
[Federal Register Volume 81, Number 48 (Friday, March 11, 2016)]
[Notices]
[Pages 12990-12996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05432]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77301; File No. SR-NASDAQ-2016-028]


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 iSectors Post-MPT Growth ETF of ETFis 
Series Trust I

March 7, 2016.
    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 23, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by Nasdaq. 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 Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the iSectors Post-
MPT Growth ETF (the ``Fund''), a series of ETFis Series Trust I (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. 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 the 
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 
September 20, 2012.\5\ The Trust is registered with the Commission as 
an investment company and has filed a registration statement on Form N-
1A (``Registration Statement'') with the Commission.\6\ The Fund is a 
series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1)(the ``1940 Act'') organized as 
an open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \5\ The Commission has issued an order, upon which the Trust may 
rely, granting certain exemptive relief under the 1940 Act. See 
Investment Company Act Release No. 30607 (July 23, 2013). 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 (15 U.S.C. 77a).
    \6\ See Registration Statement on Form N-1A for the Trust filed 
on December 2, 2015 (File Nos. 333-187668 and 811-22819). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
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    Virtus ETF Advisers LLC will be the investment adviser 
(``Adviser'') to the Fund. iSectors, LLC will be the investment sub-
adviser (``Sub-Adviser'') to the Fund. ETF Distributors LLC (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. The Bank of New York Mellon (``BNY Mellon'') will 
act as the administrator, accounting agent, custodian, and transfer 
agent to the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser and Sub-Adviser are not registered as broker-
dealers; however the Adviser (but not the Sub-Adviser) is affiliated 
with a broker-dealer and has implemented a fire wall with respect to 
such broker-dealer

[[Page 12991]]

regarding access to information concerning the composition and/or 
changes to the portfolio.
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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, 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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    In addition, personnel who make decisions on the Fund's portfolio 
composition will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
portfolio. In the event (a) the Adviser or the Sub-Adviser registers as 
a broker dealer or becomes newly affiliated with a broker-dealer, or 
(b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with another broker-dealer, it will implement a fire 
wall with respect to its relevant personnel and/or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition and/or changes to the portfolio and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
iSectors Post MPT Growth ETF
Principal Investments
    The Fund's investment objective will be to provide growth of 
capital, with a secondary emphasis on capital preservation, independent 
of individual market conditions. The Fund will be an actively managed 
ETF that seeks to achieve its investment objective by utilizing a long-
only, tactically-managed exposure to sectors of the U.S. equity market 
and U.S. fixed income markets. To obtain such exposure, the Sub-Adviser 
will invest, under normal market conditions,\8\ the Fund's assets in 
ETFs,\9\ exchange-traded notes (``ETNs''),\10\ exchange-traded trusts 
that hold commodities (``ETTs'') (collectively, ETFs, ETNs and ETTs are 
referred to hereinafter as ``exchange-traded products'' or 
``ETPs''),\11\ individually selected U.S. exchange-traded common stocks 
(when the Sub-Adviser determines that is more efficient or otherwise 
advantageous to do so), money market funds, U.S. treasuries \12\ or 
money market instruments. To the extent that the Fund invests in ETPs 
or money market funds to gain domestic exposure, the Fund is 
considered, in part, a ``fund of funds.''
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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 equity and fixed income markets 
or the financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. For temporary 
defensive purposes, during the initial invest-up period and during 
periods of high cash inflows or outflows, the Fund may depart from 
its principal investment strategies; for example, it may hold a 
higher than normal proportion of its assets in cash. During such 
periods, the Fund may not be able to achieve its investment 
objective. The Fund may adopt a defensive strategy when the Adviser 
believes securities in which the Fund normally invests have elevated 
risks due to political or economic factors and in other 
extraordinary circumstances.
    \9\ As described in the Registration Statement, an ETF is an 
investment company registered under the 1940 Act that holds a 
portfolio of securities. Many ETFs are designed to track the 
performance of a securities index, including industry, sector, 
country and region indexes. ETFs included in the Fund will be listed 
and traded in the U.S. on registered exchanges. The Fund may invest 
in the securities of ETFs in excess of the limits imposed under the 
1940 Act pursuant to exemptive orders obtained by other ETFs and 
their sponsors from the Commission. The ETFs in which the Fund may 
invest include Index Fund Shares (as described in Nasdaq Rule 5705), 
Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), 
and Managed Fund Shares (as described in Nasdaq Rule 5735). The Fund 
may invest in leveraged ETFs (e.g., 2X or 3X), but will not invest 
in inverse or inverse leveraged ETFs (e.g., -1X or -2X). No more 
than 25% of the Fund's holdings will be invested in leveraged ETFs. 
The shares of ETFs in which a Fund may invest will be limited to 
securities that trade in markets that are members of the ISG, which 
includes all U.S. national securities exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
    \10\ The ETNs are limited to those described in Nasdaq Rule 
5710.
    \11\ The Fund may invest in the following ETPs: trust 
certificates, commodity-based trust shares, currency trust shares, 
commodity index trust shares, commodity futures trust shares, 
partnership units, trust units, and managed trust securities (as 
described in Nasdaq Rule 5711); paired class shares (as described in 
Nasdaq Rule 5713); trust issued receipts (as described in Nasdaq 
Rule 5720); and exchange-traded managed fund shares (as described in 
Nasdaq Rule 5745).
    \12\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which 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.
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Other Investments
    In order to seek its investment objective, the Fund will not employ 
other strategies outside of the above-described ``Principal 
Investments.''
Investment Restrictions
    Under normal market conditions, the Fund will invest its total 
assets in shares of ETPs, individually selected U.S. exchange-traded 
common stocks (when the Sub-Adviser determines that is more efficient 
or otherwise advantageous to do so), money market funds, U.S. 
treasuries or money market instruments. The Fund will not purchase 
securities of open-end investment companies except in compliance with 
the 1940 Act. The Fund will not use derivative instruments, including 
options, swaps, forwards and futures contracts. The Fund will not 
invest in inverse or leveraged inverse ETPs.\13\
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    \13\ See supra note 9.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities and 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 securities or other illiquid assets. Illiquid securities and 
other 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.\14\
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    \14\ 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''); and 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); and 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 intends to qualify for and to elect to be treated as a 
separate regulated investment company under SubChapter M of the 
Internal Revenue Code.\15\
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    \15\ 26 U.S.C. 851.
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    Under the 1940 Act, the Fund's investment in investment companies 
will be limited to, subject to certain exceptions: (i) 3% of the total 
outstanding voting stock of any one investment company, (ii) 5% of the 
Fund's total assets with respect to any one investment company, and 
(iii) 10% of the Fund's total assets with respect to investment 
companies in the aggregate.
    The Fund's investments will be consistent with its investment 
objective. The Fund does not presently intend to engage in any form of 
borrowing for investment purposes, and will not be operated as a 
``leveraged ETF'', i.e., it

[[Page 12992]]

will not be operated in a manner designed to seek a multiple of the 
performance of an underlying reference index.
Net Asset Value
    The Fund's net asset value (``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. NAV 
will be calculated for the Fund by taking the market price of the 
Fund's total assets, including interest or dividends accrued but not 
yet collected, less all liabilities, and dividing such amount by the 
total number of Shares outstanding. The result, rounded to the nearest 
cent, will be the NAV per Share. All valuations will be subject to 
review by the Trust's Board (``Board'') or its delegate.
    The Fund's investments will be valued at market value (i.e., the 
price at which a security is trading and could presumably be purchased 
or sold) or, in the absence of market value with respect to any 
investment, at fair value in accordance with valuation procedures 
adopted by the Board and in accordance with the 1940 Act. Common stocks 
and equity securities (including shares of ETPs) will be valued at the 
last sales price on that exchange. Portfolio securities traded on more 
than one securities exchange will be valued at the last sale price or, 
if so disseminated by an exchange, the official closing price, as 
applicable, at the close of the exchange representing the principal 
exchange or market for such securities on the business day as of which 
such value is being determined. U.S. treasuries are valued using quoted 
market prices, and money market funds are valued at the net asset value 
reported by the funds. Money market instruments will typically be 
valued using information provided by a third party pricing service. For 
all security types in which the Fund may invest, the Fund's primary 
pricing source is Interactive Data Corp.; its secondary source is 
Reuters; and its tertiary source is Bloomberg.
    Certain securities may not be able to be priced by pre-established 
pricing methods. Such securities may be valued by the Board or its 
delegate at fair value. The use of fair value pricing by the Fund will 
be governed by valuation procedures adopted by the Board and in 
accordance with the provisions of the 1940 Act. As a general principle, 
the current ``fair value'' of a security would appear to be the amount 
which the owner might reasonably expect to receive for the security 
upon its current sale. The use of fair value prices by the Fund 
generally results in the prices used by the Fund that may differ from 
current market quotations or official closing prices on the applicable 
exchange. A variety of factors may be considered in determining the 
fair value of such securities.
Creation and Redemption of Shares
    The Trust will issue and sell Shares of the Fund only in Creation 
Unit aggregations in exchange for an in-kind portfolio of securities 
and/or cash in lieu of such securities, and only in aggregations of 
50,000 Shares, on a continuous basis through the Distributor, without a 
sales load, at the NAV next determined after receipt, on any business 
day, of an order in proper form.
    The consideration for purchase of Creation Unit aggregations of the 
Fund will consist of (i) a designated portfolio of securities 
determined by the Adviser that generally will conform to the holdings 
of the Fund consistent with its investment objective (the ``Deposit 
Securities'') per each Creation Unit aggregation and generally an 
amount of cash (the ``Cash Component'') computed as described below, or 
(ii) cash in lieu of all or a portion of the Deposit Securities, as 
defined below. Together, the Deposit Securities and the Cash Component 
(including the cash in lieu amount) will constitute the ``Fund 
Deposit,'' which will represent the minimum initial and subsequent 
investment amount for a Creation Unit aggregation of the Fund.
    The consideration for redemption of Creation Unit aggregations of 
the Fund will consist of (i) a designated portfolio of securities 
determined by the Adviser that generally will conform to the holdings 
of the Fund consistent with its investment objective per each Creation 
Unit aggregation (``Fund Securities'') and generally a Cash Component, 
as described below, or (ii) cash in lieu of all or a portion of the 
Fund Securities as defined below.
    The Cash Component is sometimes also referred to as the Balancing 
Amount. The Cash Component will serve the function of compensating for 
any differences between the NAV per Creation Unit aggregation and the 
Deposit Amount (as defined below). For example, for a creation the Cash 
Component will be an amount equal to the difference between the NAV of 
Fund Shares (per Creation Unit aggregation) and the ``Deposit 
Amount''--an amount equal to the market value of the Deposit Securities 
and/or cash in lieu of all or a portion of the Deposit Securities. If 
the Cash Component is a positive number (i.e., the NAV per Creation 
Unit aggregation exceeds the Deposit Amount), the Authorized 
Participant (defined below) will deliver the Cash Component. If the 
Cash Component is a negative number (i.e., the NAV per Creation Unit 
aggregation is less than the Deposit Amount), the Authorized 
Participant will receive the Cash Component.
    BNY Mellon, through the National Securities Clearing Corporation 
(``NSCC''), will make available on each business day, prior to the 
opening of business of the Exchange (currently 9:30 a.m., E.T.), the 
list of the names and the quantity of each Deposit Security to be 
included in the current Fund Deposit (based on information at the end 
of the previous business day). Such Fund Deposit will be applicable, 
subject to any adjustments as described below, in order to effect 
creations of Creation Unit aggregations of the Fund until such time as 
the next-announced composition of the Deposit Securities is made 
available. BNY Mellon, through the NSCC, will also make available on 
each business day, prior to the opening of business of the Exchange 
(currently 9:30 a.m., E.T.), the list of the names and the quantity of 
each security to be included (based on information at the end of the 
previous business day), subject to any adjustments as described below, 
in order to affect redemptions of Creation Unit aggregations of the 
Fund until such time as the next-announced composition of the Fund 
Securities is made available.
    The Trust will reserve the right to permit or require the 
substitution of an amount of cash, i.e., a ``cash in lieu'' amount, to 
be added to the Cash Component to replace any Deposit Security that may 
not be available in sufficient quantity for delivery or which might not 
be eligible for trading by an Authorized Participant or the investor 
for which it is acting or other relevant reason. To the extent the 
Trust effects the redemption of Shares in cash, such transactions will 
be effected in the same manner for all Authorized Participants.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Securities of a Fund Deposit, BNY 
Mellon, through the NSCC, will also make available on each business 
day, the estimated Cash Component, effective through and including the 
previous business day, per Creation Unit aggregation of the Fund.
    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 NSCC or 
(ii)

[[Page 12993]]

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 BNY Mellon 
with respect to purchases and redemptions of Creation Units.
    All orders to create Creation Unit aggregations must be received by 
the Distributor no later than 3:00 p.m., E.T., an hour earlier than the 
closing time of the regular trading session on the Exchange (ordinarily 
4:00 p.m., E.T.), in each case on the date such order is placed in 
order for creations of Creation Unit aggregations to be effected based 
on the NAV of Shares of the Fund as next determined on such date after 
receipt of the order in proper form.
    In order to redeem Creation Units of the Fund, an Authorized 
Participant must submit an order to redeem for one or more Creation 
Units. All such orders must be received by the Distributor in proper 
form no later than 3:00 p.m., E.T., an hour earlier than the close of 
regular trading on the Exchange (ordinarily 4:00 p.m., E.T.), in order 
to receive that day's closing NAV per Share.
Availability of Information
    The Fund's Web site (www.isectorsetfs.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include the Fund's ticker, CUSIP and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price'') \16\ 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 \17\ on the 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (the 
``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held by 
the Fund that will form the basis for the Fund's calculation of NAV at 
the end of the business day.\18\
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    \16\ 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 the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \17\ 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. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
    \18\ 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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    On a daily basis, the Fund will disclose for each portfolio 
security and other asset of the Fund the following information on the 
Fund's Web site (if applicable): 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, index, or other 
asset or instrument underlying the holding, if any; 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.
    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 \19\ will be based upon 
the current value for the components of the Disclosed Portfolio and 
will be updated and widely disseminated by one or more major market 
data vendors and broadly displayed at least every 15 seconds during the 
Regular Market Session. The 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.
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    \19\ Currently, the Nasdaq Global Index Data Service (``GIDS'') 
is the Nasdaq 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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    Price information regarding the ETPs, equity securities, U.S. 
treasuries, money market instruments and money market funds held by the 
Fund will be available through the U.S. exchanges trading such assets, 
in the case of exchange-traded securities, as well as automated 
quotation systems, published or other public sources, or on-line 
information services such as Bloomberg or Reuters. For all security 
types in which the Fund may invest, the Fund's primary pricing source 
is Interactive Data Corp.; its secondary source is Reuters; and its 
tertiary source is Bloomberg.
    Intra-day price information for all assets held by the Fund will 
also be available through subscription services, such as Bloomberg, 
Markit and Thomson Reuters, which can be accessed by Authorized 
Participants and other investors.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's Shareholder Reports, and 
its Form N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and 
Shareholder Reports will be available free upon request from the Fund, 
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. 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 and any underlying exchange-
traded products will be available via Nasdaq proprietary quote and 
trade services, as well as in accordance with the Unlisted Trading 
Privileges and the Consolidated Tape Association plans for the Shares.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes will be 
included in the Registration Statement.
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 \20\ under

[[Page 12994]]

the Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
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    \20\ See 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and other assets constituting the Disclosed Portfolio of 
the Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. E.T. 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.\21\ The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
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    \21\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and other exchange-traded securities 
and instruments, including the common stock and shares held by the Fund 
with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG'') \22\ and FINRA may obtain 
trading information regarding trading in the Shares and such exchange-
traded securities and instruments held by the Fund from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and such exchange-traded securities and 
instruments held by the Fund from markets and other entities that are 
members of ISG,\23\ or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. The Fund's net assets 
that are invested in exchange-traded equities, including ETPs and 
common stock, will be invested in securities that trade in markets that 
are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange. Moreover, FINRA, on behalf of the 
Exchange, will be able to access, as needed, trade information for 
certain fixed-income securities held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
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    \22\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
    \23\ Id.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and Disclosed Portfolio is disseminated; 
(4) the risks involved in trading the Shares during the Pre-Market and 
Post-Market Sessions when an updated Intraday Indicative Value will not 
be calculated or publicly disseminated; (5) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
    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 in general and Section 6(b)(5) of the Act in particular in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and in general, to protect 
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange

[[Page 12995]]

pursuant to the initial and continued listing criteria in Nasdaq Rule 
5735. The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by both 
Nasdaq and FINRA on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws. In addition, paragraph (g) of Nasdaq Rule 5735 further requires 
that personnel who make decisions on the open-end fund's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
open-end fund's portfolio. The Fund's investments will be consistent 
with the Fund's investment objective. FINRA may obtain information via 
ISG from other exchanges that are members of ISG. In addition, the 
Exchange may obtain information regarding trading in the Shares and 
other exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG, which includes all 
U.S. and some foreign securities and futures exchanges, or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. Moreover, FINRA, on behalf of the Exchange, will be able to 
access, as needed, trade information for certain fixed-income 
securities held by the Fund reported to FINRA's TRACE.
    The Fund may invest up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment). The 
proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service will be widely disseminated by one or 
more major market data vendors 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 of the Fund 
that will form the basis for the Fund's calculation of NAV at the end 
of the business day. Information regarding market price and trading 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information for the Shares will 
be available via Nasdaq proprietary quote and trade services, as well 
as in accordance with the Unlisted Trading Privileges and the 
Consolidated Tape Association plans for the Shares and any underlying 
exchange-traded securities. Intra-day price information will be 
available through subscription services, such as Bloomberg, Markit and 
Thomson Reuters, which can be accessed by Authorized Participants and 
other investors.
    The Fund's Web site will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Fund will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121 or because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and other exchange-traded securities and instruments held by the Fund 
with other markets and other entities that are members of the ISG and 
FINRA may obtain trading information regarding trading in the Shares 
and other exchange-traded securities and instruments held by the Fund 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and other exchange-
traded securities and instruments held by the Fund from markets and 
other entities that are members of ISG, which includes all U.S. and 
some foreign securities and futures exchanges, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
Furthermore, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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

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

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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(a) By order approve or disapprove 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

[[Page 12996]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-028 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-028. 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 the filing also will be available for inspection 
and copying at the principal office of Nasdaq. 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-2016-028 and should be submitted 
on or before April 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Robert W. Errett,
Deputy Secretary.
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    \24\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-05432 Filed 3-10-16; 8:45 am]
 BILLING CODE 8011-01-P


