) by                    Component Stocks,11 Non-U.S.
                                                  product class that would include the
                                                                                                          changing the requirement that an                        Component Stocks,12 Exchange Traded
                                                  new derivative securities product and
                                                                                                          Intraday Indicative Value for Managed
                                                  the SRO has a surveillance program for
                                                                                                          Fund Shares be widely disseminated by
                                                  the product class. This is the current                                                                             10 See, e.g., Securities Exchange Act Release No.
                                                                                                          one or more major market data vendors
                                                  method pursuant to which ‘‘passive’’                                                                            77688 (April 22, 2016), 81 FR 25467 (April 28,
                                                                                                          at least every 15 seconds during the                    2016) (SR–NASDAQ–2016–030) (order approving
                                                  ETFs are listed under Nasdaq Rule 5705.
                                                     The Exchange would also specify                      time when the Managed Fund Shares                       listing and trading of Elkhorn Dorsey Wright
                                                                                                          trade on the Exchange to a requirement                  Commodity Rotation Portfolio of Elkhorn ETF
                                                  within Rule 5735(b)(1) that components                                                                          Trust). See also Securities Exchange Act Release
                                                  of Managed Fund Shares listed pursuant                  that an Intraday Indicative Value be                    Nos. 72728 (July 31, 2014) 79 FR 45852 (August 6,
                                                  to SEC Rule 19b–4(e) must satisfy, upon                 widely disseminated by one or more                      2014) (SR–NASDAQ–2014–059) (order approving
                                                  initial listing and on a continual basis,               major market data vendors at least every                listing and trading of Global X Commodities
                                                                                                          15 seconds during the Regular Market                    Strategy ETF); 72506 (July 1, 2014), 79 FR 38631
                                                  certain specific criteria, which the                                                                            (July 8, 2014) (SR–NASDAQ–2014–050) (order
                                                  Exchange would include within Rule                      Session (as defined in Nasdaq Rule                      approving listing and trading of First Trust Strategic
                                                  5735(b)(1), as described in greater detail              4120(b)).                                               Income ETF); 69464 (April 26, 2013), 78 FR 25774
                                                  below. As proposed, the Exchange                                                                                (May 2, 2013) (SR–NASDAQ–2013–036) (order
                                                                                                          Proposed Managed Fund Share Portfolio                   approving listing and trading of First Trust Senior
                                                  would continue to file separate                         Standards                                               Loan Fund); and 66489 (February 29, 2012), 77 FR
                                                  proposed rule changes before the listing                  The Exchange is proposing standards                   13379 (March 6, 2012) (SR–NASDAQ–2012–004)
                                                  and trading of Managed Fund Shares                      that would pertain to Managed Fund
                                                                                                                                                                  (order approving listing and trading of WisdomTree
                                                  with components that do not satisfy the                                                                         Emerging Markets Corporate Bond Fund). See also
                                                                                                          Shares to qualify for listing and trading               Securities Exchange Act Release Nos. 66321
                                                  additional criteria described below or                  pursuant to SEC Rule 19b–4(e). These                    (February 3, 2012), 77 FR 6850 (February 9, 2012)
                                                  components other than those specified                   standards would be grouped according                    (SR–NYSEArca–2011–95) (the ‘‘PIMCO Total
                                                  below. For example, if the components                   to security or asset type. The Exchange
                                                                                                                                                                  Return Approval’’); 69244 (March 27, 2013), 78 FR
                                                  of a Managed Fund Share exceeded one                                                                            19766 (April 2, 2013) (SR–NYSEArca–2013–08) (the
                                                                                                          notes that the standards proposed for a                 ‘‘SPDR Blackstone/GSO Senior Loan Approval’’);
                                                  of the applicable thresholds, the                       Managed Fund Share portfolio that                       68870 (February 8, 2013), 78 FR 11245 (February
                                                  Exchange would file a separate                          holds U.S. Component Stocks, Non-U.S.                   15, 2013) (SR–NYSEArca–2012–139) (the ‘‘First
                                                  proposed rule change before listing and                 Component Stocks, Exchange Traded                       Trust Preferred Securities and Income Approval’’);
                                                  trading such Managed Fund Share.                                                                                69591 (May 16, 2013), 78 FR 30372 (May 22, 2013)
                                                                                                          Derivative Securities, and Linked                       (SR–NYSEArca–2013–33) (the ‘‘International Bear
                                                  Similarly, if the components of a                       Securities are based in large part on the               Approval’’); 61697 (March 12, 2010), 75 FR 13616
                                                  Managed Fund Share included a                                                                                   (March 22, 2010) (SR–NYSEArca–2010–04) (the
                                                  security or asset that is not specified                    8 Proposed rule changes for previously-listed        ‘‘WisdomTree Real Return Approval’’); and 67054
                                                  below, the Exchange would file a                        series of Managed Fund Shares have similarly            (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR–
                                                                                                                                                                  NYSEArca–2012–25) (the ‘‘WisdomTree Brazil
                                                  separate proposed rule change.                          included disclosure requirements with respect to
                                                                                                                                                                  Bond Approval’’). Certain standards proposed
                                                     The Exchange would also add to Rule                  each portfolio holding, as applicable to the type of
                                                                                                          holding. See, e.g., Securities Exchange Act Release     herein for Managed Fund Shares are also based on
                                                  5735(c) to provide that the Web site for                No. 77688 (April 22, 2016), 81 FR 25467 (April 28,      previous proposed rule changes for specific series
                                                  each series of Managed Fund Shares                      2016) (SR–NASDAQ–2016–030) (the ‘‘Elkhorn               of Index Fund Shares for which Commission
                                                  shall disclose certain information                      Dorsey Wright Commodity Rotation Portfolio of           approval for listing was required due to the Index
                                                                                                          Elkhorn ETF Trust Approval’’), generally and at         Fund Shares not satisfying certain standards of Rule
                                                  regarding the Disclosed Portfolio, to the                                                                       5705(b)(3) and 5705(b)(4). On NYSE Arca, similar
                                                                                                          14147. See also Securities Exchange Act Release
                                                  extent applicable. The required                         No. 72666 (July 3, 2014), 79 FR 44224 (July 30,         products under NYSE Commentary .01 and .02 to
                                                                                                          2014) (SR–NYSEArca–2013–122) (the ‘‘PIMCO               NYSE Arca Equities Rule 5.2(j)(3) are called
                                                     6 17 CFR 240.19b–4(e). As provided under SEC         Total Return Use of Derivatives Approval’’),            Investment Company Units. See, e.g., Securities
                                                  Rule 19b–4(e), the term ‘‘new derivative securities     generally and at 44227.                                 Exchange Act Release No. 69373 (April 15, 2013),
                                                  product’’ means any type of option, warrant, hybrid        9 The Exchange would also add a new defined          78 FR 23601 (April 19, 2013) (SR–NYSEArca–2012–
                                                  securities product, or any other security, other than   term under Rule 5735(c)(5) to specify that the term     108) (the ‘‘NYSE Arca U.S. Equity Synthetic
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                                                  a single equity option or a security futures product,   ‘‘normal market conditions’’ includes, but is not       Reverse Convertible Index Fund Approval’’).
                                                  whose value is based, in whole or in part, upon the                                                                11 For the purposes of Rule 5735(b)(1) and this
                                                                                                          limited to, the absence of trading halts in the
                                                  performance of, or interest in, an underlying           applicable financial markets generally; operational     proposal, the term ‘‘U.S. Component Stocks’’ would
                                                  instrument.                                             issues (e.g., systems failure) causing dissemination    have the same meaning as defined in Rule
                                                     7 17 CFR 240.19b–4(c)(1). As provided under SEC      of inaccurate market information; or force majeure      5705(b)(1)(D).
                                                  Rule 19b–4(c)(1), a stated policy, practice, or         type events such as a natural or man-made disaster,        12 For the purposes of Rule 5735(b)(1) and this

                                                  interpretation of the SRO shall be deemed to be a       act of God, armed conflict, act of terrorism, riot or   proposal, the term ‘‘Non-U.S. Component Stocks’’
                                                  proposed rule change unless it is reasonably and        labor disruption or any similar intervening             would have the same meaning as defined in Rule
                                                  fairly implied by an existing rule of the SRO.          circumstance.                                           5705(b)(1)(E).



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                                                  57970                       Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices

                                                  Derivative Securities,13 and Linked                       volume of 250,000 shares or minimum                      non-exchange-traded. However no more
                                                  Securities 14 listed on a national                        notional volume traded per month of                      than 10% of the equity weight of the
                                                  securities exchange. For Exchange                         $25,000,000, averaged, over the last six                 portfolio shall consist of non-exchange-
                                                  Traded Derivative Securities and Linked                   months; 16                                               traded ADRs.20
                                                  Securities, no more than 25% of the                          (3) The most heavily weighted                            As proposed in Rule 5735(b)(1)(A)(ii),
                                                  equity weight of the portfolio could                      component stock (excluding Exchange                      the component stocks of the equity
                                                  include leveraged and/or inverse                          Traded Derivative Securities and Linked                  portion of a portfolio that are Non-U.S.
                                                  leveraged Exchange Traded Derivative                      Securities) must not exceed 30% of the                   Component Stocks shall meet the
                                                  Securities or Linked Securities. In                       equity weight of the portfolio, and, to                  following criteria initially and on a
                                                  addition, proposed rule 5735(b)(1)(A)                     the extent applicable, the five most                     continuing basis:
                                                  would provide that, to the extent that a                  heavily weighted component stocks                           (1) Non-U.S. Component Stocks each
                                                  portfolio includes convertible securities,                (excluding Exchange Traded Derivative                    shall have a minimum market value of
                                                  the equity security into which such                       Securities and Linked Securities) must                   at least $100 million; 21
                                                  security is converted would be required                   not exceed 65% of the equity weight of                      (2) Non-U.S. Component Stocks each
                                                  to meet the criteria of 5735(b)(1)(A) after               the portfolio; 17                                        shall have a minimum global monthly
                                                  converting.                                                  (4) Where the equity portion of the                   trading volume of 250,000 shares, or
                                                     As proposed in Rule 5735(b)(1)(A)(i),                  portfolio does not include Non-U.S.                      minimum global notional volume traded
                                                  the component stocks of the equity                        Component Stocks, the equity portion of                  per month of $25,000,000, averaged over
                                                  portion of a portfolio that are U.S.                      the portfolio shall include a minimum                    the last six months; 22
                                                  Component Stocks shall meet the                           of 13 component stocks; provided,                           (3) The most heavily weighted Non-
                                                  following criteria initially and on a                     however, that there shall be no                          U.S. Component Stock shall not exceed
                                                  continuing basis:                                         minimum number of component stocks                       25% of the equity weight of the
                                                     (1) Component stocks (excluding                        if (a) one or more series of Exchange                    portfolio, and, to the extent applicable,
                                                  Exchange Traded Derivative Securities                     Traded Derivative Securities or Linked                   the five most heavily weighted Non-U.S.
                                                  and Linked Securities) that in the                        Securities constitute, at least in part,                 Component Stocks shall not exceed
                                                  aggregate account for at least 90% of the                 components underlying a series of                        60% of the equity weight of the
                                                  equity weight of the portfolio (excluding                 Managed Fund Shares, or (b) one or                       portfolio; 23
                                                  such Exchange Traded Derivative                           more series of Exchange Traded                              (4) Where the equity portion of the
                                                  Securities and Linked Securities) each                    Derivative Securities or Linked                          portfolio includes Non-U.S. Component
                                                  must have a minimum market value of                       Securities account for 100% of the                       Stocks, the equity portion of the
                                                  at least $75 million; 15                                  equity weight of the portfolio of a series               portfolio shall include a minimum of 20
                                                     (2) Component stocks (excluding                        of Managed Fund Shares; 18                               component stocks; provided, however,
                                                  Exchange Traded Derivative Securities                        (5) Except as provided in proposed                    that there shall be no minimum number
                                                  and Linked Securities) that in the                        Rule 5735(b)(1)(A), equity securities in                 of component stocks if (i) one or more
                                                  aggregate account for at least 70% of the                 the portfolio must be U.S. Component                     series of Exchange Traded Derivative
                                                  equity weight of the portfolio (excluding                 Stocks listed on a national securities
                                                  such Exchange Traded Derivative                           exchange and must be NMS Stocks as                         20 Proposed rule changes for previously-listed

                                                  Securities and Linked Securities) each                    defined in Rule 600 of Regulation                        series of Managed Fund Shares have similarly
                                                  must have a minimum monthly trading                       NMS; 19 and                                              included the ability for such Managed Fund
                                                                                                               (6) American Depositary Receipts                      Shareholdings to include not more than 10% of net
                                                                                                                                                                     assets in unsponsored ADRs (which are not
                                                     13 For the purposes of Rule 5735(b)(1)(A) and this
                                                                                                            (‘‘ADRs’’) may be exchange-traded or                     exchange-listed). See, e.g., Securities Exchange Act
                                                  proposal, proposed Rule 5735(c)(6) would define                                                                    Release No. 73480 (October 31, 2014), 79 FR 66022
                                                                                                               16 This proposed text is substantively identical to   (November 6, 2014) (SR–NASDAQ–2014–090)
                                                  the term ‘‘Exchange Traded Derivative Securities’’
                                                  to mean the securities described in Nasdaq Rules          the corresponding text of Rule 5705(b)(3)(A)(i)b.,       (order approving the Listing and Trading of Shares
                                                  5705(a) (Portfolio Depository Receipts); 5705(b)          except for the omission of the reference to ‘‘index,’’   of the Validea Market Legends ETFs). See also
                                                  (Index Fund Shares); 5720 (Trust Issued Receipts);        which is not applicable, the substitution of a more      Securities Exchange Act Release No. 71067
                                                  5711(d) (Commodity-Based Trust Shares); 5711(e)           narrow exclusion for ‘‘Exchange Traded Derivative        (December 12, 2013), 78 FR 76669 (December 18,
                                                  (Currency Trust Shares); 5711(f), (Commodity Index        Securities’’ instead of for ‘‘Derivative Securities      2013) (order approving listing and trading of shares
                                                  Trust Shares); 5711(g) (Commodity Futures Trust           Products,’’ and the addition of the reference to         of the SPDR MFS Systematic Core Equity ETF,
                                                  Shares); 5711(h) (Partnership Units); 5711(i) (Trust      Linked Securities.                                       SPDR MFS Systematic Growth Equity ETF, and
                                                  Units); 5735 (Managed Fund Shares); and 5711(j)              17 This proposed text is substantively identical to   SPDR MFS Systematic Value Equity ETF under
                                                  (Managed Trust Securities). This proposed                 the corresponding text of Rule 5705(b)(3)(A)(i)c.,       NYSE Arca Equities Rule 8.600).
                                                  definition is more narrow than the term ‘‘Derivative      except for the omission of the reference to ‘‘index,’’     21 The proposed text is identical to the

                                                  Securities Product,’’ as defined in Nasdaq Rule           which is not applicable, the substitution of a more      corresponding representations from the First Trust
                                                  4120(b)(4)(A) and used in Rule 5705(b), because it        narrow exclusion for ‘‘Exchange Traded Derivative        Approval Order and the SSgA Global Managed
                                                  excludes certain securities including NextShares. It      Securities’’ instead of for ‘‘Derivative Securities      Volatility Release, as noted in footnote 28, below.
                                                  is also more narrow than the term ‘‘Derivative            Products,’’ and the addition of the reference to         The proposed text is also substantively identical to
                                                  Securities Product’’ as defined in commentary             Linked Securities.                                       the corresponding text of Rule 5705(b)(3)(A)(ii)a.,
                                                  .01(a) to NYSE Arca Rule 8.600 because it excludes           18 This proposed text is substantively identical to   except for the omission of the reference to ‘‘index,’’
                                                  Paired Trust Shares.                                      the corresponding text of Rule 5705(b)(3)(A)(i)d.,       which is not applicable, and that each Non-U.S.
                                                     14 Linked Securities are securities that qualify for   except for the omission of the reference to ‘‘index,’’   Component Stock must have a minimum market
                                                  Exchange listing and trading under Rule 5710. The         which is not applicable, the addition of the             value of at least $100 million instead of the 90%
                                                  securities described in Rules 5705, 5710, and             reference to Linked Securities, the substitution of a    required under Rule 5705(b)(3)(A)(ii)a.
                                                  5735(c)(6), as referenced above, would include            more narrow exclusion for ‘‘Exchange Traded                22 The proposed text is identical to the

                                                  securities listed on another national securities          Derivative Securities’’ instead of for ‘‘Derivative      corresponding representations from the First Trust
                                                  exchange pursuant to substantially equivalent             Securities Products,’’ and the reference to the 100%     Approval Order and the SSgA Global Managed
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                                                  listing rules.                                            limit applying to the ‘‘equity portion’’ of the          Volatility Release, as noted in footnote 28, below.
                                                     15 This proposed text is substantively identical to    portfolio.                                               This proposed text also is substantively identical to
                                                  the corresponding text of Rule 5705(b)(3)(A)(i)a.,           19 17 CFR 240.600. This proposed text is              the corresponding text of Rule 5705(b)(3)(A)(ii)b.,
                                                  except for the omission of the reference to ‘‘index,’’    substantively identical to the corresponding text of     except for the omission of the reference to ‘‘index,’’
                                                  which is not applicable, the substitution of a more       Rule 5705(b)(3)(A)(i)e., except for the addition of      which is not applicable.
                                                  narrow exclusion for ‘‘Exchange Traded Derivative         ‘‘equity’’ to make clear that the standard applies to      23 This proposed text is substantively identical to

                                                  Securities’’ instead of for ‘‘Derivative Securities       ‘‘equity securities,’’ the exclusion of unsponsored      the corresponding text of Rule 5705(b)(3)(A)(ii)c.,
                                                  Products,’’ and the addition of the reference to          ADRs, and the omission of the reference to ‘‘index,’’    except for the omission of the reference to ‘‘index,’’
                                                  Linked Securities.                                        which is not applicable.                                 which is not applicable.



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                                                                              Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices                                                      57971

                                                  Securities or Linked Securities                          members of ISG or with which the                       account for more than 65% of the fixed
                                                  constitute, at least in part, components                 Exchange has in place a CSSA.28                        income weight of the portfolio; 31
                                                  underlying a series of Managed Fund                         Proposed Rule 5735(b)(1)(B) would                      (3) An underlying portfolio (excluding
                                                  Shares, or (ii) one or more series of                    describe the standards for a Managed                   exempted securities) that includes fixed
                                                  Exchange Traded Derivative Securities                    Fund Share portfolio that holds fixed                  income securities must include a
                                                  or Linked Securities account for 100%                    income securities, which are debt                      minimum of 13 non-affiliated issuers;
                                                  of the equity weight of the portfolio of                 securities 29 that are notes, bonds,                   provided, however, that there shall be
                                                  a series of Managed Fund Shares 24; and                  debentures, or evidence of indebtedness                no minimum number of non-affiliated
                                                     (5) Each Non-U.S. Component Stock                     that include, but are not limited to, U.S.             issuers required for fixed income
                                                  shall be listed and traded on an                         Department of Treasury securities                      securities if at least 70% of the weight
                                                  exchange that has last-sale reporting.25                 (‘‘Treasury Securities’’), government-                 of the portfolio consists of equity
                                                     The Exchange notes that it is not                     sponsored entity securities (‘‘GSE                     securities as described in proposed Rule
                                                  proposing to require that any of the                     Securities’’), municipal securities, trust             5735(b)(1)(A).32
                                                  equity portion of the equity portfolio                   preferred securities, supranational debt                  (4) Component securities that in
                                                  composed of Non-U.S. Component                           and debt of a foreign country or a                     aggregate account for at least 90% of the
                                                  Stocks be listed on markets that are                     subdivision thereof, investment grade                  fixed income weight of the portfolio
                                                  either a member of the Intermarket                       and high yield corporate debt, bank                    must be either (a) from issuers that are
                                                  Surveillance Group (‘‘ISG’’) or a market                 loans, mortgage and asset backed                       required to file reports pursuant to
                                                  with which the Exchange has a                            securities, and commercial paper.                      Sections 13 and 15(d) of the Act; (b)
                                                  comprehensive surveillance sharing                          In addition, to the extent that a                   from issuers that have a worldwide
                                                  agreement (‘‘CSSA’’).26 However, as                      portfolio includes convertible securities,             market value of its outstanding common
                                                  further detailed below, the regulatory                   the fixed income security into which                   equity held by non-affiliates of $700
                                                  staff of the Exchange, or the Financial                  such security is converted would be                    million or more; (c) from issuers that
                                                  Industry Regulatory Authority, Inc.                      required to meet the criteria of Rule                  have outstanding securities that are
                                                  (‘‘FINRA’’), on behalf of the Exchange,                  5735(b)(1)(B) after converting.                        notes, bonds debentures, or evidence of
                                                  will communicate as needed regarding                        The components of the fixed income                  indebtedness having a total remaining
                                                  trading in Managed Fund Shares with                      portion of the portfolio must meet the                 principal amount of at least $1 billion 33;
                                                  other markets that are members of the                    following criteria initially and on a                  (d) exempted securities as defined in
                                                  ISG, including U.S. securities exchanges                 continuing basis:                                      Section 3(a)(12) of the Act; or (e) from
                                                  on which the components are traded.                         (1) Components that in the aggregate                issuers that are a government of a
                                                     The Exchange notes that the generic                                                                          foreign country or a political
                                                                                                           account for at least 75% of the fixed
                                                  listing standards for Index Fund Shares                                                                         subdivision of a foreign country; and
                                                                                                           income weight of the portfolio each
                                                  based on foreign indexes in Rule 5705                                                                              (5) Non-agency, non-GSE, and
                                                                                                           shall have a minimum original principal
                                                  do not include specific ISG or CSSA                                                                             privately-issued mortgage-related and
                                                                                                           amount outstanding of $100 million or
                                                  requirements.27 In addition, the                                                                                other asset-backed securities
                                                                                                           more; 30
                                                  Commission has approved listing and                                                                             components of a portfolio shall not
                                                  trading on the Exchange of shares of an                     (2) No component fixed-income
                                                                                                                                                                  account, in the aggregate, for more than
                                                  issue of Managed Fund Shares under                       security (excluding Treasury Securities
                                                                                                                                                                  20% of the weight of the fixed income
                                                  Rule 5735 where non-U.S. equity                          and GSE Securities) could represent
                                                                                                                                                                  portion of the portfolio.34
                                                  securities in such issue’s portfolio meet                more than 30% of the fixed income
                                                  specified criteria and where there is no                 weight of the portfolio, and the five                     31 This proposed text is substantively identical to

                                                  requirement that such non-U.S. equity                    most heavily weighted component fixed                  the corresponding text of 5705(b)(4)(A)(iv), except
                                                  securities are traded in markets that are                income securities in the portfolio                     for the omission of the reference to ‘‘index,’’ which
                                                                                                           (excluding Treasury Securities and GSE                 is not applicable.
                                                                                                                                                                     32 This proposed text is substantively identical to
                                                     24 This proposed text is substantively identical to   Securities) must not in the aggregate
                                                                                                                                                                  the corresponding text of Rule 5705(b)(4)(A)(v),
                                                  the corresponding text of Rule 5705(b)(3)(A)(ii)d.,                                                             except for the omission of the reference to ‘‘index,’’
                                                  except for the omission of the reference to ‘‘index,’’      28 See, e.g., Securities Exchange Act Release No.   which is not applicable, the exclusion of the text
                                                  which is not applicable, the substitution of a more      77548 (April 6, 2016), 81 FR 21626 (April 12, 2016)    ‘‘consisting entirely of exempted securities’’ and the
                                                  narrow exclusion for ‘‘Exchange Traded Derivative        (SR–NASDAQ–2015–161) (order approving listing          provision that there shall be no minimum number
                                                  Securities’’ instead of for ‘‘Derivative Securities      and trading of the Shares of the First Trust           of non-affiliated issuers required for fixed income
                                                  Products,’’ the addition of the reference to Linked      RiverFront Dynamic Europe ETF, First Trust             securities if at least 70% of the weight of the
                                                  Securities, the reference to the equity portion of the   RiverFront Dynamic Asia Pacific ETF, First Trust       portfolio consists of equity securities as described
                                                  portfolio including Non-U.S. Component Stocks,           RiverFront Dynamic Emerging Markets ETF, and           in proposed Rule 5735(b)(1)(A).
                                                  and the reference to the 100% limitation applying        First Trust RiverFront Dynamic Developed                  33 With respect to subparagraphs (b) and (c)
                                                  to the ‘‘equity weight’’ of the portfolio, which is      International ETF of First Trust Exchange-Traded       above, the special purpose vehicle (‘‘SPV’’) that
                                                  included because the proposed standards in Rule          Fund III) (the ‘‘First Trust Approval Order’’). See    issues the fixed income security (e.g., an asset-
                                                  5735(b) permit the inclusion of non-equity               also Securities Exchange Act Release No. 75023         backed or mortgage-backed security) would itself be
                                                  securities, whereas Rule 5705 applies only to equity     (May 21, 2015), 80 FR 30519 (May 28, 2015) (SR–        required to satisfy the $700 million and $1 billion
                                                  securities.                                              NYSEArca–2014–100) (order approving listing and        criteria, respectively, and not the entity that
                                                     25 This proposed text is substantively identical to   trading on the Exchange of shares of the SPDR SSgA     controls, owns or is affiliated with the SPV.
                                                  Rule 5705(b)(3)(A)(ii)e. as it relates to Non-U.S.       Global Managed Volatility ETF under NYSE Arca             34 Proposed rule changes for previously-listed
                                                  Component Stocks.                                        Equities Rule 8.600) (‘‘SSgA Global Managed            series of Managed Fund Shares have similarly
                                                     26 ISG is comprised of an international group of      Volatility Release’’).                                 included the ability for such Managed Fund Share
                                                  exchanges, market centers, and market regulators            29 Debt securities include a variety of fixed
                                                                                                                                                                  holdings to include up to 20% of net assets in non-
                                                  that perform front-line market surveillance in their     income obligations, including, but not limited to,     agency, non-GSE and privately-issued mortgage-
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                                                  respective jurisdictions. See www.isgportal.org. A       corporate debt securities, government securities,      related and other asset-backed securities. See, e.g.,
                                                  list of ISG members is available at                      municipal securities, convertible securities, and      Securities Exchange Act Release No. 74742 (April
                                                  www.isgportal.org.                                       mortgage-backed securities. Debt securities include    16, 2015) 80 FR 22584 (April 22, 2015) (SR–
                                                     27 Under Rule 5705(b)(3), Index Fund Shares with      investment-grade securities, non-investment-grade      NASDAQ–2015–011) (order approving the listing
                                                  components that include Non-U.S. Component               securities, and unrated securities. Debt securities    and trading of shares of the First Trust Strategic
                                                  Stocks can hold a portfolio that is entirely             also include variable and floating rate securities.    Floating Rate ETF of First Trust Exchange-Traded
                                                  composed of Non-U.S. Component Stocks that are              30 This text of proposed Rule 5735(b)(1)(B)(i) is   Fund IV. See also, Securities Exchange Act Release
                                                  listed on markets that are neither members of ISG,       based on the corresponding text of Rule                No. 75566 (July 30, 2015), 80 FR 46612 (August 5,
                                                  nor with which the Exchange has in place a CSSA.         5705(b)(4)(A)(ii).                                                                                 Continued




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                                                  57972                       Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices

                                                     Proposed Rule 5735(b)(1)(C) would                      portfolio invested in such holdings,                  (including gross notional exposures),
                                                  describe the standards for a Managed                      subject to the following requirements:                respectively.
                                                  Fund Share portfolio that holds cash                         (1) In the aggregate, at least 90% of                 The following examples illustrate
                                                  and cash equivalents.35 Specifically, the                 the weight of such holdings invested in               how certain of the proposed generic
                                                  portfolio may hold short-term                             futures, exchange-traded options, and                 criteria of Rule 5735 would be applied:
                                                  instruments with maturities of less than                  listed swaps shall, on both an initial and               1. An actively managed ETF holds
                                                  3 months. There would be no limitation                    continuing basis, consist of futures,                 non-agency MBS that represent 15% of
                                                  to the percentage of the portfolio                        options, and swaps for which the                      the weight of the fixed income portion
                                                  invested in such holdings. Short-term                     Exchange may obtain information via                   of the portfolio. The fixed income
                                                  instruments would include the                             the ISG from other members or affiliates              portion of the portfolio meets all the
                                                  following: 36                                             of the ISG or for which the principal                 requirements of Rule 5735(b)(1)(B). The
                                                     (1) U.S. Government securities,                        market is a market with which the                     ETF also holds an OTC swap on a non-
                                                  including bills, notes, and bonds                         Exchange has a comprehensive                          agency MBS Index that represents 10%
                                                  differing as to maturity and rates of                     surveillance sharing agreement (For                   of the fixed income weight of the
                                                  interest, which are either issued or                      purposes of calculating this limitation, a            portfolio calculated on a notional value
                                                  guaranteed by the U.S. Treasury or by                     portfolio’s investment in listed                      basis. Separately, the OTC swap and
                                                  U.S. Government agencies or                               derivatives will be calculated as the                 fixed income portion of the portfolio
                                                  instrumentalities;                                        aggregate gross notional value of the                 would meet the requirements of Rule
                                                     (2) certificates of deposit issued                     listed derivatives.); and                             5735(b)(1). However, when the 15%
                                                  against funds deposited in a bank or                         (2) the aggregate gross notional value             weight in non-agency MBS and the 10%
                                                  savings and loan association;                             of listed derivatives based on any five or            weight in the non-agency MBS Index
                                                                                                            fewer underlying reference assets shall               OTC swap are combined, as required by
                                                     (3) bankers’ acceptances, which are
                                                                                                            not exceed 65% of the weight of the                   proposed 5735(b)(1)(F), the 25% total
                                                  short-term credit instruments used to
                                                                                                            portfolio (including gross notional                   weight would exceed the 20% limit for
                                                  finance commercial transactions;
                                                                                                            exposures), and the aggregate gross                   non-agency GSE and privately-issued
                                                     (4) repurchase agreements and reverse                  notional value of listed derivatives                  mortgage-related securities in
                                                  repurchase agreements;                                    based on any single underlying                        5735(b)(1)(B)(v). The portfolio,
                                                     (5) bank time deposits, which are                      reference asset shall not exceed 30% of               therefore, would not meet the proposed
                                                  monies kept on deposit with banks or                      the weight of the portfolio (including                generic criteria of Rule 5735.
                                                  savings and loan associations for a                       gross notional exposures).                               2. An actively managed ETF holds a
                                                  stated period of time at a fixed rate of                     Proposed Rule 5735(b)(1)(E) would                  portfolio of non-U.S. equity securities,
                                                  interest;                                                 describe the standards for a Managed                  S&P 500 Index and gold futures. S&P
                                                     (6) commercial paper, which are                        Fund Share portfolio that holds over the              500 Index futures and the gold futures
                                                  short-term unsecured promissory notes;                    counter (‘‘OTC’’) derivatives, including              held by the fund are listed on an ISG
                                                  and                                                       forwards, options and swaps on                        member exchange. The equity portion of
                                                     (7) money market funds.                                commodities, currencies and financial                 the portfolio consists of developed and
                                                                                                            instruments (e.g., stocks, fixed income,              emerging markets equity securities with
                                                     Proposed Rule 5735(b)(1)(D) would
                                                                                                            interest rates, and volatility) or a basket           a current aggregate market value of $15
                                                  describe the standards for a Managed
                                                                                                            or index of any of the foregoing.38                   million and all components meet the
                                                  Fund Share portfolio that holds listed
                                                                                                            Proposed Rule 5735(b)(1)(E) would                     requirements under Rule
                                                  derivatives, including futures, options,
                                                                                                            provide that, on both an initial and                  5735(b)(1)(A)(ii). The gold futures
                                                  and swaps on commodities, currencies,
                                                                                                            continuing basis, no more than 20% of                 contract trading unit size is 100 troy
                                                  and financial instruments (e.g., stocks,
                                                                                                            the assets in the portfolio may be                    ounces and an ounce of gold is currently
                                                  fixed income, interest rates, and
                                                                                                            invested in OTC derivatives. For                      worth $1200. The fund holds 500 gold
                                                  volatility) or a basket or index of any of
                                                                                                            purposes of calculating this limitation, a            futures contracts with a notional value
                                                  the foregoing.37 There would be no
                                                                                                            portfolio’s investment in OTC                         of $60 million (500*100*$1200). One
                                                  limitation to the percentage of the
                                                                                                            derivatives will be calculated as the                 S&P 500 contract represents 250 units of
                                                                                                            aggregate gross notional value of the                 the S&P 500 Index and the S&P 500
                                                  2015) (SR–NYSEArca–2015–42) (order approving
                                                  listing and trading of shares of Newfleet Multi-
                                                                                                            OTC derivatives.                                      Index is trading at $2,000. The portfolio
                                                  Sector Unconstrained Bond ETF under Rule 8.600).             Proposed Rule 5735(b)(1)(F) would                  holds 50 contracts, so the notional value
                                                     35 Proposed rule changes for previously-listed         provide that, to the extent that listed or            of the S&P 500 Index futures position is
                                                  series of Managed Fund Shares have similarly              OTC derivatives are used to gain                      $25 million (50*250*$2000). The S&P
                                                  included the ability for such Managed Fund Share          exposure to individual equities and/or
                                                  holdings to include cash and cash equivalents. See,
                                                                                                                                                                  500 Index futures meet the requirement
                                                  e.g., note 10 above regarding approval of NYSE            fixed income securities, or to indexes of             under Rule 5735(b)(1)(F), that is, the
                                                  Arca’s SPDR Blackstone/GSO Senior Loan, at                equities and/or fixed income securities,              S&P 500 Index meets the criteria in Rule
                                                  19768–69; and First Trust Preferred Securities and        the aggregate gross notional value of                 5735(b)(1)(A). The weights of the
                                                  Income Approval, at 76150.                                such exposure shall meet the criteria set
                                                     36 Proposed rule changes for previously-listed
                                                                                                                                                                  components are as follows; equity
                                                  series of Managed Fund Shares have similarly
                                                                                                            forth in Rules 5735(b)(1)(A) and (B)                  securities represent 15% of the
                                                  specified short-term instruments with respect to                                                                portfolio, gold futures represent 60% of
                                                  their inclusion in Managed Fund Share holdings.             38 A proposed rule change for series of Index       the portfolio and S&P 500 Index futures
                                                  See, e.g., note 10 above, regarding NYSE Arca’s           Fund Shares previously listed and traded on the       represent 25% of the portfolio. The gold
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                                                  First Trust Preferred Securities and Income               Exchange pursuant to Rule 5705 similarly included
                                                  Approval, at 76150–51.                                    the ability for such Index Fund Shares’ holdings to
                                                                                                                                                                  futures represent 60% of the portfolio
                                                     37 Proposed rule changes for previously-listed         include OTC derivatives, specifically OTC down-       and exceeds the 30% concentration
                                                  series of Managed Fund Shares have similarly              and-in put options, which are not NMS Stocks as       limitation on any single underlying
                                                  included the ability for such Managed Fund Share          defined in Rule 600 of Regulation NMS and             reference asset as outlined in proposed
                                                  holdings to include listed derivatives. See, e.g., note   therefore do not satisfy the requirements of Rule
                                                  10 above, regarding NYSE Arca’s WisdomTree Real           5705. See, e.g., note 10 above, regarding NYSE Arca
                                                                                                                                                                  Rule 5735(b)(1)(D)(ii). The portfolio,
                                                  Return Approval, at 13617; and WisdomTree Brazil          U.S. Equity Synthetic Reverse Convertible Index       therefore, would not meet the proposed
                                                  Bond Approval, at 32163.                                  Fund Approval, at 23602.                              generic criteria of Rule 5735.


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                                                                             Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices                                             57973

                                                     3. An actively managed ETF holds a                      (3) prior to the commencement of                   the continued listing requirements, and,
                                                  portfolio of equity securities and call                 trading of a particular series of Managed             pursuant to its obligations under
                                                  option contracts on company XYZ. The                    Fund Shares, the Exchange will inform                 Section 19(g)(1) of the Act, the Exchange
                                                  equity portion of the portfolio meets the               its members in an information circular                will monitor for compliance with the
                                                  requirements under Rule 5735(b)(1)(A).                  (‘‘Circular’’) of the special                         continued listing requirements. If the
                                                  Company XYZ represents 20% of the                       characteristics and risks associated with             Fund is not in compliance with the
                                                  weight of the equity portion of the                     trading the Managed Fund Shares,                      applicable listing requirements, the
                                                  portfolio. The equity portion of the fund               including procedures for purchases and                Exchange will commence delisting
                                                  has a market value of $100 million and                  redemptions of Managed Fund Shares,                   procedures under the Nasdaq Rule 5800
                                                  the market value of the fund’s holdings                 suitability requirements under Rules                  Series.
                                                  in company XYZ has a market value of                    2090A and 2111A, the risks involved in                  The Exchange notes that the proposed
                                                  $20 million. The fund also holds 10,000                 trading the Managed Fund Shares                       change is not otherwise intended to
                                                  call option contracts on company XYZ                    during the Pre-Market and Post-Market                 address any other issues and that the
                                                  which has a current market price of $50                 Sessions when an updated Portfolio                    Exchange is not aware of any problems
                                                  a share and, therefore, a notional value                Indicative Value will not be calculated               that members or issuers would have in
                                                  of $50 million (50*100*10,000) (that is,                or publicly disseminated, information                 complying with the proposed change.
                                                  the $50 market price per share times the                regarding the Portfolio Indicative Value
                                                                                                                                                                2. Statutory Basis
                                                  multiplier of 100 times 10,000                          and the Disclosed Portfolio, prospectus
                                                  contracts). The option contracts are                    delivery requirements, and other trading                 The Exchange believes that its
                                                  traded on an ISG member exchange. The                   information. In addition, the Circular                proposal is consistent with Section 6(b)
                                                  total exposure to company XYZ is                        will disclose that the Managed Fund                   of the Act,41 in general, and furthers the
                                                  therefore $70 million and represents                    Shares are subject to various fees and                objectives of Section 6(b)(5) of the Act,42
                                                  46.7% ($70 million/$150                                 expenses, as described in the applicable              in particular, in that it is designed to
                                                  million=46.7%) of the portfolio. This                   registration statement, and will discuss              prevent fraudulent and manipulative
                                                  fund would not meet the requirements                    any exemptive, no-action, and                         acts and practices, to promote just and
                                                  of Rule 5735 because the exposure to                    interpretive relief granted by the                    equitable principles of trade, to remove
                                                  XYZ at 46.7% exceeds the 30%                            Commission from any rules under the                   impediments to and perfect the
                                                  concentration limitation of proposed                    Act. Finally, the Circular will disclose              mechanism of a free and open market
                                                  Rule 5735(b)(1)(D)(ii).                                 that the net asset value for the Managed              and a national market system, and, in
                                                     The Exchange believes that the                       Fund Shares will be calculated after 4                general, to protect investors and the
                                                  proposed standards would continue to                    p.m., ET, each trading day; and                       public interest.
                                                                                                             (4) the issuer of a series of Managed                 The proposed rule change is designed
                                                  ensure transparency surrounding the
                                                                                                          Fund Shares will be required to comply                to perfect the mechanism of a free and
                                                  listing process for Managed Fund
                                                                                                          with Rule 10A–3 under the Act for the                 open market and, in general, to protect
                                                  Shares. Additionally, the Exchange
                                                                                                          initial and continued listing of Managed              investors and the public interest
                                                  believes that the proposed portfolio
                                                                                                          Fund Shares, as provided under the                    because it would facilitate the listing
                                                  standards for listing and trading
                                                                                                          Nasdaq Rule 5600 Series.                              and trading of additional Managed Fund
                                                  Managed Fund Shares, many of which                         The Exchange, on a periodic basis and              Shares, which would enhance
                                                  track existing Exchange rules relating to               no less than annually, will review issues             competition among market participants,
                                                  Index Fund Shares, are reasonably                       of Managed Fund Shares generically                    to the benefit of investors and the
                                                  designed to promote a fair and orderly                  listed pursuant to Rule 5735, and will                marketplace.
                                                  market for such Managed Fund                            provide a report to the Regulatory                       Specifically, after more than six years
                                                  Shares.39 These proposed standards                      Oversight Committee of the Exchange’s                 under the current process, whereby the
                                                  would also work in conjunction with                     Board of Directors regarding the                      Exchange is required to file a proposed
                                                  the existing initial and continued listing              Exchange’s findings. In addition, the                 rule change with the Commission for
                                                  criteria related to surveillance                        Exchange will provide the Commission                  the listing and trading of each new
                                                  procedures and trading guidelines.                      staff with a report each calendar quarter             series of Managed Fund Shares, the
                                                     In support of this proposal, the                     that includes the following information               Exchange believes that it is appropriate
                                                  Exchange represents that: 40                            for issues of Managed Fund Shares                     to codify certain rules within Rule 5735
                                                     (1) The Managed Fund Shares will                     listed during such calendar quarter                   that would generally eliminate the need
                                                  continue to conform to the initial and                  under Rule 5735(b)(1): (1) Trading                    for separate proposed rule changes.
                                                  continued listing criteria under Rule                   symbol and date of listing on the                        The Exchange believes that this
                                                  5735;                                                   Exchange; (2) the number of active                    would facilitate the listing and trading
                                                     (2) the Exchange’s surveillance                      authorized participants and a                         of additional types of Managed Fund
                                                  procedures are adequate to continue to                  description of any failure of an issue of             Shares that have investment portfolios
                                                  properly monitor the trading of the                     Managed Fund Shares or of an                          that are similar to investment portfolios
                                                  Managed Fund Shares in all trading                      authorized participant to deliver shares,             for Index Fund Shares, which have been
                                                  sessions and to deter and detect                        cash, or cash and financial instruments               approved for listing and trading, thereby
                                                  violations of Exchange rules.                           in connection with creation or                        creating greater efficiencies in the listing
                                                  Specifically, the Exchange intends to                   redemption orders; and (3) a description              process for the Exchange and the
                                                  utilize its existing surveillance                       of any failure of an issue of Managed                 Commission.
                                                                                                          Fund Shares to comply with Nasdaq
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                                                  procedures applicable to derivative                                                                              In this regard, the Exchange notes that
                                                  products, which will include Managed                    Rule 5735.                                            the standards proposed for Managed
                                                  Fund Shares, to monitor trading in the                     Prior to listing pursuant to proposed              Fund Share portfolios that include U.S.
                                                  Managed Fund Shares;                                    amended Rule 5735(b)(1), an issuer                    Component Stocks, Non-U.S.
                                                                                                          would be required to represent to the                 Component Stocks, Exchange Traded
                                                    39 Seenote 4 above, Approval Order, at 35177.         Exchange that it will advise the
                                                    40 TheExchange made similar representations in        Exchange of any failure by a series of                  41 15   U.S.C. 78f(b).
                                                  the Approval Order. See id. at 35177—35178.             Managed Fund Shares to comply with                      42 15   U.S.C. 78f(b)(5).



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                                                  57974                      Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices

                                                  Derivative Securities, and Linked                       changes for issues of Managed Fund                    and Linked Securities are derivatively
                                                  Securities are based in large part on the               Shares previously approved by the                     priced, and, therefore, the Exchange
                                                  existing equity security standards                      Commission.46                                         believes that it would not be necessary
                                                  applicable to Index Fund Shares in Rule                    With respect to the proposed                       to apply the proposed generic
                                                  5705(b)(3) and that the standards                       requirement in Rule 5735(b)(1)(A) that                quantitative criteria (e.g., market
                                                  proposed for Managed Fund Share                         no more than 25% of the equity weight                 capitalization, trading volume, or
                                                  portfolios that include fixed income                    of the portfolio shall consist of                     portfolio component weighting)
                                                  securities are based in large part on the               leveraged and/or inverse leveraged                    applicable to equity securities other
                                                  existing fixed income standards                         Exchange Traded Derivative Securities                 than Exchange Traded Derivative
                                                  applicable to Index Fund Shares in Rule                 or Linked Securities, such requirement                Securities or Linked Securities (e.g.,
                                                  5705(b)(4). Additionally, many of the                   would assure that only a relatively small             common stocks) to such products.50
                                                  standards proposed for other types of                   proportion of a fund’s investments                       With respect to the proposed criteria
                                                  holdings of series of Managed Fund                      could consist of such leveraged and/or                applicable to U.S. Component Stocks,
                                                  Shares are based on previous proposed                   inverse securities. In addition, such                 the Exchange notes that such criteria are
                                                  rule changes for specific series of                     limitation would apply to both U.S.                   similar to those in Rule 5705(b)(3)
                                                  Managed Fund Shares.43                                  Component Stocks and Non-U.S.                         relating to criteria applicable to an
                                                    With respect to the proposed addition                 Component Stocks comprising the                       index or portfolio of U.S. Component
                                                  to the criteria of Rule 5735(c) to provide              equity portion of a portfolio.                        Stocks. In addition, Non-U.S.
                                                  that the Web site for each series of                       With respect to the proposed                       Component Stocks also will be required
                                                  Managed Fund Shares shall disclose                      provision in Rule 5735(b)(1)(A) that, to              to meet criteria similar to certain generic
                                                  certain information regarding the                       the extent a portfolio includes a                     listing standards in Rule 5705(b)(3)
                                                  Disclosed Portfolio, to the extent                      convertible security, the equity security             relating to criteria applicable to an
                                                  applicable, the Exchange notes that                     into which such security is converted                 index or portfolio of U.S. Component
                                                  proposed rule changes approved by the                   must meet the criteria in Rule                        Stocks and Non-U.S. Component Stocks
                                                  Commission for previously-listed series                 5735(b)(1)(A) after converting, such                  underlying a series of Index Fund
                                                  of Managed Fund Shares have similarly                   requirement would assure that the                     Shares to be listed and traded on the
                                                  included disclosure requirements with                   equity securities into which a                        Exchange pursuant to Rule 19b–4(e)
                                                  respect to each portfolio holding, as                   convertible security could be converted               under the Act.
                                                  applicable to the type of holding.44                    meet the liquidity and other criteria in                 With respect to the proposed
                                                    With respect to the proposed                          Rule 5735(b)(1)(A) applicable to such                 requirement in Rule 5735(b)(1)(A)(i)f.
                                                  definition of the term ‘‘normal market                  equity securities.                                    that no more than 10% of the equity
                                                  conditions’’ in proposed Rule                              With respect to the proposed                       weight of the portfolio shall consist of
                                                  5735(c)(5), such definition is similar to               exclusion of Exchange Traded                          non-exchange-traded ADRs, the
                                                  the definition of normal market                         Derivatives Securities and Linked                     Exchange notes that such requirement
                                                  conditions approved by the Commission                   Securities from the requirements of                   will ensure that non-exchange-traded
                                                  for other issues of Managed Fund                        proposed Rule 5735(b)(1)(A), the                      ADRs, which are traded OTC and which
                                                  Shares.45 In addition, proposed Rule                    Exchange believes it is appropriate to                generally have less market transparency
                                                  5735(d)(1)(C), would specify that a                     exclude Linked Securities as well as                  than exchange-traded ADRs, could
                                                  series of Managed Fund Shares would                     Exchange Traded Derivative Securities                 account for only a small percentage of
                                                  be required to adhere to its stated                     from certain component stock eligibility              the equity weight of a portfolio. Further,
                                                  investment objective during normal                      criteria for Managed Fund Shares in so                the requirement is consistent with
                                                  market conditions.                                      far as Exchange Traded Derivative                     representations made in proposed rule
                                                    With respect to the proposed                          Securities and Linked Securities are                  changes for issues of Managed Fund
                                                  amendment to the continued listing                      themselves subject to specific                        Shares previously approved by the
                                                  requirement in Rule 5735(d)(2)(A) to                    quantitative listing and continued                    Commission.51
                                                  require dissemination of a Portfolio                    listing requirements of a national                       With respect to the proposed
                                                  Indicative Value at least every 15                      securities exchange on which such                     provision in Rule 5735(b)(1)(B) that, to
                                                  seconds during the Regular Market                       securities are listed. Exchange Traded                the extent a portfolio includes
                                                  Session (as defined in Rule 4120(b)),                   Derivative Securities and Linked                      convertible securities, the fixed income
                                                  such requirement conforms to the                        Securities that are components of a                   security into which such security is
                                                  requirement applicable to the                           fund’s portfolio would have been listed               converted must meet the criteria in
                                                  dissemination of the Intraday Indicative                and traded on a national securities                   paragraph (B) of Rule 5735(b)(1) after
                                                  Value for Index Fund Shares in Rule                     exchange pursuant to a proposed rule                  converting, such requirement would
                                                  5705(b)(3)(C). In addition, such                        change approved by the Commission                     assure that the fixed income securities
                                                  dissemination is consistent with                        pursuant to Section 19(b)(2) of the Act 47            into which a convertible security could
                                                  representations made in proposed rule                   or submitted by a national securities                 be converted meet the liquidity and
                                                                                                          exchange pursuant to Section                          other criteria in Rule 5735(b)(1)(B)
                                                    43 See  note 10 above.                                19(b)(3)(A) of the Act 48 or would have               applicable to fixed income securities.
                                                    44 See  note 8 above.
                                                     45 See, e.g., Securities Exchange Act Release No.
                                                                                                          been listed by a national securities
                                                  73140 (September 18, 2014) 79 FR 57144
                                                                                                          exchange pursuant to the requirements                    50 See, e.g., Securities Exchange Act Release Nos.

                                                  (September 24, 2014) (SR–NASDAQ–2014–073)               of Rule 19b–4(e) under the Act.49                     57561 (March 26, 2008), 73 FR 17390 (April 1,
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                                                  (order approving listing and trading of the First          The Exchange also notes that                       2008) (SR–NYSEArca–2008–29) (notice of filing of
                                                  Trust Emerging Markets Local Currency Bond ETF          Exchange Traded Derivative Securities                 proposed rule change to amend eligibility criteria
                                                  of First Trust Exchange-Traded Fund III. See also,                                                            for components of an index underlying Investment
                                                  Securities Exchange Act Release No. 74338                                                                     Company Units); 57751 (May 1, 2008), 73 FR 25818
                                                                                                            46 See, e.g., Approval Order, note 4 above; and
                                                  (February 20, 2015), 80 FR 10556 (February 26,                                                                (May 7, 2008) (SR–NYSEArca–2008–29) (order
                                                  2015) (SR–NYSEArca-2014–143) (order approving           International Bear Approval, note 10 above.           approving proposed rule change to amend
                                                                                                            47 15 U.S.C. 78s(b)(2).
                                                  listing and trading of shares of the SPDR Doubletree                                                          eligibility criteria for components of an index
                                                                                                            48 15 U.S.C. 78s(b)(3)(A).                          underlying Investment Company Units).
                                                  Total Return Tactical ETF under NYSE Arca
                                                  Equities Rule 8.600).                                     49 17 CFR 240.19b–4(e).                                51 See note 20 above.




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                                                                               Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices                                                    57975

                                                     As proposed, pursuant to Rule                          requirement would facilitate                            guidance limit the amount of leverage
                                                  5735(b)(1)(B)(iii), an underlying                         information sharing among market                        an investment company can obtain. A
                                                  portfolio (excluding exempted                             participants trading shares of a series of              fund’s investments would be consistent
                                                  securities) that includes fixed income                    Managed Fund Shares as well as futures                  with its investment objective and would
                                                  securities must include a minimum of                      and options that such series may hold.                  not be used to enhance leverage. To
                                                  13 non-affiliated issuers, but there                      In addition, listed swaps would be                      limit the potential risk associated with
                                                  would be no minimum number of non-                        centrally cleared, reducing counterparty                a fund’s use of derivatives, a fund will
                                                  affiliated issuers required for fixed                     risk and thereby furthering investor                    segregate or ‘‘earmark’’ assets
                                                  income securities if at least 70% of the                  protection.54                                           determined to be liquid by a fund in
                                                  weight of the portfolio consists of equity                   With respect to proposed Rule                        accordance with the 1940 Act (or, as
                                                  securities, as described in Rule                          5735(b)(1)(D)(ii), requiring percentage                 permitted by applicable regulation,
                                                  5735(b)(1)(A). The Exchange notes that,                   caps on the aggregate gross notional                    enter into certain offsetting positions) to
                                                  when evaluated in conjunction with                        value of listed derivatives based on any                cover its obligations under derivative
                                                  proposed Rule 5735(b)(1)(B)(ii), the                      five or fewer underlying reference assets               instruments.
                                                  proposed rule is consistent with Rules                    or based on any single underlying                          With respect to proposed Rule
                                                  5705(b)(4)(A)(iv) and 5705(b)(4)(A)(v) in                 reference asset, the Exchange believes                  5735(b)(1)(F) relating to a fund’s use of
                                                  that it provides for a maximum                            such requirements will help ensure that                 listed or OTC derivatives to gain
                                                  weighting of a fixed income security in                   listed derivatives utilized by a fund are               exposure to individual equities and/or
                                                  the fixed income portion of the portfolio                 adequately diversified and not unduly                   fixed income securities, or to indexes of
                                                  of a fund that is comparable to the                       concentrated.                                           equities and/or indexes of fixed income
                                                  existing rules applicable to Index Fund                      With respect to proposed Rule                        securities, the Exchange notes that the
                                                  Shares based on fixed income indexes.                     5735(b)(1)(E) relating to OTC                           aggregate gross notional value of such
                                                     With respect to the proposed                           derivatives, the Exchange believes that                 exposure would be required to meet the
                                                  requirement in Rule 5735(b)(1)(B)(v)                      the limitation to 20% of a fund’s assets                numerical and other criteria set forth in
                                                  that non-agency, non-GSE and privately-                   would assure that the preponderance of                  proposed Rules 5735(b)(1)(A) and
                                                  issued mortgage-related and other asset-                  fund investments would not be in                        5735(b)(1)(B) (including gross notional
                                                  backed securities components of a                         derivatives that are not listed and                     exposures), respectively.
                                                  portfolio shall not account, in the                       centrally cleared. The Exchange believes                   Quotation and other market
                                                  aggregate, for more than 20% of the                       that such a limitation is sufficient to                 information relating to listed futures
                                                  weight of the fixed income portion of                     mitigate the risks associated with price                and options is available from the
                                                  the portfolio, the Exchange notes that                    manipulation because a 20% cap on                       exchanges listing such instruments as
                                                  such requirement is consistent with                       OTC derivatives will ensure that any                    well as from market data vendors. With
                                                  representations made in proposed rule                     series of Managed Fund Shares will be                   respect to centrally-cleared swaps 55 and
                                                  changes for issues of Managed Fund                        sufficiently broad-based in scope to                    non-centrally-cleared swaps regulated
                                                  Shares previously approved by the                         minimize potential manipulation                         by the CFTC,56 the Dodd-Frank Act
                                                  Commission.52                                             associated with OTC derivatives and                     mandates that swap information be
                                                     With respect to the proposed                           because the remaining 80% of the                        reported to swap data repositories
                                                  amendment to Rule 5735(b)(1)(C)                           portfolio will consist of instruments                   (‘‘SDRs’’).57 SDRs provide a central
                                                  relating to cash and cash equivalents,                    subject to numerous restrictions                        facility for swap data reporting and
                                                  while there is no limitation on the                       designed to prevent manipulation,                       recordkeeping and are required to
                                                  amount of cash and cash equivalents                       including equity securities (which, as                  comply with data standards set by the
                                                  that can make up the portfolio, such                      proposed, would be subject to market                    CFTC, including real-time public
                                                  instruments are short-term, highly                        cap, trading volume, and diversity                      reporting of swap transaction data to a
                                                  liquid, and of high credit quality,                       requirements, among others), fixed                      derivatives clearing organization or
                                                  making them less susceptible than other                   income securities (which, as proposed,                  SEF.58 SDRs require real-time reporting
                                                  asset classes both to price manipulation                  would be subject to principal amount                    of all OTC and centrally cleared
                                                  and volatility. Further, the requirement                  outstanding, diversity, and issuer                      derivatives, including public reporting
                                                  is consistent with representations made                   requirements, among others), cash and                   of the swap price and size. The parties
                                                  in proposed rule changes for issues of                    cash equivalents (which, as proposed,                   responsible for reporting swaps
                                                  Managed Fund Shares previously                            would be limited to short-term, highly                  information are CFTC-registered swap
                                                  approved by the Commission.53                             liquid, and high credit quality                         dealers (‘‘RSDs’’), major swap
                                                     With respect to proposed Rule                          instruments), and/or listed derivatives                 participants, and swap execution
                                                  5735(b)(1)(D)(i) relating to listed                       (which would be subject to the                          facilities (‘‘SEFs’’). If swap
                                                  derivatives, the Exchange believes that                   limitations in proposed Rule                            counterparties do not fall into the above
                                                  it is appropriate that there be no limit                  5735(b)(1)(D)).
                                                  to the percentage of a portfolio invested                    The Exchange notes that a fund’s                        55 There are currently five categories of swaps

                                                  in such holdings, provided that, in the                   investments in derivative instruments                   eligible for central clearing: Interest rate swaps;
                                                                                                                                                                    credit default swaps; foreign exchange swaps;
                                                  aggregate, at least 90% of the weight of                  would be subject to limits on leverage                  equity swaps; and commodity swaps. The following
                                                  such holdings invested in futures,                        imposed by the 1940 Act. Section 18(f)                  entities provide central clearing for OTC
                                                  exchange-traded options, and listed                       of the 1940 Act and related Commission                  derivatives: ICE Clear Credit (US); ICE Clear (EU);
                                                                                                                                                                    CME Group; LCH.Clearnet; and Eurex.
                                                  swaps would consist of futures, options,                                                                             56 Pursuant to the Dodd-Frank Act, OTC and
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                                                                                                               54 The Commission has noted that ‘‘[c]entral
                                                  and swaps for which the Exchange may                                                                              centrally-cleared swaps are regulated by the CFTC
                                                                                                            clearing mitigates counterparty risk among dealers
                                                  obtain information via ISG from other                     and other institutions by shifting that risk from       with the exception of security-based swaps, which
                                                  members or affiliates or for which the                    individual counterparties to [central counterparties    are regulated by the Commission.
                                                                                                                                                                       57 The following entities are provisionally
                                                  principal market is a market with which                   (‘‘CCPs’’)], thereby protecting CCPs from each
                                                                                                            other’s potential failures.’’ See Securities Exchange   registered with the CFTC as SDRs: BSDR LLC.,
                                                  the Exchange has a CSSA. Such a                                                                                   Chicago Mercantile Exchange, Inc., DTCC Data
                                                                                                            Act Release No. 67286 (June 28, 2012) (File No. S7–
                                                                                                            44–10) (Process for Submissions for Review of           Repository, and ICE Trade Vault.
                                                    52 See   note 34 above.                                 Security-Based Swaps for Mandatory Clearing and            58 Approximately eighteen entities are currently
                                                    53 See   note 35 above.                                 Notice Filing Requirements for Clearing Agencies).      registered with the CFTC as SEFs.



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                                                  57976                      Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices

                                                  categories, then one of the parties to the              would continue to be subject to the full               on the Exchange pursuant to the initial
                                                  swap must report the trade to the SDR.                  panoply of Exchange rules and                          and continued listing criteria in Rule
                                                  Cleared swaps regulated by the CFTC                     procedures that currently govern the                   5735. The Exchange has in place
                                                  must be executed on a Designated                        trading of equity securities on the                    surveillance procedures that are
                                                  Contract Market (‘‘DCM’’) or SEF. Such                  Exchange.61                                            adequate to properly monitor trading in
                                                  cleared swaps have the same reporting                      The proposed rule change is also                    the Managed Fund Shares in all trading
                                                  requirements as futures, including end-                 designed to protect investors and the                  sessions and to deter and detect
                                                  of-day price, volume, and open interest.                public interest as well as to promote just             violations of Exchange rules and
                                                  CFTC swaps reporting requirements                       and equitable principles of trade in that              applicable federal securities laws.
                                                  require public dissemination of, among                  any Non-U.S. Component Stocks will                     FINRA, on behalf of the Exchange, or
                                                  other items, product ID (if available);                 each meet the following criteria initially             the regulatory staff of the Exchange, will
                                                  asset class; underlying reference asset,                and on a continuing basis: (1) Have a                  communicate as needed regarding
                                                  reference issuer, or reference index;                   minimum market value of at least $100                  trading in Managed Fund Shares with
                                                  termination date; date and time of                      million; (2) have a minimum global                     other markets that are members of the
                                                  execution; price, including currency;                   monthly trading volume of 250,000                      ISG, including all U.S. securities
                                                  notional amounts, including currency;                   shares, or minimum global notional                     exchanges and futures exchanges on
                                                  whether direct or indirect                              volume traded per month of                             which the components are traded.
                                                  counterparties include an RSD; whether                  $25,000,000, averaged over the last six                   In addition, the Exchange may obtain
                                                  cleared or uncleared; and platform ID of                months; (3) most heavily weighted Non-                 information regarding trading in
                                                  where the contract was executed (if                     U.S. Component Stock shall not exceed                  Managed Fund Shares from other
                                                  applicable).                                            25% of the equity weight of the                        markets that are members of the ISG,
                                                     With respect to security-based swaps                 portfolio, and, to the extent applicable,              including all U.S. securities exchanges
                                                  regulated by the Commission, the                        the five most heavily weighted Non-U.S.                and futures exchanges on which the
                                                  Commission has adopted Regulation                       Component Stocks shall not exceed                      components are traded, or with which
                                                  SBSR under the Act implementing                         60% of the equity weight of the                        the Exchange has in place a CSSA.
                                                  requirements for regulatory reporting                   portfolio; and (4) each Non-U.S.                          The Exchange also believes that the
                                                  and public dissemination of security-                   Component Stock shall be listed and                    proposed rule change would fulfill the
                                                  based swap transactions set forth in                    traded on an exchange that has last-sale               intended objective of Rule 19b–4(e)
                                                  Title VII of the Dodd-Frank Act.                        reporting.                                             under the Act by allowing Managed
                                                  Regulation SBSR provides for the                           The Exchange believes that such                     Fund Shares that satisfy the proposed
                                                  reporting of security-based swap                        quantitative criteria are sufficient to                listing standards to be listed and traded
                                                  information to registered security-based                mitigate any concerns that may arise on                without separate Commission approval.
                                                  swap data repositories (‘‘Registered                    the basis of a series of Managed Fund                  However, as proposed, the Exchange
                                                  SDRs’’) or the Commission, and the                      Shares potentially holding 100% of its                 would continue to file separate
                                                  public dissemination of security-based                  assets in Non-U.S. Component Stocks                    proposed rule changes before the listing
                                                  swap transaction, volume, and pricing                   that are neither listed on members of                  and trading of Managed Fund Shares
                                                  information by Registered SDRs.59                       ISG nor exchanges with which the                       that do not satisfy the additional criteria
                                                     Price information relating to forwards               Exchange has in place a CSSA because,                  described above.
                                                                                                          as stated above, such criteria are either                 The Exchange, on a periodic basis and
                                                  and OTC options will be available from
                                                                                                          the same or more stringent than the                    no less than annually, will review issues
                                                  major market data vendors.
                                                     A fund’s investments will not be used                portfolio requirements for Index Fund                  of Managed Fund Shares listed pursuant
                                                  to seek performance that is the multiple                Shares that hold Non-U.S. Component                    to Rule 5735(b)(1), and will provide a
                                                  or inverse multiple (i.e., 2Xs and 3Xs) of              Stocks and there are no such                           report to the Regulatory Oversight
                                                                                                          requirements related to such securities                Committee of the Exchange’s Board of
                                                  a fund’s broad-based securities market
                                                                                                          being listed on an exchange that is a                  Directors regarding the Exchange’s
                                                  index (as defined in Form N–1A).60 In
                                                                                                          member of ISG or with which the                        findings. In addition, the Exchange will
                                                  addition, the Exchange notes that, under
                                                                                                          Exchange has in place a CSSA.                          provide the Commission staff with a
                                                  proposed Rule 5735(b)(1)(A), for
                                                                                                             Further, the Exchange has not                       report each calendar quarter that
                                                  Exchange Traded Derivative Securities
                                                                                                          encountered and is not aware of any                    includes the following information for
                                                  and Linked Securities, no more than
                                                                                                          instances of manipulation or other                     issues of Managed Fund Shares listed
                                                  25% of the equity weight of a fund’s
                                                                                                          negative impact in any series of Index                 during such calendar quarter under Rule
                                                  portfolio could include leveraged and/or
                                                                                                          Fund Shares that has occurred by virtue                5735(b)(1): (1) Trading symbol and date
                                                  inverse leveraged Exchange Traded
                                                                                                          of the Index Fund Shares holding such                  of listing on the Exchange; (2) the
                                                  Derivative Securities or Linked
                                                                                                          Non-U.S. Component Stocks. Therefore,                  number of active authorized
                                                  Securities.
                                                                                                          the Exchange believes that there should                participants and a description of any
                                                     The proposed rule change is also
                                                                                                          be no difference in the portfolio                      failure of an issue of Managed Fund
                                                  designed to protect investors and the
                                                                                                          requirements for Managed Fund Shares                   Shares listed pursuant to Rule
                                                  public interest because Managed Fund
                                                                                                          and Index Fund Shares as it relates to                 5735(b)(1) or of an authorized
                                                  Shares listed and traded pursuant to
                                                                                                          holding Non-U.S. Component Stocks                      participant to deliver shares, cash, or
                                                  Rule 5735, including pursuant to the
                                                                                                          that are not listed on an exchange that                cash and financial instruments in
                                                  proposed new portfolio standards,
                                                                                                          is a member of ISG or with which the                   connection with creation or redemption
                                                                                                                                                                 orders; and (3) a description of any
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                                                     59 See Securities Exchange Act Release No. 74244     Exchange has in place a CSSA.
                                                  (February 11, 2015), 80 FR 14564 (March 19, 2015)          The Exchange believes that the                      failure of an issue of Managed Fund
                                                  (Regulation SBSR—Reporting and Dissemination of         proposed rule change is designed to                    Shares to comply with Rule 5735.
                                                  Security-Based Swap Information).                       prevent fraudulent and manipulative                       Prior to listing pursuant to proposed
                                                     60 See, e.g., Securities Exchange Act Release No.
                                                                                                          acts and practices because the Managed                 amended Rule 5735(b)(1), an issuer
                                                  74842 (April 29, 2015), 86 FR 25723 (May 5, 2015)
                                                  (SR–NYSEArca–2014–89) (order approving listing          Fund Shares will be listed and traded                  would be required to represent to the
                                                  and trading of shares of eight PIMCO exchange-                                                                 Exchange that it will advise the
                                                  traded funds).                                            61 See   note 4 above, Approval Order, at 35177.     Exchange of any failure by a series of


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                                                                                Federal Register / Vol. 81, No. 164 / Wednesday, August 24, 2016 / Notices                                                 57977

                                                  Managed Fund Shares to comply with                         whether the proposed rule change                        For the Commission, by the Division of
                                                  the continued listing requirements, and,                   should be disapproved.                                Trading and Markets, pursuant to delegated
                                                  pursuant to its obligations under                                                                                authority.63
                                                  Section 19(g)(1) of the Act, the Exchange                  IV. Solicitation of Comments                          Robert W. Errett,
                                                  will monitor for compliance with the                         Interested persons are invited to                   Deputy Secretary.
                                                  continued listing requirements. If the                     submit written data, views, and                       [FR Doc. 2016–20210 Filed 8–23–16; 8:45 am]
                                                  Fund is not in compliance with the                         arguments concerning the foregoing,                   BILLING CODE 8011–01–P
                                                  applicable listing requirements, the                       including whether the proposed rule
                                                  Exchange will commence delisting                           change is consistent with the Act.
                                                  procedures under the Nasdaq Rule 5800                                                                            SECURITIES AND EXCHANGE
                                                                                                             Comments may be submitted by any of
                                                  Series.
                                                                                                             the following methods:                                COMMISSION
                                                    For these reasons, the Exchange
                                                  believes that the proposal is consistent                   Electronic Comments
                                                                                                                                                                   [Release No. 34–78618; File No. SR–BOX–
                                                  with the Act.
                                                                                                               • Use the Commission’s Internet                     2016–41]
                                                  B. Self-Regulatory Organization’s                          comment form (http://www.sec.gov/
                                                  Statement on Burden on Competition                         rules/sro.shtml); or                                  Self-Regulatory Organizations; BOX
                                                                                                                                                                   Options Exchange LLC; Notice of
                                                     In accordance with Section 6(b)(8) of                     • Send an email to rule-comments@                   Filing and Immediate Effectiveness of
                                                  the Act,62 the Exchange does not believe                   sec.gov. Please include File Number SR–
                                                  that the proposed rule change will                                                                               a Proposed Rule Change To Amend
                                                                                                             NASDAQ–2016–104 on the subject line.
                                                  impose any burden on competition that                                                                            the Fee Schedule on the BOX Market
                                                  is not necessary or appropriate in                         Paper Comments                                        LLC (‘‘BOX’’) Options Facility
                                                  furtherance of the purposes of the Act.                      • Send paper comments in triplicate                 August 18, 2016.
                                                  Instead, the Exchange believes that the
                                                                                                             to Secretary, Securities and Exchange                    Pursuant to Section 19(b)(1) of the
                                                  proposed rule change would facilitate
                                                                                                             Commission, 100 F Street NE.,                         Securities Exchange Act of 1934 (the
                                                  the listing and trading of additional
                                                                                                             Washington, DC 20549–1090.                            ‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                  types of Managed Fund Shares and
                                                  result in a significantly more efficient                   All submissions should refer to File                  notice is hereby given that on August
                                                  process surrounding the listing and                        Number SR–NASDAQ–2016–104. This                       15, 2016, BOX Options Exchange LLC
                                                  trading of Managed Fund Shares, which                      file number should be included on the                 (the ‘‘Exchange’’) filed with the
                                                  will enhance competition among market                      subject line if email is used. To help the            Securities and Exchange Commission
                                                  participants, to the benefit of investors                  Commission process and review your                    (‘‘Commission’’) the proposed rule
                                                  and the marketplace. The Exchange                          comments more efficiently, please use                 change as described in Items I, II, and
                                                  believes that this would reduce the time                   only one method. The Commission will                  III below, which Items have been
                                                  frame for bringing Managed Fund                            post all comments on the Commission’s                 prepared by the Exchange. The
                                                  Shares to market, thereby reducing the                     Internet Web site (http://www.sec.gov/                Exchange filed the proposed rule change
                                                  burdens on issuers and other market                        rules/sro.shtml). Copies of the                       pursuant to Section 19(b)(3)(A)(ii) of the
                                                  participants and promoting competition.                    submission, all subsequent                            Act,3 and Rule 19b–4(f)(2) thereunder,4
                                                  In turn, the Exchange believes that the                    amendments, all written statements                    which renders the proposal effective
                                                  proposed change would make the                             with respect to the proposed rule                     upon filing with the Commission. The
                                                  process for listing Managed Fund Shares                    change that are filed with the                        Commission is publishing this notice to
                                                  more competitive by applying uniform                       Commission, and all written                           solicit comments on the proposed rule
                                                  listing standards with respect to                          communications relating to the                        change from interested persons.
                                                  Managed Fund Shares.                                       proposed rule change between the
                                                  C. Self-Regulatory Organization’s                          Commission and any person, other than                 I. Self-Regulatory Organization’s
                                                  Statement on Comments on the                               those that may be withheld from the                   Statement of the Terms of the Substance
                                                  Proposed Rule Change Received From                         public in accordance with the                         of the Proposed Rule Change
                                                  Members, Participants, or Others                           provisions of 5 U.S.C. 552, will be                      The Exchange is filing with the
                                                                                                             available for Web site viewing and                    Securities and Exchange Commission
                                                    No written comments were either
                                                                                                             printing in the Commission’s Public                   (‘‘Commission’’) a proposed rule change
                                                  solicited or received.
                                                                                                             Reference Room, 100 F Street NE.,                     to amend the Fee Schedule to make a
                                                  III. Date of Effectiveness of the                          Washington, DC 20549, on official                     number of changes to the fees and
                                                  Proposed Rule Change and Timing for                        business days between the hours of
                                                  Commission Action                                                                                                credits for PIP and COPIP Transactions
                                                                                                             10:00 a.m. and 3:00 p.m. Copies of the
                                                                                                                                                                   on the BOX Market LLC (‘‘BOX’’)
                                                    Within 45 days of the date of                            filing also will be available for
                                                                                                                                                                   options facility. The text of the
                                                  publication of this notice in the Federal                  inspection and copying at the principal
                                                                                                                                                                   proposed rule change is available from
                                                  Register or within such longer period                      office of the Exchange. All comments
                                                                                                                                                                   the principal office of the Exchange, at
                                                  up to 90 days (i) as the Commission may                    received will be posted without change;
                                                                                                                                                                   the Commission’s Public Reference
                                                  designate if it finds such longer period                   the Commission does not edit personal
                                                                                                             identifying information from                          Room and also on the Exchange’s
                                                  to be appropriate and publishes its
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                                                                                                             submissions. You should submit only                   Internet Web site at http://
                                                  reasons for so finding or (ii) as to which                                                                       boxexchange.com.
                                                  the Exchange consents, the Commission                      information that you wish to make
                                                  shall: (a) by order approve or disapprove                  available publicly. All submissions
                                                                                                                                                                     63 17 CFR 200.30–3(a)(12).
                                                  such proposed rule change, or (b)                          should refer to File Number SR–                         1 15 U.S.C. 78s(b)(1).
                                                  institute proceedings to determine                         NASDAQ–2016–104 and should be                           2 17 CFR 240.19b–4.
                                                                                                             submitted on or before September 14,                    3 15 U.S.C. 78s(b)(3)(A)(ii).
                                                    62 15   U.S.C. 78f(b)(8).                                2016.                                                   4 17 CFR 240.19b–4(f)(2).




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Document Created: 2016-08-24 03:02:15
Document Modified: 2016-08-24 03:02:15
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 57968 

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