81 FR 58983 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of a Proposed Rule Change, As Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of the Shares of the Amplify Dow Theory Forecasts Buy List ETF of Amplify ETF Trust

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 166 (August 26, 2016)

Page Range		58983-58987
FR Document		2016-20453
Federal Register, Volume 81 Issue 166 (Friday, August 26, 2016)
[Federal Register Volume 81, Number 166 (Friday, August 26, 2016)]
[Notices]
[Pages 58983-58987]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-20453]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78626; File No. SR-NASDAQ-2016-072]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, As Modified by Amendment 
No. 1 Thereto, Relating to the Listing and Trading of the Shares of the 
Amplify Dow Theory Forecasts Buy List ETF of Amplify ETF Trust

August 22, 2016.

I. Introduction

    On May 10, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Amplify Dow Theory Forecasts Buy List ETF 
(``Fund'') of Amplify ETF Trust (``Trust''). On May 20, 2016, the 
Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as modified by Amendment No. 1 thereto, was 
published for comment in the Federal Register on May 31, 2016.\3\ On 
July 5, 2016, pursuant to section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission received no comment letters on the proposed 
rule change. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77890 (May 24, 
2016), 81 FR 34419 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78225, 81 FR 44902 
(July 11, 2016).
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares under Nasdaq 
Rule 5735, which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Shares will be offered by the Trust, which was 
established as a Massachusetts business trust on January 6, 2015.\6\ 
According to the Exchange, the Trust is registered with the Commission 
as an investment company and has filed a registration statement on Form 
N-1A (``Registration Statement'') with the Commission.\7\ The Fund, 
which will be an actively-managed exchange-traded fund (``ETF''), will 
be a series of the Trust.
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    \6\ The Exchange represents that the Trust has obtained certain 
exemptive relief under the Investment Company Act of 1940 (``1940 
Act''). See Investment Company Act Release No. 31582 (April 28, 
2015) (File No. 812-14423).
    \7\ See Post-Effective Amendment No. 2 to Registration Statement 
on Form N-1A for the Trust, dated May 5, 2016 (File Nos. 333 207937 
and 811 23108).
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    Amplify Investments LLC will be the investment adviser 
(``Adviser'') to the Fund. The following entities will serve as 
investment sub-advisers (collectively, ``Sub-Adviser'') to the Fund: 
Horizon Investment Services, LLC (``Horizon'') and Penserra Capital 
Management LLC (``Penserra''). Quasar Distributors LLC will be the 
principal underwriter and distributor of the Fund's Shares. U.S. 
Bancorp Fund Services LLC will act as the administrator, accounting 
agent, custodian, and transfer agent to the Fund. The Exchange 
represents that neither the Adviser nor any Sub-Adviser is a broker-
dealer, although Penserra is affiliated with a broker-dealer.\8\ 
Penserra has implemented and will maintain a fire wall with respect to 
its broker-dealer affiliate regarding access to information concerning 
the composition of, and changes to, the portfolio.
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    \8\ The Exchange further represents that Adviser and Horizon are 
not currently affiliated with a broker-dealer. In addition, the 
Exchange states that personnel who make decisions on the Fund's 
portfolio composition will be subject to procedures designed to 
prevent the use and dissemination of material, non-public 
information regarding the Fund's portfolio. In the event (a) the 
Adviser or a Sub-Adviser registers as a broker-dealer, or becomes 
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with 
another broker-dealer, it will implement and will maintain a fire 
wall with respect to its relevant personnel or broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition of, and changes to, the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination 
of material, non-public information regarding the portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\9\
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    \9\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice, as modified by Amendment No. 1 thereto, and the 
Registration Statement, as applicable. See Notice and Registration 
Statement, supra notes 3 and 7, respectively, and accompanying text.

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[[Page 58984]]

A. Exchange's Description of the Fund's Principal Investments

    The investment objective of the Fund will be to seek long-term 
capital appreciation. Under normal market conditions,\10\ the Fund will 
seek to achieve its investment objective by investing at least 90% of 
its net assets (including investment borrowings) in companies included 
in the buy list (updated on a semi-weekly basis) (``Buy List'') of the 
Dow Theory Forecasts, an investment newsletter of Horizon Publishing 
Company, LLC, an affiliate of Horizon. In general, the Buy List 
includes 25 to 40 U.S. exchange-traded stocks. All of such stocks are 
large-cap or mid-cap and are selected based on a proprietary 
quantitative ranking system known as Quadrix[supreg]. Quadrix[supreg] 
ranks approximately 5,000 stocks and scores target stocks based on 
their operating momentum; valuation; long-term term track record and 
financial strength; earnings-estimate trends; and share-price 
performance.
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    \10\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. On a temporary 
basis, including for defensive purposes, during the initial invest-
up period and during periods of high cash inflows or outflows, the 
Fund may depart from its principal investment strategies; for 
example, it may hold a higher than normal proportion of its assets 
in cash. During such periods, the Fund may not be able to achieve 
its investment objective. The Fund may adopt a defensive strategy 
when the Adviser or a Sub-Adviser believes securities in which the 
Fund normally invests have elevated risks due to political or 
economic factors and in other extraordinary circumstances.
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    The Fund will seek diversification among the ten economic sectors 
of the U.S. stock market, and it is not anticipated that more than 45% 
of the portfolio will be invested in a single sector. Horizon will 
select the Fund's portfolio securities from the Buy List. Penserra will 
be responsible for implementing the Fund's investment program by, among 
other things, trading portfolio securities and performing related 
services, rebalancing the Fund's portfolio, and providing cash 
management services in accordance with the investment advice formulated 
by, and model portfolios delivered by, the Adviser and Horizon.

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

    The Fund may invest the remaining 10% of its net assets in short-
term debt securities and other short-term debt instruments (described 
below), as well as cash equivalents, or it may hold cash. The 
percentage of the Fund invested in such holdings or held in cash will 
vary and will depend on several factors, including market conditions. 
The Fund may invest in the following short-term debt instruments: \11\ 
(1) Fixed rate and floating rate 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,\12\ which involve purchases of debt securities; (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; and (6) commercial paper, which is short-term unsecured 
promissory notes.\13\
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    \11\ Short-term debt instruments are issued by issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings 
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P 
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch 
Ratings (``Fitch'') and have a maturity of one year or less.
    \12\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser to 
present minimal credit risks in accordance with criteria approved by 
the Board of Trustees of the Trust. The Adviser will review and 
monitor the creditworthiness of such institutions. The Adviser will 
monitor the value of the collateral at the time the transaction is 
entered into and at all times during the term of the repurchase 
agreement.
    \13\ The Fund may only invest in commercial paper rated A-1 or 
higher by S&P Ratings, Prime-1 or higher by Moody's, or F1 or higher 
by Fitch.
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    The Fund may invest in the securities of other ETFs and non-
exchange listed open-end investment companies (referred to as ``mutual 
funds''), including money market funds,\14\ that, in each case, will be 
investment companies registered under the 1940 Act.
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    \14\ It is expected that any such mutual fund or ETF will invest 
primarily in short-term fixed income securities. ETFs included in 
the Fund will be listed and traded in the U.S. on registered 
exchanges. The Fund may invest in the securities of ETFs in excess 
of the limits imposed under the 1940 Act pursuant to exemptive 
orders obtained by other ETFs and their sponsors from the 
Commission. In addition, the Fund may invest in the securities of 
certain other investment companies in excess of the limits imposed 
under the 1940 Act pursuant to an exemptive order that the Trust has 
obtained from the Commission. The ETFs in which the Fund may invest 
include Index Fund Shares (as described in Nasdaq Rule 5705), 
Portfolio Depository Receipts (as described in Nasdaq Rule 5705), 
and Managed Fund Shares (as described in Nasdaq Rule 5735). While 
the Fund may invest in inverse ETFs, the Fund will not invest in 
leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
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C. Exchange's Description of the Fund's Investment Restrictions

    According to the Exchange, the Fund may hold up to an aggregate 
amount of 15% of its net assets in illiquid assets (calculated at the 
time of investment), including securities deemed illiquid by the 
Adviser or a Sub-Adviser.\15\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
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    \15\ In reaching liquidity decisions, the Adviser and a Sub-
Adviser may consider the following factors: The frequency of trades 
and quotes for the security; the number of dealers wishing to 
purchase or sell the security and the number of other potential 
purchasers; dealer undertakings to make a market in the security; 
and the nature of the security and the nature of the marketplace in 
which it trades (e.g., the time needed to dispose of the security, 
the method of soliciting offers and the mechanics of transfer).
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry or group of 
industries (other than securities issued or guaranteed by the U.S. 
government, its agencies or instrumentalities, or securities of other 
investment companies), except that the Fund may invest 25% or more of 
the value of its total assets in securities of issuers in a group of 
industries to approximately the same extent that the Buy List includes 
the securities of a particular group of industries.\16\
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    \16\ The Exchange further represents that the Fund intends to 
qualify each year as a regulated investment company under Subchapter 
M of the Internal Revenue Code of 1986, as amended.
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    All of the Fund's net assets that are invested in exchange-traded 
equity securities (including common stocks and ETFs) will be invested 
in securities that are listed on a U.S. exchange.\17\ In addition, the 
Fund will not invest in derivative instruments, and the Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
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    \17\ The Fund will not invest in OTC secondary market 
securities.

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[[Page 58985]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\18\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1 thereto, is 
consistent with section 6(b)(5) of the Exchange Act,\19\ which 
requires, among other things, that the Exchange's rules be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with section 11A(a)(1)(C)(iii) of 
the Exchange Act,\20\ which sets forth the finding of Congress that it 
is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities. According to 
the Exchange, quotation and last-sale information for the Shares will 
be available via Nasdaq proprietary quote and trade services, as well 
as in accordance with the Unlisted Trading Privileges and the 
Consolidated Tape Association (``CTA'') plans for the Shares. On each 
business day, before commencement of trading in Shares in the Regular 
Market Session \21\ on the Exchange, the Fund will disclose on its Web 
site the ``Disclosed Portfolio,'' as defined in Nasdaq Rule 5735(c)(2), 
that will form the basis for the Fund's calculation of NAV at the end 
of the business day.\22\ In addition, an estimated value, defined in 
Rule 5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's Disclosed Portfolio, will be 
disseminated. The Intraday Indicative Value, which will be made 
available on the NASDAQ OMX Information LLC proprietary index data 
service,\23\ will be based upon the current value for the components of 
the Disclosed Portfolio and will be updated and widely disseminated by 
one or more major market data vendors and broadly displayed at least 
every 15 seconds during the Regular Market Session. The Fund's NAV will 
be determined as of the close of regular trading on the New York Stock 
Exchange (``NYSE'') on each day the NYSE is open for trading. If the 
NYSE closes early on a valuation day, the NAV will be determined as of 
that time.\24\
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    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \21\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to 
9:30 a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. 
to 4:00 p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session 
from 4:00 p.m. or 4:15 p.m. to 8:00 p.m., Eastern Time).
    \22\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day. On a daily basis, the Fund will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of 
the holding (including the type of holding); the identity of the 
security or other asset or instrument underlying the holding, if 
any; quantity held (as measured by, for example, par value, notional 
value or number of shares, contracts or units); maturity date, if 
any; coupon rate, if any; effective date, if any; market value of 
the holding; and percentage weighting of the holding in the Fund's 
portfolio. The Web site information will be publicly available at no 
charge.
    \23\ According to the Exchange, the NASDAQ OMX Global Index Data 
Service (``GIDS'') currently is the NASDAQ OMX global index data 
feed service, offering real-time updates, daily summary messages, 
and access to widely followed indexes and Intraday Indicative Values 
for ETFs. GIDS provides investment professionals with the daily 
information needed to track or trade NASDAQ OMX indexes, listed 
ETFs, or third-party partner indexes and ETFs.
    \24\ According to the Exchange, equity securities (including 
other ETFs) listed on a securities exchange, market or automated 
quotation system for which quotations are readily available (except 
for securities traded on NASDAQ) will be valued at the last reported 
sale price on the primary exchange or market on which they are 
traded on the valuation date (or at approximately 4:00 p.m., Eastern 
Time if a security's primary exchange is normally open at that 
time). For a security that trades on multiple exchanges, the primary 
exchange will generally be considered to be the exchange on which 
the security generally has the highest volume of trading activity. 
If it is not possible to determine the last reported sale price on 
the relevant exchange or market on the valuation date, the value of 
the security will be taken to be the most recent mean between the 
bid and asked prices on such exchange or market on the valuation 
date. Absent both bid and asked prices on such exchange, the bid 
price may be used. For securities traded on NASDAQ, the official 
closing price will be used. If such prices are not available, the 
security will be valued based on values supplied by independent 
brokers or by fair value pricing. Open-end investment companies 
other than ETFs will be valued at NAV. Except as provided below, 
short-term U.S. government securities, commercial paper, and 
bankers' acceptances, all as set forth under ``Other Investments'' 
(collectively, ``Short-Term Debt Instruments'') will typically be 
valued using information provided by a pricing service. Pricing 
services typically value non-exchange-traded instruments utilizing a 
range of market-based inputs and assumptions, including readily 
available market quotations obtained from broker-dealers making 
markets in such instruments, cash flows, and transactions for 
comparable instruments. In pricing certain instruments, the pricing 
services may consider information about an instrument's issuer or 
market activity provided by the Adviser. Short-Term Debt Instruments 
having a remaining maturity of 60 days or less when purchased will 
typically be valued at cost adjusted for amortization of premiums 
and accretion of discounts, provided the pricing committee of the 
Adviser has determined that the use of amortized cost is an 
appropriate reflection of value given market and issuer-specific 
conditions existing at the time of the determination. Certificates 
of deposit and bank time deposits will typically be valued at cost. 
Overnight repurchase agreements will be valued at amortized cost 
when it represents the best estimate of value; term repurchase 
agreements (i.e., those whose maturity exceeds seven days) will be 
valued at the average of the bid quotations obtained daily from at 
least two recognized dealers.
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    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last-sale information for U.S. 
exchange-traded equity securities (including common stocks and ETFs) 
will be available from the exchanges on which they are traded as well 
as in accordance with any applicable CTA plans. Open-end investment 
companies (other than ETFs) are typically priced once each business day 
and their prices will be available through the applicable fund's Web 
site or from major market data vendors. Pricing information for Short-
Term Debt Instruments, repurchase agreements, certificates of deposit, 
and bank time deposits will be available from major broker-dealer 
firms, major market data vendors, and pricing services. Moreover, the 
Fund's Web site, which will be publicly available prior to the public 
offering of Shares, will include a form of the prospectus for the Fund, 
as well as the Shares' ticker, CUSIP, and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (``Bid/Ask Price''),\25\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV; and (2) data in chart format

[[Page 58986]]

displaying the frequency distribution of discounts and premiums of the 
daily Bid/Ask Price against the NAV, within appropriate ranges, for 
each of the four previous calendar quarters.
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    \25\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
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    The Commission believes that the proposal to list and trade the 
Shares is reasonably designed to promote fair disclosure of information 
that may be necessary to price the Shares appropriately and to prevent 
trading when a reasonable degree of transparency cannot be assured. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio will be made available to all market 
participants at the same time. Nasdaq will halt trading in the Shares 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may 
be halted because of market conditions or for reasons that, in the view 
of the Exchange, make trading in the Shares inadvisable.\26\ Trading in 
the Shares also will be subject to Rule 5735(d)(2)(D), which sets forth 
circumstances under which trading in the Shares of the Fund may be 
halted. The Exchange represents that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Further, the Commission notes that the Reporting Authority 
\27\ that provides the Disclosed Portfolio must implement and maintain, 
or be subject to, procedures designed to prevent the use and 
dissemination of material, non-public information regarding the actual 
components of the portfolio.\28\ In addition, Nasdaq Rule 5735(g) 
further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the open-end fund's portfolio. The Exchange states that 
Penserra is affiliated with a broker-dealer, and has implemented a fire 
wall with respect to its broker-dealer affiliate regarding access to 
information concerning the composition of, and changes to, the 
portfolio.\29\
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    \26\ These may include: (1) The extent to which trading is not 
occurring in the securities and other assets constituting the 
Disclosed Portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.
    \27\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
    \28\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \29\ See supra note 8 and accompanying text. The Exchange 
further represents that an investment adviser to an open-end fund is 
required to be registered under the Investment Advisers Act of 1940 
(``Advisers Act''). As a result, the Adviser, each Sub-Adviser, and 
their related personnel are subject to the provisions of Rule 204A-1 
under the Advisers Act relating to codes of ethics. This Rule 
requires investment advisers to adopt a code of ethics that reflects 
the fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including the following:
    (1) The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) Trading in the Shares will be subject to the existing trading 
surveillances, administered by both Nasdaq and also the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
and these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities 
laws.\30\
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    \30\ The Exchange represents that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and the exchange-traded securities and 
instruments held by the Fund (including common stocks and ETFs) with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG''),\31\ and FINRA may obtain trading 
information regarding trading in the Shares and such exchange-traded 
securities and instruments held by the Fund from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and the exchange-traded securities and 
instruments held by the Fund from markets and other entities that are 
members of ISG, which includes securities exchanges, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
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    \31\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    (4) All of the Fund's net assets that are invested in exchange-
traded equity securities (including common stocks and ETFs) will be 
invested in securities that trade in markets that are members of ISG or 
are parties to a comprehensive surveillance sharing agreement with the 
Exchange. In addition, the Fund will not invest in OTC secondary market 
securities.
    (5) The Fund will not invest in derivative instruments, and the 
Fund's investments will be consistent with its investment objective and 
will not be used to enhance leverage.
    (6) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (7) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how and by whom the 
information regarding the Intraday Indicative Value and the Disclosed 
Portfolio is disseminated; (d) the risks involved in trading the Shares 
during the Pre-Market and Post-Market Sessions when an updated Intraday 
Indicative Value will not be calculated or publicly disseminated; (e) 
the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (8) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Exchange Act.\32\
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    \32\ See 17 CFR 240.10A-3.
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    (9) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser or a Sub-
Adviser.\33\
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    \33\ See supra note 15 and accompanying text.

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[[Page 58987]]

    (10) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    (11) The Fund intends to enter into repurchase agreements only with 
financial institutions and dealers believed by the Adviser to present 
minimal credit risks in accordance with criteria approved by the Board 
of Trustees of the Trust. The Adviser will review and monitor the 
creditworthiness of such institutions and will monitor the value of the 
collateral at the time the transaction is entered into and at all times 
during the term of the repurchase agreement.
    (12) The Fund may only invest in commercial paper rated A-1 or 
higher by S&P Ratings, Prime-1 or higher by Moody's, or F1 or higher by 
Fitch.
    (13) While the Fund may invest in inverse ETFs, the Fund will not 
invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
    The Commission notes that the Fund and the Shares must comply with 
the initial and continued listing criteria in Nasdaq Rule 5735 for the 
Shares to be listed and traded on the Exchange. In addition, the 
Exchange represents that all statements and representations made in 
this filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures shall 
constitute continued listing requirements for listing the Shares on the 
Exchange. In addition, the issuer has represented to the Exchange that 
it will advise the Exchange of any failure by the Fund to comply with 
the continued listing requirements, and, pursuant to its obligations 
under section 19(g)(1) of the Act, the Exchange will monitor for 
compliance with the continued listing requirements.\34\ If the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq 5800 
Series. This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, as 
modified by Amendment No. 1 to the proposed rule change.
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    \34\ The Commission notes that certain other proposals for the 
listing and trading of Managed Fund Shares include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015-
100). In the context of this representation, it is the Commission's 
view that ``monitor'' and ``surveil'' both mean ongoing oversight of 
a fund's compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
section 6(b)(5) of the Act,\35\ Section 11A(a)(1)(C)(iii) of the 
Act,\36\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    IT IS THEREFORE ORDERED, pursuant to section 19(b)(2) of the 
Exchange Act,\37\ that the proposed rule change (SR-NASDAQ-2016-072), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20453 Filed 8-25-16; 8:45 am]
 BILLING CODE 8011-01-P
Document Created: 2016-08-26 10:40:55
Document Modified: 2016-08-26 10:40:55
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 58983