81 FR 67033 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of a 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 189 (September 29, 2016)
Federal Register Volume 81, Issue 189 (September 29, 2016)
| Page Range | 67033-67036 | |
| FR Document | 2016-23496 |
[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)] [Notices] [Pages 67033-67036] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-23496] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78918; File No. SR-NASDAQ-2016-104] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Granting Approval of a Proposed Rule Change To Amend Nasdaq Rule 5735 To Adopt Generic Listing Standards for Managed Fund Shares September 23, 2016. I. Introduction On August 16, 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 amend Nasdaq Rule 5735 to, among other things, adopt generic listing standards for Managed Fund Shares. The proposed rule change was published for comment in the Federal Register on August 24, 2016.\3\ The Commission has received no comments on the proposed rule change. This order grants approval of the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 78616 (Aug. 18, 2016), 81 FR 57968 (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposal Nasdaq Rule 5735 governs the listing and trading of Managed Fund Shares on the Exchange. Managed Fund Shares are issued by actively managed exchange-traded funds (``ETFs'') that do not seek to replicate the performance of a specified index of securities. Under its current rules, the Exchange must file separate proposals under Section 19(b) of the Act before listing a new series of Managed Fund Shares.\4\ The Exchange proposes to adopt ``generic'' listing standards so that the Exchange may list Managed Fund Shares that satisfy the applicable criteria by submitting notice pursuant to Rule 19b-4(e) under the Act, rather than by filing a proposed rule change under Section 19(b) of the Act.\5\ --------------------------------------------------------------------------- \4\ See Nasdaq Rule 5735(b)(1). \5\ See 17 CFR 240.19b-4(e). Rule 19b-4(e) permits self- regulatory organizations (``SROs'') to list and trade new derivative securities products that comply with existing SRO trading rules, procedures, surveillance programs, and listing standards, without submitting a proposed rule change under Section 19(b). See Securities Exchange Act Release No. 40761 (Dec. 8, 1998), 63 FR 70952 (Dec. 22, 1998). --------------------------------------------------------------------------- A. Description of the Generic Listing Standards The Exchange's listing standards establish requirements for the various types of assets that may be held in the portfolio of a generically listed, actively managed ETF (``Portfolio''). 1. Equity Portfolio Components Nasdaq Rule 5735(b)(1)(A) establishes the criteria applicable to the equity securities included in a Portfolio. Equity securities include the following securities: U.S. Component Stocks, which are defined in Nasdaq Rule 5705; Non-U.S. Component Stocks, which are defined in Nasdaq Rule 5705; Exchange Traded Derivative Securities, which are defined in Nasdaq Rule 5735(c)(6); \6\ Linked Securities, which are defined in Nasdaq Rule 5710, and each of the equivalent security types listed on another national securities exchange. Additionally, Nasdaq Rule 5735(b)(1)(A) provides that no more than 25% of the equity weight of the Portfolio can include leveraged or inverse- leveraged Exchange Traded Derivative Securities or Linked Securities and that, to the extent a Portfolio includes convertible securities, the equity securities into which such securities are converted must meet the criteria of Nasdaq Rule 5735(b)(1)(A) after converting. --------------------------------------------------------------------------- \6\ Nasdaq Rule 5735(c)(6) defines ``Exchange Traded Derivative Securities'' as: ``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).'' --------------------------------------------------------------------------- Nasdaq Rule 5735(b)(1)(A)(i) would require that U.S. Component Stocks (except as mentioned below) 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 Exchange Traded Derivative Securities and Linked Securities) each shall have a minimum market value of at least $75 million; [[Page 67034]] (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 Exchange Traded Derivative Securities and Linked Securities) each shall have a minimum monthly trading volume of 250,000 shares, or minimum notional volume traded per month of $25,000,000, averaged over the previous six months; (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; (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 would 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; (5) Except as provided in Nasdaq Rule 5735(b)(1)(A)(i), 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; and (6) American Depositary Receipts (``ADRs'') may be exchange traded or non-exchange traded, but no more than 10% of the equity weight of the Portfolio shall consist of non-exchange traded ADRs. Nasdaq Rule 5735(b)(1)(A)(ii) requires that Non-U.S. Component Stocks must 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; (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; (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; (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 (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; and (5) Each Non-U.S. Component Stock shall be listed and traded on an exchange that has last-sale reporting. 2. Fixed Income Portfolio Components Nasdaq Rule 5735(b)(1)(B) establishes criteria for fixed income securities that are included in a Portfolio. Fixed income securities are debt securities \7\ 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.\8\ To the extent that a Portfolio includes convertible securities, the fixed income securities into which such securities are converted shall meet the criteria of Nasdaq Rule 5735(b)(1)(B) after converting.\9\ --------------------------------------------------------------------------- \7\ 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. See Notice, supra note 3, 81 FR at 57971, n.29. \8\ See Nasdaq Rule 5735(b)(1)(B). \9\ See id. --------------------------------------------------------------------------- Under Nasdaq Rule 5735(b)(1)(B), fixed income securities that are part of a Portfolio must satisfy 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 must each have a minimum original principal amount outstanding of $100 million or more; (2) No component fixed-income security (excluding Treasury Securities and GSE Securities) shall represent more than 30% of the fixed income weight of the Portfolio, and the five most heavily weighted fixed income securities in the Portfolio (excluding Treasury Securities and GSE Securities) shall not in the aggregate account for more than 65% of the fixed income weight of the Portfolio; (3) A Portfolio that includes fixed income securities (excluding exempted securities) shall 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 Nasdaq 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: (a) From issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (b) from issuers each of which has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (c) from issuers each of which has outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (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 (5) Non-agency, non-GSE, and privately issued mortgage-related and other asset-backed securities shall not account, in the aggregate, for more than 20% of the weight of the fixed income portion of the Portfolio. 3. Cash and Cash Equivalent Portfolio Components Nasdaq Rule 5735(b)(1)(C) provides that a Portfolio may include cash and cash equivalents. Cash equivalents are defined as short-term instruments with maturities of less than three months.\10\ The Exchange defines short-term instruments to include the following: (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' [[Page 67035]] 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.\11\ The Exchange does not propose to limit to the amount of cash or cash equivalents that may be held in a Portfolio.\12\ --------------------------------------------------------------------------- \10\ See Nasdaq Rule 5735(b)(1)(C). \11\ See Nasdaq Rule 5735(b)(1)(C)(ii). \12\ See Nasdaq Rule 5735(b)(1)(C)(i). --------------------------------------------------------------------------- 4. Derivatives in the Portfolio Nasdaq Rule 5735(b)(1)(D) establishes listing criteria for the portion of a Portfolio that consists of listed derivatives such as futures, options, and swaps overlying commodities, currencies, financial instruments (e.g., stocks, fixed income securities, interest rates, and volatility), or a basket or index of any of the foregoing. The Exchange does not propose to limit the percentage of a Portfolio that may be composed of such holdings, provided that, in the aggregate, at least 90% of the weight of holdings in listed derivatives (calculated using the aggregate gross notional value) must, 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 or for which the principal market is a market with which the Exchange has a comprehensive surveillance sharing agreement (``CSSA'').\13\ Additionally, 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).\14\ --------------------------------------------------------------------------- \13\ See Nasdaq Rule 5735(b)(1)(D)(i). \14\ See Nasdaq Rule 5735(b)(1)(D)(ii). --------------------------------------------------------------------------- Nasdaq Rule 5735(b)(1)(E) establishes a limit on over-the-counter (``OTC'') derivatives: No more than 20% of the weight of the Portfolio may be invested in OTC derivatives.\15\ The Exchange notes that, 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. --------------------------------------------------------------------------- \15\ OTC derivatives include: Forwards, options, and swaps overlying commodities, currencies, financial instruments (e.g., stocks, fixed income securities, interest rates, and volatility), or a basket or index of any of the foregoing. See Nasdaq Rule 5735(b)(1)(E). --------------------------------------------------------------------------- Nasdaq Rule 5735(b)(1)(E) provides 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 Nasdaq Rules 5735(b)(1)(A) and 5735(b)(1)(B), respectively. B. Other Aspects of the Proposal 1. Disclosed Portfolio The daily dissemination of a Disclosed Portfolio \16\ is required under current Nasdaq Rule 5735(d)(2)(B)(i), but its contents are not specified. The Exchange proposes to amend the definition of ``Disclosed Portfolio'' to require that the Web site for each series of Managed Fund Shares listed on the Exchange, including all Managed Fund Shares currently listed and traded on the Exchange, disclose the following information in the Disclosed Portfolio, 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. --------------------------------------------------------------------------- \16\ Nasdaq defines ``Disclosed Portfolio'' for purposes of its Managed Fund Shares listing rule as the identities and quantities of the securities and other assets held by the Investment Company that will form the basis for the Investment Company's calculation of net asset value at the end of the business day. See Nasdaq Rule 5735(c)(2). --------------------------------------------------------------------------- 2. Investment Objective The Exchange proposes to add as an initial listing criterion applicable to all Managed Fund Shares (including those that are generically listed) the requirement that Managed Fund Shares have a stated investment objective, which shall be adhered to under ``Normal Market Conditions.'' \17\ The Exchange would define ``Normal Market Conditions'' as circumstances including, but not limited to, the absence of: Trading halts in the applicable financial markets generally; operational issues causing dissemination of inaccurate market information or systems failure; or force majeure type events such as natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance.\18\ --------------------------------------------------------------------------- \17\ See Nasdaq Rule 5735(d)(1)(C). \18\ See Nasdaq Rule 5735(c)(5). --------------------------------------------------------------------------- 3. Intraday Indicative Value (``IIV'') The Exchange proposes to modify a continued listing criterion for all Managed Fund Shares to require that the IIV be widely disseminated by one or more major market data vendors at least every 15 seconds during its Regular Market Session, as defined in Nasdaq Rule 4120(b),\19\ rather than during all times that Managed Fund Shares trade on the Exchange. --------------------------------------------------------------------------- \19\ See Nasdaq Rule 5735(d)(2)(A). --------------------------------------------------------------------------- C. Additional Representations of the Exchange Applicable to the Listing and Trading of Managed Fund Shares In support of the proposed rule change, the Exchange represents that: (1) Managed Fund Shares will conform to the initial and continued listing criteria under Nasdaq Rule 5735.\20\ --------------------------------------------------------------------------- \20\ See Notice, supra note 3, 81 FR at 57973. --------------------------------------------------------------------------- (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.\21\ --------------------------------------------------------------------------- \21\ See id. --------------------------------------------------------------------------- (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 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 Nasdaq Rules 2090A and 2111A, the risks involved in trading the Managed Fund Shares during the Pre-Market and Post-Market Sessions when an updated IIV will not be calculated or publicly disseminated, information regarding the IIV and Disclosed Portfolio, prospectus delivery requirements, and other trading information. In addition, the information circular will disclose that the Managed Fund Shares are subject to various fees and expenses, as described in the registration statement, and will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. Finally, the information circular will disclose that the NAV for the Managed Fund Shares will be calculated [[Page 67036]] after 4:00 p.m. Eastern Time each trading day.\22\ --------------------------------------------------------------------------- \22\ See id. --------------------------------------------------------------------------- (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.\23\ --------------------------------------------------------------------------- \23\ See id. --------------------------------------------------------------------------- (5) On a periodic basis, and no less than annually, the Exchange will review the Managed Fund Shares generically listed and traded on the Exchange under Nasdaq Rule 5735 for compliance with that rule and will provide a report to its Regulatory Oversight Committee presenting the findings of its review. (6) On a quarterly basis, the Exchange will provide a report to the Commission staff that contains, for each ETF whose shares are generically listed and traded under Nasdaq Rule 5735(b)(1): (a) Symbol and date of listing; (b) the number of active authorized participants (``APs'') and a description of any failure by either a fund or an AP to deliver promised baskets of shares, cash, or cash and instruments in connection with creation or redemption orders; and (c) a description of any failure by a fund to comply with Nasdaq Rule 5735.\24\ --------------------------------------------------------------------------- \24\ See id. --------------------------------------------------------------------------- (7) Prior to listing pursuant to 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 Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If a series of Managed Fund Shares is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq Rule 5800 Series.\25\ --------------------------------------------------------------------------- \25\ See id. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the Exchange's proposal to amend Nasdaq Rule 5735 to, among other things, adopt generic listing criteria, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.\26\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\27\ 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. --------------------------------------------------------------------------- \26\ 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). \27\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission notes that Nasdaq's proposal is substantively identical to proposals that the Commission recently approved.\28\ Accordingly, for the reasons discussed in the Prior MFS Generics Orders, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act \29\ and the rules and regulations thereunder applicable to a national securities exchange. --------------------------------------------------------------------------- \28\ See Securities Exchange Act Release Nos. 78396 (Jul. 22, 2016), 81 FR 49698 (Jul. 28, 2016) (SR-BATS-2015-100); and 78397 (Jul. 22, 2016), 81 FR 49320 (Jul. 27, 2016) (SR-NYSEArca-2015-110). These releases are referred to collectively as the ``Prior MFS Generics Orders.'' \29\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\30\ that the proposed rule change (SR-NASDAQ-2016-104) be, and it hereby is, approved. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\31\ --------------------------------------------------------------------------- \31\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-23496 Filed 9-28-16; 8:45 am] BILLING CODE 8011-01-P
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Commission will institute proceedings For the Commission, by the Division of filing a proposed rule change under
to determine whether the proposed rule Trading and Markets, pursuant to delegated Section 19(b) of the Act.5
change should be approved or authority.10
Brent J. Fields, A. Description of the Generic Listing
disapproved.
Secretary. Standards
IV. Solicitation of Comments [FR Doc. 2016–23493 Filed 9–28–16; 8:45 am] The Exchange’s listing standards
Interested persons are invited to BILLING CODE 8011–01–P establish requirements for the various
submit written data, views, and types of assets that may be held in the
arguments concerning the foregoing, portfolio of a generically listed, actively
SECURITIES AND EXCHANGE managed ETF (‘‘Portfolio’’).
including whether the proposed rule
change is consistent with the Act. COMMISSION
1. Equity Portfolio Components
Comments may be submitted by any of Nasdaq Rule 5735(b)(1)(A) establishes
the following methods: [Release No. 34–78918; File No. SR–
NASDAQ–2016–104] the criteria applicable to the equity
Electronic Comments securities included in a Portfolio. Equity
Self-Regulatory Organizations; The securities include the following
• Use the Commission’s Internet NASDAQ Stock Market LLC; Order securities: U.S. Component Stocks,
comment form (http://www.sec.gov/ Granting Approval of a Proposed Rule which are defined in Nasdaq Rule 5705;
rules/sro.shtml); or Change To Amend Nasdaq Rule 5735 Non-U.S. Component Stocks, which are
• Send an email to rule-comments@ To Adopt Generic Listing Standards defined in Nasdaq Rule 5705; Exchange
sec.gov. Please include File Number SR– for Managed Fund Shares Traded Derivative Securities, which are
CBOE–2016–067 on the subject line. defined in Nasdaq Rule 5735(c)(6); 6
September 23, 2016. Linked Securities, which are defined in
Paper Comments I. Introduction Nasdaq Rule 5710, and each of the
equivalent security types listed on
• Send paper comments in triplicate On August 16, 2016, The NASDAQ another national securities exchange.
to Secretary, Securities and Exchange Stock Market LLC (‘‘Nasdaq’’ or Additionally, Nasdaq Rule 5735(b)(1)(A)
Commission, 100 F Street NE., ‘‘Exchange’’) filed with the Securities provides that no more than 25% of the
Washington, DC 20549–1090. and Exchange Commission equity weight of the Portfolio can
All submissions should refer to File (‘‘Commission’’), pursuant to Section include leveraged or inverse-leveraged
Number SR–CBOE–2016–067. This file 19(b)(1) of the Securities Exchange Act Exchange Traded Derivative Securities
number should be included on the of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and or Linked Securities and that, to the
subject line if e-mail is used. To help the Rule 19b–4 thereunder, a proposed rule
2
extent a Portfolio includes convertible
Commission process and review your change to amend Nasdaq Rule 5735 to, securities, the equity securities into
comments more efficiently, please use among other things, adopt generic which such securities are converted
only one method. The Commission will listing standards for Managed Fund must meet the criteria of Nasdaq Rule
post all comments on the Commission’s Shares. The proposed rule change was 5735(b)(1)(A) after converting.
published for comment in the Federal Nasdaq Rule 5735(b)(1)(A)(i) would
Internet website (http://www.sec.gov/
Register on August 24, 2016.3 The require that U.S. Component Stocks
rules/sro.shtml). Copies of the
Commission has received no comments (except as mentioned below) meet the
submission, all subsequent
on the proposed rule change. This order following criteria initially and on a
amendments, all written statements
grants approval of the proposed rule continuing basis:
with respect to the proposed rule
change. (1) Component stocks (excluding
change that are filed with the
Commission, and all written II. Description of the Proposal Exchange Traded Derivative Securities
communications relating to the and Linked Securities) that in the
proposed rule change between the Nasdaq Rule 5735 governs the listing aggregate account for at least 90% of the
Commission and any person, other than and trading of Managed Fund Shares on equity weight of the Portfolio (excluding
those that may be withheld from the the Exchange. Managed Fund Shares are Exchange Traded Derivative Securities
public in accordance with the issued by actively managed exchange- and Linked Securities) each shall have
provisions of 5 U.S.C. 552, will be traded funds (‘‘ETFs’’) that do not seek a minimum market value of at least $75
available for website viewing and to replicate the performance of a million;
printing in the Commission’s Public specified index of securities.
Reference Room, 100 F Street NE., Under its current rules, the Exchange 5 See 17 CFR 240.19b–4(e). Rule 19b–4(e) permits
Washington, DC 20549 on official must file separate proposals under self-regulatory organizations (‘‘SROs’’) to list and
Section 19(b) of the Act before listing a trade new derivative securities products that
business days between the hours of comply with existing SRO trading rules,
10:00 a.m. and 3:00 p.m. Copies of the new series of Managed Fund Shares.4 procedures, surveillance programs, and listing
filing also will be available for The Exchange proposes to adopt standards, without submitting a proposed rule
inspection and copying at the principal ‘‘generic’’ listing standards so that the change under Section 19(b). See Securities
Exchange may list Managed Fund Exchange Act Release No. 40761 (Dec. 8, 1998), 63
office of the Exchange. All comments FR 70952 (Dec. 22, 1998).
received will be posted without change; Shares that satisfy the applicable criteria 6 Nasdaq Rule 5735(c)(6) defines ‘‘Exchange
the Commission does not edit personal by submitting notice pursuant to Rule Traded Derivative Securities’’ as: ‘‘the securities
mstockstill on DSK3G9T082PROD with NOTICES
identifying information from 19b–4(e) under the Act, rather than by described in Nasdaq Rules 5705(a) (Portfolio
Depository Receipts); 5705(b) (Index Fund Shares);
submissions. You should submit only 5720 (Trust Issued Receipts); 5711(d) (Commodity-
10 17 CFR 200.30–3(a)(12).
information that you wish to make Based Trust Shares); 5711(e) (Currency Trust
1 15 U.S.C. 78s(b)(1).
available publicly. All submissions 2 17 CFR 240.19b–4.
Shares); 5711(f) (Commodity Index Trust Shares);
should refer to File Number SR–CBOE– 5711(g) (Commodity Futures Trust Shares); 5711(h)
3 See Securities Exchange Act Release No. 78616
(Partnership Units); 5711(i) (Trust Units); 5735
2016–067 and should be submitted on (Aug. 18, 2016), 81 FR 57968 (‘‘Notice’’). (Managed Fund Shares); and 5711(j) (Managed
or before October 20, 2016. 4 See Nasdaq Rule 5735(b)(1). Trust Securities).’’
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after 4:00 p.m. Eastern Time each 6(b)(5) of the Act,27 which requires, Commission (‘‘Commission’’), pursuant
trading day.22 among other things, that the Exchange’s to Section 19(b)(1) of the Securities
(4) The issuer of a series of Managed rules be designed to prevent fraudulent Exchange Act of 1934 (‘‘Act’’) 1 and Rule
Fund Shares will be required to comply and manipulative acts and practices, to 19b–4 thereunder,2 a proposed rule
with Rule 10A–3 under the Act for the promote just and equitable principles of change to amend Exchange Rule 49—
initial and continued listing of Managed trade, to remove impediments to and Equities (‘‘Rule 49’’) to establish a
Fund Shares, as provided under the perfect the mechanism of a free and Disaster Recovery Facility and to move
Nasdaq Rule 5600 Series.23 open market and a national market the text of Exchange Rule 438—Equities
(5) On a periodic basis, and no less system, and, in general, to protect (‘‘Rule 438’’) to proposed Exchange Rule
than annually, the Exchange will review investors and the public interest. 49. The Exchange further proposes to
the Managed Fund Shares generically The Commission notes that Nasdaq’s amend Exchange Rule 0—Equities
listed and traded on the Exchange under proposal is substantively identical to (‘‘Rule 0’’) and Rule 431—Equities
Nasdaq Rule 5735 for compliance with proposals that the Commission recently (Exchange Backup Systems and
that rule and will provide a report to its approved.28 Accordingly, for the Mandatory Testing) (‘‘Rule 431’’) to
Regulatory Oversight Committee reasons discussed in the Prior MFS specify that Exchange Rule 431 would
presenting the findings of its review. Generics Orders, the Commission finds govern Exchange Backup Systems and
(6) On a quarterly basis, the Exchange that the proposed rule change is Mandatory Testing for Exchange ATP
will provide a report to the Commission consistent with Section 6(b)(5) of the Holders only. On August 1, 2016, the
staff that contains, for each ETF whose Act 29 and the rules and regulations Exchange filed Amendment No. 1 to its
shares are generically listed and traded thereunder applicable to a national proposal.3 On August 11, 2016, the
under Nasdaq Rule 5735(b)(1): (a) securities exchange. proposed rule change, as modified by
Symbol and date of listing; (b) the Amendment No. 1, was published for
IV. Conclusion comment in the Federal Register.4 On
number of active authorized
participants (‘‘APs’’) and a description It is therefore ordered, pursuant to September 19, 2016, the Exchange filed
of any failure by either a fund or an AP Section 19(b)(2) of the Act,30 that the Partial Amendment No. 2, to its
to deliver promised baskets of shares, proposed rule change (SR–NASDAQ– proposal.5
cash, or cash and instruments in 2016–104) be, and it hereby is, The Commission did not receive any
approved. comments on the proposal. This order
connection with creation or redemption
approves the proposal, as modified by
orders; and (c) a description of any For the Commission, by the Division of
Trading and Markets, pursuant to delegated Amendment No. 1 and Partial
failure by a fund to comply with Nasdaq
authority.31 Amendment No. 2.
Rule 5735.24
(7) Prior to listing pursuant to Brent J. Fields, II. Description of the Proposed Rule
amended Rule 5735(b)(1), an issuer Secretary. Changes, as Modified by Amendment
would be required to represent to the [FR Doc. 2016–23496 Filed 9–28–16; 8:45 am] No. 1 and Partial Amendment No. 2
Exchange that it will advise the BILLING CODE 8011–01–P The Exchange proposes to amend
Exchange of any failure by a series of Exchange Rule 49 by removing the
Managed Fund Shares to comply with current text relating to the Exchange’s
the continued listing requirements, and, SECURITIES AND EXCHANGE Emergency Powers and replacing it with
pursuant to its obligations under COMMISSION new text regarding the Exchange’s
Section 19(g)(1) of the Exchange Act, the [Release No. 34–78917; File No. SR– Business Continuity and Disaster
Exchange will surveil for compliance NYSEMKT–2016–68] Recovery Plan, and by moving the text
with the continued listing requirements. in Exchange Rule 438 regarding
If a series of Managed Fund Shares is Self-Regulatory Organizations; NYSE Mandatory Testing to Rule 49.6 The
not in compliance with the applicable MKT LLC; Order Granting Approval of
listing requirements, the Exchange will Proposed Rule Change, as Modified by 1 15 U.S.C. 78s(b)(1).
commence delisting procedures under Amendment No. 1 and Partial 2 17 CFR 240.19b–4.
the Nasdaq Rule 5800 Series.25 Amendment No. 2, Amending 3 Amendment No. 1 replaced the proposal in its
Exchange Rule 49 Regarding the entirety.
III. Discussion and Commission 4 See Securities Exchange Act Release No. 78483
Findings Exchange’s: (1) Emergency Powers; (August 5, 2016), 81 FR 53176 (SR–NYSEMKT–
(2) Disaster Recovery Plans; and (3) 2016–68).
After careful review, the Commission Backup Systems and Mandatory 5 Amendment No. 2 partially amended the
finds that the Exchange’s proposal to Testing proposal to add additional text to proposed
amend Nasdaq Rule 5735 to, among Exchange Rule 49, specifying that member
September 23, 2016. organizations of the Exchange that are currently
other things, adopt generic listing required to participate in testing of the Exchange’s
criteria, is consistent with the Act and I. Introduction business continuity and disaster recovery plans
the rules and regulations thereunder under current Exchange Rule 438 and proposed
applicable to a national securities On July 29, 2016, NYSE MKT LLC Exchange Rule 49(b)(N) would also be required to
exchange.26 In particular, the (‘‘NYSE MKT’’ or ‘‘Exchange’’) filed test the Exchange’s proposed disaster recovery
with the Securities and Exchange plans. Partial Amendment No. 2 is available at:
Commission finds that the proposed https://www.sec.gov/comments/sr-nysemkt-2016-
rule change is consistent with Section 27 15
68/nysemkt201668-2.pdf. Because Amendment No.
U.S.C. 78f(b)(5). 2 does not materially alter the substance of the
mstockstill on DSK3G9T082PROD with NOTICES
28 See Securities Exchange Act Release Nos.
22 See
proposed rule change or raise unique or novel
id. 78396 (Jul. 22, 2016), 81 FR 49698 (Jul. 28, 2016) regulatory issues, Amendment No. 2 is not subject
23 See id. (SR–BATS–2015–100); and 78397 (Jul. 22, 2016), 81 to notice and comment.
24 See id. FR 49320 (Jul. 27, 2016) (SR–NYSEArca–2015–110). 6 Because the Exchange would not implement
25 See id. These releases are referred to collectively as the amended Exchange Rule 49(a) until after an
26 In approving this proposed rule change, the ‘‘Prior MFS Generics Orders.’’ opportunity to test its procedures with Exchange
29 15 U.S.C. 78f(b)(5).
Commission has considered the proposed rule’s member organizations, the Exchange proposes to
30 15 U.S.C. 78s(b)(2).
impact on efficiency, competition, and capital retain current NYSE MKT Rule 49 on its rulebook.
formation. See 15 U.S.C. 78c(f). 31 17 CFR 200.30–3(a)(12). The Exchange would delete current Exchange Rule
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Document Created: 2016-09-29 04:13:57
Document Modified: 2016-09-29 04:13:57
| 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 67033 |
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