
[Federal Register Volume 79, Number 151 (Wednesday, August 6, 2014)]
[Notices]
[Pages 45852-45857]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18533]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72728; File No. SR-NASDAQ-2014-059]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, Relating to the Listing and Trading of the Shares of the 
Global X Commodities ETF of Global X Funds

July 31, 2014.

I. Introduction

    On May 28, 2014, 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 Global X Commodities Strategy ETF (``Fund'') under 
Nasdaq Rule 5735. The proposed rule change was published for comment in 
the Federal Register on June 16, 2014.\3\ On June 27, 2014, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The 
Commission received no comments on the proposal. This order grants 
approval of the proposed rule change, as modified by Amendment No. 1 
thereto.
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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. 72357 (June 10, 
2014), 79 FR 34376 (``Notice'').
    \4\ In Amendment No. 1, the Exchange clarified which subsections 
of Nasdaq Rule 5711 are specifically applicable to pooled investment 
vehicles that invest primarily in commodities and commodity-linked 
instruments. See infra note 10. Because Amendment No. 1 is technical 
in nature, the Commission believes that Amendment No. 1 is not 
subject to notice and comment.
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II. Description of the Proposal

    Nasdaq proposes to list and trade Shares of the Fund under Nasdaq 
Rule 5735, which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Shares will be offered by Global X Funds 
(``Trust''), which was established as a Delaware statutory trust on 
March 6, 2008.\5\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ Global X 
Management Company LLC will be the investment adviser (``Adviser'') and 
administrator (``Administrator'') to the Fund. The Fund and the Adviser 
will contract with an investment sub-adviser (``Sub-Adviser'') to 
provide day-to-day portfolio management of the Fund.\7\ SEI Investments 
Distribution Company will be the principal underwriter and distributor 
of the Fund's Shares, and Brown Brothers Harriman (``Custodian'') will 
act as the custodian and transfer agent to the Fund.
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    \5\ According to the Exchange, the Trust will obtain from the 
Commission an order granting certain exemptive relief under the 
Investment Company Act of 1940 (``1940 Act'') (File No. 812-14241). 
In compliance with Nasdaq Rule 5735(b)(5), which applies to Managed 
Fund Shares based on an international or global portfolio, the 
Trust's application for exemptive relief under the 1940 Act states 
that the Fund will comply with the federal securities laws in 
accepting securities for deposits and satisfying redemptions with 
redemption securities, including that the securities accepted for 
deposits and the securities used to satisfy redemption requests are 
sold in transactions that would be exempt from registration under 
the Securities Act of 1933.
    \6\ See Registration Statement on Form N-1A for the Trust dated 
May 23, 2014 (File No. 811-22209).
    \7\ The Exchange represents that the Adviser is not registered 
as a broker-dealer and is not affiliated with a broker-dealer. In 
the event (a) the Adviser registers as a broker-dealer or becomes 
newly affiliated with a broker-dealer; or (b) the Sub-Adviser, any 
new adviser or new sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, such Adviser, Sub-Adviser, 
or new adviser or sub-adviser, as the case may be, will implement a 
fire wall with respect to its relevant personnel or such broker-
dealer affiliate, as applicable, regarding access to information 
concerning the composition of and changes to the portfolio and will 
be subject to procedures designed to prevent the use and 
dissemination of material, non-public information regarding the 
portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategy, including other 
portfolio holdings and investment restrictions.\8\
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    \8\ The Commission notes that additional information regarding 
the Fund, the Trust, and the Shares, including investment 
strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, distributions, and taxes, 
among other things, can be found in the Notice and the Registration 
Statement, as applicable. See Notice, supra note 3, and Registration 
Statement, supra note 6 and accompanying text, respectively.
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A. Investment Strategy

    According to the Exchange, the Fund will be an actively managed ETF 
that will seek to achieve a total return that exceeds that of the 
Credit Suisse Composite Commodities Index (``Benchmark''),\9\ 
consistent with

[[Page 45853]]

prudent investment management. The Exchange represents that the 
Benchmark is a monthly rebalancing, long-only, fully collateralized 
futures index that offers multi-sector exposure to energy, industrial 
metals, precious metals, and agricultural commodities. It is a total 
return index that measures the hypothetical returns on an 
uncollateralized investment in certain futures contracts, plus the 
interest that could be earned on the funds committed to a 
collateralized investment in such contracts. In general, the Fund will 
pursue its objective by seeking to invest in commodity-linked futures--
in similar weightings to the Benchmark--and in other commodity-linked 
instruments. The Fund's investments in commodity-linked futures and 
other commodity-linked instruments will be backed by an actively 
managed, low-volatility portfolio of fixed income instruments. 
Specifically with respect to the commodity-linked futures and other 
commodity-linked instruments holdings, the Fund will indirectly invest 
in exchange-traded futures contracts and exchange-traded commodity-
linked instruments \10\ (collectively, ``Commodities'') through a 
wholly-owned subsidiary controlled by the Fund and organized under the 
laws of the Cayman Islands (``Subsidiary'').\11\ The Fund will not be 
an ``index tracking'' ETF and will not be required to invest in all of 
the components of the Benchmark. The Fund will generally seek to hold 
through the Subsidiary similar instruments to those included in the 
Benchmark and seek to gain exposure to commodities included in the 
Benchmark. The Exchange states that the Fund will invest in Commodities 
only through the Subsidiary.
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    \9\ The Exchange represents that the Benchmark is developed, 
maintained, and sponsored by Credit Suisse International (``CS''), 
which is not a U.S. registered broker-dealer, but is affiliated with 
a broker-dealer and, with respect to such broker-dealer affiliate, 
has implemented a fire wall and procedures designed to prevent the 
illicit use and dissemination of material, non-public information 
regarding the Benchmark. The Fund will not be sponsored, endorsed, 
sold, or promoted by CS. CS's only relationship to the Fund will be 
the licensing of certain service marks and service names of CS and 
of the Benchmark, which will be determined, composed, and calculated 
by CS without regard to the Adviser, the Sub-Adviser, or the Fund. 
CS will have no obligation to take the needs of the Adviser, the 
Sub-Adviser, or the Fund into consideration in determining, 
composing, or calculating the Benchmark.
    \10\ Exchange-traded commodity-linked instruments include: (1) 
exchange-traded funds (``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-linked instruments as would be listed under Nasdaq 
Rules 5710 and 5711(b), (d), (f), (g), (h), (i), and (j). 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. See infra 
note 16 (providing additional information and descriptions about 
ETFs, in general, and ETFs to be held by the Fund, in particular).
    \11\ The Exchange represents that, as a result of the 
instruments that will be indirectly held by the Fund, the Adviser 
will register as a commodity pool operator (as defined in Section 
1a(11) of the Commodity Exchange Act) and will also be a member of 
the National Futures Association (``NFA''). The Exchange represents 
that the Sub-Adviser will register as a commodity pool operator or 
commodity trading adviser, as required by the Commodity Futures 
Trading Commission (``CFTC'') regulations and that the Fund and the 
Subsidiary will be subject to regulation by the CFTC and NFA and 
additional disclosure, reporting, and recordkeeping rules imposed 
upon commodity pools.
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B. Principal Investments of the Fund

    The Fund will be an actively managed ETF that will seek to achieve 
a total return that exceeds that of the Benchmark. The Exchange states 
that under normal market conditions,\12\ the Fund will invest in 
Commodities through the Subsidiary. The Fund's investment in the 
Subsidiary may not exceed 25% of the Fund's total assets. The remainder 
of the Fund's assets will be invested in: (1) Short-term, investment 
grade fixed income securities that include U.S. government and agency 
securities,\13\ corporate debt obligations, and repurchase agreements; 
\14\ (2) money market instruments; \15\ (3) ETFs (other than those that 
are commodity-linked instruments) \16\ and other investment companies 
registered under the 1940 Act, including exchange-traded closed-end 
funds, that provide exposure to commodities, equity securities, and 
fixed income securities to the extent permitted under the 1940 Act and 
any applicable exemptive relief; (4) certain bank instruments; \17\ and 
(5) cash and other cash equivalents. In addition, the Fund may enter 
into foreign currency transactions on a spot (i.e., cash) basis.
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    \12\ The Exchange states that the term ``under normal market 
conditions'' includes, but is not limited to, the absence of extreme 
volatility or trading halts in the fixed income markets, futures 
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.
    \13\ These 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. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \14\ The Exchange states that 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 Trust's Board of Trustees 
(``Board''). The Adviser will review and monitor the 
creditworthiness of such institutions and 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.
    \15\ 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 under the 1940 Act; 
money market mutual funds; and deposits and other obligations of 
U.S. and non-U.S. banks and financial institutions. In addition, the 
Fund may invest in commercial paper, which are short-term unsecured 
promissory notes. 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.
    \16\ See supra note 10 and accompanying text. In general, 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. The Exchange represents that the ETFs 
included in the Fund will be listed and traded in the U.S. on 
registered exchanges. According to the Exchange, 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 in excess of 
the limits imposed under the 1940 Act pursuant to an exemptive order 
obtained by the Trust and the Adviser from the Commission. See 
Investment Company Act Release No. 30454 (Apr. 9, 2013) (File No. 
812-14079). 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 and the 
Subsidiary may invest in inverse commodity-linked instruments, the 
Fund and the Subsidiary will not invest in leveraged or inverse 
leveraged (e.g., 2X or -3X) commodity-linked instruments.
    \17\ 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 also 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.
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    The Exchange represents that the Fund will use the fixed income 
securities as investments and to collateralize the Subsidiary's 
commodity exposure on a day-to-day basis.

C. Investments of the Subsidiary

    The Exchange represents that, under normal market conditions,\18\ 
the Subsidiary is expected to invest in futures contracts in 
proportional weights and allocations that are similar to the Benchmark, 
as well as in other exchange-traded commodity-linked

[[Page 45854]]

instruments.\19\ The Subsidiary will have the same investment objective 
as the Fund; however, unlike the Fund, the Subsidiary may invest 
without limitation in Commodities. As indicated above, the Benchmark 
will include, and the Subsidiary will have holdings in, futures 
contracts that consist of only long positions in Commodities. 
Therefore, the Fund, through the Subsidiary, will benefit if a security 
or instrument increases in value. Conversely, the Fund, through the 
Subsidiary, will be adversely impacted if a security or instrument 
declines in value. The Fund, through the Subsidiary, may have a higher 
or lower exposure to any sector or component within the Benchmark at 
any time.
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    \18\ See supra note 12.
    \19\ According to the Exchange, the Benchmark will include, and 
the Subsidiary will have holdings in, futures contracts that consist 
of only long positions in Commodities. Additional information 
regarding the Benchmark, including the specific commodities 
underlying the futures contracts included in the Benchmark as of May 
23, 2014, can be found in a table in the Notice. See Notice, supra 
note 3, 79 FR 34376, 34378. The table contained in the Notice also 
provides each instrument's trading hours, exchange, and ticker 
symbol. See id. The Exchange notes that the table is subject to 
change. As stated above, the Subsidiary will not in all cases invest 
in the futures contracts included in the Benchmark. The Fund, 
through the Subsidiary, may have a higher or lower exposure to any 
sector or component within the Benchmark at any time. 
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    The Exchange states that the Subsidiary will be advised by the Sub-
Adviser \20\ and that the Fund's investment in the 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. These federal income tax laws limit the 
ability of investment companies to invest directly in the derivative 
instruments. The Subsidiary's investments will provide the Fund with 
exposure to both domestic and international markets.\21\
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    \20\ The Exchange states that the 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 Subsidiary will be wholly-owned and 
controlled by the Fund. Therefore, the Exchange represents that the 
Fund's ownership and control of the Subsidiary will prevent the 
Subsidiary from taking action contrary to the interests of the Fund 
or its shareholders. The Board will have oversight responsibility 
for the investment activities of the Fund, including its expected 
investment in the Subsidiary, and the Fund's role as the sole 
shareholder of the Subsidiary. The 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.
    \21\ The Exchange represents that not more than 10% of the 
weight (to be calculated as the value of the contract divided by the 
total absolute notional value of the Subsidiary's futures contracts) 
of the futures contracts held by the Subsidiary in the aggregate 
shall consist of instruments whose principal trading market is not a 
member of the Intermarket Surveillance Group (``ISG'') or is a 
market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. The Exchange further represents that 
all commodity-linked instruments in which the Subsidiary invests 
will be traded on ISG member markets.
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D. Investment Restrictions

    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. In addition, while the Fund will be permitted to 
borrow as permitted under the 1940 Act, the Fund's investments will not 
be used to seek performance that is the multiple or inverse multiple 
(i.e., 2X and -3X) of the Fund's Benchmark.
    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 Subsidiary's shares will be offered only to the Fund, and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund (other than shares of the Subsidiary) and the Subsidiary will not 
invest in any non-U.S. equity securities. The Fund will not purchase 
securities of open-end or closed-end investment companies except in 
compliance with the 1940 Act or any applicable exemptive relief.
    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 securities deemed illiquid by the Adviser.\22\ 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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    \22\ 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 will not invest directly in Commodities. The Fund expects 
to primarily gain exposure to these investments by investing in the 
Subsidiary. In addition, the Fund and the Subsidiary will not invest in 
options contracts, swaps, or forward investments.
    Additional information regarding the Trust, Fund, and Shares, 
including investment strategies and restrictions, risks, creation and 
redemption procedures, fees, portfolio holdings, disclosure policies, 
distributions and taxes, calculation of net asset value per share 
(``NAV''), availability of information, trading rules and halts, and 
surveillance procedures, among other things, can be found in the Notice 
and the Registration Statement, as applicable.\23\
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    \23\ See Notice, supra note 3; see also Registration Statement, 
supra note 6.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\24\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\25\ which requires, among other things, that the Exchange's rules 
be designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission notes that the Fund 
and the Shares must comply with the requirements of Nasdaq Rule 5735 to 
be listed and traded on the Exchange.
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    \24\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 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 
Exchange Act,\26\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via Nasdaq proprietary 
quote

[[Page 45855]]

and trade services, as well as in accordance with the Unlisted Trading 
Privileges and the Consolidated Tape Association plans for the Shares. 
In addition, the Intraday Indicative Value,\27\ as defined in Rule 
5735(c)(3), will be available on the NASDAQ OMX Information LLC 
proprietary index data service \28\ 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.\29\ 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 identities and quantities of the portfolio 
of securities, Commodities, and other assets held by the Fund and the 
Subsidiary (the ``Disclosed Portfolio,'' as defined in Nasdaq Rule 
5735(c)(2)) that will form the basis for the Fund's calculation of NAV 
at the end of the business day.\30\ In addition, the Custodian, through 
the National Securities Clearing Corporation, 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 composing the 
creation basket, as well as the estimated cash component (if any), for 
that day. The Fund's NAV will be determined as of the close of trading 
(normally 4:00 p.m., Eastern Time (``E.T.'')) on each day the New York 
Stock Exchange (``NYSE'') is open for business.\31\ 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. 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 and other assets held by 
the Fund and the Subsidiary will be available from major broker-dealer 
firms or on the exchange on which they are traded, as applicable. 
Intra-day price information on the securities and other assets held by 
the Fund and the Subsidiary will also be available through subscription 
services, such as Bloomberg and Thomson Reuters. Specifically, pricing 
information for Commodities, ETFs (other than Commodities), and closed-
end funds will be available on the exchanges on which they are traded 
and through subscription services. Pricing information for fixed income 
securities and money market instruments will be available through 
subscription services and broker-dealer firms. Additionally, the Trade 
Reporting and Compliance Engine (``TRACE'') of the Financial Industry 
Regulatory Authority (``FINRA'') will be a source of price information 
for certain fixed income securities held by the Fund. Information 
relating to the Benchmark, including its constituents, weightings, and 
changes to its constituents will be available on the Web site of CS. 
The Fund's Web site (www.globalxfunds.com), which will be publicly 
available prior to the public offering of Shares, 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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    \26\ 15 U.S.C. 78k(a)(1)(C)(iii).
    \27\ According to the Exchange, the Intraday Indicative Value 
will reflect an estimated intraday value of the Fund's portfolio 
(including the Subsidiary's portfolio) and will be based upon the 
current value of the components of the Disclosed Portfolio.
    \28\ The NASDAQ OMX Global Index Data Service (``GIDS'') is a 
data feed service that provides real-time updates, daily summary 
messages, and access to widely followed indexes and Intraday 
Indicative Values for ETFs.
    \29\ Regular Market Session means the trading session from 9:30 
a.m. until 4:00 p.m. or 4:15 p.m. See Nasdaq Rule 4120(b)(4)(D).
    \30\ 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, commodity, or 
other asset or instrument underlying the holding, if any; 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 percentage weighting of the holding in the Fund's 
portfolio. The Web site and information will be publicly available 
at no charge.
    \31\ The NAV of the Fund will be calculated by dividing the 
value of the net assets of such Fund (i.e., the value of its total 
assets, less total liabilities) by the total number of outstanding 
Shares, generally rounded to the nearest cent. According to the 
Exchange, the Fund's and the Subsidiary's investments will be 
generally valued using market valuations. If available, debt 
securities and money market instruments with maturities of more than 
60 days will typically be priced based on valuations provided by 
independent third-party pricing agents. Such values will generally 
reflect the last reported sales price if the security is actively 
traded. The third-party pricing agents may also value debt 
securities at an evaluated bid price by employing methodologies that 
utilize actual market transactions, broker-supplied valuations, or 
other methodologies designed to identify the market value for such 
securities. Debt obligations with remaining maturities of 60 days or 
less may be valued on the basis of amortized cost, which 
approximates market value. If such prices are not available, the 
security will be valued based on values supplied by independent 
brokers or by fair value pricing. Futures contracts will be valued 
at the settlement price established each day by the board or 
exchange on which they are traded. Redeemable securities issued by 
U.S. registered open-end investment companies will be valued at the 
investment company's applicable NAV, with the exception of ETFs, 
which will be priced as described below. In the case of shares of 
funds that are not traded on an exchange, a market valuation means 
such fund's published NAV per share. Equity securities (including 
exchange-traded commodity-linked instruments, other ETFs, and 
closed-end funds) listed on a securities exchange, market, or 
automated quotation system for which quotations are readily 
available (except for securities traded on the Exchange) will be 
valued at the last reported sale price on the primary exchange or 
market on which they are traded on the valuation date (or at 
approximately 4:00 p.m., E.T. if a security's primary exchange is 
normally open at that time). If it is not possible to determine the 
last reported sale price on the relevant exchange or market on the 
valuation date, the value of the security will be taken to be the 
most recent mean between the bid and asked prices on such exchange 
or market on the valuation date. Absent both bid and asked prices on 
such exchange, the bid price may be used. For securities traded on 
the Exchange, the Exchange's official closing price will be used. If 
such prices are not available, the security will be valued based on 
values supplied by independent brokers or by fair value pricing, as 
described below. The prices for foreign instruments will be reported 
in local currency and converted to U.S. dollars using currency 
exchange rates. Exchange rates will be provided daily by recognized 
independent pricing agents.
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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 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. 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.\32\ Trading in 
the Shares also will be subject to Nasdaq Rule 5735(d)(2)(D), which 
sets forth additional circumstances under which Shares of the Fund may 
be halted. The Exchange represents that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. In addition, the Exchange represents that the Adviser is not 
registered as a broker-dealer and is not affiliated with a broker-
dealer.\33\ Prior to

[[Page 45856]]

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.
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    \32\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities, Commodities, or other assets 
constituting the Disclosed Portfolio of the Fund and the Subsidiary; 
or (2) whether other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present. With 
respect to trading halts, the Exchange states that it may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.
    \33\ See supra note 7. The Exchange further represents, among 
other things, that in the event the Sub-Adviser is or becomes a 
registered broker-dealer or becomes affiliated with a broker-dealer, 
such Sub-Adviser will implement a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition of and 
changes to the portfolio and will be subject to procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding the portfolio. See id. The Exchange states 
that 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 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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    The Exchange represents that trading in the Shares will be subject 
to 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.\34\ The Exchange further 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. The Exchange states that FINRA, 
on behalf of the Exchange, will communicate as needed regarding trading 
in the Shares and in the exchange-traded securities, commodity-linked 
instruments, and futures contracts held by the Fund and the Subsidiary 
with other markets and other entities that are members of the ISG and 
that FINRA may obtain trading information regarding trading in the 
Shares and in the exchange-traded securities, commodity-linked 
instruments, and futures contracts held by the Fund and the Subsidiary 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and in the exchange-
traded securities, commodity-linked instruments, and futures contracts 
held by the Fund and the Subsidiary 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. The Exchange states that 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.
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    \34\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Exchange deems the Shares 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 Rule 5735, which sets forth the 
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) 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, 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 and by whom 
information regarding the Intraday Indicative Value and the Disclosed 
Portfolio 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 Subsidiary 
must be in compliance with Rule 10A-3 under the Act.\35\
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    \35\ See 17 CFR 240.10A-3.
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    (6) The Fund's investments will be consistent with its respective 
investment objective. While the Fund and the Subsidiary may invest in 
inverse commodity-linked instruments, the Fund and the Subsidiary will 
not invest in leveraged or inverse leveraged (e.g., 2X or -3X) 
commodity-linked instruments.
    (7) 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 securities deemed illiquid by the Adviser, in accordance with 
Commission guidance.
    (8) Not more than 10% of the weight (to be calculated as the value 
of the contract divided by the total absolute notional value of the 
Subsidiary's futures contracts) of the futures contracts held by the 
Subsidiary 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.
    (9) All commodity-linked instruments in which the Subsidiary 
invests will be traded on ISG member markets. Commodity-linked 
instruments include: (a) Exchange-traded funds (``ETFs'') that provide 
exposure to commodities as would be listed under Nasdaq Rules 5705 and 
5735; and (b) pooled investment vehicles that invest primarily in 
commodities and commodity-linked instruments as would be listed under 
Nasdaq Rules 5710 and 5711(b), (d), (f), (g), (h), (i), and (j).
    (10) The Fund and the Subsidiary will not invest in options 
contracts, swaps, or forward investments. In addition, the Fund will 
not invest directly in Commodities.
    (11) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations, 
including those set forth above and in the Notice, and the Exchange's 
description of the Fund.

[[Page 45857]]

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \36\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \36\ 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,\37\ that the proposed rule change (SR-NASDAQ-2014-059), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    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. 2014-18533 Filed 8-5-14; 8:45 am]
BILLING CODE 8011-01-P


