82 FR 20673 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade the Guggenheim Limited Duration ETF
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 84 (May 3, 2017)
Federal Register Volume 82, Issue 84 (May 3, 2017)
| Page Range | 20673-20685 | |
| FR Document | 2017-08899 |
[Federal Register Volume 82, Number 84 (Wednesday, May 3, 2017)] [Notices] [Pages 20673-20685] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-08899] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80540; File No. SR-NASDAQ-2017-039] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade the Guggenheim Limited Duration ETF April 27, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on April 13, 2017, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade the common shares of beneficial interest of the Guggenheim Limited Duration ETF (the ``Fund''), a series of Claymore Exchange-Traded Fund Trust (the ``Trust''), under Nasdaq Rule 5735 (``Rule 5735''). The common shares of beneficial interest of the Fund are referred to herein as the ``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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade the Shares of the Fund under Rule 5735, which rule governs the listing and trading of Managed Fund Shares \3\ on the Exchange.\4\ The Shares will be [[Page 20674]] offered by the Fund, which will be an actively managed exchange-traded fund (``ETF''). The Fund is a series of the Trust. The Trust was established as a Delaware statutory trust on May 24, 2006. The Trust is registered with the Commission as an open-end management investment company and has filed a post-effective amendment to its registration statement on Form N-1A (the ``Registration Statement'') with the Commission to register the Fund and its Shares under the 1940 Act and the Securities Act of 1933.\5\ --------------------------------------------------------------------------- \3\ A ``Managed Fund Share'' is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment adviser consistent with its investment objectives and policies. In contrast, an open-end investment company that issues Index Fund Shares, listed and traded on the Exchange under Nasdaq Rule 5705, seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. \4\ The Commission approved Nasdaq Rule 5735 (formerly Nasdaq Rule 4420(o)) in Securities Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively managed funds listed on the Exchange; see, e.g., Securities Exchange Act Release Nos. 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); 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); and 78533 (August 10, 2016), 81 FR 54634 (August 16, 2016) (SR-NASDAQ-2016-086) (order approving listing and trading of VanEck Vectors Long/Flat Commodity ETF). Additionally, the Commission has previously approved the listing and trading of a number of actively-managed funds on NYSE Arca, Inc. pursuant to Rule 8.600 of that exchange. See, e.g., Securities Exchange Act Release No. 68870 (February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-2012-139) (order approving listing and trading of First Trust Preferred Securities and Income ETF). Moreover, the Commission previously approved the listing and trading of other actively managed funds within the Guggenheim family of ETFs. See, e.g., Security [sic] Exchange Act Release Nos. 64550 (May 26, 2011), 76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order approving listing of Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short Bond ETF); 76719 (December 21, 2015), 80 FR 248 (December 28, 2015) (SR-NYSEArca-2015-73) (order approving listing of Guggenheim Total Return Bond ETF). The Exchange believes the proposed rule change raises no significant issues not previously addressed in those prior Commission orders. \5\ See Registration Statement for the Trust, filed on April 12, 2016 (File Nos. 333-134551 and 811-21906). The descriptions of the Fund and the Shares contained herein are based, in part, on information in the Registration Statement. In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 29271 (May 18, 2010) (File No. 13534) (``Exemptive Order''). --------------------------------------------------------------------------- Guggenheim Partners Investment Management, LLC will serve as the investment adviser (the ``Adviser'') to the Fund. Guggenheim Funds Distributors, LLC will serve as the principal underwriter and distributor of the Fund's Shares (the ``Distributor''). The Bank of New York Mellon will act as the custodian, transfer agent and fund accounting agent for the Fund (the ``Custodian''). MUFG Investor Services, LLC will serve as the administrator for the Fund (the ``Administrator''). Paragraph (g) of Rule 5735 provides that, if the investment adviser to an investment company issuing Managed Fund Shares is affiliated with a broker-dealer, such investment adviser shall erect a ``fire wall'' between the investment adviser and the broker-dealer with respect to access to information concerning the composition and/or changes to such investment company's portfolio.\6\ In addition, paragraph (g) of Rule 5735 further requires that personnel who make decisions on such investment company's portfolio composition must be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding the investment company's portfolio. --------------------------------------------------------------------------- \6\ An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ``Advisers Act''). As a result, the Adviser and its related personnel are subject to the provisions of Rule 204A-1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with the Advisers Act and Rule 204A-1 thereunder. 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. --------------------------------------------------------------------------- Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i), which applies to index-based funds and requires ``fire walls'' between affiliated broker-dealers and investment advisers regarding the index- based fund's underlying benchmark index. Rule 5735(g), however, applies to the establishment of a ``fire wall'' between affiliated investment advisers and the broker-dealers with respect to the investment company's portfolio and not with respect to an underlying benchmark index, as is the case with index-based funds. The Adviser is not a broker-dealer, but it is affiliated with the Distributor, a broker-dealer. The Adviser has therefore implemented and will maintain a fire wall with the Distributor with respect to the access of information concerning the composition and/or changes to the Fund's portfolio. In the event (a) the Adviser or any sub-adviser becomes newly affiliated with a different broker-dealer, or (b) any new adviser to the Fund is a registered broker-dealer or becomes affiliated with a broker-dealer, each will implement and maintain a fire wall with respect to its relevant personnel and/or such broker-dealer affiliate, if applicable, regarding access to information concerning the composition and/or changes to the Fund's portfolio and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. Guggenheim Limited Duration ETF The Fund will be an actively-managed ETF, and its investment objective is to seek to provide a level of income consistent with preservation of capital. Principal Investments The Fund will seek to achieve its investment objective by investing, under normal market conditions,\7\ at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in a diversified portfolio of ``Debt Instruments'' (as described below) of any interest rate, credit quality,\8\ maturity or duration; however, the Fund expects, under normal market conditions, to maintain a dollar- weighted average duration \9\ of generally less than 3.5 years (the ``80% Policy''). The 80% Policy may be represented by certain derivative instruments as discussed below,\10\ and ETFs \11\ and exchange-traded and over-the-counter (``OTC'') closed-end funds (``CEFs'') (which may include ETFs and CEFs affiliated with the Fund), provided that such ETFs and CEFs invest substantially all of their assets in Debt Instruments. The Fund will, as described further below, invest in the following Debt Instruments: Corporate debt securities of [[Page 20675]] U.S. and non-U.S. issuers, including corporate bonds; \12\ securities issued by the U.S. government or its agencies, instrumentalities or sponsored corporations (including those not backed by the full faith and credit of the U.S. government); \13\ inflation-indexed bonds issued by both governments and corporations; \14\ debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises (``Municipal Bonds''); \15\ tender option bonds; \16\ obligations of non-U.S. governments and their subdivisions, agencies and government-sponsored enterprises; obligations of international agencies or supranational entities; cash equivalents; \17\ agency \18\ and non-agency mortgage-backed securities (``MBS'') and asset-backed securities (``ABS''); \19\U.S. agency mortgage pass-through securities; \20\ repurchase agreements; \21\ commercial instruments (including asset-backed commercial instruments); \22\ zero-coupon and payment-in-kind securities; \23\ convertible securities; \24\ preferred securities and step-up securities (such [[Page 20676]] as step-up bonds); \25\ bank capital; \26\ bank instruments, including certificates of deposit (``CDs''),\27\ time deposits and bankers' acceptances from U.S. banks; \28\ debtor-in-possession financings; \29\ participations in and assignments of bank loans or corporate loans, which loans include senior loans,\30\ syndicated bank loans, junior loans,\31\ bridge loans,\32\ unfunded commitments,\33\ revolving credit facilities,\34\ and participation interests \35\. --------------------------------------------------------------------------- \7\ The term ``normal market conditions'' includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. \8\ The Fund may hold fixed-income securities of any quality, rated or unrated, including those that are rated below-investment grade (also known as ``high yield securities'' or ``junk bonds''), or if unrated, determined by the Adviser to be of comparable quality. If nationally recognized statistical rating organizations assign different ratings to the same security, the Fund will use the higher rating for purposes of determining the security's credit quality. However, the Fund will not invest more than 35% of its total assets in fixed-income securities that are rated below investment grade as described below under ``Investment Restrictions.'' \9\ Duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted average timing of the instrument's expected principal and interest payments. Duration differs from maturity in that it considers a security's yield, coupon payments, principal payments and call features in addition to the amount of time until the security matures. As the value of a security changes over time, so will its duration. The longer a security's duration, the more sensitive it will be to changes in interest rates. \10\ See ``The Fund's Use of Derivatives,'' infra. \11\ The ETFs in which the Fund may invest include Index Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 5735). The shares of ETFs in which the Fund may invest will be limited to securities that trade in markets that are members of the Intermarket Surveillance Group (``ISG''), which includes all U.S. national securities exchanges, or exchanges that are parties to a comprehensive surveillance sharing agreement with the Exchange. The Fund will not invest more than 20% of its net assets in leveraged or inverse-leveraged ETFs. The Fund will not invest in non-U.S. exchanged-listed ETFs. \12\ The Adviser expects that under normal market conditions the Fund will invest at least 75% of its corporate debt securities assets (including zero coupon and payment-in-kind securities) in issuances that have at least $100,000,000 par amount outstanding in developed countries or at least $200,000,000 par amount outstanding in emerging market countries. \13\ U.S. government securities include U.S. Treasury obligations and securities issued or guaranteed by various agencies of the U.S. government, or by various instrumentalities which have been established or sponsored by the U.S. government. U.S. Treasury obligations are backed by the ``full faith and credit'' of the U.S. government. Securities issued or guaranteed by federal agencies and U.S. government sponsored instrumentalities may or may not be backed by the full faith and credit of the U.S. government. \14\ Inflation-indexed bonds (other than municipal inflation- indexed bonds and certain corporate inflation-indexed bonds) are fixed income securities whose principal value is periodically adjusted according to the rate of inflation (e.g., Treasury Inflation Protected Securities (``TIPS'')). Municipal inflation- indexed securities are municipal bonds that pay coupons based on a fixed rate plus the Consumer Price Index for All Urban Consumers (``CPI''). With regard to municipal inflation-indexed bonds and certain corporate inflation-indexed bonds, the inflation adjustment is reflected in the semi-annual coupon payment. \15\ Municipal Bonds are debt securities issued by or on behalf of states, local governments, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies, and instrumentalities, the payments from which, in the opinion of bond counsel to the issuer, are excludable from gross income for Federal Income tax purposes, or that pay interest excludable from gross income for purposes of state and local income taxes of the designated state and/or allow the value of the Fund's shares to be exempt from state and local taxes of the designated state. The Fund will primarily invest in Municipal Bonds in developed countries, but may also invest in Municipal Bonds in emerging markets. The Fund will invest its Municipal Bond assets in issuances of at least $10,000,000. The Fund may invest in Municipal Bonds of any quality, rated or unrated, including those that are rated below-investment grade, or if unrated, determined by the Investment Adviser to be of comparable quality. The Fund will primarily invest in investment-grade Municipal Bonds. \16\ Tender option bonds are created by depositing intermediate- or long-term, fixed-rate or variable rate, municipal bonds into a trust and issuing two classes of trust interests (or ``certificates'') with varying economic interests to investors. Holders of the first class of trust interests, or floating rate certificates, receive tax-exempt interest based on short-term rates and may tender the certificate to the trust at par. As consideration for providing the tender option, the trust sponsor (typically a bank, broker-dealer, or other financial institution) receives periodic fees. The trust pays the holders of the floating rate certificates from proceeds of a remarketing of the certificates or from a draw on a liquidity facility provided by the sponsor. The Fund investing in a floating rate certificate effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The floating rate certificate is typically an eligible security for money market funds. Holders of the second class of interests, sometimes called the residual income certificates, are entitled to any tax-exempt interest received by the trust that is not payable to floating rate certificate holders, and bear the risk that the underlying municipal bonds decline in value. \17\ Cash equivalents in which the Fund may invest will be U.S. Treasury Bills, investment grade commercial paper, cash, and Short Term Investment Funds (``STIFs''). STIFs are a type of fund that invests in short-term investments of high quality and low risk. \18\ Agency securities for these purposes generally includes securities issued by the following entities: Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), Federal Home Loan Banks (FHLBanks), Federal Home Loan Mortgage Corporation (Freddie Mac), Farm Credit System (FCS) Farm Credit Banks (FCBanks), Student Loan Marketing Association (Sallie Mae), Resolution Funding Corporation (REFCORP), Financing Corporation (FICO), and the FCS Financial Assistance Corporation (FAC). Agency securities can include, but are not limited to, mortgage-backed securities. \19\ The MBS in which the Fund may invest may also include residential mortgage-backed securities (``RMBS''), collateralized mortgage obligations (``CMOs'') and commercial mortgage-backed securities (``CMBS''). The ABS in which the Fund may invest include collateralized debt obligations (``CDOs''). CDOs include collateralized bond obligations (``CBOs''), collateralized loan obligations (``CLOs'') and other similarly structured securities. A CBO is a trust which is backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Specifically, the Exchange notes that such ABS are bonds backed by pools of loans or other receivables and are securitized by a wide variety of assets that are generally broken into three categories: Consumer, commercial, and corporate. The consumer category includes credit card, auto loan, student loan, and timeshare loan ABS. The commercial category includes trade receivables, equipment leases, oil receivables, film receivables, rental cars, aircraft securitizations, ship and container securitizations, whole business securitizations, and diversified payment right securitizations. Corporate ABS include cash flow collateralization loan obligations, collateralized by both middle market and broadly syndicated bank loans. ABS are issued through special purpose vehicles that are bankruptcy remote from the issuer of the collateral. The credit quality of an ABS tranche depends on the performance of the underlying assets and the structure. To protect ABS investors from the possibility that some borrowers could miss payments or even default on their loans, ABS include various forms of credit enhancement. \20\ The Fund will seek to obtain exposure to U.S. agency mortgage pass-through securities primarily through the use of ``to- be-announced'' or ``TBA transactions.'' ``TBA'' refers to a commonly used mechanism for the forward settlement of U.S. agency mortgage pass-through securities, and not to a separate type of mortgage- backed security. Most transactions in mortgage pass-through securities occur through the use of TBA transactions. TBA transactions generally are conducted in accordance with widely- accepted guidelines which establish commonly observed terms and conditions for execution, settlement and delivery. \21\ Repurchase agreements are fixed-income securities in the form of agreements backed by collateral. These agreements, which may be viewed as a type of secured lending by the Fund, typically involve the acquisition by the Fund of securities from the selling institution (such as a bank or a broker-dealer), coupled with the agreement that the selling institution will repurchase the underlying securities at a specified price and at a fixed time in the future (or on demand). The Fund may accept a wide variety of underlying securities as collateral for the repurchase agreements entered into by the Fund. Such collateral may include U.S. government securities, corporate obligations, equity securities, municipal debt securities, asset- and mortgage-backed securities, convertible securities and other fixed-income securities. Any such securities serving as collateral are marked-to-market daily in order to maintain full collateralization (typically purchase price plus accrued interest). \22\ Commercial instruments include commercial paper, master notes, asset-backed commercial paper and other short-term corporate instruments. Commercial paper normally represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations, finance companies and other issuers. Commercial paper may be traded in the secondary market after its issuance. Master notes are demand notes that permit the investment of fluctuating amounts of money at varying rates of interest pursuant to arrangements with issuers who meet the quality criteria of the Fund. Master notes are generally illiquid and therefore subject to the Fund's percentage limitations for investments in illiquid securities. Asset-backed commercial paper is issued by a special purpose entity that is organized to issue the commercial paper and to purchase trade receivables or other financial assets. \23\ Zero-coupon and payment-in-kind securities are debt securities that do not make regular cash interest payments. Zero- coupon securities are sold at a deep discount to their face value. Payment-in-kind securities pay interest through the issuance of additional securities. \24\ Convertible securities include bonds, debentures, notes and other securities that may be converted into a prescribed amount of common stock or other equity securities at a specified price and time. The Fund may invest in convertible securities traded on an exchange or OTC. The convertible securities in which the Fund may invest will be converted into a prescribed amount of common stock or other equity securities (i) whose principal market is a member of the Intermarket Surveillance Group (``ISG'') [sic], or (ii) subject to the Fund's 10% limit on equity securities whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. \25\ The preferred securities in which the Fund may invest include preferred stock, contingent capital securities, contingent convertible securities, capital securities, and hybrid securities of debt and preferred stock. The Fund may invest in preferred securities traded on an exchange or OTC. Preferred securities pay fixed or adjustable rate dividends to investors, and have ``preference'' over common stock in the payment of dividends and the liquidation of a company's assets. The Fund will primarily invest in preferred securities that are either exchange-traded, or are Trade Reporting and Compliance Engine-eligible (``TRACE-eligible'') and settled via the Depository Trust Company (``DTC''). The Fund may invest in step-up bonds traded on an exchange or OTC. \26\ There are two common types of bank capital: Tier I and Tier II. Bank capital is generally, but not always, of investment grade quality. Tier I securities are typically preferred stock or contingent capital securities. Tier I securities are often perpetual or long-dated (with no maturity date). Tier II securities are typically subordinated debt securities. \27\ A CD is a negotiable interest-bearing instrument with a specific maturity. \28\ A bankers' acceptance is a bill of exchange or time draft drawn on and accepted by a commercial bank. \29\ Debtor-in-possession financing (``DIP financing'') is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law (such as Chapter 11 bankruptcy under the U.S. Code). Usually, DIP financing is considered senior to all other debt, equity, and any other securities issued by the distressed company. \30\ Senior loans are business loans made to borrowers that may be U.S. or foreign corporations, partnerships, or other business entities. The interest rates on senior loans periodically are adjusted to a generally recognized base rate such as the London Interbank Offered Rate (LIBOR) or the prime rate as set by the Federal Reserve. Senior loans typically are secured by specific collateral of the borrower and hold the most senior position in the borrower's capital structure or share the senior position with the borrower's other senior debt securities. \31\ The Fund may invest in secured and unsecured junior loans. \32\ Bridge loans are short-term loan arrangements (e.g., maturities that are generally less than one year) typically made by a borrower following the failure of the borrower to secure other intermediate-term or long-term permanent financing. A bridge loan remains outstanding until more permanent financing, often in the form of high yield notes, can be obtained. Most bridge loans have a step-up provision under which the interest rate increases incrementally the longer the loan remains outstanding so as to incentivize the borrower to refinance as quickly as possible. In exchange for entering into a bridge loan, the Fund typically will receive a commitment fee and interest payable under the bridge loan and may also have other expenses reimbursed by the borrower. Bridge loans may be subordinate to other debt and generally are unsecured. \33\ Unfunded commitments are contractual obligations pursuant to which the Fund agrees in writing to make one or more loans up to a specified amount at one or more future dates. The underlying loan documentation sets out the terms and conditions of the lender's obligation to make the loans as well as the economic terms of such loans. The portion of the amount committed by a lender that the borrower has not drawn down is referred to as ``unfunded.'' Loan commitments may be traded in the secondary market through dealer desks at large commercial and investment banks although these markets are generally not considered liquid. \34\ Revolving credit facilities (``revolvers'') are borrowing arrangements in which the lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. As the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term of the revolver. Revolvers usually provide for floating or variable rates of interest. \35\ The Fund normally will invest at least 75% of its bank loan or corporate loan assets, which includes senior loans, syndicated bank loans, junior loans, bridge loans, unfunded commitments, revolvers and participation interests, in issuances that have at least $100 million par amount outstanding. --------------------------------------------------------------------------- With respect to Debt Instrument investments, the Fund may invest in restricted securities (Rule 144A and Regulation S securities \36\), which are subject to legal restrictions on their sale. --------------------------------------------------------------------------- \36\ The Fund will invest in Rule 144A securities that are TRACE-eligible. --------------------------------------------------------------------------- In addition, with respect to Debt Instrument investments, the Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs and dollar rolls). The Fund may also use leverage to the extent permitted under the 1940 Act by entering into reverse repurchase agreements and borrowing transactions (principally lines of credit) for investment purposes. The Fund's exposure to reverse repurchase agreements will be covered by securities having a value equal to or greater than such commitments. Under the 1940 Act, reverse repurchase agreements are considered borrowings. Although there is no limit on the percentage of Fund assets that can be used in connection with reverse repurchase agreements, the Fund does not expect to engage, under normal circumstances, in reverse repurchase agreements with respect to more than 33\1/3\% of its assets. Other Investments of the Fund While under normal market conditions the Fund will invest at least 80% of its assets pursuant to the 80% Policy described above, the Fund may invest its remaining assets in the securities and financial instruments described below. The Fund may invest in exchange-traded and OTC hybrid instruments, which combine a traditional stock, bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some commodity, currency or securities index or another interest rate or some other economic factor (``underlying benchmark'').\37\ --------------------------------------------------------------------------- \37\ Certain hybrid instruments may provide exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment features similar to commodity futures contracts, commodity options, or similar instruments. Commodity-linked hybrid instruments may be either equity or debt securities, and are considered hybrid instruments because they have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable. The Fund would only invest in commodity-linked hybrid instruments that qualify, under applicable rules of the Commodity Futures Trading Commission, for an exemption from the provisions of the Commodity Exchange Act (7 U.S.C. 1). --------------------------------------------------------------------------- The Fund is permitted to invest in structured notes, which are debt obligations that also contain an embedded derivative component with characteristics that adjust the obligation's risk/return profile. Generally, the performance of a structured note will track that of the underlying debt obligation and the derivative embedded within it. The Fund may invest in credit-linked notes, which are a type of structured note.\38\ --------------------------------------------------------------------------- \38\ The difference between a credit default swap and a credit- linked note is that the seller of a credit-linked note receives the principal payment from the buyer at the time the contract is originated. Through the purchase of a credit-linked note, the buyer assumes the risk of the reference asset and funds this exposure through the purchase of the note. The buyer takes on the exposure to the seller to the full amount of the funding it has provided. The seller has hedged its risk on the reference asset without acquiring any additional credit exposure. The Fund has the right to receive periodic interest payments from the issuer of the credit-linked note at an agreed-upon interest rate and a return of principal at the maturity date. --------------------------------------------------------------------------- The Fund may invest in risk-linked securities (``RLS''), which are a form of derivative issued by insurance companies and insurance- related special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages.\39\ --------------------------------------------------------------------------- \39\ RLS are typically debt obligations for which the return of principal and the payment of interest are contingent on the non- occurrence of a pre-defined ``trigger event.'' Depending on the specific terms and structure of the RLS, this trigger could be the result of a hurricane, earthquake or some other catastrophic event. Insurance companies securitize this risk to transfer to the capital markets the truly catastrophic part of the risk exposure. A typical RLS provides for income and return of capital similar to other fixed-income investments, but would involve full or partial default if losses resulting from a certain catastrophe exceeded a predetermined amount. --------------------------------------------------------------------------- [[Page 20677]] The Fund may invest a portion of its assets in high-quality money market instruments, including money market mutual funds, on an ongoing basis to provide liquidity. The Fund may invest in U.S. and foreign common stocks, both exchange-listed and OTC. The Fund may gain exposure to commodities through the use of investments in exchange-traded products (``ETPs'') \40\ and exchange- traded notes (``ETNs'').\41\ --------------------------------------------------------------------------- \40\ Such ETPs include Trust Issued Receipts (as described in Nasdaq Rule 5720); Commodity-Based Trust Shares (as described in Nasdaq Rule 5711(d)); Currency Trust Shares (as described in Nasdaq Rule 5711(e)); Commodity Index Trust Shares (as described in Nasdaq Rule 5711(f)); and Trust Units (Nasdaq Rule 5711(i)). \41\ ETNs include Index-Linked Securities (as described in NYSE Arca Equities Rule 5.2(j)(6)). The Fund will not invest more than 20% of its net assets in leveraged or inverse-leveraged ETPs and ETNs. The Fund will not invest in non-U.S. exchange-listed ETPs and ETNs. --------------------------------------------------------------------------- The Fund may invest in the securities of exchange-traded and OTC real estate investment trusts (``REITs'').\42\ --------------------------------------------------------------------------- \42\ REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity REITs invest the majority of their assets directly in real estate property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs, generally by holding both direct ownership interests and mortgage interests in real estate. --------------------------------------------------------------------------- Investment Restrictions of the Fund The Fund may not invest more than 25% of the value of its net assets in securities of issuers in any one industry or group of industries. This restriction will not apply to obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities.\43\ --------------------------------------------------------------------------- \43\ See Form N-1A, Item 9. The Commission has taken the position that a fund is concentrated if it invests more than 25% of the value of its total assets in any one industry. See, e.g., Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 (November 21, 1975). --------------------------------------------------------------------------- The Fund may invest up to 20% of its total assets in the aggregate in MBS and ABS that are privately issued, non-agency and non-government sponsored entity (``Private MBS/ABS''). Such holdings would be subject to the respective limitations on the Fund's investments in illiquid assets and high yield securities. The liquidity of such securities, especially in the case of Private MBS/ABS, will be a substantial factor in the Fund's security selection process. The Fund may invest up to 20% of its total assets in the aggregate in participations in and assignments of bank loans or corporate loans, which loans include syndicated bank loans, junior loans, bridge loans, unfunded commitments, revolvers and participation interests (but specifically do not include senior loans), in structured notes, in credit-linked notes, in risk-linked securities, in OTC REITs, and in OTC hybrid instruments. Such holdings would be subject to the respective limitations on the Fund's investments in illiquid assets and high yield securities. The liquidity of such securities will be a substantial factor in the Fund's security selection process. 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 commercial instruments deemed illiquid by the Adviser.\44\ 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 securities or other illiquid assets. Illiquid securities and other illiquid assets include those subject to contractual or other restrictions on resale and other instruments or assets that lack readily available markets as determined in accordance with Commission staff guidance.\45\ --------------------------------------------------------------------------- \44\ In reaching liquidity decisions, the 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). \45\ Long-standing Commission guidelines have required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), FN 34. See also Investment Company Act Release Nos. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ``Restricted Securities''); and 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund. See Investment Company Act Release Nos. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); and 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the Securities Act of 1933). --------------------------------------------------------------------------- The Fund may invest up to 35% of its total assets in high yield debt securities (``junk bonds''), which are debt securities that are rated below-investment grade by nationally recognized statistical rating organizations such as Moody's Investors Service, Inc. (``Moody's), Standard & Poor's Rating Group (``S&P''), or Fitch Investor Services (``Fitch''), or are unrated securities that the Adviser believes are of comparable below-investment grade quality. The Fund may invest in defaulted or distressed securities that are in default at the time of investment or that default subsequent to purchase by the Fund, in which case the Adviser will determine in its sole discretion whether to hold or dispose of security, subject to the Fund's 35% limitation in high yield debt securities. While the Fund will principally invest in debt securities listed, traded or dealt in developed markets, it may also invest in securities listed, traded or dealt in other countries, including emerging markets countries. Such securities may be denominated in foreign currencies. However, the Fund may not invest more than 35% of its total assets in debt securities and instruments that are economically tied to emerging market countries, as determined by the Adviser, and non-U.S. dollar denominated securities.\46\ --------------------------------------------------------------------------- \46\ Emerging market countries are countries with developing economies or markets and may include any country recognized to be an emerging market country by the International Monetary Fund, MSCI, Inc. or Standard & Poor's Corporation or recognized to be a developing country by the United Nations. Generally, the Fund considers an instrument to be economically tied to an emerging market country through consideration of some or all of the following factors: (i) Whether the issuer is the government of the emerging market country (or any political subdivision, agency, authority or instrumentality of such government), or is organized under the laws of the emerging market country; (ii) amount of the issuer's revenues that are attributable to the emerging market country; (iii) the location of the issuer's management; (iv) if the security is secured or collateralized, the country in which the security or collateral is located; and/or (v) the currency in which the instrument is denominated or currency fluctuations to which the issuer is exposed. --------------------------------------------------------------------------- The Fund may not invest more than 10% of its net assets in the aggregate in equity securities and REITs whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. The Fund may not invest more than 20% of its net assets in bank capital. The Fund will be considered diversified within the meaning of the 1940 Act.\47\ --------------------------------------------------------------------------- \47\ Under the 1940 Act, for a fund to be classified as a diversified investment company, at least 75% of the value of the fund's total assets must be represented by cash and cash items (including receivables), government securities, securities of other investment companies, and securities of other issuers, which for the purposes of this calculation are limited in respect of any one issuer to an amount (valued at the time of investment) not greater in value than 5% of the fund's total assets and to not more than 10% of the outstanding voting securities of such issuer. --------------------------------------------------------------------------- [[Page 20678]] The Fund intends to qualify for and to elect to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code.\48\ --------------------------------------------------------------------------- \48\ 26 U.S.C. 851. --------------------------------------------------------------------------- The Fund's investments will be consistent with the Fund's investment objective. The Fund's investments will not be used to enhance leverage. That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund will not be operated as a ``leveraged ETF,'' i.e., it will not be operated in a manner designed to seek a multiple or inverse multiple of the performance of the Fund's primary broad-based securities benchmark index (as defined in Form N- 1A).\49\ --------------------------------------------------------------------------- \49\ The Fund's broad-based securities benchmark index will be the Bloomberg Barclays U.S. Aggregate Bond 1-3 Total Return Index. --------------------------------------------------------------------------- The Fund's Use of Derivatives The Fund proposes to seek certain exposures through derivative transactions as described below. The Fund may invest in the following derivative instruments: Foreign exchange forward contracts; OTC foreign exchange options; exchange-traded futures on securities, commodities, indices, interest rates and currencies; exchange-traded and OTC options on securities and indices; exchange-traded and OTC options on interest rate futures contracts; exchange-traded and OTC interest rate swaps, exchange-traded and OTC cross-currency swaps, OTC total return swaps, exchange-traded and OTC inflation swaps and exchange-traded and OTC credit default swaps; and options on such swaps (``swaptions'').\50\ --------------------------------------------------------------------------- \50\ Options on swaps are traded OTC. In the future, in the event that there are exchange-traded options on swaps, the Fund may invest in these instruments. --------------------------------------------------------------------------- Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities, and related indexes. The Fund may, but is not required to, use derivative instruments for risk management purposes or as part of its investment strategies.\51\ The Fund may also engage in derivative transactions for speculative purposes to enhance total return, to seek to hedge against fluctuations in securities prices, interest rates or currency rates, to change the effective duration of its portfolio, to manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies. --------------------------------------------------------------------------- \51\ The Fund will seek, where possible, to use counterparties whose financial status is such that the risk of default is reduced; however, the risk of losses resulting from default is still possible. The Adviser will monitor the financial standing of counterparties on an ongoing basis. This monitoring may include information provided by credit agencies, as well as the Adviser's credit analysts and other team members who evaluate approved counterparties using various methods of analysis, including but not limited to earnings updates, the counterparty's reputation, the Adviser's past experience with the broker-dealer, market levels for the counterparty's debt and equity, the counterparty's liquidity and its share of market participation. --------------------------------------------------------------------------- Investments in derivative instruments will be made in accordance with the 1940 Act and consistent with the Fund's investment objective and policies. As described further below, the Fund will typically use derivative instruments as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. The Fund may also use derivative instruments to enhance returns. To limit the potential risk associated with such transactions, the Fund will segregate or ``earmark'' assets determined to be liquid by the Adviser in accordance with procedures established by the Trust's Board of Trustees (the ``Board'') and in accordance with the 1940 Act (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments. These procedures have been adopted consistent with Section 18 of the 1940 Act and related Commission guidance. In addition, the Fund will include appropriate risk disclosure in its offering documents, including leveraging risk. Leveraging risk is the risk that certain transactions of the Fund, including the Fund's use of derivatives, may give rise to additional leverage, causing the Fund to be more volatile than if it had not been leveraged.\52\ Because the markets for certain securities, or the securities themselves, may be unavailable or cost prohibitive as compared to derivative instruments, suitable derivative transactions may be an efficient alternative for the Fund to obtain the desired asset exposure. --------------------------------------------------------------------------- \52\ To mitigate leveraging risk, the Adviser will segregate or ``earmark'' liquid assets or otherwise cover the transactions that may give rise to such risk. --------------------------------------------------------------------------- The Adviser believes that derivatives can be an economically attractive substitute for an underlying physical security that the Fund would otherwise purchase. For example, the Fund could purchase Treasury futures contracts instead of physical Treasuries or could sell credit default protection on a corporate bond instead of buying a physical bond. Economic benefits include potentially lower transaction costs or attractive relative valuation of a derivative versus a physical bond (e.g., differences in yields). The Adviser further believes that derivatives can be used as a more liquid means of adjusting portfolio duration as well as targeting specific areas of yield curve exposure, with potentially lower transaction costs than the underlying securities (e.g., interest rate swaps may have lower transaction costs than physical bonds). Similarly, money market futures can be used to gain exposure to short-term interest rates in order to express views on anticipated changes in central bank policy rates. In addition, derivatives can be used to protect client assets through selectively hedging downside (or ``tail risks'') in the Fund. The Fund also can use derivatives to increase or decrease credit exposure. Index credit default swaps (CDX) can be used to gain exposure to a basket of credit risk by ``selling protection'' against default or other credit events, or to hedge broad market credit risk by ``buying protection.'' Single name credit default swaps (CDS) can be used to allow the Fund to increase or decrease exposure to specific issuers, saving investor capital through lower trading costs. The Fund can use total return swap contracts to obtain the total return of a reference asset or index in exchange for paying a financing cost. A total return swap may be more efficient than buying underlying securities of an index, potentially lowering transaction costs. The Fund may attempt to reduce foreign currency exchange rate risk by entering into contracts with banks, brokers or dealers to purchase or sell foreign currencies at a future date (``forward contracts'').\53\ --------------------------------------------------------------------------- \53\ A foreign currency forward contract is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. The rate can be higher or lower than the spot rate between the currencies that are the subject of the contract. --------------------------------------------------------------------------- The Adviser believes that the use of derivatives will allow the Fund to selectively add diversifying sources of return from selling options. Option purchases and sales can also be used to hedge specific exposures in the portfolio, and can provide access to return streams available to long-term [[Page 20679]] investors such as the persistent difference between implied and realized volatility. Option strategies can generate income or improve execution prices (e.g., covered calls). In addition to the Fund's use of derivatives in connection with its 80% Policy, under the proposal the Fund would seek to invest in derivative instruments not based on Debt Instruments, consistent with the Fund's investment restrictions relating to exposure to those asset classes. Valuation Methodology for Purposes of Determining Net Asset Value The net asset value (``NAV'') of the Fund's Shares will be determined by dividing the total value of the Fund's portfolio investments and other assets, less any liabilities, by the total number of Shares outstanding. Fund Shares will be valued as of the close of regular trading (normally 4:00 p.m., Eastern Time (``E.T.'')) (the ``NYSE Close'') on each day the New York Stock Exchange (``NYSE'') is open (``Business Day''). Information that becomes known to the Fund or its agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a portfolio asset or the NAV determined earlier that day. The Fund reserves the right to change the time its NAV is calculated if the Fund closes earlier, or as permitted by the Commission. For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available will be valued at market value. Market value will generally be determined on the basis of last reported sales prices, or if no sales are reported, then based on quotes obtained from a quotation reporting system, established market makers, or pricing services. Domestic and foreign fixed income securities and non-exchange-traded derivatives will normally be valued on the basis of quotes obtained from brokers and dealers or pricing services using data reflecting the earlier closing of the principal markets for those assets. Prices obtained from independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Exchange-traded options and options on futures will generally be valued at the settlement price determined by the applicable exchange. Derivatives for which market quotes are readily available will be valued at market value. Local closing prices will be used for all instrument valuation purposes. Futures will be valued at the last reported sale or settlement price on the day of valuation. Swaps traded on exchanges such as the Chicago Mercantile Exchange (``CME'') or the Intercontinental Exchange (``ICE-US'') will use the applicable exchange closing price where available. Foreign currency-denominated derivatives will generally be valued as of the respective local region's market close. With respect to specific derivatives:Currency spot and forward rates from major market data vendors \54\ will generally be determined as of the NYSE Close. --------------------------------------------------------------------------- \54\ Major market data vendors may include, but are not limited to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group Limited, Bloomberg, Interactive Data Corporation, or other major data vendors. --------------------------------------------------------------------------- Exchange-traded futures will generally be valued at the settlement price of the relevant exchange. A total return swap on an index will be valued at the publicly available index price. The index price, in turn, is determined by the applicable index calculation agent, which generally values the securities underlying the index at the last reported sale price. Equity total return swaps will generally be valued using the actual underlying equity at local market closing, while bank loan total return swaps will generally be valued using the evaluated underlying bank loan price minus the strike price of the loan. Exchange-traded non-equity options (for example, options on bonds, Eurodollar options, and U.S. Treasury options), index options, and options on futures will generally be valued at the official settlement price determined by the relevant exchange, if available. OTC and exchange-traded equity options will generally be valued on a basis of quotes obtained from a quotation reporting system, established market makers, or pricing services or at the settlement price of the applicable exchange. OTC foreign currency (FX) options will generally be valued by pricing vendors. All other OTC and exchange-traded swaps such as interest rate swaps, inflation swaps, swaptions, credit default swaps, and CDX/ CDS will generally be valued by pricing services or at the settlement price of the applicable exchange. Exchange-traded equity securities (including common stocks, ETPs, ETFs, ETNs, CEFs, exchange-traded convertible securities, REITs, and preferred securities) will be valued at the official closing price or the last trading price on the exchange or market on which the security is primarily traded at the time of valuation. If no sales or closing prices are reported during the day, exchange-traded equity securities will generally be valued at the closing bid price on the exchange or market on which the security is primarily traded, or using other market information obtained from quotation reporting systems, established market makers, or pricing services. Investment company securities that are not exchange-traded will be valued at NAV. Equity securities traded OTC will be valued based on price quotations obtained from a broker- dealer who makes markets in such securities or other equivalent indications of value provided by a third-party pricing service. Structured notes, exchange-traded and OTC hybrids and RLS will be valued based on prices obtained from an independent pricing vendor such as IDC or Reuters or on the basis of prices obtained from brokers and dealers. Debt Instruments will generally be valued on the basis of independent pricing services or quotes obtained from brokers and dealers. If a foreign security's value has materially changed after the close of the security's primary exchange or principal market but before the NYSE Close, the security will be valued at fair value based on procedures established and approved by the Board. Foreign securities that do not trade when the NYSE is open will also be valued at fair value. The Board has adopted policies and procedures for the valuation of the Fund's investments (the ``Valuation Procedures''). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim's investment management, fund administration, legal and compliance departments (the ``Valuation Committee''), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund's securities or other assets. Valuations of the Fund's securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Fund's officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review [[Page 20680]] procedures used by, and valuations provided by, the pricing services. Debt securities with a maturity of greater than 60 days at acquisition will be valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term securities with remaining maturities of 60 days or less will be valued at amortized cost, provided such amount approximates market value. Money market instruments will be valued at NAV. Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency will be valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of U.S. business at 4:00 p.m. E.T. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: The value of the securities traded on other foreign markets, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities. In addition, under the Valuation Procedures, the Valuation Committee and the Adviser are authorized to use prices and other information supplied by a third party pricing vendor in valuing foreign securities. Investments for which market quotations are not readily available will be fair valued as determined in good faith by the Adviser, subject to review by the Valuation Committee, pursuant to methods established or ratified by the Board. Valuations in accordance with these methods are intended to reflect each security's (or asset's) ``fair value.'' Each such determination will be based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: Market prices; sales price; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics, or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information analysis. Investments initially valued in currencies other than the U.S. dollar will be converted to the U.S. dollar using exchange rates obtained from pricing services. As a result, the NAV of the Fund's Shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed. As a result, to the extent that the Fund holds foreign (non- U.S.) securities, the NAV of the Fund's Shares may change when an investor cannot purchase, redeem or exchange shares. Derivatives Valuation Methodology for Purposes of Determining Intra-Day Indicative Value On each Business Day, before commencement of trading in Fund Shares on the Exchange, the Fund will disclose on its Web site the identities and quantities of the portfolio instruments and other assets held by the Fund that will form the basis for the Fund's calculation of NAV at the end of the Business Day. In order to provide additional information regarding the intra-day value of Shares of the Fund, the Exchange or a market data vendor will disseminate every 15 seconds through the facilities of the Consolidated Tape Association (``CTA'') or other widely disseminated means an updated Intra-day Indicative Value (``IIV'') for the Fund as calculated by a third party market data provider. A third party market data provider will calculate the IIV for the Fund. For the purposes of determining the IIV, the third party market data provider's valuation of derivatives is expected to be similar to their valuation of all securities. The third party market data provider may use market quotes if available or may fair value securities against proxies (such as swap or yield curves). With respect to specific derivatives: Foreign currency derivatives, including foreign exchange forward contracts, foreign exchange options and currency futures, may be valued intraday using market quotes, or another proxy as determined to be appropriate by the third party market data provider. Futures may be valued intraday using the relevant futures exchange data, or another proxy as determined to be appropriate by the third party market data provider. Interest rate swaps and cross-currency swaps may be mapped to a swap curve and valued intraday based on changes of the swap curve, or another proxy as determined to be appropriate by the third party market data provider. Index credit default swaps (such as, CDX/CDS) may be valued using intraday data from market vendors, or based on underlying asset price, or another proxy as determined to be appropriate by the third party market data provider. Total return swaps may be valued intraday using the underlying asset price, or another proxy as determined to be appropriate by the third party market data provider. Exchange listed options may be valued intraday using the relevant exchange data, or another proxy as determined to be appropriate by the third party market data provider. OTC options and swaptions may be valued intraday through option valuation models (e.g., Black-Scholes) or using exchange traded options as a proxy, or another proxy as determined to be appropriate by the third party market data provider. Disclosed Portfolio The Fund's disclosure of derivative positions in the Disclosed Portfolio will include information that market participants can use to value these positions intraday. On a daily basis, the Adviser 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, such as the type of swap); the identity of the security, commodity, index or other asset or instrument underlying the holding, if any; for options, the option strike price; 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 the percentage weighting of the holding in the Fund's portfolio. The Web site information will be publicly available at no charge. Impact on Arbitrage Mechanism The Adviser believes there will be minimal, if any, impact to the arbitrage mechanism as a result of the use of derivatives. Market makers and participants should be able to value derivatives as long as the positions are disclosed with relevant information. The Adviser believes that the price at which Shares trade will continue to be disciplined by arbitrage opportunities [[Page 20681]] created by the ability to purchase or redeem creation Shares at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. The Adviser does not believe there will be any significant impacts to the settlement or operational aspects of the Fund's arbitrage mechanism due to the use of derivatives. Because derivatives generally are not eligible for in-kind transfer, they will typically be substituted with a ``cash in lieu'' amount when the Fund processes purchases or redemptions of creation units in-kind. Creation and Redemption of Shares Investors may create or redeem in Creation Unit size of 100,000 Shares or aggregations thereof (``Creation Unit'') through an Authorized Participant (``AP''), as described in the Registration Statement. The size of a Creation Unit is subject to change. In order to purchase Creation Units of the Fund, an investor must generally deposit a designated portfolio of securities (the ``Deposit Securities'') (and/or an amount in cash in lieu of some or all of the Deposit Securities) per each Creation Unit constituting a substantial replication, or representation, of the securities included in the Fund's portfolio as selected by the Adviser (``Fund Securities'') and generally make a cash payment referred to as the ``Cash Component.'' The list of the names and the amounts of the Deposit Securities will be made available by the Fund's Custodian through the facilities of the National Securities Clearing Corporation (``NSCC'') prior to the opening of business of the Exchange (9:30 a.m., E.T.). The Cash Component will represent the difference between the NAV of a Creation Unit and the market value of the Deposit Securities. Shares may be redeemed only in Creation Unit size at their NAV on a day the Exchange is open for business. The Fund's custodian will make available immediately prior to the opening of the Exchange, through the facilities of NSCC, the list of the names and the amounts of the Fund Securities that will be applicable that day to redemption requests in proper form. Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to purchases of Creation Units. The creation/redemption order cut-off time for the Fund will be 4:00 p.m. E.T. Availability of Information The Fund's Web site (www.guggenheiminvestments.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund's Web site will include the ticker symbol for the Shares, 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, closing price and mid-point of the bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask Price''),\55\ and a calculation of the premium and discount of the Bid/Ask Price against the NAV; and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for the most recently completed calendar year and each of the four most recently completed calendar quarters since that year (or the life of the Fund if shorter). --------------------------------------------------------------------------- \55\ 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. --------------------------------------------------------------------------- On each Business Day, before commencement of trading in Shares in the Regular Market Session \56\ on the Exchange, the Fund will disclose on its Web site the identities and quantities of the portfolio of securities and other assets (the ``Disclosed Portfolio'' as such term is defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form the basis for the Fund's calculation of NAV at the end of the Business Day.\57\ --------------------------------------------------------------------------- \56\ See Nasdaq Rule 4120(b)(4) (describing the three trading sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. to 8 p.m. E.T.). \57\ 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''). Notwithstanding the foregoing, portfolio trades that are executed prior to the opening of the Exchange on any Business Day may be booked and reflected in NAV on such Business Day. 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. --------------------------------------------------------------------------- In addition to disclosing the identities and quantities of the portfolio of securities and other assets in the Disclosed Portfolio, the Fund also will disclose on a daily basis on its Web site the following information, as applicable to the type of holding: Ticker symbol, if any, CUSIP number or other identifier, if any; a description of the holding (including the type of holding, such as, a type of swap), quantity held (as measured by, for example, par value, number of shares or units); identity of the security, index, or other asset or instrument underlying the holding, if any; for options, the options strike price; 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; market value of the holding; and percentage weighting of the holding in the Fund's portfolio. The Web site and information will be publicly available at no charge. In addition, to the extent the Fund permits full or partial creations in-kind, a basket composition file, which will include the security names and share quantities to deliver (along with requisite cash in lieu) in exchange for Shares, together with estimates and actual Cash Components, will be publicly disseminated daily prior to the opening of the Exchange via the NSCC. The basket will equal a Creation Unit. In addition, for the Fund, 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 by a major market data vendor per the terms of a data services agreement that will be finalized with the Adviser prior to the Fund's launch (the ``IOPV Vendor''). Moreover, the Intraday Indicative Value, available on the NASDAQ Information LLC proprietary index data service,\58\ will be calculated by the IOPV Vendor based upon the sum of the current value for the components of the Disclosed Portfolio and the estimated cash amount per share of the Fund, divided by the total amount of outstanding Shares. The Intraday Indicative Value will be updated and widely disseminated by the IOPV Vendor and broadly displayed at least every 15 seconds during the Regular Market Session. The Intraday Indicative Value will be calculated based on the IOPV Vendor's calculations. If there is an issue or problem with any of the components of the calculation, the previously calculated Intraday Indicative Value will be disseminated until such issue or problem is resolved. With respect to equity securities, if trading in a component of the Disclosed Portfolio is halted while the market is open, the last traded price for that security will be used in the calculation until trading resumes. If trading is halted before the [[Page 20682]] market is open, the previous day's last sale price will be used. For components of the Disclosed Portfolio that are not U.S. listed, the last sale price is used, after being converted into U.S. Dollars, when the local market is open. When the local market closes, the closing price for the component of the Disclosed Portfolio continues to be updated by the applicable exchange rate. --------------------------------------------------------------------------- \58\ Currently, the Nasdaq Global Index Data Service (``GIDS'') is the Nasdaq 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 indexes, listed ETFs, or third-party partner indexes and ETFs. --------------------------------------------------------------------------- The dissemination of the Intraday Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and will provide a close estimate of that value throughout the trading day. Intraday executable price quotations on certain Debt Instruments and other assets not traded on an exchange will be available from major broker-dealer firms or market data vendors, as well as from automated quotation systems, published or other public sources, or online information services. Additionally, the Trade Reporting and Compliance Engine (``TRACE'') of the Financial Industry Regulatory Authority (``FINRA'') will be a source of price information for corporate bonds, privately-issued securities (including Rule 144A securities), MBS, ABS, CDOs and CBOs to the extent transactions in such securities are reported to TRACE.\59\ Intra-day, executable price quotations on the securities and other assets held by the Fund, as well as closing price information, will be available from major broker-dealer firms or on the exchange on which they are traded, as applicable. Intra-day and closing price information related to U.S. government securities, money market instruments (including money market mutual funds), and other short-term investments held by the Fund also will be available through subscription services, such as Bloomberg, Markit and Thomson Reuters, which can be accessed by APs and other investors. Electronic Municipal Market Access (``EMMA'') will be a source of price information for municipal bonds. --------------------------------------------------------------------------- \59\ Broker-dealers that are FINRA member firms have an obligation to report transactions in specified debt securities to TRACE to the extent required under applicable FINRA rules. Generally, such debt securities will have at issuance a maturity that exceeds one calendar year. --------------------------------------------------------------------------- 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 for the Shares will be published daily in the financial section of newspapers. Quotation and last sale information will be available via the CTA high- speed line for the Shares and for the following U.S. exchange-traded securities: Common stocks, hybrid instruments, convertible securities, preferred securities, REITs, CEFs, ETFs, ETPs, and ETNs. Price information for foreign exchange-traded stocks will be available from the applicable foreign exchange and from major market data vendors. Price information for exchange-traded derivative instruments will be available from the applicable exchange and from major market data vendors. Price information for OTC REITs, OTC common stocks, OTC preferred securities, OTC convertible securities, OTC step-up bonds, OTC CEFs, OTC options, money market instruments, forwards, structured notes, credit linked notes, risk-linked securities, OTC derivative instruments and OTC hybrid instruments will be available from major market data vendors. Price information for restricted securities, including Regulation S and Rule 144A securities, will be available from major market data vendors. Intra-day and closing price information for exchange-traded options and futures will be available from the applicable exchange and from major market data vendors. In addition, price information for U.S. exchange-traded options is available from the Options Price Reporting Authority. Quotation information from brokers and dealers or independent pricing services will be available for Debt Instruments. Additional information regarding the Fund and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions and taxes, will be included in the Registration Statement. Investors also will be able to obtain the Fund's Statement of Additional Information (``SAI''), the Fund's Shareholder Reports, and its Trust's Form N-CSR and Form N-SAR, each of which is filed twice a year, except the SAI, which is filed at least annually. The Fund's SAI and Shareholder Reports will be available free upon request from the Trust, and those documents and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded from the Commission's Web site at www.sec.gov. Initial and Continued Listing of the Fund's Shares The Shares will conform to the initial and continued listing criteria applicable to Managed Fund Shares, as set forth under Rule 5735. The Exchange represents that, for initial and continued listing, the Fund will be in compliance with Rule 10A-3 \60\ under the Exchange Act. A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. --------------------------------------------------------------------------- \60\ See 17 CFR 240.10A-3. --------------------------------------------------------------------------- Trading Halts of the Fund's Shares With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. 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 also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments 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. Trading in the Shares also will be subject to Rule 5735(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules Nasdaq deems the Shares to be equity securities, thus rendering trading in the Shares subject to Nasdaq's existing rules governing the trading of equity securities. Nasdaq will allow trading in the Shares from 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum price variation for quoting and entry of orders in Managed Fund Shares traded on the Exchange is $0.01. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and FINRA, on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.\61\ The Exchange represents that these procedures are adequate to properly monitor Exchange [[Page 20683]] trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. --------------------------------------------------------------------------- \61\ FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA's performance under this regulatory services agreement. --------------------------------------------------------------------------- The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and such other exchange-traded securities and instruments held by the Fund with other markets and other entities that are members of the ISG,\62\ and FINRA may obtain trading information regarding trading in the Shares and other exchange-traded securities (including ETFs and preferred stock) and instruments held by the Fund from such markets and other entities. Moreover, FINRA, on behalf of the Exchange, will be able to access, as needed, trade information for certain Debt Instruments, and other debt securities held by the Fund reported to FINRA's TRACE. --------------------------------------------------------------------------- \62\ For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the Disclosed Portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. --------------------------------------------------------------------------- In addition, the Exchange may obtain information regarding trading in the Shares and such other 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. Not more than 10% of the net assets of the Fund in the aggregate invested in equity securities (other than non-exchange-traded investment company securities) shall consist of equity securities whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. Furthermore, not more than 10% of the net assets of the Fund in the aggregate invested in futures contracts and exchange-traded options contracts shall consist of futures contracts and exchange- traded options contracts whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (3) how information regarding the Intraday Indicative Value and the Disclosed Portfolio is disseminated; (4) 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; (5) the requirement that members purchasing Shares from the Fund for resale to investors deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. In addition, the Information Circular will advise members, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Fund. Members purchasing Shares from the Fund for resale to investors will deliver a prospectus to such investors. The Information Circular will also discuss any exemptive, no-action and interpretive relief granted by the Commission from any rules under the Exchange Act. Additionally, the Information Circular will reference that the Fund is subject to various fees and expenses. The Information Circular will also disclose the trading hours of the Shares of the Fund and the applicable NAV calculation time for the Shares. The Information Circular will disclose that information about the Shares of the Fund will be publicly available on the Fund's Web site. Continued Listing Representations All statements and representations made in this filing regarding (a) the description of the portfolio, (b) limitations on portfolio holdings or reference assets, (c) dissemination and availability of the reference asset or intraday indicative values, or (d) the applicability of Exchange listing rules 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. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. 2. Statutory Basis Nasdaq believes that the proposal is consistent with Section 6(b) of the Exchange Act, in general, and Section 6(b)(5) \63\ of the Exchange Act, in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \63\ 15 U.S.C. 78(f)(b)(5) [sic]. --------------------------------------------------------------------------- The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Nasdaq Rule 5735. The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and FINRA, on behalf of the Exchange, which are designed to deter and detect violations of Exchange rules and applicable federal securities laws and are adequate to properly monitor trading in the Shares in all trading sessions. The Adviser is affiliated with a broker-dealer and have implemented a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the Fund's portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 further requires that personnel who make decisions on an 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 proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect [[Page 20684]] investors and the public interest in that it will facilitate the listing and trading of an additional type of actively-managed exchange- traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. FINRA may obtain information via ISG from other exchanges that are members of ISG. In addition, the Exchange may obtain information regarding trading in the Shares and other exchange-traded securities (including ETFs and preferred stock) 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. The Fund will limit its investments in illiquid securities or other illiquid assets to an aggregate amount of 15% of its net assets (calculated at the time of investment). The Fund also may invest directly in ETFs. Additionally, the Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective. The Fund's investments will not be used to enhance leverage. That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund will not be operated as a ``leveraged ETF,'' i.e., it will not be operated in a manner designed to seek a multiple or inverse multiple of the performance of the Fund's primary broad-based securities benchmark index (as defined in Form N-1A). The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily every day that the Fund is traded, and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Moreover, the Intraday Indicative Value, available on the NASDAQ Information LLC proprietary index data service, will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange's Regular Market Session. On each Business Day, before commencement of trading in Shares in the Regular Market Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio of the Fund that will form the basis for the Fund's calculation of NAV at the end of the Business Day. 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, and 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 CTA plans for the Shares. Quotation and last sale information will be available via the CTA high-speed line for the Shares and for the following U.S. exchange-traded securities: Common stocks, hybrid instruments, convertible securities, preferred securities, REITs, CEFs, ETFs, ETPs, and ETNs. Price information for foreign exchange-traded stocks will be available from the applicable foreign exchange and from major market data vendors. Price information for exchange-traded derivative instruments will be available from the applicable exchange and from major market data vendors. Price information for OTC REITs, OTC common stocks, OTC preferred securities, OTC convertible securities, OTC step- up bonds, OTC CEFs, OTC options, money market instruments, forwards, structured notes, credit linked notes, risk-linked securities, OTC derivative instruments, and OTC hybrid instruments will be available from major market data vendors. Price information for restricted securities, including Regulation S and Rule 144A securities, will be available from major market data vendors. Intra-day and closing price information for exchange-traded options and futures will be available from the applicable exchange and from major market data vendors. In addition, price information for U.S. exchange-traded options is available from the Options Price Reporting Authority. Quotation information from brokers and dealers or independent pricing services will be available for Debt Instruments. The Fund's Web site will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, 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. Trading in Shares of the Fund will be halted under the conditions specified in Nasdaq Rules 4120 and 4121 or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, and trading in the Shares will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. In addition, as noted above, investors will have ready access to information regarding the Fund's holdings, the Intraday Indicative Value, the Disclosed Portfolio, and quotation and last sale information for the Shares. For the above reasons, Nasdaq believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Exchange Act. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of actively-managed exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. 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 will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NASDAQ-2017-039 on the subject line. [[Page 20685]] 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-2017-039. 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-2017-039, and should be submitted on or before May 24, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\64\ --------------------------------------------------------------------------- \64\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-08899 Filed 5-2-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Notices 20673
oversight of a registered national the Foreign Indirect Affiliates, to update The text of the proposed rule change
securities exchange. the information in Exhibit D to Form 1 is available on the Exchange’s Web site
Based on the Exchanges’ on or before June 30th of each year at http://nasdaq.cchwallstreet.com, at
representations, the limited and indirect subject to the following conditions: the principal office of the Exchange, and
nature of the relationship between the (1) Each Exchange must provide, as at the Commission’s Public Reference
Exchanges and the Foreign Indirect part of its annual Form 1 amendment Room.
Affiliates, and the information that the due on or before June 30th of each year,
Exchanges will provide with respect to II. Self-Regulatory Organization’s
a list of the names of the Foreign
all other affiliates, including the foreign Statement of the Purpose of, and
Indirect Affiliates for which the
direct affiliates and domestic direct and Statutory Basis for, the Proposed Rule
Exchange is relying on exemptive relief;
indirect affiliates, the Commission Change
and
believes that it will have sufficient (2) Each Exchange must provide, as In its filing with the Commission, the
information necessary to oversee the part of its annual Form 1 amendment Exchange included statements
Exchanges’ activities as national due on or before June 30th of each year, concerning the purpose of and basis for
securities exchanges under the an organizational chart setting forth the the proposed rule change and discussed
Exchange Act.24 In particular, the affiliation of all affiliates, including any comments it received on the
Commission notes that each Exchange those Foreign Indirect Affiliates for proposed rule change. The text of these
has represented that the nature of the which the Exchange is relying on statements may be examined at the
connection between it and the Foreign exemptive relief. places specified in Item IV below. The
Indirect Affiliates is limited and Exchange has prepared summaries, set
By the Commission.
indirect, that the Foreign Indirect forth in sections A, B, and C below, of
Affiliates would have no ability to Brent J. Fields,
the most significant aspects of such
influence the management, policies, or Secretary. statements.
finances of the Exchanges, and that the [FR Doc. 2017–08891 Filed 5–2–17; 8:45 am]
Foreign Indirect Affiliates would have BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
no obligation to provide funding to, or Statement of the Purpose of, and the
ability to materially affect the funding Statutory Basis for, the Proposed Rule
of, the Exchanges. SECURITIES AND EXCHANGE Change
In addition, the Commission notes COMMISSION 1. Purpose
that the Exchanges have represented [Release No. 34–80540; File No. SR– The Exchange proposes to list and
that the Foreign Indirect Affiliates have NASDAQ–2017–039] trade the Shares of the Fund under Rule
no ownership interest in the Exchanges
5735, which rule governs the listing and
or in any of the controlling shareholders Self-Regulatory Organizations; The trading of Managed Fund Shares 3 on
of the Exchanges and that there are no NASDAQ Stock Market LLC; Notice of
the Exchange.4 The Shares will be
commercial dealings between any of the Filing of Proposed Rule Change To
Exchanges and the Foreign Indirect List and Trade the Guggenheim 3 A ‘‘Managed Fund Share’’ is a security that
Affiliates.25 Limited Duration ETF represents an interest in an investment company
For the reasons discussed above, the registered under the Investment Company Act of
Commission finds that it is appropriate April 27, 2017. 1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
in the public interest and consistent Pursuant to Section 19(b)(1) of the as an open-end investment company or similar
entity that invests in a portfolio of securities
with the protection of investors to grant Securities Exchange Act of 1934 (‘‘Act’’ selected by its investment adviser consistent with
the conditional exemptive relief or ‘‘Exchange Act’’),1 and Rule 19b–4 its investment objectives and policies. In contrast,
requested by the Exchanges. thereunder,2 notice is hereby given that an open-end investment company that issues Index
The Commission may modify by order on April 13, 2017, The NASDAQ Stock Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
the terms, scope or conditions of the Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) investment results that correspond generally to the
exemption from Rule 6a–2(b)(1) under filed with the Securities and Exchange price and yield performance of a specific foreign or
the Exchange Act granted to each Commission (‘‘Commission’’) the domestic stock index, fixed income securities index
Exchange if it determines that such proposed rule change as described in or combination thereof.
4 The Commission approved Nasdaq Rule 5735
modification is necessary or appropriate Items I and II below, which Items have
(formerly Nasdaq Rule 4420(o)) in Securities
in the public interest, or is consistent been prepared by the Exchange. The Exchange Act Release No. 57962 (June 13, 2008), 73
with the protection of investors. Commission is publishing this notice to FR 35175 (June 20, 2008) (SR–NASDAQ–2008–039).
Furthermore, the Commission may solicit comments on the proposed rule There are already multiple actively managed funds
limit, suspend, or revoke the exemption change from interested persons. listed on the Exchange; see, e.g., Securities
Exchange Act Release Nos. 69464 (April 26, 2013),
granted to each Exchange if it finds that I. Self-Regulatory Organization’s 78 FR 25774 (May 2, 2013) (SR–NASDAQ–2013–
the Exchange has failed to comply with, Statement of the Terms of Substance of 036) (order approving listing and trading of First
or is unable to comply with, any of the the Proposed Rule Change
Trust Senior Loan Fund); 66489 (February 29,
conditions set forth in this order, if such 2012), 77 FR 13379 (March 6, 2012) (SR–NASDAQ–
2012–004) (order approving listing and trading of
action is necessary or appropriate in the The Exchange proposes to list and WisdomTree Emerging Markets Corporate Bond
public interest, or is consistent with the trade the common shares of beneficial Fund); and 78533 (August 10, 2016), 81 FR 54634
protection of investors. interest of the Guggenheim Limited (August 16, 2016) (SR–NASDAQ–2016–086) (order
It is ordered, pursuant to Section 36 Duration ETF (the ‘‘Fund’’), a series of approving listing and trading of VanEck Vectors
Long/Flat Commodity ETF). Additionally, the
of the Exchange Act,26 that the Claymore Exchange-Traded Fund Trust
nlaroche on DSK30NT082PROD with NOTICES
Commission has previously approved the listing
Exchanges are exempt from the (the ‘‘Trust’’), under Nasdaq Rule 5735 and trading of a number of actively-managed funds
requirement under Rule 6a–2(b)(1) (‘‘Rule 5735’’). The common shares of on NYSE Arca, Inc. pursuant to Rule 8.600 of that
under the Exchange Act, with respect to beneficial interest of the Fund are exchange. See, e.g., Securities Exchange Act Release
No. 68870 (February 8, 2013), 78 FR 11245
referred to herein as the ‘‘Shares.’’ (February 15, 2013) (SR–NYSEArca–2012–139)
24 15 U.S.C. 78f(b) and 78s(a). (order approving listing and trading of First Trust
25 See Exemption Requests, supra note 4. 1 15 U.S.C. 78s(b)(1). Preferred Securities and Income ETF). Moreover,
26 15 U.S.C. 78mm. 2 17 CFR 240.19b–4. Continued
VerDate Sep<11>2014 14:29 May 02, 2017 Jkt 241001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\03MYN1.SGM 03MYN1](https://thefederalregister.org/doc/82_FR_20757/page/1.svg)
![20674 Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Notices
offered by the Fund, which will be an paragraph (g) of Rule 5735 further Principal Investments
actively managed exchange-traded fund requires that personnel who make The Fund will seek to achieve its
(‘‘ETF’’). The Fund is a series of the decisions on such investment investment objective by investing, under
Trust. The Trust was established as a company’s portfolio composition must normal market conditions,7 at least 80%
Delaware statutory trust on May 24, be subject to procedures designed to of its net assets (plus the amount of any
2006. The Trust is registered with the prevent the use and dissemination of borrowings for investment purposes) in
Commission as an open-end material, non-public information a diversified portfolio of ‘‘Debt
management investment company and regarding the investment company’s Instruments’’ (as described below) of
has filed a post-effective amendment to portfolio. any interest rate, credit quality,8
its registration statement on Form N–1A Rule 5735(g) is similar to Nasdaq Rule maturity or duration; however, the Fund
(the ‘‘Registration Statement’’) with the 5705(b)(5)(A)(i), which applies to index- expects, under normal market
Commission to register the Fund and its based funds and requires ‘‘fire walls’’ conditions, to maintain a dollar-
Shares under the 1940 Act and the between affiliated broker-dealers and weighted average duration 9 of generally
Securities Act of 1933.5 investment advisers regarding the less than 3.5 years (the ‘‘80% Policy’’).
Guggenheim Partners Investment index-based fund’s underlying The 80% Policy may be represented by
Management, LLC will serve as the benchmark index. Rule 5735(g), certain derivative instruments as
investment adviser (the ‘‘Adviser’’) to however, applies to the establishment of discussed below,10 and ETFs 11 and
the Fund. Guggenheim Funds a ‘‘fire wall’’ between affiliated exchange-traded and over-the-counter
Distributors, LLC will serve as the investment advisers and the broker- (‘‘OTC’’) closed-end funds (‘‘CEFs’’)
principal underwriter and distributor of dealers with respect to the investment (which may include ETFs and CEFs
the Fund’s Shares (the ‘‘Distributor’’). company’s portfolio and not with affiliated with the Fund), provided that
The Bank of New York Mellon will act respect to an underlying benchmark such ETFs and CEFs invest substantially
as the custodian, transfer agent and fund index, as is the case with index-based all of their assets in Debt Instruments.
accounting agent for the Fund (the funds. The Fund will, as described further
‘‘Custodian’’). MUFG Investor Services, The Adviser is not a broker-dealer, below, invest in the following Debt
LLC will serve as the administrator for but it is affiliated with the Distributor, Instruments: Corporate debt securities of
the Fund (the ‘‘Administrator’’). a broker-dealer. The Adviser has
Paragraph (g) of Rule 5735 provides therefore implemented and will 7 The term ‘‘normal market conditions’’ includes,
that, if the investment adviser to an maintain a fire wall with the Distributor but is not limited to, the absence of trading halts
investment company issuing Managed with respect to the access of information in the applicable financial markets generally;
Fund Shares is affiliated with a broker- concerning the composition and/or operational issues (e.g., systems failure) causing
dissemination of inaccurate market information; or
dealer, such investment adviser shall changes to the Fund’s portfolio. force majeure type events such as natural or
erect a ‘‘fire wall’’ between the In the event (a) the Adviser or any manmade disaster, act of God, armed conflict, act
investment adviser and the broker- sub-adviser becomes newly affiliated of terrorism, riot or labor disruption or any similar
dealer with respect to access to with a different broker-dealer, or (b) any intervening circumstance.
8 The Fund may hold fixed-income securities of
information concerning the composition new adviser to the Fund is a registered any quality, rated or unrated, including those that
and/or changes to such investment broker-dealer or becomes affiliated with are rated below-investment grade (also known as
company’s portfolio.6 In addition, a broker-dealer, each will implement ‘‘high yield securities’’ or ‘‘junk bonds’’), or if
and maintain a fire wall with respect to unrated, determined by the Adviser to be of
the Commission previously approved the listing comparable quality. If nationally recognized
its relevant personnel and/or such statistical rating organizations assign different
and trading of other actively managed funds within
the Guggenheim family of ETFs. See, e.g., Security
broker-dealer affiliate, if applicable, ratings to the same security, the Fund will use the
[sic] Exchange Act Release Nos. 64550 (May 26, regarding access to information higher rating for purposes of determining the
2011), 76 FR 32005 (June 2, 2011) (SR–NYSEArca– concerning the composition and/or security’s credit quality. However, the Fund will
2011–11) (order approving listing of Guggenheim not invest more than 35% of its total assets in fixed-
changes to the Fund’s portfolio and will income securities that are rated below investment
Enhanced Core Bond ETF and Guggenheim
Enhanced Ultra-Short Bond ETF); 76719 (December be subject to procedures designed to grade as described below under ‘‘Investment
21, 2015), 80 FR 248 (December 28, 2015) (SR– prevent the use and dissemination of Restrictions.’’
9 Duration is a measure of the price volatility of
NYSEArca–2015–73) (order approving listing of material non-public information
Guggenheim Total Return Bond ETF). The a debt instrument as a result of changes in market
regarding such portfolio. rates of interest, based on the weighted average
Exchange believes the proposed rule change raises
no significant issues not previously addressed in Guggenheim Limited Duration ETF timing of the instrument’s expected principal and
those prior Commission orders. interest payments. Duration differs from maturity in
5 See Registration Statement for the Trust, filed on The Fund will be an actively-managed that it considers a security’s yield, coupon
April 12, 2016 (File Nos. 333–134551 and 811– ETF, and its investment objective is to payments, principal payments and call features in
21906). The descriptions of the Fund and the addition to the amount of time until the security
seek to provide a level of income matures. As the value of a security changes over
Shares contained herein are based, in part, on
information in the Registration Statement. In consistent with preservation of capital. time, so will its duration. The longer a security’s
addition, the Commission has issued an order duration, the more sensitive it will be to changes
granting certain exemptive relief to the Trust under Advisers Act and Rule 204A–1 thereunder. In in interest rates.
the 1940 Act. See Investment Company Act Release 10 See ‘‘The Fund’s Use of Derivatives,’’ infra.
addition, Rule 206(4)–7 under the Advisers Act
No. 29271 (May 18, 2010) (File No. 13534) makes it unlawful for an investment adviser to 11 The ETFs in which the Fund may invest
(‘‘Exemptive Order’’). provide investment advice to clients unless such include Index Fund Shares (as described in Nasdaq
6 An investment adviser to an open-end fund is investment adviser has (i) adopted and Rule 5705), Portfolio Depositary Receipts (as
required to be registered under the Investment implemented written policies and procedures described in Nasdaq Rule 5705), and Managed Fund
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a reasonably designed to prevent violation, by the Shares (as described in Nasdaq Rule 5735). The
result, the Adviser and its related personnel are investment adviser and its supervised persons, of shares of ETFs in which the Fund may invest will
nlaroche on DSK30NT082PROD with NOTICES
subject to the provisions of Rule 204A–1 under the the Advisers Act and the Commission rules adopted be limited to securities that trade in markets that
Advisers Act relating to codes of ethics. This Rule thereunder; (ii) implemented, at a minimum, an are members of the Intermarket Surveillance Group
requires investment advisers to adopt a code of annual review regarding the adequacy of the (‘‘ISG’’), which includes all U.S. national securities
ethics that reflects the fiduciary nature of the policies and procedures established pursuant to exchanges, or exchanges that are parties to a
relationship to clients as well as compliance with subparagraph (i) above and the effectiveness of their comprehensive surveillance sharing agreement with
other applicable securities laws. Accordingly, implementation; and (iii) designated an individual the Exchange. The Fund will not invest more than
procedures designed to prevent the communication (who is a supervised person) responsible for 20% of its net assets in leveraged or inverse-
and misuse of non-public information by an administering the policies and procedures adopted leveraged ETFs. The Fund will not invest in non-
investment adviser must be consistent with the under subparagraph (i) above. U.S. exchanged-listed ETFs.
VerDate Sep<11>2014 14:29 May 02, 2017 Jkt 241001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\03MYN1.SGM 03MYN1](https://thefederalregister.org/doc/82_FR_20757/page/2.svg)
![Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Notices 20675
U.S. and non-U.S. issuers, including governments and their subdivisions, securities; 20 repurchase agreements; 21
corporate bonds; 12 securities issued by agencies and government-sponsored commercial instruments (including
the U.S. government or its agencies, enterprises; obligations of international asset-backed commercial
instrumentalities or sponsored agencies or supranational entities; cash instruments); 22 zero-coupon and
corporations (including those not equivalents; 17 agency 18 and non-agency payment-in-kind securities; 23
backed by the full faith and credit of the mortgage-backed securities (‘‘MBS’’) and convertible securities; 24 preferred
U.S. government); 13 inflation-indexed asset-backed securities (‘‘ABS’’); 19U.S. securities and step-up securities (such
bonds issued by both governments and agency mortgage pass-through
corporations; 14 debt securities issued by 20 The Fund will seek to obtain exposure to U.S.
states or local governments and their receives periodic fees. The trust pays the holders of agency mortgage pass-through securities primarily
agencies, authorities and other the floating rate certificates from proceeds of a through the use of ‘‘to-be-announced’’ or ‘‘TBA
remarketing of the certificates or from a draw on a
government-sponsored enterprises liquidity facility provided by the sponsor. The Fund
transactions.’’ ‘‘TBA’’ refers to a commonly used
(‘‘Municipal Bonds’’); 15 tender option mechanism for the forward settlement of U.S.
investing in a floating rate certificate effectively
agency mortgage pass-through securities, and not to
bonds; 16 obligations of non-U.S. holds a demand obligation that bears interest at the
a separate type of mortgage-backed security. Most
prevailing short-term tax-exempt rate. The floating
rate certificate is typically an eligible security for transactions in mortgage pass-through securities
12 The Adviser expects that under normal market
money market funds. Holders of the second class occur through the use of TBA transactions. TBA
conditions the Fund will invest at least 75% of its transactions generally are conducted in accordance
of interests, sometimes called the residual income
corporate debt securities assets (including zero with widely-accepted guidelines which establish
certificates, are entitled to any tax-exempt interest
coupon and payment-in-kind securities) in commonly observed terms and conditions for
received by the trust that is not payable to floating
issuances that have at least $100,000,000 par execution, settlement and delivery.
rate certificate holders, and bear the risk that the
amount outstanding in developed countries or at 21 Repurchase agreements are fixed-income
underlying municipal bonds decline in value.
least $200,000,000 par amount outstanding in 17 Cash equivalents in which the Fund may invest securities in the form of agreements backed by
emerging market countries. collateral. These agreements, which may be viewed
13 U.S. government securities include U.S.
will be U.S. Treasury Bills, investment grade
commercial paper, cash, and Short Term as a type of secured lending by the Fund, typically
Treasury obligations and securities issued or Investment Funds (‘‘STIFs’’). STIFs are a type of involve the acquisition by the Fund of securities
guaranteed by various agencies of the U.S. fund that invests in short-term investments of high from the selling institution (such as a bank or a
government, or by various instrumentalities which quality and low risk. broker-dealer), coupled with the agreement that the
have been established or sponsored by the U.S. 18 Agency securities for these purposes generally selling institution will repurchase the underlying
government. U.S. Treasury obligations are backed securities at a specified price and at a fixed time
includes securities issued by the following entities:
by the ‘‘full faith and credit’’ of the U.S. in the future (or on demand). The Fund may accept
Government National Mortgage Association (Ginnie
government. Securities issued or guaranteed by a wide variety of underlying securities as collateral
Mae), Federal National Mortgage Association
federal agencies and U.S. government sponsored (Fannie Mae), Federal Home Loan Banks for the repurchase agreements entered into by the
instrumentalities may or may not be backed by the (FHLBanks), Federal Home Loan Mortgage Fund. Such collateral may include U.S. government
full faith and credit of the U.S. government. Corporation (Freddie Mac), Farm Credit System securities, corporate obligations, equity securities,
14 Inflation-indexed bonds (other than municipal
(FCS) Farm Credit Banks (FCBanks), Student Loan municipal debt securities, asset- and mortgage-
inflation-indexed bonds and certain corporate Marketing Association (Sallie Mae), Resolution backed securities, convertible securities and other
inflation-indexed bonds) are fixed income securities Funding Corporation (REFCORP), Financing fixed-income securities. Any such securities serving
whose principal value is periodically adjusted Corporation (FICO), and the FCS Financial as collateral are marked-to-market daily in order to
according to the rate of inflation (e.g., Treasury Assistance Corporation (FAC). Agency securities maintain full collateralization (typically purchase
Inflation Protected Securities (‘‘TIPS’’)). Municipal can include, but are not limited to, mortgage-backed price plus accrued interest).
inflation-indexed securities are municipal bonds securities. 22 Commercial instruments include commercial
that pay coupons based on a fixed rate plus the 19 The MBS in which the Fund may invest may
paper, master notes, asset-backed commercial paper
Consumer Price Index for All Urban Consumers also include residential mortgage-backed securities and other short-term corporate instruments.
(‘‘CPI’’). With regard to municipal inflation-indexed (‘‘RMBS’’), collateralized mortgage obligations Commercial paper normally represents short-term
bonds and certain corporate inflation-indexed (‘‘CMOs’’) and commercial mortgage-backed unsecured promissory notes issued in bearer form
bonds, the inflation adjustment is reflected in the securities (‘‘CMBS’’). The ABS in which the Fund
semi-annual coupon payment. by banks or bank holding companies, corporations,
may invest include collateralized debt obligations finance companies and other issuers. Commercial
15 Municipal Bonds are debt securities issued by
(‘‘CDOs’’). CDOs include collateralized bond paper may be traded in the secondary market after
or on behalf of states, local governments, territories obligations (‘‘CBOs’’), collateralized loan its issuance. Master notes are demand notes that
and possessions of the United States and the obligations (‘‘CLOs’’) and other similarly structured permit the investment of fluctuating amounts of
District of Columbia and their political securities. A CBO is a trust which is backed by a money at varying rates of interest pursuant to
subdivisions, agencies, and instrumentalities, the diversified pool of high risk, below investment arrangements with issuers who meet the quality
payments from which, in the opinion of bond grade fixed income securities. A CLO is a trust criteria of the Fund. Master notes are generally
counsel to the issuer, are excludable from gross typically collateralized by a pool of loans, which illiquid and therefore subject to the Fund’s
income for Federal Income tax purposes, or that pay may include domestic and foreign senior secured percentage limitations for investments in illiquid
interest excludable from gross income for purposes loans, senior unsecured loans, and subordinate
of state and local income taxes of the designated securities. Asset-backed commercial paper is issued
corporate loans, including loans that may be rated
state and/or allow the value of the Fund’s shares to by a special purpose entity that is organized to issue
below investment grade or equivalent unrated
be exempt from state and local taxes of the the commercial paper and to purchase trade
loans. Specifically, the Exchange notes that such
designated state. The Fund will primarily invest in receivables or other financial assets.
ABS are bonds backed by pools of loans or other 23 Zero-coupon and payment-in-kind securities
Municipal Bonds in developed countries, but may receivables and are securitized by a wide variety of
also invest in Municipal Bonds in emerging assets that are generally broken into three are debt securities that do not make regular cash
markets. The Fund will invest its Municipal Bond categories: Consumer, commercial, and corporate. interest payments. Zero-coupon securities are sold
assets in issuances of at least $10,000,000. The The consumer category includes credit card, auto at a deep discount to their face value. Payment-in-
Fund may invest in Municipal Bonds of any loan, student loan, and timeshare loan ABS. The kind securities pay interest through the issuance of
quality, rated or unrated, including those that are commercial category includes trade receivables, additional securities.
rated below-investment grade, or if unrated, 24 Convertible securities include bonds,
equipment leases, oil receivables, film receivables,
determined by the Investment Adviser to be of rental cars, aircraft securitizations, ship and debentures, notes and other securities that may be
comparable quality. The Fund will primarily invest container securitizations, whole business converted into a prescribed amount of common
in investment-grade Municipal Bonds. securitizations, and diversified payment right stock or other equity securities at a specified price
16 Tender option bonds are created by depositing securitizations. Corporate ABS include cash flow and time. The Fund may invest in convertible
intermediate- or long-term, fixed-rate or variable collateralization loan obligations, collateralized by securities traded on an exchange or OTC. The
nlaroche on DSK30NT082PROD with NOTICES
rate, municipal bonds into a trust and issuing two both middle market and broadly syndicated bank convertible securities in which the Fund may invest
classes of trust interests (or ‘‘certificates’’) with loans. ABS are issued through special purpose will be converted into a prescribed amount of
varying economic interests to investors. Holders of vehicles that are bankruptcy remote from the issuer common stock or other equity securities (i) whose
the first class of trust interests, or floating rate of the collateral. The credit quality of an ABS principal market is a member of the Intermarket
certificates, receive tax-exempt interest based on tranche depends on the performance of the Surveillance Group (‘‘ISG’’) [sic], or (ii) subject to
short-term rates and may tender the certificate to underlying assets and the structure. To protect ABS the Fund’s 10% limit on equity securities whose
the trust at par. As consideration for providing the investors from the possibility that some borrowers principal market is not a member of the ISG or is
tender option, the trust sponsor (typically a bank, could miss payments or even default on their loans, a market with which the Exchange does not have
broker-dealer, or other financial institution) ABS include various forms of credit enhancement. a comprehensive surveillance sharing agreement.
VerDate Sep<11>2014 14:29 May 02, 2017 Jkt 241001 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 E:\FR\FM\03MYN1.SGM 03MYN1](https://thefederalregister.org/doc/82_FR_20757/page/3.svg)
![Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Notices 20683
trading of the Shares in all trading In addition, the Exchange also has a applicability of Exchange listing rules
sessions and to deter and detect general policy prohibiting the shall constitute continued listing
violations of Exchange rules and distribution of material, non-public requirements for listing the Shares on
applicable federal securities laws. information by its employees. the Exchange. In addition, the issuer has
The surveillances referred to above represented to the Exchange that it will
Information Circular
generally focus on detecting securities advise the Exchange of any failure by
trading outside their normal patterns, Prior to the commencement of the Fund to comply with the continued
which could be indicative of trading, the Exchange will inform its listing requirements, and, pursuant to
manipulative or other violative activity. members in an Information Circular of its obligations under Section 19(g)(1) of
When such situations are detected, the special characteristics and risks the Act, the Exchange will monitor for
surveillance analysis follows and associated with trading the Shares. compliance with the continued listing
investigations are opened, where Specifically, the Information Circular requirements. If the Fund is not in
appropriate, to review the behavior of will discuss the following: (1) The compliance with the applicable listing
all relevant parties for all relevant procedures for purchases and requirements, the Exchange will
trading violations. FINRA, on behalf of redemptions of Shares in Creation Units commence delisting procedures under
the Exchange, will communicate as (and that Shares are not individually the Nasdaq 5800 Series.
needed regarding trading in the Shares redeemable); (2) Nasdaq Rule 2111A,
which imposes suitability obligations on 2. Statutory Basis
and such other exchange-traded
securities and instruments held by the Nasdaq members with respect to Nasdaq believes that the proposal is
Fund with other markets and other recommending transactions in the consistent with Section 6(b) of the
entities that are members of the ISG,62 Shares to customers; (3) how Exchange Act, in general, and Section
and FINRA may obtain trading information regarding the Intraday 6(b)(5) 63 of the Exchange Act, in
information regarding trading in the Indicative Value and the Disclosed particular, in that it is designed to
Shares and other exchange-traded Portfolio is disseminated; (4) the risks prevent fraudulent and manipulative
involved in trading the Shares during acts and practices, to promote just and
securities (including ETFs and preferred
the Pre-Market and Post-Market equitable principles of trade, to foster
stock) and instruments held by the Fund
Sessions when an updated Intraday cooperation and coordination with
from such markets and other entities.
Indicative Value will not be calculated persons engaged in facilitating
Moreover, FINRA, on behalf of the
or publicly disseminated; (5) the transactions in securities, and to remove
Exchange, will be able to access, as
requirement that members purchasing impediments to, and perfect the
needed, trade information for certain
Shares from the Fund for resale to mechanism of a free and open market
Debt Instruments, and other debt
investors deliver a prospectus to and, in general, to protect investors and
securities held by the Fund reported to
investors purchasing newly issued the public interest.
FINRA’s TRACE. The Exchange believes that the
Shares prior to or concurrently with the
In addition, the Exchange may obtain proposed rule change is designed to
confirmation of a transaction; and (6)
information regarding trading in the prevent fraudulent and manipulative
trading information.
Shares and such other exchange-traded In addition, the Information Circular acts and practices in that the Shares will
securities and instruments held by the will advise members, prior to the be listed and traded on the Exchange
Fund from markets and other entities commencement of trading, of the pursuant to the initial and continued
that are members of ISG, which includes prospectus delivery requirements listing criteria in Nasdaq Rule 5735. The
securities exchanges, or with which the applicable to the Fund. Members Exchange represents that trading in the
Exchange has in place a comprehensive purchasing Shares from the Fund for Shares will be subject to the existing
surveillance sharing agreement. resale to investors will deliver a trading surveillances, administered by
Not more than 10% of the net assets prospectus to such investors. The both Nasdaq and FINRA, on behalf of
of the Fund in the aggregate invested in Information Circular will also discuss the Exchange, which are designed to
equity securities (other than non- any exemptive, no-action and deter and detect violations of Exchange
exchange-traded investment company interpretive relief granted by the rules and applicable federal securities
securities) shall consist of equity Commission from any rules under the laws and are adequate to properly
securities whose principal market is not Exchange Act. monitor trading in the Shares in all
a member of the ISG or is a market with Additionally, the Information Circular trading sessions. The Adviser is
which the Exchange does not have a will reference that the Fund is subject affiliated with a broker-dealer and have
comprehensive surveillance sharing to various fees and expenses. The implemented a fire wall with respect to
agreement. Furthermore, not more than Information Circular will also disclose its broker-dealer affiliate regarding
10% of the net assets of the Fund in the the trading hours of the Shares of the access to information concerning the
aggregate invested in futures contracts Fund and the applicable NAV composition and/or changes to the
and exchange-traded options contracts calculation time for the Shares. The Fund’s portfolio. In addition, paragraph
shall consist of futures contracts and Information Circular will disclose that (g) of Nasdaq Rule 5735 further requires
exchange-traded options contracts information about the Shares of the that personnel who make decisions on
whose principal market is not a member Fund will be publicly available on the an open-end fund’s portfolio
of ISG or is a market with which the Fund’s Web site. composition must be subject to
Exchange does not have a procedures designed to prevent the use
comprehensive surveillance sharing Continued Listing Representations
and dissemination of material, non-
nlaroche on DSK30NT082PROD with NOTICES
agreement. All statements and representations public information regarding the open-
made in this filing regarding (a) the end fund’s portfolio.
62 For a list of the current members of ISG, see description of the portfolio, (b) The proposed rule change is designed
www.isgportal.org. The Exchange notes that not all limitations on portfolio holdings or to perfect the mechanism of a free and
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
reference assets, (c) dissemination and open market and, in general, to protect
with which the Exchange has in place a availability of the reference asset or
comprehensive surveillance sharing agreement. intraday indicative values, or (d) the 63 15 U.S.C. 78(f)(b)(5) [sic].
VerDate Sep<11>2014 14:29 May 02, 2017 Jkt 241001 PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 E:\FR\FM\03MYN1.SGM 03MYN1](https://thefederalregister.org/doc/82_FR_20757/page/11.svg)
![Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Notices 20685
Paper Comments SECURITIES AND EXCHANGE designate if it finds such longer period
COMMISSION to be appropriate and publishes its
• Send paper comments in triplicate reasons for so finding, or as to which the
to Secretary, Securities and Exchange [Release No. 34–80524; File No. SR–FICC–
2017–002]
self-regulatory organization consents,
Commission, 100 F Street NE., the Commission shall either approve the
Washington, DC 20549–1090. Self-Regulatory Organizations; Fixed proposed rule change, disapprove the
All submissions should refer to File Income Clearing Corporation; Notice of proposed rule change, or institute
Number SR–NASDAQ–2017–039. This Designation of Longer Period for proceedings to determine whether the
file number should be included on the Commission Action on Proposed Rule proposed rule change should be
Change To Implement the Capped disapproved. The 45th day after
subject line if email is used. To help the
Contingency Liquidity Facility in the publication of the notice for this
Commission process and review your
Government Securities Division Proposed Rule Change is May 4, 2017.
comments more efficiently, please use The Commission is extending this 45-
Rulebook
only one method. The Commission will day time period.
post all comments on the Commission’s April 25, 2017. In order to provide the Commission
Internet Web site (http://www.sec.gov/ On March 1, 2017, Fixed Income with sufficient time to consider the
rules/sro.shtml). Copies of the Clearing Corporation (‘‘FICC’’) filed Proposed Rule Change, the Commission
submission, all subsequent with the Securities and Exchange finds that it is appropriate to designate
amendments, all written statements Commission (‘‘Commission’’) proposed a longer period within which to take
with respect to the proposed rule rule change SR–FICC–2017–002 action on the Proposed Rule Change.
change that are filed with the (‘‘Proposed Rule Change’’) pursuant to Accordingly, the
Commission, and all written Section 19(b)(1) of the Securities Commission, pursuant to Section
communications relating to the Exchange Act of 1934 (‘‘Act’’),1 and 19(b)(2) of the Act,7 designates June 18,
proposed rule change between the Rule 19b–4 thereunder,2 to implement a 2017 as the date by which the
Commission and any person, other than Capped Contingency Liquidity Facility Commission shall either approve,
in FICC’s Government Securities disapprove, or institute proceedings to
those that may be withheld from the
Division Rulebook.3 The Proposed Rule determine whether to disapprove
public in accordance with the
Change was published for comment in proposed rule change SR–FICC–2017–
provisions of 5 U.S.C. 552, will be the Federal Register on March 20,
available for Web site viewing and 002.
2017.4 To date, the Commission has
printing in the Commission’s Public received one comment letter to the For the Commission, by the Division of
Reference Room, 100 F Street NE., Proposed Rule Change.5 Trading and Markets, pursuant to delegated
Washington, DC 20549, on official Section 19(b)(2) of the Act 6 provides authority.8
business days between the hours of that, within 45 days of the publication Eduardo A. Aleman,
10:00 a.m. and 3:00 p.m. Copies of the of notice of the filing of a proposed rule Assistant Secretary.
filing also will be available for change, or within such longer period up [FR Doc. 2017–08907 Filed 5–2–17; 8:45 am]
inspection and copying at the principal to 90 days as the Commission may BILLING CODE 8011–01–P
office of the Exchange. All comments
1 15 U.S.C. 78s(b)(1).
received will be posted without change;
2 17 CFR 240.19b–4.
the Commission does not edit personal 3 On March 1, 2017, FICC also filed this Proposed SMALL BUSINESS ADMINISTRATION
identifying information from Rule Change as advance notice SR–FICC–2017–802
submissions. You should submit only (‘‘Advance Notice’’) with the Commission pursuant Central Valley Fund III (SBIC), L.P.,
information that you wish to make to Section 806(e)(1) of the Dodd-Frank Wall Street License No. 09/09–0486; Notice
Reform and Consumer Protection Act entitled the Seeking Exemption Under Section 312
available publicly. All submissions Payment, Clearing, and Settlement Supervision Act
should refer to File Number SR– of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b– of the Small Business Investment Act,
NASDAQ–2017–039, and should be 4(n)(1)(i) of the Act, 17 CFR 240.19b–4(n)(1)(i). Conflicts of Interest
Notice of filing of the Advance Notice was
submitted on or before May 24, 2017. published for comment in the Federal Register on Notice is hereby given that Central
For the Commission, by the Division of March 15, 2017. Securities Exchange Act Release Valley Fund III (SBIC), L.P., 1590 Drew
No. 80191 (March 9, 2017), 82 FR 13876 (March 15, Avenue, Suite 110, Davis, CA 95618, a
Trading and Markets, pursuant to delegated
2017) (SR–FICC–2017–802). The Commission
authority.64 extended the review period of the Advance Notice Federal Licensee under the Small
Eduardo A. Aleman, from April 30, 2017 to June 29, 2017. Securities Business Investment Act of 1958, as
Exchange Act Release No. 80520 (April 25, 2017) amended (‘‘the Act’’), in connection
Assistant Secretary. (SR–FICC–2017–802). The proposal in the Proposed
Rule Change and the Advance Notice shall not take
with the financing of a small concerns,
[FR Doc. 2017–08899 Filed 5–2–17; 8:45 am]
effect until all regulatory actions required with has sought an exemption under Section
BILLING CODE 8011–01–P
respect to the proposal are completed. 312 of the Act and Section 107.730,
4 Securities Exchange Act Release No. 80234
Financings which Constitute Conflicts
(March 14, 2017), 82 FR 14401 (March 20, 2017) of Interest of the Small Business
(SR–FICC–2017–002).
5 See letter from Robert E. Pooler, Chief Financial Administration (‘‘SBA’’) Rules and
Officer, Ronin Capital LLC, dated April 10, 2017, Regulations (13 CFR 107.730). Central
to Robert W. Errett, Deputy Secretary, Commission, Valley Fund III (SBIC), L.P. is proposing
available at https://www.sec.gov/comments/sr-ficc- to provide financing to LightRiver
nlaroche on DSK30NT082PROD with NOTICES
2017-002/ficc2017002.htm. Since the proposal
contained in the Proposed Rule Change was also Software, Inc., a wholly owned
filed as an Advance Notice, Release No. 80191, subsidiary of LightRiver Technologies
supra note 3, the Commission is considering all Holdings, Inc. for the acquisition of
public comments received on the proposal Unique Computer Software Inc., 215
regardless of whether the comments are submitted
to the Proposed Rule Change or the Advance
Notice. 7 Id.
64 17 CFR 200.30–3(a)(12). 6 15 U.S.C. 78s(b)(2). 8 17 CFR 200.30–3(a)(31).
VerDate Sep<11>2014 14:29 May 02, 2017 Jkt 241001 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 E:\FR\FM\03MYN1.SGM 03MYN1](https://thefederalregister.org/doc/82_FR_20757/page/13.svg)
Document Created: 2018-11-08 08:37:00
Document Modified: 2018-11-08 08:37:00
| 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 | 82 FR 20673 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR