
[Federal Register Volume 78, Number 187 (Thursday, September 26, 2013)]
[Notices]
[Pages 59402-59409]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70460; File No. SR-NASDAQ-2013-122]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the First Trust High Income Fund of First 
Trust Exchange-Traded Fund VI

September 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 12, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I, 
II, and III below, which Items have been prepared by Nasdaq. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the First Trust 
High Income ETF (the ``Fund'') of First Trust Exchange-Traded Fund VI 
(the ``Trust'') under Nasdaq Rule 5735 (``Managed

[[Page 59403]]

Fund Shares'').\3\ The shares of the Fund are collectively referred to 
herein as the ``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 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 Securities Exchange Act 
Release No. 66175 (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). Additionally, the 
Commission has previously approved the listing and trading of a 
number of actively-managed WisdomTree funds on NYSE Arca, Inc. 
pursuant to Rule 8.600 of that exchange. See, e.g., Securities 
Exchange Act Release No. 64643 (June 10, 2011), 76 FR 35062 (June 
15, 2011) (SR-NYSEArca-2011-21) (order approving listing and trading 
of WisdomTree Global Real Return Fund). The Exchange believes the 
proposed rule change raises no significant issues not previously 
addressed in those prior Commission orders.
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    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, 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, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Massachusetts business trust on 
June 4, 2012.\5\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ The Fund is a 
series of the Trust.
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    \4\ 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.
    \5\ The Commission has issued an order, upon which the Trust may 
rely, granting certain exemptive relief under the 1940 Act. See 
Investment Company Act Release No. 28468 (October 27, 2008) (File 
No. 812-13477).
    \6\ See Post-Effective Amendment No. 3 to Registration Statement 
on Form N-1A for the Trust, dated January 16, 2013 (File Nos. 333-
182308 and 811-22717). The descriptions of the Fund and the Shares 
contained herein are based, in part, on information in the 
Registration Statement.
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    First Trust Advisors L.P. will be the investment adviser 
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. Brown Brothers Harriman & Co. (``BBH'') will act as 
the administrator, accounting agent, custodian and transfer agent to 
the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the 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 portfolio.\7\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser is not a broker-dealer, although it is affiliated 
with the Distributor, a broker-dealer. The Adviser has implemented a 
fire wall with respect to its broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to the 
portfolio. In the event (a) the Adviser becomes newly affiliated with a 
broker dealer, or (b) any new adviser or sub adviser is a registered 
broker-dealer or becomes affiliated with a broker dealer, it will 
implement a fire wall with respect to its relevant personnel and/or 
such broker dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. The Fund does not currently intend to use a sub adviser.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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First Trust High Income ETF
Principal Investments
    The Fund's primary investment objective is to provide current 
income and its secondary investment objective is to provide capital 
appreciation. The Fund will pursue its objectives by investing in large 
cap U.S. exchange-traded equity securities and by utilizing an ``option 
strategy'' consisting of writing (selling) U.S. exchange-traded covered 
call options on the Standard & Poor's 500 Index (the ``Index'').
    In pursuing its investment objectives, under normal market 
conditions,\8\ the Fund will invest primarily in large-cap U.S. 
exchange-traded equity securities. The Fund will also employ an option 
strategy in which it will write U.S. exchange-traded covered call 
options on the Index in order to seek additional

[[Page 59404]]

cash flow (in the form of premiums on the options) that may be 
distributed to shareholders on a monthly basis. The market value of the 
option strategy may be up to 20% of the Fund's overall net asset value.
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    \8\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. In periods of 
extreme market disturbance, the Fund may take temporary defensive 
positions, by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objectives.
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    The equity securities in which the Fund will invest and the options 
which the Fund will write will be limited to U.S. exchange-traded 
securities and options, respectively, that trade in markets that are 
members of the Intermarket Surveillance Group (``ISG''), which includes 
all U.S. national securities exchanges and certain foreign exchanges, 
or are parties to a comprehensive surveillance sharing agreement with 
the Exchange. A list of ISG members is available at www.isgportal.org.
    The equity securities held by the Fund will be selected using a 
mathematical optimization process which attempts to tilt the Fund's 
common stock portfolio toward higher dividend paying stocks. The equity 
securities held by the Fund may include non-U.S. securities that are 
listed on a U.S. securities exchange in the form of American Depositary 
Receipts (``ADRs'') and Global Depositary Receipts (``GDRs'') 
(collectively ``Depositary Receipts''). The equity securities will be 
periodically rebalanced.
    The option portion of the portfolio will generally consist of U.S. 
exchange-traded covered calls or covered call spreads on the Index 
written by the Fund. The call options written by the Fund will 
typically be a laddered portfolio of one week, one month, two months 
and three months, and will typically be written at-the-money to 
slightly out-of-the-money. A call option will give the holder the right 
to buy the Index at a predetermined strike price from the Fund. The 
notional value of calls written (including calls and call spreads 
written on the Index and/or other indexes as described in Other 
Investments below) will be generally between 25% and 75% of the overall 
Fund.
Other Investments
    In addition to the option strategy described in Principal 
Investments, the Fund may invest up to 10% of the market value of its 
net assets in futures, options, options on futures, total return swaps, 
credit default swaps \9\ and forward contracts. The Fund may utilize 
such derivatives to enhance return, to hedge some of the risks of its 
investments in securities, as a substitute for a position in the 
underlying asset, to reduce transaction costs, to maintain full market 
exposure (which means to adjust the characteristics of its investments 
to more closely approximate those of the markets in which it invests), 
to manage cash flows or to preserve capital. In attempting to enhance 
returns and/or hedge risks, the Fund may buy or write U.S. exchange-
traded options on single stocks included in the portfolio and/or on the 
Index and/or other equity indexes. The Fund may also write covered call 
spreads on the Index and/or other equity indexes.
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    \9\ To the extent practicable, the Fund will invest in swaps 
cleared through the facilities of a centralized clearing house.
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    Under normal market conditions, the Fund may invest up to 10% of 
its net assets in short-term debt securities and cash equivalents, or 
it may hold cash. The percentage of the Fund invested in such holdings 
will vary and will depend on several factors, including market 
conditions. For temporary defensive purposes and during periods of high 
cash inflows or outflows, the Fund may depart from its principal 
investment strategies and invest part or all of its assets in short-
term debt securities or cash equivalents or it may hold cash. During 
such periods, the Fund may not be able to achieve its investment 
objectives. The Fund may adopt a defensive strategy when the Adviser 
believes securities in which the Fund normally invests have elevated 
risks due to political or economic factors and in other extraordinary 
circumstances.
    Short-term debt securities are securities from issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings Group 
(``S&P Ratings''), Moody's Investors Service, Inc. (``Moody's'') or 
Fitch, Inc. (``Fitch'') and having a maturity of one year or less. The 
use of temporary investments will not be a part of a principal 
investment strategy of the Fund.
    Short-term debt securities are defined to include, without 
limitation, the following: (1) U.S. government securities, including 
bills, notes and bonds differing as to maturity and rates of interest, 
which are either issued or guaranteed by the U.S. Treasury or by U.S. 
government agencies or instrumentalities; (2) certificates of deposit 
issued against funds deposited in a bank or savings and loan 
association; (3) bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions; (4) repurchase 
agreements,\10\ which involve purchases of debt securities; (5) bank 
time deposits, which are monies kept on deposit with banks or savings 
and loan associations for a stated period of time at a fixed rate of 
interest; and (6) commercial paper, which is short-term unsecured 
promissory notes. The Fund may only invest in commercial paper rated A-
1 or higher by S&P Ratings, Prime-1 or higher by Moody's or F2 or 
higher by Fitch.
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    \10\ According to the Registration Statement, the Fund intends 
to enter into repurchase agreements only with financial institutions 
and dealers believed by the Adviser to present minimal credit risks 
in accordance with criteria approved by the Board of Trustees of the 
Trust (``Trust Board''). The Adviser will review and monitor the 
creditworthiness of such institutions. The Adviser will monitor the 
value of the collateral at the time the transaction is entered into 
and at all times during the term of the repurchase agreement.
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    The Fund intends to qualify each year as a regulated investment 
company (``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
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. Illiquid securities include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance. The Fund may not invest 25% 
or more of the value of its total assets in securities of issuers in 
any one industry or group of industries. This restriction does not 
apply to obligations issued or guaranteed by the U.S. government, its 
agencies or instrumentalities, or securities of other investment 
companies.\11\
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    \11\ 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).
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    The Fund's investments will be consistent with the Fund's 
investment objectives and will not be used to enhance leverage.
The Shares
    The Fund will issue and redeem Shares only in Creation Units at the 
net asset value (``NAV'') \12\ next determined

[[Page 59405]]

after receipt of an order on a continuous basis every day except 
weekends and specified holidays. The NAV of the Fund will be determined 
once each business day, normally as of the close of trading of the 
NYSE, generally, 4:00 p.m. Eastern Time. Creation Unit sizes will be 
50,000 Shares per Creation Unit. The Trust will issue and sell Shares 
of the Fund only in Creation Units on a continuous basis through the 
Distributor, without a sales load (but subject to transaction fees), at 
their NAV per Share next determined after receipt of an order, on any 
business day, in proper form pursuant to the terms of the Authorized 
Participant agreement (as referred to below).
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    \12\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m. 
Eastern time (the ``NAV Calculation Time''). NAV per Share will be 
calculated by dividing the Fund's net assets by the number of Fund 
Shares outstanding. For more information regarding the valuation of 
Fund investments in calculating the Fund's NAV, see Registration 
Statement.
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    The consideration for purchase of a Creation Unit generally will 
consist of either (i) the in-kind deposit of a designated portfolio of 
securities (the ``Deposit Securities'') per each Creation Unit and the 
Cash Component (defined below), computed as described below or (ii) the 
cash value of all or a portion of the Deposit Securities (``Deposit 
Cash'') and the ``Cash Component,'' computed as described below. The 
Fund may, under certain circumstances, effect a portion of creations 
and redemptions for cash, rather than in-kind securities, particularly 
for the put and call options in which the Fund invests.
    When accepting purchases of Creation Units for cash, the Fund may 
incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchaser. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component will constitute the ``Fund Deposit,'' which 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of the Fund. The ``Cash Component'' will be an amount 
equal to the difference between the NAV of the Shares (per Creation 
Unit) and the market value of the Deposit Securities or Deposit Cash, 
as applicable. If the Cash Component is a positive number (i.e., the 
NAV per Creation Unit exceeds the market value of the Deposit 
Securities or Deposit Cash, as applicable), the Cash Component will be 
such positive amount. If the Cash Component is a negative number (i.e., 
the NAV per Creation Unit is less than the market value of the Deposit 
Securities or Deposit Cash, as applicable), the Cash Component will be 
such negative amount and the creator will be entitled to receive cash 
in an amount equal to the Cash Component. The Cash Component will serve 
the function of compensating for any difference between the NAV per 
Creation Unit and the market value of the Deposit Securities or Deposit 
Cash, as applicable.
    To be eligible to place orders with respect to creations and 
redemptions of Creation Units, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC'') or (ii) a Depository Trust 
Company (``DTC'') Participant (a ``DTC Participant''). In addition, 
each Participating Party or DTC Participant (each, an ``Authorized 
Participant'') must execute an agreement that has been agreed to by the 
Distributor and BBH with respect to purchases and redemptions of 
Creation Units.
    BBH, through the NSCC, will make available on each business day, 
immediately prior to the opening of business on the Exchange's Regular 
Market Session (currently 9:30 a.m. Eastern time), the list of the 
names and the required number of shares of each Deposit Security and/or 
the required amount of Deposit Cash, as applicable, to be included in 
the current Fund Deposit (based on information at the end of the 
previous business day) for the Fund. Such Fund Deposit, subject to any 
relevant adjustments, will be applicable in order to effect purchases 
of Creation Units of the Fund until such time as the next announced 
composition of the Deposit Securities and/or the required amount of 
Deposit Cash, as applicable, is made available.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through BBH and only on a business day.
    With respect to the Fund, BBH, through the NSCC, will make 
available immediately prior to the opening of business on the Exchange 
(9:30 a.m. Eastern time) on each business day, the list of the names 
and share quantities of the Fund's portfolio securities (``Fund 
Securities'') and/or, if relevant, the required cash value thereof that 
will be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day. Fund 
Securities received on redemption may not be identical to Deposit 
Securities.
    Redemption proceeds for a Creation Unit will be paid either in kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities as announced by BBH on 
the business day of the request for redemption received in proper form 
plus cash in an amount equal to the difference between the NAV of the 
Shares being redeemed, as next determined after a receipt of a request 
in proper form, and the value of the Fund Securities (the ``Cash 
Redemption Amount''), less a fixed redemption transaction fee and any 
applicable additional variable charge as set forth in the Registration 
Statement. In the event that the Fund Securities have a value greater 
than the NAV of the Shares, a compensating cash payment equal to the 
differential will be required to be made by or through an Authorized 
Participant by the redeeming shareholder. Notwithstanding the 
foregoing, at the Trust's discretion, an Authorized Participant may 
receive the corresponding cash value of the securities in lieu of one 
or more Fund Securities.
    The creation/redemption order cut off time for the Fund is expected 
to be 4:00 p.m. Eastern time for purchases of Shares. On days when the 
Exchange closes earlier than normal and in the case of custom orders, 
the Fund may require orders for Creation Units to be placed earlier in 
the day.
Net Asset Value
    The NAV per Share for the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares 
outstanding, rounded to the nearest cent. Expenses and fees, including 
the management fees, will be accrued daily and taken into account for 
purposes of determining NAV. The NAV of the Fund will be calculated by 
BBH and determined at the close of the regular trading session on the 
NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange 
is open. In calculating the Fund's NAV per Share, investments will 
generally be valued by using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, a pricing 
service, or a major market maker (or dealer) or (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major market maker (or dealer).
    Portfolio securities listed on any exchange other than the Exchange 
will be valued at the last sale price on the business day as of which 
such value is being determined. Securities listed on the Exchange will 
be valued at the official closing price on the business day as of which 
such value is being

[[Page 59406]]

determined. If there has been no sale on such day, or no official 
closing price in the case of securities traded on the Exchange, the 
securities will be valued at the mean of the most recent bid and ask 
prices on such day. Portfolio securities traded on more than one 
securities exchange will be valued at the last sale price or official 
closing price, as applicable, on the business day as of which such 
value is being determined at the close of the exchange representing the 
principal market for such securities.
    U.S. exchange-traded options and futures contracts will be valued 
at the closing price in the market where such contracts are principally 
traded. Credit default swaps will be valued using a pricing service or, 
if the pricing service does not provide a value, the Adviser's Pricing 
Committee will attempt to obtain one or more quotes provided by the 
selling dealer or financial institution and will value the swaps 
accordingly. Except as otherwise provided herein, portfolio instruments 
traded in the over-the-counter market will be valued at their closing 
bid prices.
    The Adviser may use various pricing services, or discontinue the 
use of any pricing service, as approved by the Trust Board from time to 
time. A price obtained from a pricing service based on such pricing 
service's valuation matrix may be considered a market valuation. Any 
assets or liabilities denominated in currencies other than the U.S. 
dollar will be converted into U.S. dollars at the current market rates 
on the date of valuation as quoted by one or more sources.
    In the event that current market valuations are not readily 
available or such valuations do not reflect current market value, the 
Trust's procedures require the Adviser's Pricing Committee to determine 
a security's fair value if a market price is not readily available.\13\ 
In determining such value the Adviser's Pricing Committee may consider, 
among other things, (i) price comparisons among multiple sources, (ii) 
a review of corporate actions and news events, and (iii) a review of 
relevant financial indicators. In these cases, the Fund's NAV may 
reflect certain portfolio securities' fair values rather than their 
market prices. Fair value pricing involves subjective judgments and it 
is possible that the fair value determination for a security is 
materially different than the value that could be realized upon the 
sale of the security.
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    \13\ The Valuation Committee of the Trust Board will be 
responsible for the oversight of the pricing procedures of the Fund 
and the valuation of the Fund's portfolio. The Valuation Committee 
has delegated day-to-day pricing responsibilities to the Adviser's 
Pricing Committee, which will be composed of officers of the 
Adviser. The Pricing Committee will be responsible for the valuation 
and revaluation of any portfolio investments for which market 
quotations or prices are not readily available. The Fund has 
implemented procedures designed to prevent the use and dissemination 
of material, non-public information regarding valuation and 
revaluation of any portfolio investments.
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Availability of Information
    The Distributor's Web site (www.ftportfolios.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 Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund: (1) The prior business day's 
reported NAV, mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\14\ 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 each of the four previous calendar 
quarters. On each business day, before commencement of trading in 
Shares in the Regular Market Session \15\ 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'') 
held by the Fund that will form the basis for the Fund's calculation of 
NAV at the end of the business day.\16\ On a daily basis, the Disclosed 
Portfolio will include each portfolio security and other financial 
instruments of the Fund with the following information on the Fund's 
Web site: Ticker symbol (if applicable), name of security and financial 
instrument, number of shares (if applicable) and dollar value of 
securities and financial instruments held in the Fund, and percentage 
weighting of the security and financial instrument in the Fund. The Web 
site information will be publicly available at no charge.
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    \14\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of such Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \15\ 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. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
    \16\ 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.
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    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 portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service,\17\ will be based upon 
the current value for the components of the Disclosed Portfolio and 
will be updated and widely disseminated and broadly displayed at least 
every 15 seconds during the Regular Market Session. The Intraday 
Indicative Value will be based on quotes and closing prices from the 
securities' local market and may not reflect events that occur 
subsequent to the local market's close. Premiums and discounts between 
the Intraday Indicative Value and the market price may occur. This 
should not be viewed as a ``real time'' update of the NAV per Share of 
the Fund, which is calculated only once a day.
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    \17\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and Intraday Indicative Values for ETFs. 
GIDS provides investment professionals with the daily information 
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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    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.
    Intra-day, executable price quotations on the securities and other 
assets held by the Fund will be available from major broker-dealer 
firms or on the exchange on which they are traded, as applicable. 
Intra-day price information will also be available through subscription 
services, such as Bloomberg, Markit and Thomson Reuters, which can be 
accessed by Authorized Participants and other investors.
    In addition, a basket composition file, which includes the security 
names, amounts and share quantities, as applicable, required to be 
delivered in exchange for the Fund's Shares, together with estimates 
and actual cash components, will be publicly disseminated daily prior 
to the opening

[[Page 59407]]

of Nasdaq via NSCC. The basket will represent one Creation Unit of the 
Fund.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Fund, 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. Information regarding 
market price and volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services. Information regarding the previous day's 
closing price and trading volume information for the Shares will be 
published daily in the financial section of newspapers. Quotation and 
last sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association plans 
for the Shares and any underlying exchange-traded products.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes is included 
in the Registration Statement. All terms relating to the Fund that are 
referred to, but not defined in, this proposed rule change are defined 
in the Registration Statement.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 \18\ under the 
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.
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    \18\ See 17 CFR 240.10A-3.
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Trading Halts and Trading Pauses
    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 or pause trading in 
the Shares under the conditions specified in Nasdaq Rules 4120 and 
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and 
(12). Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. 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. Eastern time. 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 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\19\ The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
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    \19\ 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.
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    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, in the equity securities in which the 
Fund will invest, and in the U.S. exchange-traded options which the 
Fund will buy or write with other markets and other entities that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\20\ FINRA may obtain 
trading information regarding trading in the Shares and in such equity 
securities and U.S. exchange-traded options from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and in such equity securities and U.S. exchange-
traded options from markets and other entities that are members of the 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
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    \20\ For a list of the current members of ISG, see 
www.isgportal.org.
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    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 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 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

[[Page 59408]]

Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. 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 
Distributor's Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \21\ in general and Section 6(b)(5) of the Act \22\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(5).
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    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 believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on Nasdaq during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws.
    The equity securities in which the Fund may invest and the options 
which the Fund may buy or write will be limited to U.S. exchange-traded 
securities and options, respectively, that trade in markets that are 
members of the ISG, which includes all U.S. national securities 
exchanges and certain foreign exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. The 
Exchange may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
    Under normal circumstances, the Fund will invest primarily in large 
cap U.S. exchange-traded equity securities. The Fund will also utilize 
an option strategy consisting of writing U.S. exchange-traded covered 
call options on the Index. The market value of the option strategy may 
be up to 20% of the Fund's overall net asset value. In addition to such 
option strategy, the Fund may invest no more than 10% of the market 
value of its net assets in futures, options, options on futures, total 
return swaps, credit default swaps and forward contracts. In attempting 
to enhance returns and/or hedge risks, the Fund may buy or write U.S. 
exchange-traded options on single stocks included in the portfolio and/
or on the Index and/or other equity indexes. The Fund may also write 
covered call spreads on the Index and/or other equity indexes.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
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. Illiquid securities include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
    The Adviser is not a broker-dealer, but is affiliated with a 
broker-dealer, and has implemented a ``fire wall'' with respect to its 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In addition, 
paragraph (g) of Nasdaq Rule 5735 further requires that personnel who 
make decisions on the open-end fund's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding the open-end fund's 
portfolio. The Fund's investments will be consistent with the Fund's 
investment objectives and will not be used to enhance leverage.
    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 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. The Intraday Indicative 
Value, available on the NASDAQ OMX Information LLC proprietary index 
data service, will be widely disseminated by one or more major market 
data vendors and broadly displayed at least every 15 seconds during the 
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 the Distributor's Web site the Disclosed 
Portfolio 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 also be available via Nasdaq proprietary quote and trade 
services, as well as in accordance with the Unlisted Trading Privileges 
and the Consolidated Tape Association plans for the Shares and any 
underlying exchange-traded products. Intra-day, executable price 
quotations of the securities and other assets held by the Fund will be 
available from major broker-dealer firms or on the exchange on which 
they are traded, if applicable. Intra-day price information will also 
be available through subscription services, such as Bloomberg, Markit 
and Thomson Reuters, which can be accessed by Authorized Participants 
and other investors.
    The Distributor's Web site for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. Trading in Shares of the Fund will 
be halted or paused under the conditions specified in Nasdaq Rules 4120 
and 4121, including the trading pauses under Nasdaq Rules 4120(a)(11) 
and (12). Trading may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable, 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.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect

[[Page 59409]]

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. As noted above, the 
Exchange has in place surveillance procedures relating to trading in 
the Shares and may obtain information via ISG from other exchanges that 
are members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. 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 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 Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund 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

    Written comments were neither solicited nor 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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-122 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2013-122. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing 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-2013-122, and should 
be submitted on or before October 17, 2013.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23421 Filed 9-25-13; 8:45 am]
BILLING CODE 8011-01-P


