
[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45535-45544]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18431]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72716; File No. SR-NASDAQ-2014-073]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, Relating to the Listing and Trading of the Shares of the First Trust 
Emerging Markets Local Currency Bond ETF of First Trust Exchange-Traded 
Fund III

July 30, 2014.
    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 July 18, 2014, 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 
and II below, which Items have been prepared by Nasdaq. On July 25, 
2014, the Exchange filed Amendment No. 1 to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 clarifies that reverse repurchase agreements 
will not be used by the First Trust Emerging Markets Local Currency 
Bond ETF to enhance leverage.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the First Trust 
Emerging Markets Local Currency Bond ETF (the ``Fund'') of First Trust 
Exchange-Traded Fund III (the ``Trust'') under Nasdaq Rule 5735 
(``Managed Fund Shares'').\4\ The shares of the Fund are collectively 
referred to herein as the ``Shares.''
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    \4\ 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, 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); 68972 (February 22, 2013), 78 FR 13721 
(February 28, 2013) (SR-NASDAQ-2012-147) (order approving listing 
and trading of First Trust High Yield Long/Short ETF); 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). 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

[[Page 45536]]

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 \5\ 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 
January 9, 2008.\6\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\7\ The Fund will be a 
series of the Trust.
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    \5\ 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.
    \6\ 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. 30029 (April 10, 2012) (File No. 
812-13795) (the ``Exemptive Relief''). In addition, the Commission 
has issued no-action relief, upon which the Trust may rely, 
pertaining to the Fund's ability to invest in derivatives 
notwithstanding certain representations in the application for the 
Exemptive Relief. See Commission No-Action Letter (December 6, 
2012).
    \7\ See Post-Effective Amendment No. 10 to Registration 
Statement on Form N-1A for the Trust, dated July 8, 2014 (File Nos. 
333-176976 and 811-22245). 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 Global Portfolios Ltd will serve 
as investment sub-adviser (``Sub-Adviser'') to the Fund and provide 
day-to-day portfolio management. 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.\8\ 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. Neither the Adviser nor the Sub-Adviser is a broker-dealer, 
although each is affiliated with the Distributor, a broker-dealer. The 
Adviser and the Sub-Adviser have each implemented a fire wall with 
respect to their broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio. 
In addition, personnel who make decisions on the Fund's portfolio 
composition will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
Fund's portfolio. In the event (a) the Adviser or the Sub-Adviser 
becomes, or becomes newly affiliated with, a broker-dealer or registers 
as 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.
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    \8\ 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, the Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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First Trust Emerging Markets Local Currency Bond ETF
Principal Investments
    The investment objective of the Fund will be to seek maximum total 
return and current income. Under normal market conditions,\9\ the Fund 
will invest at least 80% of its net assets (including investment 
borrowings) in bonds, notes, bills, certificates of deposit, time 
deposits, commercial paper and loans issued by issuers in emerging 
market \10\ countries (``Debt Instruments'') that are denominated in 
the local currency of the issuer. Debt Instruments will be issued or 
guaranteed (as applicable) by: (i) Foreign governments (which may be 
local foreign governments); (ii)

[[Page 45537]]

instrumentalities, agencies or other political subdivisions of foreign 
governments (which may be local foreign governments); (iii) central 
banks, sovereign entities, supranational issuers or development 
agencies; or (iv) entities or enterprises organized, owned, backed or 
sponsored by any of the entities set forth in the foregoing clauses 
(i)-(iii).\11\ The Fund will invest in Debt Instruments issued by at 
least 13 non-affiliated issuers.
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    \9\ 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 fixed income 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.
    \10\ According to the Adviser and the Sub-Adviser, while there 
is no universally accepted definition of what constitutes an 
``emerging market,'' in general, emerging market countries are 
characterized by developing commercial and financial infrastructure 
with significant potential for economic growth and increased capital 
market participation by foreign investors. The Adviser and Sub-
Adviser will look at a variety of commonly-used factors when 
determining whether a country is an ``emerging'' market. In general, 
the Adviser and Sub-Adviser will consider a country to be an 
emerging market if it is classified by the World Bank in the lower, 
lower middle or upper middle income designation for one of the past 
three years. This definition could be expanded or exceptions could 
be made depending on the evolution of market and economic 
conditions.
    \11\ Debt Instruments include fixed rate, floating rate and 
index-linked debt obligations. In addition, as a point of 
clarification, Debt Instruments include inflation-linked bonds. 
Inflation-linked bonds are fixed income securities that are 
structured to provide protection against inflation. The value of the 
inflation-linked bond's principal or the interest income paid on the 
bond is adjusted to track changes in an official inflation measure. 
The value of inflation-linked bonds is expected to change in 
response to changes in real interest rates. Real interest rates are 
tied to the relationship between nominal interest rates and the rate 
of inflation. If nominal interest rates increase at a faster rate 
than inflation, real interest rates may rise, leading to a decrease 
in the value of inflation-linked bonds.
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    In implementing the Fund's investment strategy, the Sub-Adviser 
will seek to provide current income and enhance capital, while 
minimizing volatility. The Sub-Adviser will continually review 
fundamental economic and structural themes that impact long and medium 
term asset returns in emerging markets. The Sub-Adviser will also 
consider shorter term market drivers such as valuations, liquidity 
conditions and sentiment to determine the appropriate positioning of 
the Fund's investments. The Sub-Adviser will adjust the portfolio's 
country allocations, duration and individual security positioning to 
reflect the most attractive opportunities on a continuous basis.
    The Fund's exposure to any single country generally will be limited 
to 20% of the Fund's net assets (although this percentage may change 
from time to time in response to economic events). The percentage of 
Fund assets invested in a specific region, country or issuer will 
change from time to time. The Fund intends, initially, to invest in 
Debt Instruments of issuers in the following countries: Brazil, Chile, 
Colombia, Hungary, Indonesia, Israel, Malaysia, Mexico, Nigeria, Peru, 
Philippines, Poland, Romania, Russia, South Africa, South Korea, 
Thailand, Turkey and Uruguay. This list may change as market 
developments occur and may include additional issuers. The Fund will 
invest only in Debt Instruments that, at the time of purchase, are 
performing, and not in default or distressed; however, the Debt 
Instruments in which the Fund invests may become non-performing, 
distressed or defaulted subsequent to purchase and the Fund may 
continue to hold such Debt Instruments. The Fund may invest in Debt 
Instruments of any credit quality,\12\ including unrated securities, 
and with effective or final maturities of any length.
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    \12\ The universe of emerging markets local currency debt 
currently includes securities that are rated ``investment grade'' as 
well as ``non-investment grade'' securities. The Fund will invest in 
both investment grade and non-investment grade securities, as well 
as unrated securities. There is no limit on the amount of the Fund's 
assets that may be invested in non-investment grade and unrated 
securities.
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    Liquidity will be a substantial factor in the Fund's security 
selection process.\13\ Under normal market conditions, at least 80% of 
the Fund's net assets that are invested in Debt Instruments will be 
invested in Debt Instruments that are issued by issuers with 
outstanding debt of at least $200 million (or the foreign currency 
equivalent thereof).
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    \13\ In reaching liquidity decisions, the Adviser and/or the 
Sub-Adviser may consider the following factors: The frequency of 
trades and quotes for the security; the number of dealers wishing to 
purchase or sell the security and the number of other potential 
purchasers; dealer undertakings to make a market in the security; 
and the nature of the security and the nature of the marketplace in 
which it trades (e.g., the time needed to dispose of the security, 
the method of soliciting offers and the mechanics of transfer).
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The Fund's Investments in Derivative Instruments and Foreign Currencies
    The Fund's investments in derivative instruments will be made in 
accordance with the 1940 Act and consistent with the Fund's investment 
objective and policies. Under normal market conditions, no more than 
20% of the value of the Fund's net assets will be invested in 
derivative instruments. The Fund may invest in exchange-listed futures 
contracts,\14\ exchange-listed options,\15\ exchange-listed options on 
futures contracts, forward currency contracts, non-deliverable forward 
currency contracts and exchange-listed currency options.\16\ 
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, among other things, interest rates, 
currencies or currency exchange rates. The Fund may, but is not 
required to, use derivative instruments for risk management purposes or 
as part of its investment strategies.
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    \14\ The Fund will use futures contracts to hedge interest rate 
risk and to actively manage interest rate exposure.
    \15\ Option purchases and sales can be used to help manage 
exposures (i.e., exposures to interest rates and/or currencies) more 
efficiently in the portfolio, while limiting downside.
    \16\ At least 90% of the Fund's net assets that are invested in 
exchange-traded derivative instruments will be invested in 
instruments that trade in markets that are members of the 
Intermarket Surveillance Group (``ISG'') (see footnote 37) or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
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    The Fund will use derivative instruments primarily to hedge 
interest rate risk and actively manage interest rate exposure and, as 
described further below, to hedge foreign currency risk and actively 
manage foreign currency exposure. The Fund may also use derivative 
instruments to enhance returns, as a substitute for, or to gain 
exposure to, a position in an 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.\17\ The Fund's investments in derivative instruments will not 
be used to seek to achieve a multiple or inverse multiple of an index.
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    \17\ The Fund will seek, where possible, to use counterparties, 
as applicable, 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 and/or the Sub-Adviser will 
evaluate the creditworthiness of counterparties on an ongoing basis. 
In addition to information provided by credit agencies, the 
Adviser's and/or the Sub-Adviser's analysis will evaluate each 
approved counterparty using various methods of analysis and may 
consider such factors as the counterparty's liquidity, its 
reputation, the Adviser's and/or Sub-Adviser's past experience with 
the counterparty, its known disciplinary history and its share of 
market participation.
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    The Fund will invest in foreign currencies, will invest in Debt 
Instruments denominated in foreign (non-U.S.) currencies and will 
receive revenues in foreign currencies. In addition, the Fund may 
engage in foreign currency transactions on a spot (cash) basis and, as 
indicated above, enter into forward currency contracts.\18\ A forward 
currency contract, which involves an obligation to purchase or sell a 
specific currency at a future date at a price set at the time of the 
contract, reduces the Fund's exposure to changes in the value of the 
currency it will deliver and increases its exposure to changes in the 
value of the currency it will receive for the duration of the contract. 
Certain foreign currency transactions (i.e., non-deliverable forward 
currency contracts) may also be settled in cash rather than the actual

[[Page 45538]]

delivery of the relevant currency. The effect on the value of the Fund 
is similar to selling securities denominated in one currency and 
purchasing securities denominated in another currency. A contract to 
sell foreign currency would limit any potential gain which might be 
realized if the value of the hedged currency increases. The Fund may 
enter into these contracts to hedge against foreign exchange risk, to 
increase exposure to a foreign currency, or to shift exposure to 
foreign currency fluctuations from one currency to another. Suitable 
hedging transactions may not be available in all circumstances and 
there can be no assurance that the Fund will engage in such 
transactions at any given time or from time to time.
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    \18\ At least 90% of the Fund's net assets that are invested in 
foreign currencies will be invested in currencies with a minimum 
average daily foreign exchange turnover of USD $1 billion as 
determined by the Bank for International Settlements (``BIS'') 
Triennial Central Bank Survey. As of the most recent BIS Triennial 
Central Bank Survey, at least 52 separate currencies had minimum 
average daily foreign exchange turnover of USD $1 billion. For a 
list of eligible BIS currencies, see www.bis.org.
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    The Fund will comply with the regulatory requirements of the 
Commission to maintain assets as ``cover,'' maintain segregated 
accounts, and/or make margin payments when it takes positions in 
derivative instruments involving obligations to third parties (i.e., 
instruments other than purchase options). If the applicable guidelines 
prescribed under the 1940 Act so require, the Fund will earmark or set 
aside cash, U.S. government securities, high grade liquid debt 
securities and/or other liquid assets permitted by the Commission in a 
segregated custodial account in the amount prescribed.\19\
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    \19\ With respect to guidance under the 1940 Act, see 15 U.S.C. 
80a-18; Investment Company Act Release No. 10666 (April 18, 1979), 
44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
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Other Investments
    Under normal market conditions, the Fund will invest substantially 
all of its assets to meet its investment objective and, as described 
above, the Fund may invest in derivative instruments and foreign 
currencies. In addition, the Fund may invest its remaining assets as 
described below.
    The Fund may invest up to 20% of its net assets in non-U.S. 
corporate bonds that are not included within the meaning of the term 
``Debt Instruments'' (referred to as ``Corporate Bonds''). The Fund 
will invest only in Corporate Bonds that the Adviser and/or the Sub-
Adviser deems to be sufficiently liquid.\20\ Under normal market 
conditions, a Corporate Bond must have $200 million (or the foreign 
currency equivalent thereof) or more par amount outstanding and 
significant par value traded to be considered as an eligible 
investment. Economic and other conditions may, from time to time, lead 
to a decrease in the average par amount outstanding of non-U.S. 
corporate bond issuances. Therefore, although the Fund does not intend 
to do so, the Fund may invest up to 5% of its net assets in Corporate 
Bonds with less than $200 million (or the foreign currency equivalent 
thereof) par amount outstanding if (i) the Adviser and/or the Sub-
Adviser deems such securities to be sufficiently liquid and (ii) such 
investment is deemed by the Adviser and/or the Sub-Adviser to be in the 
best interest of the Fund.
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    \20\ See footnote 13.
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    The Fund may invest up to 20% of its net assets in short-term debt 
securities (which are listed in the following paragraph) that are not 
included within the meaning of the term ``Debt Instruments,'' \21\ 
money market funds and other cash equivalents, or it may hold cash. For 
temporary defensive purposes, during the initial invest-up period and 
during periods of high cash inflows or outflows, the Fund may depart 
from its principal investment strategies and invest part or all of its 
assets in these securities or it may hold cash. During such periods, 
the Fund may not be able to achieve its investment objective. The Fund 
may adopt a defensive strategy when the Adviser and/or Sub-Adviser 
believes that securities in which the Fund normally invests have 
elevated risks due to political or economic factors and in other 
extraordinary circumstances. The use of temporary investments will not 
be a part of a principal investment strategy of the Fund.
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    \21\ Short-term debt securities are securities from issuers 
having a long-term debt rating of at least A by Standard & Poor's 
Ratings Services, a division of the McGraw-Hill Companies, Inc. 
(``S&P Ratings''), Moody's Investors Service, Inc. (``Moody's''), or 
Fitch Ratings (``Fitch'') and having a maturity of one year or less. 
For the sake of clarity, the foregoing parameters do not apply to 
Debt Instruments.
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    Short-term debt securities are the following: (1) Fixed rate and 
floating rate U.S. government securities, including bills, notes and 
bonds differing as to maturity and rates of interest, which are either 
issued or guaranteed by the U.S. Treasury or by U.S. government 
agencies or instrumentalities; (2) short-term securities issued or 
guaranteed by non-U.S. governments or by their agencies or 
instrumentalities; \22\ (3) certificates of deposit issued against 
funds deposited in a bank or savings and loan association; (4) bankers' 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (5) repurchase agreements,\23\ which involve 
purchases of debt securities; (6) 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; (7) commercial 
paper, which is short-term unsecured promissory notes; \24\ and (8) 
other securities that are similar to the foregoing.
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    \22\ The relevant non-U.S. government, agency or instrumentality 
must have a long-term debt rating of at least A by S&P Ratings, 
Moody's or Fitch. For the sake of clarity, the foregoing ratings 
requirement does not apply to Debt Instruments.
    \23\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Sub-Adviser 
to present minimal credit risks in accordance with criteria approved 
by the Board of Trustees of the Trust (``Trust Board''). The Sub-
Adviser will review and monitor the creditworthiness of such 
institutions. The Sub-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.
    \24\ Except for commercial paper that is included within the 
meaning of the term ``Debt Instruments,'' the Fund will only invest 
in commercial paper rated A-1 or higher by S&P Ratings, Prime-1 or 
higher by Moody's or F1 or higher by Fitch.
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    The Fund may invest up to 20% of its net assets in the securities 
of money market funds (as noted above) and other ETFs \25\ that invest 
primarily in short-term debt securities or Debt Instruments and, except 
for these investments in other investment companies, the Fund will not 
invest directly \26\ in equity securities. The ETFs in which the Fund 
will invest will be exchange-listed and trade in markets that are 
members of ISG or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.\27\
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    \25\ 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. The Fund 
may invest in the securities of ETFs in excess of the limits imposed 
under the 1940 Act pursuant to exemptive orders obtained by other 
ETFs and their sponsors from the Commission. In addition, the Fund 
may invest in the securities of certain other investment companies 
(including without limitation ETFs) in excess of the limits imposed 
under the 1940 Act pursuant to an exemptive order that the Trust has 
obtained from the Commission. See Investment Company Act Release No. 
30377 (February 5, 2013) (File No. 812-13895). The ETFs in which the 
Fund may invest include Index Fund Shares (as described in Nasdaq 
Rule 5705), Portfolio Depository Receipts (as described in Nasdaq 
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 
5735). While the Fund may invest in inverse ETFs, the Fund will not 
invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
    \26\ It is possible, however, that an investment company in 
which the Fund invests will invest a portion of its assets in 
foreign and/or domestic equity securities.
    \27\ See footnote 37.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in

[[Page 45539]]

illiquid assets (calculated at the time of investment), including Rule 
144A securities deemed illiquid by the Adviser and/or the Sub-
Adviser.\28\ The Fund will monitor its portfolio liquidity on an 
ongoing basis to determine whether, in light of current circumstances, 
an adequate level of liquidity is being maintained, and will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, net assets, or other circumstances, more 
than 15% of the Fund's net assets are held in illiquid assets. Illiquid 
assets include securities subject to contractual or other restrictions 
on resale and other instruments that lack readily available markets as 
determined in accordance with Commission staff guidance.
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    \28\ See footnote 13.
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry. This restriction 
does not apply to (a) obligations issued or guaranteed by the U.S. 
government, its agencies or instrumentalities, or (b) securities of 
other investment companies.\29\
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    \29\ 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 may purchase securities on a when-issued or other delayed 
delivery basis and may enter into reverse repurchase agreements. 
Reverse repurchase agreements will not be used by the Fund to enhance 
leverage.
    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.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \30\ only in large blocks of Shares (``Creation 
Units'') in transactions with authorized participants, generally 
including broker-dealers and large institutional investors 
(``Authorized Participants''). Creation Units generally will consist of 
50,000 Shares, although this may change from time to time. Creation 
Units, however, are not expected to consist of less than 50,000 Shares. 
As described in the Registration Statement and consistent with the 
Exemptive Relief, the Fund will issue and redeem Creation Units in 
exchange for an in-kind portfolio of instruments and/or cash in lieu of 
such instruments (the ``Creation Basket''). In addition, if there is a 
difference between the NAV attributable to a Creation Unit and the 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will pay to the 
other an amount in cash equal to the difference (referred to as the 
``Cash Component'').
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    \30\ 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, 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 the Registration 
Statement.
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    Creations and redemptions must be made by an Authorized Participant 
or through a firm that is either a member of the National Securities 
Clearing Corporation (``NSCC'') or a Depository Trust Company 
participant that, in each case, must have executed an agreement that 
has been agreed to by the Distributor and BBH with respect to creations 
and redemptions of Creation Units. All standard orders to create 
Creation Units must be received by the transfer agent no later than the 
closing time of the regular trading session on the New York Stock 
Exchange (ordinarily 4:00 p.m., Eastern Time) (the ``Closing Time'') in 
each case on the date such order is placed in order for the creation of 
Creation Units to be effected based on the NAV of Shares as next 
determined on such date after receipt of the order in proper form. 
Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt not later than the Closing Time of a 
redemption request in proper form by the Fund through the transfer 
agent and only on a business day.
    The Fund's custodian, through the NSCC, will make available on each 
business day, prior to the opening of business of the Exchange, the 
list of the names and quantities of the instruments comprising the 
Creation Basket, as well as the estimated Cash Component (if any), for 
that day. The published Creation Basket will apply until a new Creation 
Basket is announced on the following business day.
Net Asset Value
    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. NAV will be calculated for the Fund by 
taking the market price of the Fund's total assets, including interest 
or dividends accrued but not yet collected, less all liabilities, and 
dividing such amount by the total number of Shares outstanding. The 
result, rounded to the nearest cent, will be the NAV per Share. All 
valuations will be subject to review by the Trust Board or its 
delegate.
    The Fund's investments will be valued daily at market value or, in 
the absence of market value with respect to any investment at fair 
value, in each case in accordance with valuation procedures (which may 
be revised from time to time) adopted by the Trust Board (the 
``Valuation Procedures'') and in accordance with the 1940 Act. A market 
valuation generally means a valuation (i) obtained from an exchange, an 
independent pricing service (``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). The information 
summarized below is based on the Valuation Procedures as currently in 
effect; however, as noted above, the Valuation Procedures are amended 
from time to time and, therefore, such information is subject to 
change.
    Certain securities, including Debt Instruments, in which the Fund 
will invest will not be listed on any securities exchange or board of 
trade. Such securities will typically be bought and sold by 
institutional investors in individually negotiated private transactions 
that function in many respects like an over-the-counter secondary 
market, although typically no formal market makers will exist. Certain 
securities, particularly debt securities, will have few or no trades, 
or trade infrequently, and information regarding a specific security 
may not be widely available or may be incomplete. Accordingly, 
determinations of the fair value of debt securities may be based on 
infrequent and dated information. Because there is less reliable, 
objective data available, elements of judgment may play a greater role 
in valuation of debt securities than for other types of securities. 
Typically (other than as described below), Debt Instruments and other 
debt securities in which the Fund may invest (as described under 
``Other Investments'') will be valued using information provided by a 
Pricing Service. To the extent debt securities have a remaining 
maturity of 60 days or less when purchased, they will be valued at cost 
adjusted for amortization of premiums and accretion of discounts. 
Overnight repurchase agreements will be valued at cost. Term repurchase 
agreements (i.e., those whose maturity exceeds seven days) will be 
valued at the average of the bid quotations obtained daily from at 
least two recognized dealers.
    ETFs listed on any exchange other than the Exchange will be valued 
at the

[[Page 45540]]

last sale price on the exchange on which they are principally traded on 
the business day as of which such value is being determined. ETFs 
listed on the Exchange will be valued at the official closing price on 
the business day as of which such value is being determined. If there 
has been no sale on such day, or no official closing price in the case 
of ETFs traded on the Exchange, the ETFs will be valued using fair 
value pricing, as described below. ETFs 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 ETFs.
    Shares of money market funds will be valued at their net asset 
values as reported by such funds to Pricing Services.
    Exchange-traded options and futures contracts will be valued at the 
closing price in the market where such contracts are principally 
traded.
    Forward currency contracts and non-deliverable forward currency 
contracts will be valued at the current day's interpolated foreign 
exchange rate, as calculated using the current day's spot rate, and the 
thirty, sixty, ninety, and one-hundred-eighty day forward rates 
provided by a Pricing Service or by certain independent dealers in such 
contracts.
    Certain securities may not be able to be priced by pre-established 
pricing methods. Such securities may be valued by the Trust Board or 
its delegate at fair value. The use of fair value pricing by the Fund 
will be governed by the Valuation Procedures and conducted in 
accordance with the provisions of the 1940 Act. Valuing the Fund's 
securities using fair value pricing will result in using prices for 
those securities that may differ from current market valuations or 
official closing prices on the applicable exchange.
    Because foreign securities exchanges may be open on different days 
than the days during which an investor may purchase or sell Shares, the 
value of the Fund's securities may change on days when investors are 
not able to purchase or sell Shares. Assets denominated in foreign 
currencies will be translated into U.S. dollars at the exchange rate of 
such currencies against the U.S. dollar as provided by a Pricing 
Service. The value of assets denominated in foreign currencies will be 
converted into U.S. dollars at the exchange rates in effect at the time 
of valuation.
Availability of Information
    The Fund'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 the Shares' ticker, Cusip and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price''),\31\ 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 \32\ 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 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.\33\ (See ``Disclosed Portfolio'' below.) 
The Web site information will be publicly available at no charge.
---------------------------------------------------------------------------

    \31\ 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.
    \32\ 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).
    \33\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    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. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service,\34\ will be 
based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. The 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.
---------------------------------------------------------------------------

    \34\ 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.
---------------------------------------------------------------------------

    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.
    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 trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. Information regarding the 
previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information for the Shares will be available 
via Nasdaq proprietary quote and trade services, as well as in 
accordance with the Unlisted Trading Privileges and the Consolidated 
Tape Association (``CTA'') plans for the Shares. Quotation and last 
sale information for ETFs will be available via the CTA high-speed 
line, and will be available from the national securities exchange on 
which they are listed. Pricing information for ETFs and exchange-traded 
derivative instruments will be available from the exchanges on which 
they trade and from major market

[[Page 45541]]

data vendors. Pricing information for Debt Instruments, forward 
currency contracts, non-deliverable forward currency contracts, and 
debt securities in which the Fund may invest that are described under 
``Other Investments'' will be available from major broker-dealer firms 
and/or major market data vendors and/or Pricing Services. Money market 
funds are typically priced once each business day and their prices will 
be available through the applicable fund's Web site or major market 
data vendors.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes will be 
included in the Registration Statement. All terms relating to the Fund 
that are referred to, but not defined in, this proposed rule change 
will be defined in the Registration Statement.
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 Fund will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of the 
holding (including the type of holding); the identity of the security 
or other asset or instrument underlying the holding, if any; 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.
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 \35\ 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.
---------------------------------------------------------------------------

    \35\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    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 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 other assets constituting the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. 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.\36\ 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.
---------------------------------------------------------------------------

    \36\ 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 the exchange-traded securities and 
instruments held by the Fund with other markets and other entities that 
are members of ISG,\37\ and FINRA may obtain trading information 
regarding trading in the Shares and the exchange-traded securities and 
instruments held by the Fund from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and the exchange-traded securities and instruments held by the 
Fund from markets and other entities that are members of ISG, which 
includes securities and futures exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. Moreover, 
FINRA, on behalf of the Exchange, will be able to access, as needed, 
trade information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \37\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    At least 90% of the Fund's net assets that are invested in 
exchange-traded derivative instruments will be invested in instruments 
that trade in markets that are members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
    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 and by

[[Page 45542]]

whom information regarding the Intraday Indicative Value and 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 deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information. The 
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 Fund's 
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the 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.
    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 also 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws.
    Neither the Adviser nor the Sub-Adviser is a broker-dealer, 
although each is affiliated with a broker-dealer and each is required 
to implement a ``fire wall'' with respect to such 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.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and the exchange-traded securities and 
instruments held by the Fund with other markets and other entities that 
are members of ISG, and FINRA may obtain trading information regarding 
trading in the Shares and the exchange-traded securities and 
instruments held by the Fund from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and the exchange-traded securities and instruments held by the 
Fund from markets and other entities that are members of ISG, which 
includes securities and futures exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. Moreover, 
FINRA, on behalf of the Exchange, will be able to access, as needed, 
trade information for certain fixed income securities held by the Fund 
reported to FINRA's TRACE. At least 90% of the Fund's net assets that 
are invested in exchange-traded derivative instruments will be invested 
in instruments that trade in markets that are members of ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
    The investment objective of the Fund will be to seek maximum total 
return and current income. Under normal market conditions, the Fund 
will invest at least 80% of its net assets (including investment 
borrowings) in Debt Instruments that are denominated in the local 
currency of the issuer. Under normal market conditions, at least 80% of 
the Fund's net assets that are invested in Debt Instruments will be 
invested in Debt Instruments that are issued by issuers with 
outstanding debt of at least $200 million (or the foreign currency 
equivalent thereof). The Fund's exposure to any single country 
generally will be limited to 20% of the Fund's net assets (although 
this percentage may change from time to time in response to economic 
events). There is no limit on the amount of the Fund's assets that may 
be invested in non-investment grade and unrated securities. The Fund's 
investments in derivative instruments will be made in accordance with 
the 1940 Act and consistent with the Fund's investment objective and 
policies. Under normal market conditions, no more than 20% of the value 
of the Fund's net assets will be invested in derivative instruments. 
The Fund will comply with the regulatory requirements of the Commission 
to maintain assets as ``cover,'' maintain segregated accounts, and/or 
make margin payments when it takes positions in derivative instruments 
involving obligations to third parties (i.e., instruments other than 
purchase options). The Fund's investments in derivative instruments 
will not be used to seek to achieve a multiple or inverse multiple of 
an index.
    The Fund may invest up to 20% of its net assets in Corporate Bonds. 
Under normal market conditions, a Corporate Bond must have $200 million 
(or the foreign currency equivalent thereof) or more par amount 
outstanding and significant par value traded to be considered as an 
eligible investment. However, although the Fund does not intend to do 
so, the Fund may invest up to 5% of its net assets in Corporate Bonds 
with less than $200 million (or the foreign currency equivalent 
thereof) par amount outstanding if (i) the Adviser and/or the Sub-
Adviser deems such securities to be sufficiently liquid and (ii) such 
investment is deemed by the Adviser and/or the Sub-Adviser to be in the 
best interest of the Fund.
    The Fund may invest up to 20% of its net assets in the securities 
of money market funds and other ETFs that invest primarily in short-
term debt securities or Debt Instruments, and, except for these 
investments in other investment companies, the Fund will not invest 
directly in equity securities. The ETFs in which the Fund will invest 
will be exchange-listed and trade in markets that are members of ISG or 
are parties to a comprehensive surveillance sharing agreement with the 
Exchange. Also, 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 Rule 144A securities deemed illiquid by the 
Adviser and/or the Sub-Adviser. The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
    The Fund's investments will be valued daily at market value or, in 
the

[[Page 45543]]

absence of market value with respect to any investment, at fair value, 
in each case in accordance with the Valuation Procedures and the 1940 
Act.
    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. Moreover, 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 its 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 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 
for ETFs will be available via the CTA high-speed line, and will be 
available from the national securities exchange on which they are 
listed. Pricing information for ETFs and exchange-traded derivative 
instruments will be available from the exchanges on which they trade 
and from major market data vendors. Pricing information for Debt 
Instruments, forward currency contracts, non-deliverable forward 
currency contracts, and debt securities in which the Fund may invest 
that are described under ``Other Investments'' will be available from 
major broker-dealer firms and/or major market data vendors and/or 
Pricing Services. Money market funds are typically priced once each 
business day and their prices will be available through the applicable 
fund's Web site or major market data vendors.
    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. 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.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect 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, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and the exchange-traded securities and instruments held by the Fund 
with other markets and other entities that are members of ISG and FINRA 
may obtain trading information regarding trading in the Shares and the 
exchange-traded securities and instruments held by the Fund from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and in the exchange-traded 
securities and instruments held by the Fund from markets and other 
entities that are members of ISG, which includes securities and futures 
exchanges, or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Furthermore, 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 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 self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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-2014-073 on the subject line.

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-2014-073. 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

[[Page 45544]]

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-2014-073 and should be submitted on or before 
August 26, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18431 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P


