
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62834-62838]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24643]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70638; File No. SR-NASDAQ-2013-107]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the First Trust Global Tactical Commodity 
Strategy Fund of First Trust Exchange-Traded Fund VII

October 9, 2013.

I. Introduction

    On August 16, 2013, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the First Trust Global Tactical Commodity Strategy Fund 
(``Fund'') under Nasdaq Rule 5735. The proposed rule change was 
published for comment in the Federal Register on August 30, 2013.\3\ 
The Commission received no comments on this proposal. This order grants 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 70253 (August 26, 
2013), 78 FR 53799 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to Nasdaq Rule 5735, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Shares will be offered by First Trust 
Exchange-Traded Fund VII (``Trust''), which is organized as a 
Massachusetts business trust and is registered with the Commission as 
an open-end investment company.\4\ First Trust Advisors L.P. will be 
the investment adviser (``Adviser'') to the Fund. First Trust 
Portfolios L.P. 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. The Exchange states that the

[[Page 62835]]

Adviser is not a broker-dealer but is affiliated with a broker-dealer 
and that the Adviser has implemented a fire wall with respect to its 
broker-dealer affiliate regarding access to information concerning the 
composition of or changes to the Fund's portfolio.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). See Registration Statement on Form N-1A for the 
Trust, dated November 13, 2012 (File Nos. 333-184918 and 811-22767) 
(``Registration Statement''). The Commission has issued an order 
granting certain exemptive relief to the Trust under the 1940 Act 
(``Exemptive Order''). See Investment Company Act Release No. 30029 
(April 10, 2012) (File No. 812-13795).
    \5\ See Nasdaq Rule 5735(g). 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, the Adviser, any new adviser, or 
any new sub-adviser will implement a fire wall with respect to its 
relevant personnel and the broker-dealer affiliate, if applicable, 
regarding access to information concerning the composition of 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.
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    The Fund's investment objective will be to provide total return by 
providing investors with commodity exposure while seeking a relatively 
stable risk profile. The Fund will pursue its objective by seeking to 
invest through a wholly-owned subsidiary in a broadly diversified 
portfolio composed principally of commodity futures contracts.
Principal Investments
Fund's Investments
    The Fund will be an actively managed exchange-traded fund (``ETF'') 
that will seek to achieve attractive risk adjusted returns by investing 
in exchange-traded commodity futures contracts and exchange-traded 
commodity linked instruments \6\ (collectively, ``Commodities'') 
through a wholly-owned subsidiary controlled by the Fund and organized 
under the laws of the Cayman Islands (``First Trust Subsidiary''). The 
Fund will seek to gain exposure to the futures markets through 
investments in the First Trust Subsidiary. The Fund's investment in the 
First Trust Subsidiary may not exceed 25% of the Fund's total assets. 
The remainder of the Fund's assets will primarily be invested in: (1) 
Short-term investment grade fixed income securities that include U.S. 
government and agency securities,\7\ sovereign debt obligations of non-
U.S. countries, and repurchase agreements; \8\ (2) money market 
instruments; \9\ (3) ETFs and other investment companies registered 
under the 1940 Act; and (4) cash and other cash equivalents.
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    \6\ According to the Exchange, exchange-traded commodity linked 
instruments include: (1) ETFs that provide exposure to commodities 
as would be listed under Nasdaq Rules 5705 and 5735; and (2) pooled 
investment vehicles that invest primarily in commodities and 
commodity-related instruments as would be listed under Nasdaq Rules 
5710 and 5711. Such pooled investment vehicles are commonly referred 
to as ``exchange traded funds,'' but they are not registered as 
investment companies because of the nature of their underlying 
investments.
    \7\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities that have been 
established or sponsored by the U.S. government. According to the 
Exchange, 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.
    \8\ 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 Fund's Board of Trustees (``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.
    \9\ For the Fund's purposes, money market instruments will 
include: Short-term, high-quality securities issued or guaranteed by 
non-U.S. governments, agencies, and instrumentalities; non-
convertible corporate debt securities with remaining maturities of 
not more than 397 days that satisfy ratings requirements under Rule 
2a-7 of the 1940 Act; money market mutual funds; and deposits and 
other obligations of U.S. and non-U.S. banks and financial 
institutions. As a related matter, the Fund may invest in shares of 
money market mutual funds to the extent permitted by the 1940 Act.
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    The Fund will not invest directly in Commodities. The Fund expects 
to gain exposure to these investments exclusively by investing in the 
First Trust Subsidiary.
    The Fund will use the fixed-income securities as investments and to 
collateralize the First Trust Subsidiary's commodity exposure on a day-
to-day basis. The Fund may also invest directly in ETFs \10\ and other 
investment companies, including, to the extent permitted under the 1940 
Act, exchange-traded closed-end funds that provide exposure to 
commodities, equity securities, and fixed income securities.\11\
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    \10\ An ETF is an investment company registered under the 1940 
Act that holds a portfolio of securities. Many ETFs are designed to 
track the performance of a securities index, including industry, 
sector, country, and region indexes. ETFs included in the Fund will 
be listed and traded in the U.S. on registered exchanges. Pursuant 
to exemptive orders obtained by other ETFs and their sponsors from 
the Commission, the Fund may invest in the securities of ETFs in 
excess of the limits imposed under the 1940 Act. 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). While the Fund may invest in inverse ETFs, the Fund will 
not invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
    \11\ The equity securities (including shares of ETFs and closed-
end funds) in which the Fund may invest will be limited to 
securities that trade in markets that are members of the ISG, which 
includes all U.S. national securities exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
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    According to the Exchange, the Fund's investment in the First Trust 
Subsidiary will be designed to help the Fund achieve exposure to 
commodity returns in a manner consistent with the federal tax 
requirements applicable to the Fund and other regulated investment 
companies.
First Trust Subsidiary's Investments
    The First Trust Subsidiary will seek to make investments generally 
in Commodities while managing volatility, as measured by annualized 
standard deviation, to a more consistent range than statistically 
weighted commodity indices. The investment weightings of the underlying 
Commodities held by the First Trust Subsidiary will be rebalanced in an 
attempt to stabilize risk levels. According to the Exchange, the 
dynamic weighting process will result in a disciplined, systematic 
investment process which will be keyed off of the Adviser's volatility 
forecasting process.
    The First Trust Subsidiary will be advised by the Adviser.\12\ The 
Fund's investment in the First Trust Subsidiary is intended to provide 
the Fund with exposure to commodity markets within the limits of 
current federal income tax laws applicable to investment companies such 
as the Fund, which limit the ability of investment companies to invest 
directly in the derivative instruments. The First Trust Subsidiary will 
have the same investment objective as the Fund, but unlike the Fund, it 
may invest without limitation in Commodities. The First Trust 
Subsidiary's investments will provide the Fund with exposure to 
domestic and international markets.
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    \12\ The First Trust Subsidiary will not be registered under the 
1940 Act and will not be directly subject to its investor 
protections, except as noted in the Registration Statement. However, 
the First Trust Subsidiary will be wholly-owned and controlled by 
the Fund and will be advised by the Adviser. Therefore, according to 
the Exchange, the Fund's ownership and control of the First Trust 
Subsidiary will prevent the First Trust Subsidiary from taking 
action contrary to the interests of the Fund or its shareholders. 
The Exchange states that the Board will have oversight 
responsibility for the investment activities of the Fund, including 
its expected investment in the First Trust Subsidiary, and the 
Fund's role as the sole shareholder of the First Trust Subsidiary. 
The Adviser will receive no additional compensation for managing the 
assets of the First Trust Subsidiary. The First Trust Subsidiary 
will also enter into separate contracts for the provision of 
custody, transfer agency, and accounting agent services with the 
same or with affiliates of the same service providers that provide 
those services to the Fund.
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    The First Trust Subsidiary may have both long and short positions 
in Commodities. However, for a given Commodity, the First Trust 
Subsidiary will have a net long exposure. The First Trust Subsidiary 
will initially consider investing in specific exchange-traded \13\

[[Page 62836]]

futures contracts set forth in a table in the Notice.
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    \13\ All of the exchanges are ISG members except for the London 
Metal Exchange (``LME''). According to the Exchange, the LME falls 
under the jurisdiction of the United Kingdom Financial Conduct 
Authority (``FCA''). The Exchange states that the FCA is responsible 
for ensuring the financial stability of the exchange members' 
businesses, whereas the LME is largely responsible for the oversight 
of day-to-day exchange activity, including conducting the 
arbitration proceedings under the LME arbitration regulations.
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    As U.S. and London exchanges list additional contracts, as 
currently listed contracts on those exchanges gain sufficient 
liquidity, or as other exchanges list sufficiently liquid contracts, 
the Adviser will include those contracts in the list of possible 
investments of the First Trust Subsidiary. The list of commodities 
futures and commodities markets considered for investment can and will 
change over time.
Commodities Regulation
    According to the Exchange, the Commodity Futures Trading Commission 
(``CFTC'') has recently adopted substantial amendments to CFTC Rule 4.5 
relating to the permissible exemptions and conditions for reliance on 
exemptions from registration as a commodity pool operator. As a result 
of the instruments that will be indirectly held by the Fund, the 
Adviser has registered as a commodity pool operator \14\ and is also a 
member of the National Futures Association (``NFA''). The Exchange 
states that the Fund and the First Trust Subsidiary are subject to 
regulation by the CFTC and NFA and to the additional disclosure, 
reporting, and recordkeeping rules imposed upon commodity pools.
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    \14\ As defined in Section 1a(11) of the Commodity Exchange Act.
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Other Investments
    The Fund may invest in certificates of deposit issued against funds 
deposited in a bank or savings and loan association. In addition, the 
Fund may invest in bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions.
    The Fund may invest in 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. In addition, the Fund may invest 
in commercial paper, which are short-term unsecured promissory notes, 
including master demand notes \15\ issued by corporations to finance 
their current operations. The Fund may invest in commercial paper only 
if it has received the highest rating from at least one nationally 
recognized statistical rating organization or, if unrated, has been 
judged by the Adviser to be of comparable quality.
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    \15\ Master demand notes are direct lending arrangements between 
the Fund and a corporation.
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Investment Restrictions
    The Fund may not invest more than 25% of the value of its total 
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 or its agencies or instrumentalities 
or to securities of other investment companies.
    The First Trust Subsidiary's shares will be offered only to the 
Fund, and the Fund will not sell shares of the First Trust Subsidiary 
to other investors. The Fund and the First Trust Subsidiary will not 
invest in any non-U.S. equity securities (other than shares of the 
First Trust Subsidiary). The Fund will not purchase securities of open-
end or closed-end investment companies except in compliance with the 
1940 Act.
    Pursuant to the Exemptive Order, the Fund will not invest directly 
in options contracts, futures contracts, or swap agreements; however, 
this restriction will not apply to the First Trust Subsidiary.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser and 
master demand notes.\16\ 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.
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    \16\ 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 trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
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    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.\17\
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    \17\ 26 U.S.C. 851.
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    Under the 1940 Act, the Fund's investment in investment companies 
will, subject to certain exceptions, be limited to: (i) 3% of the total 
outstanding voting stock of any one investment company, (ii) 5% of the 
Fund's total assets with respect to any one investment company, and 
(iii) 10% of the Fund's total assets with respect to investment 
companies in the aggregate.
    The Fund's and the First Trust Subsidiary's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.
    Additional information regarding the Fund and the Shares, including 
investment strategies, futures contracts and futures exchange 
information, risks, creation and redemption procedures, fees, Fund 
holdings disclosure policies, distributions, and taxes is included in 
the Notice and Registration Statement, as applicable.\18\
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    \18\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \19\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\21\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of Nasdaq 
Rule 5735 for the Shares to be listed and traded on the Exchange.
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    \19\ 15 U.S.C. 78f.
    \20\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\22\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets

[[Page 62837]]

to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for, and transactions in, 
securities. According to the Exchange, quotation and last-sale 
information for the Shares will be available via Nasdaq proprietary 
quote and trade services, as well as in accordance with the Unlisted 
Trading Privileges and the Consolidated Tape Association plans for the 
Shares and any underlying exchange-traded products. In addition, the 
Intraday Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service, will be based upon the current value 
for the components of the Disclosed Portfolio and will be updated and 
widely disseminated by one or more major market data vendors and 
broadly displayed at least every 15 seconds during the Regular Market 
Session. 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, as defined in Nasdaq Rule 
5735(c)(2), held by the Fund and the First Trust Subsidiary, which will 
form the basis for the Fund's calculation of net asset value (``NAV'') 
at the end of the business day.\23\ The Fund's NAV will be determined 
as of the close of trading (normally 4:00 p.m. Eastern Time) on each 
day the New York Stock Exchange is open for business. 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. The previous day's closing price 
and trading volume information for the Shares will be published daily 
in the financial section of newspapers. Intra-day, executable price 
quotations on the securities, Commodities, and other assets held by the 
Fund and the First Trust Subsidiary 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. 
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.
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    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting, and market value of 
securities, Commodities, and other assets held by the Fund and the 
First Trust Subsidiary and the characteristics of such assets. The 
Web site and information will be publicly available at no charge.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes 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.\24\ 
In addition, 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. The Exchange may halt trading in the Shares if 
trading is not occurring in the securities, Commodities, and other 
assets constituting the Disclosed Portfolio of the Fund and the First 
Trust Subsidiary or if other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\25\ Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or 
be subject to, procedures designed to prevent the use and dissemination 
of material, non-public information regarding the actual components of 
the portfolio.\26\ The Commission notes that the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange,\27\ will 
communicate as needed regarding trading in the Shares, Commodities, and 
other exchange-traded securities and instruments held by the Fund and 
the First Trust Subsidiary with other markets and other entities that 
are members of the Intermarket Surveillance Group (``ISG''), and FINRA 
may obtain trading information regarding trading in the Shares, 
Commodities, and other exchange-traded securities and instruments held 
by the Fund and the First Trust Subsidiary from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares, Commodities, and other exchange-traded 
securities and instruments held by the Fund and the First Trust 
Subsidiary from markets and other entities that are members of ISG, 
which includes securities and futures exchanges,\28\ or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. The 
Exchange also states that the Adviser is not a broker-dealer but is 
affiliated with a broker-dealer, and that the Adviser has implemented a 
fire wall with respect to its broker-dealer affiliate regarding access 
to information concerning the composition of or changes to the 
portfolio.\29\
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    \24\ See Nasdaq Rule 5735(d)(1)(B).
    \25\ See Nasdaq Rule 5735(d)(2)(C) (providing additional 
considerations for the suspension of trading in or removal from 
listing of Managed Fund Shares on the Exchange). 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.
    \26\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \27\ The Exchange states that, while 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.
    \28\ With respect to the futures contracts held indirectly 
through the First Trust Subsidiary, not more than 10% of the weight 
of such futures contracts in the aggregate will consist of 
instruments whose principal trading market is not a member of ISG or 
is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    \29\ See supra note 5. An investment adviser to an open-end fund 
is required to be registered under the Investment Advisers Act of 
1940 (``Advisers Act''). As a result, the Adviser 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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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will be subject to Nasdaq Rule 5735, which sets 
forth the

[[Page 62838]]

initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) 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 and 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.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how information regarding 
the Intraday Indicative Value is disseminated; (d) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (f) trading 
information.
    (5) For initial and continued listing, the Fund and the First Trust 
Subsidiary must be in compliance with Rule 10A-3 under the Exchange 
Act.\30\
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    \30\ 17 CFR 240.10A-3.
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    (6) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser and 
master demand notes.
    (8) The equity securities (including shares of ETFs and closed-end 
funds) in which the Fund may invest will be limited to securities that 
trade in markets that are members of the ISG, which includes all U.S. 
national securities exchanges, or are parties to a comprehensive 
surveillance sharing agreement with the Exchange. The Fund and the 
First Trust Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the First Trust Subsidiary).
    (9) The Fund will not invest directly in Commodities. The Fund 
expects to gain exposure to these investments exclusively by investing 
in the First Trust Subsidiary.
    (10) The Fund's investment in the First Trust Subsidiary may not 
exceed 25% of the Fund's total assets.
    (11) The Fund's and the First Trust Subsidiary's investments will 
be consistent with the Fund's investment objective and will not be used 
to enhance leverage. The Fund may invest in inverse ETFs, but it will 
not invest in leveraged or inverse leveraged ETFs.
    (12) Pursuant to the Exemptive Order, the Fund will not invest 
directly in options contracts, futures contracts, or swap agreements. 
However, this restriction will not apply to the First Trust Subsidiary. 
With respect to the futures contracts held indirectly through the First 
Trust Subsidiary, not more than 10% of the weight of such futures 
contracts in the aggregate shall consist of instruments whose principal 
trading market is not a member of ISG or is a market with which the 
Exchange does not have a comprehensive surveillance sharing agreement.

This approval order is based on all of the Exchange's representations 
and description of the Fund, including those set forth above and in the 
Notice.\31\
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    \31\ The Commission notes that it does not regulate the market 
for futures in which the Fund plans to take positions. Limits on the 
positions that any person may take in futures may be directly set by 
the CFTC or by the markets on which the futures are traded. The 
Commission has no role in establishing position limits on futures 
even though such limits could impact an exchange-traded product that 
is under the jurisdiction of the Commission.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \32\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \32\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-NASDAQ-2013-107) be, and it 
hereby is, approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24643 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P


