
[Federal Register Volume 80, Number 41 (Tuesday, March 3, 2015)]
[Notices]
[Pages 11502-11509]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-04333]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74377; File No. SR-NASDAQ-2015-013]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the AlphaMark Actively Managed Small Cap ETF 
of ETF Series Solutions

February 25, 2015.
    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 February 17, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by Nasdaq. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the AlphaMark 
Actively

[[Page 11503]]

Managed Small Cap ETF (the ``Fund'') of ETF Series Solutions (the 
``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\ The 
shares of the Fund are collectively referred to herein as the 
``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR- NASDAQ-2008-039). There are already multiple 
actively-managed funds listed on the Exchange; see e.g., Securities 
Exchange Act Release No. 72411 (June 17, 2014), 79 FR 35598 (June 
23, 2014) (SR-NASDAQ-2014-40) (order approving listing and trading 
of Calamos Focus Growth ETF). The Exchange believes the proposed 
rule change raises no significant issues not previously addressed in 
those prior Commission orders.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Delaware statutory trust on 
February 9, 2012.\5\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ The Fund is a 
series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940, as amended (15 U.S.C. 80a-1) (the ``1940 Act'') 
organized as an open-end investment company or similar entity that 
invests in a portfolio of securities selected by its investment 
adviser consistent with its investment objectives and policies. In 
contrast, an open-end investment company that issues Index Fund 
Shares, listed and traded on the Exchange under Nasdaq Rule 5705, 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
    \5\ The Trust has obtained, or will obtain prior to listing 
Shares of the Fund on the Exchange, from the Commission an order 
(the ``Exemptive Order'') on which the Trust may rely, granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 31430 (January 28, 2015) (notice) 
(File No. 812-14402).
    \6\ See Post-Effective Amendment No. 43 to the Registration 
Statement on Form N-1A for the Trust, dated February 4, 2015 (File 
Nos. 333-179562 and 811-22668). The descriptions of the Fund and the 
Shares contained herein are based, in part, on information in the 
Registration Statement.
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    AlphaMark Advisors, LLC will be the investment adviser 
(``Adviser'') to the Fund. Quasar Distributors, LLC (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. U.S. Bancorp Fund Services, LLC (``USBFS'') will act 
as the administrator, accounting agent, and transfer agent to the Fund. 
U.S. Bank National Association will act as the custodian to the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, nonpublic information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser is not a broker-dealer, and is not affiliated with 
any broker-dealer. In the event (a) the Adviser becomes 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 nonpublic information 
regarding such portfolio. The Adviser has no present intent or 
arrangement to become affiliated with any broker-dealer, and the Fund 
does not currently intend to use a sub-adviser.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with applicable 
federal securities laws as defined in Rule 204A-1(e)(4). 
Accordingly, procedures designed to prevent the communication and 
misuse of nonpublic 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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AlphaMark Actively Managed Small Cap ETF
Principal Investments
    The Fund is a non-diversified, actively-managed ETF that intends to 
qualify each year as a regulated investment company under Subchapter M 
of the Internal Revenue Code of 1986, as amended.
    The Fund's primary investment objective is to seek long-term growth 
of capital. The Fund will pursue its objectives by investing primarily, 
i.e. at least 80% of its assets under normal market conditions,\8\ in a 
portfolio of equity securities of small cap companies listed on a U.S. 
exchange. The Fund defines ``small cap'' companies as companies with a 
total market capitalization of less than $5 billion at the time of 
purchase, although the Adviser expects to generally focus on companies 
with market capitalizations of between $150 million and $2 billion at 
the time of purchase.
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    \8\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. In periods of 
extreme market disturbance, the Fund may take temporary defensive 
positions, by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objectives.
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    The Fund defines ``equity securities'' to include common and 
preferred stock,

[[Page 11504]]

American Depositary Receipts \9\ (``ADRs''), real estate investment 
trusts (``REITs''), and ETFs. Investments in ETFs that, under normal 
circumstances, invest at least 80% of their net assets (plus any 
borrowings for investment purposes) in equity securities of small cap 
companies (``Small Cap ETFs'') will count toward the Fund's 80% 
investment policy. The Fund may invest up to 30% of its net assets in 
foreign equity securities of small cap companies traded on a U.S. 
exchange as ADRs, which may include companies in emerging markets.
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    \9\ ADRs are receipts, typically issued by a bank or trust 
issuer, which evidence ownership of underlying securities issued by 
a non-U.S. issuer. For ADRs, the depository is typically a U.S. 
financial institution and the underlying securities are issued by a 
non-U.S. issuer. ADRs are not necessarily denominated in the same 
currency as their underlying securities.
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    The Adviser seeks to invest in companies with a proven history of 
consistent growth, sustainable earnings momentum and the ability to 
produce a reliable stream of cash flow during all economic cycles. The 
Adviser uses a ``bottom-up'' internal stock screening process designed 
to identify companies that produce reliable cash flow streams and are 
priced at a level that provides for growth opportunity. An assessment 
of secular trends in the markets and the economy will exert some 
influence on the economic sector weightings of the Fund's portfolio.
    The Adviser's screening process narrows the small cap growth 
universe to approximately 150 stocks. These companies are then 
subjected to further fundamental analysis, including the following:

 Market return on equity
 Sufficiency of cash flow to cover capital spending
 Operating margin relative to price/sales
 Financial statement review, focusing on true equity value
 Enterprise value review and management review, including 
factors such as insider trading, stock option distribution and share 
buy backs.

    The Adviser expects that there will generally be between 25 and 40 
stocks in the Fund's portfolio. The Fund is non-diversified and 
therefore may invest a larger percentage of its assets in the 
securities of a single company than diversified funds. The portion of 
the Fund's net assets invested at any given time in securities of 
issuers engaged in industries within a particular sector is affected by 
valuation considerations and other investment characteristics of that 
sector. As a result, the Fund's investment in various sectors may 
change significantly over time.
    The Fund may invest in Small Cap ETFs to gain market exposure while 
the Fund builds a position in one or more specific stocks. 
Additionally, the Fund may invest a significant portion or all of its 
assets in Small Cap ETFs during periods when the Adviser believes that 
the stocks identified by the Adviser's analysis are likely to 
underperform the broader small cap market. The Adviser will sell a 
security from the Fund's portfolio under one or more of the following 
circumstances:
     A material change in the company's structure or 
management;
     A material change in the industry or economic factors 
affecting that industry;
     A position has grown to an unacceptable weight;
     Earnings momentum has decreased from previous estimates; 
or
     The security's price has become overvalued by 20% or more 
based on the Adviser's proprietary cash flow models.
    The Fund's investment in foreign equity securities will be in the 
form of ADRs and may include ADRs representing companies in emerging 
markets. With respect to its investments as part of its principal 
investment strategies in exchange-listed securities, the Fund will 
invest in such securities that trade in markets that are members of the 
Intermarket Surveillance Group (``ISG'').
Other Investments
    The Fund will invest in sponsored ADRs that are listed on ISG 
member exchanges and that the Adviser deems as liquid at time of 
purchase. In certain limited circumstances, the Fund may invest in ADRs 
that the Adviser deems illiquid at the time of purchase or for which 
pricing information is not readily available.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment). The Fund will monitor its portfolio liquidity 
on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid 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.\10\
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    \10\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), FN 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    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 does not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other registered investment companies.\11\
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    \11\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    While the Fund under normal circumstances will invest at least 80% 
of its assets in U.S. exchange-listed equity securities, the Fund may 
invest the remaining assets in equity securities traded over-the-
counter,\12\ money market instruments,\13\ and equity securities of 
open-end mutual funds, money market mutual funds and ETFs other than 
Small Cap ETFs.
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    \12\ Not more than 10% of the net assets of the Fund, in the 
aggregate, will be invested in unlisted equity securities or equity 
securities not listed on an exchange that is a member of the ISG or 
a party to a comprehensive surveillance sharing agreement with the 
Exchange.
    \13\ The term ``money market instruments,'' as used herein, 
means (i) short-term obligations issued by the U.S. Government; (ii) 
short term negotiable obligations of commercial banks, fixed time 
deposits and bankers' acceptances of U.S. and foreign banks and 
similar institutions; (iii) commercial paper rated at the date of 
purchase ``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' 
or ``A-1'' by Standard & Poor's or, if unrated, of comparable 
quality, as the Adviser of the Fund determines; and (iv) money 
market mutual funds.
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The Shares
    The Fund will issue and redeem Shares only in Creation Units at the 
net asset value (``NAV'') \14\ next determined

[[Page 11505]]

after receipt of an order on a continuous basis every day except 
weekends and specified holidays. The NAV of the Fund will be determined 
once each business day, normally as of the close of trading of the 
NYSE, generally, 4:00 p.m. Eastern time. Creation Unit sizes will be at 
least 25,000 Shares per Creation Unit. The Trust will issue and sell 
Shares of the Fund only in Creation Units on a continuous basis through 
the Distributor, without a sales load (but subject to transaction 
fees), at their NAV per Share next determined after receipt of an 
order, on any business day, in proper form pursuant to the terms of the 
agreement executed with each Authorized Participant (as defined below).
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    \14\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m. 
Eastern time (the ``NAV Calculation Time''). NAV per Share will be 
calculated by dividing the Fund's net assets by the number of Fund 
Shares outstanding. For more information regarding the valuation of 
Fund investments in calculating the Fund's NAV, see Registration 
Statement.
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    The consideration for purchase of a Creation Unit will consist of 
either (i) the in-kind deposit of a designated portfolio of securities 
(the ``Deposit Securities'') per each Creation Unit and the Cash 
Component (as defined below), computed as described below or (ii) the 
cash value of all or a portion of the Deposit Securities (``Deposit 
Cash'') and the ``Cash Component,'' computed as described below. The 
Fund may, under certain circumstances, effect a portion of creations 
and redemptions for cash, rather than in-kind securities, in accordance 
with the Exemptive Order. The Fund expects that the consideration for 
purchase of a Creation Unit will primarily consist of the in-kind 
deposit of the Deposit Securities.
    When accepting purchases of Creation Units for cash, the Fund may 
incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchaser. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component will constitute the ``Fund Deposit,'' which 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of the Fund. The ``Cash Component'' will be an amount 
equal to the difference between the NAV of the Shares (per Creation 
Unit) and the market value of the Deposit Securities or Deposit Cash, 
as applicable. If the Cash Component is a positive number (i.e., the 
NAV per Creation Unit exceeds the market value of the Deposit 
Securities or Deposit Cash, as applicable), the Cash Component will be 
such positive amount. If the Cash Component is a negative number (i.e., 
the NAV per Creation Unit is less than the market value of the Deposit 
Securities or Deposit Cash, as applicable), the Cash Component will be 
such negative amount and the creator will be entitled to receive cash 
in an amount equal to the Cash Component. The Cash Component will serve 
the function of compensating for any difference between the NAV per 
Creation Unit and the market value of the Deposit Securities or Deposit 
Cash, as applicable.
    To be eligible to place orders with respect to creations and 
redemptions of Creation Units, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC'') or (ii) a Depository Trust 
Company (``DTC'') Participant (a ``DTC Participant''). In addition, 
each Participating Party or DTC Participant (each, an ``Authorized 
Participant'') must execute an agreement that has been agreed to by the 
Distributor and USBFS with respect to purchases and redemptions of 
Creation Units.
    USBFS, through the NSCC, will make available on each business day, 
immediately prior to the opening of business on the Exchange's Regular 
Market Session (currently 9:30 a.m. Eastern time), the list of the 
names and the required number of shares of each Deposit Security and/or 
the required amount of Deposit Cash, as applicable, to be included in 
the current Fund Deposit (based on information at the end of the 
previous business day) for the Fund. Such Fund Deposit, subject to any 
relevant adjustments, will be applicable in order to effect purchases 
of Creation Units of the Fund until such time as the next announced 
composition of the Deposit Securities and/or the required amount of 
Deposit Cash, as applicable, is made available.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through USBFS and only on a business day.
    With respect to the Fund, USBFS, through the NSCC, will make 
available immediately prior to the opening of business on the Exchange 
(9:30 a.m. Eastern time) on each business day, the list of the names 
and share quantities of the Fund's portfolio securities (``Fund 
Securities'') and/or, if relevant, the required cash value thereof that 
will be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day. Fund 
Securities received on redemption may not be identical to Deposit 
Securities.
    Redemption proceeds for a Creation Unit will be paid either in kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities as announced by USBFS on 
the business day of the request for redemption received in proper form 
plus cash in an amount equal to the difference between the NAV of the 
Shares being redeemed, as next determined after a receipt of a request 
in proper form, and the value of the Fund Securities (the ``Cash 
Redemption Amount''), less a fixed redemption transaction fee and any 
applicable additional variable charge as set forth in the Registration 
Statement. In the event that the Fund Securities have a value greater 
than the NAV of the Shares, a compensating cash payment equal to the 
differential will be required to be made by or through an Authorized 
Participant by the redeeming shareholder. Notwithstanding the 
foregoing, at the Trust's discretion, an Authorized Participant may 
receive the corresponding cash value of the securities in lieu of one 
or more Fund Securities.
    The creation/redemption order cut off time for the Fund is expected 
to be 4:00 p.m. Eastern time for purchases of Shares. On days when the 
Exchange closes earlier than normal and in the case of custom orders, 
the Fund may require orders for Creation Units to be placed earlier in 
the day.
Net Asset Value
    The NAV per Share for the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares 
outstanding, rounded to the nearest cent. Expenses and fees, including 
the management fees, will be accrued daily and taken into account for 
purposes of determining NAV. The NAV of the Fund will be calculated by 
USBFS and determined at the close of the regular trading session on the 
NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange 
is open. In calculating the Fund's NAV per Share, investments will 
generally be valued by using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, a pricing 
service, or a major market maker (or dealer) or (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major

[[Page 11506]]

market maker (or dealer).\15\ Exchange-traded equities; exchange-traded 
ADRs and other exchange-traded securities will be valued at the 
official closing price on their principal exchange or board of trade, 
or lacking any current reported sale at the time of valuation, at the 
mean between the most recent bid and ask quotations on its principal 
exchange or board of trade. Portfolio securities traded on more than 
one securities exchange will be valued at the last sale price or 
official closing price, as applicable, on the business day as of which 
such value is being determined at the close of the exchange 
representing the principal market for such securities. Equity 
securities traded over-the-counter will be valued at the mean between 
the most recent bid and ask quotations received from pricing services; 
if recent bid and ask quotations are not available, these securities 
will be valued in accordance with the Fund's fair valuation procedures. 
Money market instruments with maturities of less than 60 days will be 
valued at amortized cost; money market instruments with longer 
maturities will be valued at the mid-point of the bid-ask prices. 
Investment company shares will be valued at NAV, unless the shares are 
exchange-traded, in which case they will be valued at the last sale or 
official closing price on the market on which they primarily trade.
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    \15\ Under normal market conditions, the Fund will obtain 
pricing information on all of its assets from these sources.
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    Notwithstanding the foregoing, in determining the value of any 
security or asset, the Fund may use a valuation provided by a pricing 
vendor employed by the Trust and approved by the Board of Trustees of 
the Trust (the ``Trust Board''). The pricing vendor may base such 
valuations upon dealer quotes, by analyzing the listed market, by 
utilizing matrix pricing, by analyzing market correlations and pricing 
and/or employing sensitivity analysis.
    The Adviser may use various pricing services, or discontinue the 
use of any pricing service, as approved by the Trust Board from time to 
time. A price obtained from a pricing service based on such pricing 
service's valuation matrix may be considered a market valuation. Any 
assets or liabilities denominated in currencies other than the U.S. 
dollar will be converted into U.S. dollars at the current market rates 
on the date of valuation as quoted by one or more sources.
    In the event that current market valuations are not readily 
available or such valuations do not reflect current market value, the 
Trust's procedures require the Trust's Valuation Committee to determine 
a security's fair value if a market price is not readily available in 
accordance with the 1940 Act.\16\ In determining such value the Trust's 
Valuation Committee may consider, among other things, (i) price 
comparisons among multiple sources, (ii) a review of corporate actions 
and news events, and (iii) a review of relevant financial indicators. 
In these cases, the Fund's NAV may reflect certain portfolio 
securities' fair values rather than their market prices. Fair value 
pricing may involve subjective judgments and it is possible that the 
fair value determination for a security is materially different than 
the value that could be realized upon the sale of the security.
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    \16\ The Valuation Committee of the Trust Board will be 
responsible for the oversight of the pricing procedures of the Fund 
and the valuation of the Fund's portfolio. The Fund has implemented 
procedures designed to prevent the use and dissemination of 
material, nonpublic information regarding valuation and revaluation 
of any portfolio investments.
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Availability of Information
    The Fund's Web site (www.alphamarkadvisors.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund: (1) The prior business day's 
reported NAV, mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\17\ 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 \18\ on the Exchange, the Fund 
will disclose on its Web site the identities and quantities of the 
portfolio of securities and other assets (the ``Disclosed Portfolio'') 
held by the Fund that will form the basis for the Fund's calculation of 
NAV at the end of the business day.\19\ On a daily basis, the Disclosed 
Portfolio will include each portfolio security and other financial 
instruments of the Fund with the following information on the Fund's 
Web site: Ticker symbol, CUSIP number or other identifier, if any; a 
description of the holding (including the type of holding); the 
identity of the security, index, or other asset or instrument 
underlying the holding, if any; quantity held (as measured by, for 
example, number of shares); maturity date, if any; coupon rate, if any; 
effective date, if any; market value of the holding; and the percentage 
weighting of the holdings in the Fund's portfolio. The Web site 
information will be publicly available at no charge.
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    \17\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of such Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \18\ 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).
    \19\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any business day may be 
booked and reflected in NAV on such business day. Accordingly, the 
Fund will be able to disclose at the beginning of the business day 
the portfolio that will form the basis for the NAV calculation at 
the end of the business day.
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    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service,\20\ will be based upon 
the current value for the components of the Disclosed Portfolio and 
will be updated and widely disseminated and broadly displayed at least 
every 15 seconds during the Regular Market Session. The Intraday 
Indicative Value will be based on quotes and closing prices from the 
securities' local market and may not reflect events that occur 
subsequent to the local market's close. Intra-day, executable price 
quotations on the securities and other assets held by the Fund, other 
than investment company securities that are not exchange-listed, will 
be available from major broker-dealer firms. Intra-day price 
information on the securities and other assets held by the Fund, other 
than investment company securities that are not exchange-listed, will 
also be available through subscription or free services that can be 
accessed by Authorized Participants and

[[Page 11507]]

other investors. Intra-day price information for exchange-traded equity 
securities; exchange-listed investment company securities; exchange-
traded ADRs; or other exchange-traded securities will be publicly 
available from the Web sites of the exchanges on which they trade, on 
public financial Web sites, and through subscription services such as 
Bloomberg and Thompson Reuters. Intra-day price information regarding 
over-the-counter equities (including certain investment company 
securities) and money market instruments, will be available through 
subscription services such as Markit, Bloomberg and Thompson Reuters.
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    \20\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and Intraday Indicative Values for ETFs. 
GIDS provides investment professionals with the daily information 
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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    Premiums and discounts between the Intraday Indicative Value and 
the market price of the Fund's shares 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.
    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.
    In addition, a basket composition file, which includes the security 
names, amounts and share quantities, as applicable, required to be 
delivered in exchange for the Fund's Shares, together with estimates 
and actual cash components, will be publicly disseminated daily prior 
to the opening of Nasdaq via NSCC. The basket will represent one 
Creation Unit of the Fund.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR. The Fund's SAI and Shareholder Reports will be available 
free upon request from the Fund, and those documents and the Form N-CSR 
and Form N-SAR may be viewed on-screen or downloaded from the 
Commission's Web site at www.sec.gov. Information regarding market 
price and volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. Information regarding the previous day's closing 
price and trading volume information for the Shares will be published 
daily in the financial section of newspapers. Quotation and last sale 
information for the Shares will be available via Nasdaq proprietary 
quote and trade services and via the Consolidated Tape Association 
plans for the Shares. Similarly, quotation and last sale information 
for any underlying exchange-traded products will also be available via 
the quote and trade services of their respective primary exchanges, as 
well as in accordance with the Unlisted Trading Privileges and the 
Consolidated Tape Association plans, as applicable.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes is included 
in the Registration Statement.
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 \21\ 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.
---------------------------------------------------------------------------

    \21\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts and Trading Pauses
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt or pause trading in 
the Shares under the conditions specified in Nasdaq Rules 4120 and 
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and 
(12). Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
constituting the Disclosed Portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. Trading in the Shares also will be 
subject to Rule 5735(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. Eastern time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\22\ 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.
---------------------------------------------------------------------------

    \22\ 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; exchange-traded equities, including 
ADRs; exchange-listed investment companies; or other exchange-traded 
securities with other markets and other entities that are ISG members, 
and FINRA, on behalf of the Exchange, may obtain trading information 
regarding trading in the Shares, exchange-traded equities, including 
ADRs, exchange-listed investment companies, or other exchange-traded 
securities from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares; 
exchange-traded equities, including ADRs; exchange-listed investment 
companies; or other exchange-traded securities from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\23\
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    \23\ For a list of the current members of ISG, see 
www.isgportal.org.

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[[Page 11508]]

    Not more than 10% of the net assets of the Fund, in the aggregate, 
will be invested in unlisted common stocks or common stocks not listed 
on an exchange that is a member of the ISG or a party to a 
comprehensive surveillance sharing agreement with the Exchange.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, nonpublic 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) the dissemination of 
information regarding the Intraday Indicative Value through major index 
service providers such as NASDAQ OMX proprietary index data services or 
other major market proprietary index services; (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; (6) trading 
information; and (7) the dissemination of the Disclosed Portfolio 
through the Fund's Web site.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
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 \24\ in general and Section 6(b)(5) of the Act \25\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \24\ 15 U.S.C. 78f.
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on Nasdaq during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws.
    The exchange-traded equities; exchange-listed investment companies; 
or other exchange-traded securities in which the Fund may invest will 
be limited to U.S. exchanges that are members of the ISG or are parties 
to a comprehensive surveillance sharing agreement with the Exchange. 
The Exchange may obtain information via ISG from other exchanges that 
are members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
    The Fund will pursue its objectives by investing primarily, i.e., 
at least 80% of its assets under normal market conditions, in a 
portfolio of equity securities of small cap companies listed on a U.S. 
exchange. The equity securities held by the Fund may also include 
publicly-traded exchange-listed common stocks of non-U.S. issuers in 
the form of ADRs.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment). The Fund may not invest 25% or more of the 
value of its total assets in securities of issuers in any one industry 
or group of industries.
    Not more than 10% of the net assets of the Fund, in the aggregate, 
will be invested in unlisted common stocks or common stocks not listed 
on an exchange that is a member of the ISG or a party to a 
comprehensive surveillance sharing agreement with the Exchange. The 
Adviser is not a broker-dealer, and is not affiliated with any broker-
dealer. In the event (a) the Adviser becomes 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 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 nonpublic 
information regarding the open-end fund's portfolio.
    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 Fund that the 
NAV per Share will be calculated daily and that the NAV and the 
Disclosed Portfolio will be made available to all market participants 
at the same time. In addition, a large amount of information will be 
publicly available regarding the Fund and the Shares, thereby promoting 
market transparency. The Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service, will be 
widely disseminated by one or more major market data vendors and 
broadly displayed at least every 15 seconds during the Regular Market 
Session. On each business day, before commencement of trading in Shares 
in the Regular Market Session on the Exchange, the Fund will disclose 
on 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 also be 
available via Nasdaq proprietary quote and trade services and via the 
Consolidated Tape Association plans for the Shares. Similarly, 
quotation and last sale information for any underlying exchange-traded 
products will also be available via the quote and trade services of 
their respective primary

[[Page 11509]]

exchanges, as well as in accordance with the Unlisted Trading 
Privileges and the Consolidated Tape Association plans, as applicable. 
Intra-day, executable price quotations on the securities and other 
assets held by the Fund, other than investment company securities that 
are not exchange-listed will be available from major broker-dealer 
firms or on the exchange on which they are traded, if applicable. 
Intra-day price information will also be available through subscription 
services, such as Bloomberg, Markit and Thomson Reuters, which can be 
accessed by Authorized Participants and other investors.
    The Web site for the Fund will include the prospectus for the Fund 
and additional data relating to NAV and other applicable quantitative 
information. Trading in Shares of the Fund will be halted or paused 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may 
be halted because of market conditions or for reasons that, in the view 
of the Exchange, make trading in the Shares inadvisable, and trading in 
the Shares will be subject to Nasdaq Rule 5735(d)(2)(D), which sets 
forth circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Intraday Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate up if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-013 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-013. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2015-013, and should 
be submitted on or before March 24, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Jill M. Peterson,
Assistant Secretary.
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    \26\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-04333 Filed 3-2-15; 8:45 am]
BILLING CODE 8011-01-P


