
[Federal Register Volume 81, Number 82 (Thursday, April 28, 2016)]
[Notices]
[Pages 25467-25473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77688; File No. SR-NASDAQ-2016-030]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, Relating to the Listing and Trading of the Shares of the 
Elkhorn Dorsey Wright Commodity Rotation Portfolio of Elkhorn ETF Trust

April 22, 2016.

I. Introduction

    On February 26, 2016, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Elkhorn Dorsey Wright Commodity Rotation Portfolio (``Fund''). The 
proposed rule change was published for comment in the Federal Register 
on March 16, 2016.\3\ The Commission received one comment on the 
proposal.\4\ On April 15, 2016, the Exchange filed Amendment No. 1 to 
the proposed rule change.\5\ This order

[[Page 25468]]

grants approval of the proposed rule change, as modified by Amendment 
No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77338 (March 10, 
2016), 81 FR 14142 (``Notice'').
    \4\ See Letter from Anonymous to the Commission, dated April 8, 
2016 (``Anonymous Letter''), available at: http://www.sec.gov/comments/sr-nasdaq-2016-030/nasdaq2016030-1.htm (commenting in favor 
of the Exchange's proposal).
    \5\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange made the following 
clarifications: (1) The Fund may invest in commercial paper only if 
it has received the highest rating from at least one nationally 
recognized statistical rating organization or, if unrated, has been 
judged by the Adviser (as defined herein) and/or a Sub-Adviser (as 
defined herein) to be of comparable quality; (2) the Fund and the 
Subsidiary (as defined herein) will not invest in leveraged or 
inverse leveraged securities of investment companies; (3) the 
commodity-linked instruments in which the Fund invests will be 
listed and traded in the U.S. on registered exchanges; (4) with 
respect to the futures contracts and exchange-traded options on 
futures contracts in which the Subsidiary invests, not more than 10% 
of the weight (to be calculated as the value of the contract divided 
by the total absolute notional value of the Subsidiary's futures and 
options contracts) of the futures and options contracts held by the 
Subsidiary in the aggregate shall consist of instruments whose 
principal trading market (a) is not a member of the Intermarket 
Surveillance Group (``ISG'') or (b) is a market with which the 
Exchange does not have a comprehensive surveillance sharing 
agreement, provided that, so long as the Exchange may obtain market 
surveillance information with respect to transactions occurring on 
the Commodity Exchange pursuant to the ISG memberships of the 
Chicago Mercantile Exchange, the Chicago Board of Trade and the New 
York Mercantile Exchange, futures and options contracts whose 
principal trading market is the Commodity Exchange shall not be 
subject to the prohibition in (a); (5) all statements and 
representations made in the proposal regarding the description of 
the portfolio, limitations on portfolio holdings or reference 
assets, or the applicability of Exchange rules and surveillance 
procedures shall constitute continued listing requirements for 
listing the Shares on the Exchange; (6) the issuer has represented 
to the Exchange that it will advise the Exchange of any failure by 
the Fund to comply with the continued listing requirements; (7) 
pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements; and (8) if the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence 
delisting procedures under the Nasdaq 5800 Series. Amendment No. 1 
also corrects a typographical error and makes other edits of a 
technical nature. Because Amendment No. 1 to the proposed rule 
change does not materially alter the substance of the proposed rule 
change or raise unique or novel regulatory issues, Amendment No. 1 
is not subject to notice and comment (Amendment No. 1 to the 
proposed rule change is available at: http://www.sec.gov/comments/sr-nasdaq-2016-030/nasdaq2016030-2.pdf).
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II. Exchange's Description of the Proposed Rule Change

    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 on the Exchange. The Shares will be offered by the 
Elkhorn ETF Trust (``Trust''), which was established as a Massachusetts 
business trust on December 12, 2013.\6\ Elkhorn Investments, LLC will 
be the investment adviser (``Adviser'') to the Fund. It is currently 
anticipated that day-to-day portfolio management for the Fund will be 
provided by the Adviser. However, the Fund and the Adviser may contract 
with an investment sub-adviser (``Sub-Adviser'') to provide day-to-day 
portfolio management for the Fund. ALPS Distributors, Inc. 
(``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. The Fund will contract with unaffiliated third 
parties to provide administrative, custodial and transfer agency 
services to the Fund. The Exchange represents that the Adviser is not a 
broker-dealer, although it is affiliated with a broker-dealer, and it 
has implemented a firewall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition of, and 
changes to, the portfolio.\7\
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    \6\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). See Registration 
Statement on Form N-1A for the Trust dated February 18, 2016 (File 
Nos. 333-201473 and 811-22926) (``Registration Statement''). The 
Exchange further states that the Trust has obtained certain 
exemptive relief under the 1940 Act (File No. 812-14262).
    \7\ See Nasdaq Rule 5735(g). The Exchange further represents 
that, in the event (a) the Adviser or a Sub-Adviser becomes, or 
becomes newly affiliated with, a broker-dealer or registers as a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a firewall with respect to its relevant personnel or 
broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition of, and changes to, the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
the portfolio.
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    The Exchange has made the following representations and statements 
describing the Fund and the Fund's investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\8\
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    \8\ The Commission notes that additional information regarding 
the Fund, the Trust, the Subsidiary (as defined herein), and the 
Shares, including investment strategies, risks, creation and 
redemption procedures, fees, portfolio holdings disclosure policies, 
calculation of net asset value (``NAV''), distributions, and taxes, 
among other things, can be found in the Notice and the Registration 
Statement, as applicable. See Notice and Registration Statement, 
supra notes 3 and 6, respectively.
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A. Exchange's Description of the Fund's Investments

    According to the Exchange, the Fund's investment objective will be 
to provide total return which exceeds that of the DWA Commodity 
Rotation Index (``Benchmark'').\9\ The Fund will seek excess return 
above the Benchmark solely through the active management of a short 
duration portfolio of highly liquid, high quality bonds.
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    \9\ The Benchmark is developed, maintained, and sponsored by 
Dorsey, Wright & Associates, LLC.
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    The Fund will be an actively-managed exchange-traded fund (``ETF'') 
that seeks to achieve its investment objective by, under normal market 
conditions,\10\ investing in exchange-traded commodity futures 
contracts, exchange-cleared and non-exchange-cleared swaps,\11\ 
exchange-traded options on futures contracts, and exchange-traded 
commodity-linked instruments\12\ (collectively, ``Commodities'') 
through a wholly-owned subsidiary controlled by the Fund and organized 
under the laws of the Cayman Islands (``Subsidiary''), thereby 
obtaining exposure to the commodities markets.
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    \10\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income markets, futures markets or the financial 
markets generally; operational issues causing dissemination of 
inaccurate market information; or force majeure type events such as 
systems failure, natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
    \11\ Investments in non-exchange-cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net 
assets. When investing in non-exchange-cleared swaps, the Subsidiary 
(as defined herein) will seek, where possible, to use 
counterparties, as applicable, whose financial status is such that 
the risk of default is reduced; however, the risk of losses 
resulting from default is still possible. The Adviser and/or a Sub-
Adviser will evaluate the creditworthiness of counterparties on an 
ongoing basis. In addition to information provided by credit 
agencies, the Adviser's and/or a Sub-Adviser's analysis will 
evaluate each approved counterparty using various methods of 
analysis, and may consider such factors as the counterparty's 
liquidity, its reputation, the Adviser's and/or Sub-Adviser's past 
experience with the counterparty, its known disciplinary history, 
and its share of market participation.
    \12\ Exchange-traded commodity-linked instruments include: (1) 
ETFs that provide exposure to commodities, as would be listed under 
Nasdaq Rules 5705 and 5735; and (2) pooled investment vehicles that 
invest primarily in commodities and commodity-linked instruments, as 
would be listed under Nasdaq Rules 5710 and 5711(b), (d), (f), (g), 
(h), (i) and (j).
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    The Fund's Commodities investments, in part, will be comprised of 
exchange-traded futures contracts on commodities that comprise the 
Benchmark. Although the Fund, through the Subsidiary, will generally 
hold many of the futures contracts included in the Benchmark, the Fund 
and the Subsidiary will be actively managed and will not be obligated 
to invest in all the futures contracts on commodities that comprise the 
Benchmark. In addition, with respect to investments in exchange-traded 
futures contracts, the Fund and the Subsidiary will not be obligated to 
invest in the same amount or proportion as the Benchmark, or be 
obligated to track the performance of the Benchmark. In addition to 
exchange-traded futures contracts, the Fund's Commodities investments 
will also be comprised of exchange-cleared and non-exchange-cleared 
swaps on commodities, exchange-traded options on futures contracts that 
provide exposure to the investment returns of the commodities markets, 
and exchange-traded commodity-linked instruments, without investing 
directly in physical commodities. The Fund will invest in Commodities 
through investments in the Subsidiary and will not invest directly in 
physical commodities. The Fund's investment in the Subsidiary may not 
exceed 25% of the Fund's total assets.
    In addition to Commodities, the Fund may invest its assets in (1) 
the following short-term debt instruments:\13\ fixed rate and floating 
rate U.S. government securities, including bills, notes and bonds 
differing as to maturity and rates

[[Page 25469]]

of interest, which are either issued or guaranteed by the U.S. Treasury 
or by U.S. government agencies or instrumentalities;\14\ certificates 
of deposit issued against funds deposited in a bank or savings and loan 
association; bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions; repurchase 
agreements,\15\ which involve purchases of debt securities; bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; and commercial paper, which are short-term unsecured 
promissory notes (collectively, ``Short-Term Debt Instruments'');\16\ 
(2) corporate debt obligations;\17\ (3) money market instruments;\18\ 
(4) investment companies (other than those that are commodity-linked 
instruments),\19\ including both exchange-traded and non-exchange-
traded investment companies, that provide exposure to (a) commodities, 
(b) equity securities, and (c) fixed income securities, to the extent 
permitted under the 1940 Act and any applicable exemptive relief;\20\ 
and (5) cash and other cash equivalents (collectively, ``Other 
Investments''). The Fund will use the Other Investments as investments, 
to provide liquidity, and to collateralize the Subsidiary's commodity 
exposure on a day-to-day basis.
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    \13\ Short-term debt instruments are issued by issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings 
Services, Moody's Investors Service, Inc., or Fitch Ratings, and 
have a maturity of one year or less.
    \14\ 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.
    \15\ According to the Exchange, the Fund intends to enter into 
repurchase agreements only with financial institutions and dealers 
believed by the Adviser and/or a Sub-Adviser to present minimal 
credit risks in accordance with criteria approved by the Board of 
Trustees of the Trust (``Board''). The Adviser and/or a Sub-Adviser 
will review and monitor the creditworthiness of such institutions. 
The Adviser and/or a Sub-Adviser will monitor the value of the 
collateral at the time the transaction is entered into and at all 
times during the term of the repurchase agreement.
    \16\ The Fund may invest in commercial paper only if it has 
received the highest rating from at least one nationally recognized 
statistical rating organization or, if unrated, has been judged by 
the Adviser and/or a Sub-Adviser to be of comparable quality.
    \17\ At least 75% of corporate debt obligations will have a 
minimum principal amount outstanding of $100 million or more.
    \18\ For the Fund's purposes, money market instruments will 
include only the following instruments: short-term, high-quality 
securities issued or guaranteed by non-U.S. governments, agencies 
and instrumentalities; non-convertible corporate debt securities 
with remaining maturities of not more than 397 days that satisfy 
ratings requirements under Rule 2a-7 under the 1940 Act; and money 
market mutual funds.
    \19\ According to the Exchange, the Fund may invest in the 
securities of certain other investment companies in excess of the 
limits imposed under the 1940 Act pursuant to an exemptive order 
obtained by the Trust and the Adviser from the Commission. The 
exchange-traded investment companies in which the Fund may invest 
include Index Fund Shares (as described in Nasdaq Rule 5705), 
Portfolio Depository Receipts (as described in Nasdaq Rule 5705), 
and Managed Fund Shares (as described in Nasdaq Rule 5735). The non-
exchange-traded investment companies in which the Fund may invest 
include all non-exchange-traded investment companies that are not 
money market instruments, as described above. While the Fund and the 
Subsidiary may invest in inverse commodity-linked instruments or 
securities of investment companies, the Fund and the Subsidiary will 
not invest in leveraged or inverse leveraged (e.g., 2X or -3X) 
commodity-linked instruments or securities of investment companies.
    \20\ The exchange-traded investment companies and commodity-
linked instruments in which the Fund invests will be listed and 
traded in the U.S. on registered exchanges.
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    The Fund's investment in the Subsidiary will be designed to help 
the Fund achieve exposure to commodity returns in a manner consistent 
with the federal tax requirements applicable to the Fund and other 
regulated investment companies. 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.

B. Exchange's Description of the Subsidiary's Investments

    The Subsidiary will generally seek to make investments in 
Commodities, and its portfolio will be managed by the Adviser or a Sub-
Adviser.\21\ The Adviser or a Sub-Adviser will use its discretion to 
determine the percentage of the Fund's assets allocated to the 
Commodities held by the Subsidiary that will be invested in exchange-
traded commodity futures contracts, exchange-cleared and non-exchange-
cleared swaps, exchange-traded options on futures contracts, and 
exchange-traded commodity-linked instruments. The Subsidiary will have 
the same investment objective as the Fund, but unlike the Fund, it may 
invest without limitation in Commodities.
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    \21\ The Exchange states that the Subsidiary will not be 
registered under the 1940 Act and will not be directly subject to 
its investor protections, except as noted in the Registration 
Statement. However, the Subsidiary will be wholly-owned and 
controlled by the Fund. Therefore, the Fund's ownership and control 
of the Subsidiary will prevent the Subsidiary from taking action 
contrary to the interests of the Fund or its shareholders. The Board 
will have oversight responsibility for the investment activities of 
the Fund, including its expected investment in the Subsidiary, and 
the Fund's role as the sole shareholder of the Subsidiary. The 
Subsidiary will also enter into separate contracts for the provision 
of custody, transfer agency, and accounting agent services with the 
same or with affiliates of the same service providers that provide 
those services to the Fund.
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    In addition to investing in Commodities, the Subsidiary, like the 
Fund, may invest in Other Investments (e.g., as investments or to serve 
as margin or collateral or otherwise support the Subsidiary's positions 
in Commodities). The Subsidiary's investments will provide the Fund 
with exposure to domestic and international markets.\22\
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    \22\ See Notice, supra note 3, 81 FR at 14144-45 (listing the 
futures contracts in which the Subsidiary will initially consider 
investing and providing instrument's trading hours, exchange, and 
ticker symbol). The Exchange states that, as: (1) The U.S. and 
foreign exchanges list additional contracts; (2) currently listed 
contracts on those exchanges gain sufficient liquidity; or (3) other 
exchanges list sufficiently liquid contracts, the Adviser and/or any 
Sub-Adviser will include those contracts in the list of possible 
investments of the Subsidiary. The Exchange further represents that 
the Commodity Futures Trading Commission (``CFTC'') has adopted 
substantial amendments to CFTC Rule 4.5 relating to the permissible 
exemptions and conditions for reliance on exemptions from 
registration as a commodity pool operator. As a result of the 
instruments that will be indirectly held by the Fund, the Adviser 
will register as a commodity pool operator and will also be a member 
of the National Futures Association (``NFA''). Any Sub-Adviser will 
register as a commodity pool operator or commodity trading adviser, 
as required by CFTC regulations. The Fund and the Subsidiary will be 
subject to regulation by the CFTC and NFA and additional disclosure, 
reporting, and recordkeeping rules imposed upon commodity pools.
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C. Exchange's Description of Investment Restrictions

    While the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will be consistent with the Fund's 
investment objective and will not be used to seek performance that is 
the multiple or inverse multiple (i.e., 2X and -3X) of an index. In 
addition, the Fund may not invest more than 25% of the value of its 
total assets in securities of issuers in any one industry or group of 
industries. This restriction will not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other investment companies.
    The Subsidiary's shares will be offered only to the Fund and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund and the Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary). The Fund will not 
purchase securities of open-end or closed-end investment companies 
except in compliance with the 1940 Act or any applicable exemptive 
relief. In addition, the Exchange represents that, with respect to the 
futures contracts and exchange-traded options on futures

[[Page 25470]]

contracts in which the Subsidiary invests, not more than 10% of the 
weight (to be calculated as the value of the contract divided by the 
total absolute notional value of the Subsidiary's futures and options 
contracts) of the futures and options contracts held by the Subsidiary 
in the aggregate shall consist of instruments whose principal trading 
market (a) is not a member of ISG or (b) is a market with which the 
Exchange does not have a comprehensive surveillance sharing agreement; 
provided that, so long as the Exchange may obtain market surveillance 
information with respect to transactions occurring on the Commodity 
Exchange pursuant to the ISG memberships of the Chicago Mercantile 
Exchange, the Chicago Board of Trade, and the New York Mercantile 
Exchange, futures and options contracts whose principal trading market 
is the Commodity Exchange will not be subject to the limitation in (a) 
above. Investments in non-exchange-cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net assets.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser.\23\ The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \23\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \24\ and the rules and regulations thereunder applicable to a 
national securities exchange.\25\ In particular, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\26\ which requires, among other things, that the Exchange's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \24\ 15 U.S.C. 78f.
    \25\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Act,\27\ which sets forth the finding of Congress that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via Nasdaq proprietary 
quote and trade services, as well as in accordance with the Unlisted 
Trading Privileges and the Consolidated Tape Association plans for the 
Shares. An estimated value, defined in Nasdaq Rule 5735(c)(3) as the 
``Intraday Indicative Value,'' that reflects an estimated intraday 
value of the Fund's portfolio (including the Subsidiary's portfolio), 
will be disseminated. The Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service \28\ 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.\29\ On each business day, 
before commencement of trading in Shares in the Regular Market Session 
on the Exchange, the Fund will disclose on its Web site the identities 
and quantities of the portfolio of securities, Commodities, and other 
assets (``Disclosed Portfolio,'' as defined in Nasdaq Rule 5735(c)(2)) 
held by the Fund and the Subsidiary that will form the basis for the 
Fund's calculation of NAV at the end of the business day.\30\
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    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \28\ 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. 
According to the Exchange, GIDS provides investment professionals 
with the daily information needed to track or trade Nasdaq indexes, 
listed ETFs, or third-party partner indexes and ETFs.
    \29\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to 
9:30 a.m., E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00 
p.m. or 4:15 p.m., E.T.; and (3) Post-Market Session from 4:00 p.m. 
or 4:15 p.m. to 8:00 p.m., E.T.).
    \30\ The Fund's disclosure of derivative positions in the 
Disclosed Portfolio will include information that market 
participants can use to value these positions intraday. On a daily 
basis, the Fund will disclose on the Fund's Web site the following 
information regarding each portfolio holding, as applicable to the 
type of holding: Ticker symbol, CUSIP number or other identifier, if 
any; a description of the holding (including the type of holding 
such as the type of swap), the identity of the security, commodity 
or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value or number of shares, contracts or 
units); maturity date, if any; coupon rate, if any; effective date, 
if any; market value of the holding; and percentage weighting of the 
holding in the Fund's portfolio. The Web site and information will 
be publicly available at no charge.
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    The Fund's NAV will be determined as of the close of trading 
(normally 4:00 p.m., E.T.) on each day the New York Stock Exchange is 
open for business.\31\

[[Page 25471]]

Additionally, information regarding market price and trading volume of 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services. The previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Intra-day executable price quotations on the 
securities and other assets held by the Fund and the Subsidiary will be 
available from major broker-dealer firms or on the exchange on which 
they are traded, as applicable. Intra-day price information on the 
securities and other assets held by the Fund and the Subsidiary will 
also be available through subscription services, such as Bloomberg and 
Thomson Reuters, which can be accessed by authorized participants and 
other investors.\32\ The Fund's Web site will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information.
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    \31\ In determining the value of the assets held by the Fund and 
the Subsidiary, the Fund's and the Subsidiary's investments will be 
generally valued 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), (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major market maker (or dealer), or 
(iii) based on amortized cost. The Fund and the Subsidiary may use 
various pricing services or discontinue the use of any pricing 
service. A price obtained from a pricing service based on such 
pricing service's valuation matrix may be considered a market 
valuation. If available, Short-Term Debt Instruments (other than 
certificates of deposits, bank time deposits, and repurchase 
agreements), corporate debt obligations, other cash equivalents, and 
money market instruments (other than money market mutual funds) with 
maturities of more than 60 days will typically be priced based on 
valuations provided by independent, third-party pricing agents. Such 
values will generally reflect the last reported sales price if the 
instrument is actively traded. The third-party pricing agents may 
also value debt instruments at an evaluated bid price by employing 
methodologies that utilize actual market transactions, broker-
supplied valuations, or other methodologies designed to identify the 
market value for such instruments. Short-Term Debt Instruments 
(other than certificates of deposit, bank time deposits, and 
repurchase agreements), corporate debt obligations, other cash 
equivalents, and money market instruments (other than money market 
mutual funds) with remaining maturities of 60 days or less may be 
valued on the basis of amortized cost, which approximates market 
value. If such prices are not available, the instrument will be 
valued based on values supplied by independent brokers or by fair 
value pricing. Certificates of deposit and bank time deposits will 
typically be valued at cost. Repurchase agreements will typically be 
valued as follows: Overnight repurchase agreements will be valued at 
amortized cost when it represents the best estimate of value. Term 
repurchase agreements (i.e., those whose maturity exceeds seven 
days) will be valued at the average of the bid quotations obtained 
daily from at least two recognized dealers. Futures contracts will 
be valued at the settlement price established each day by the board 
or exchange on which they are traded. Exchange-traded options will 
be valued at the closing price in the market where such contracts 
are principally traded. Swaps will be valued based on valuations 
provided by independent, third-party pricing agents. Securities of 
non-exchange-traded investment companies will be valued at the 
investment company's applicable NAV. Equity securities (including 
exchange-traded commodity-linked instruments and exchange-traded 
investment companies, other than exchange-traded commodity-linked 
instruments) listed on a securities exchange, market, or automated 
quotation system for which quotations are readily available (except 
for securities traded on the Exchange) will be valued at the last 
reported sale price on the primary exchange or market on which they 
are traded on the valuation date (or at approximately 4:00 p.m., 
E.T. if a security's primary exchange is normally open at that 
time). For a security that trades on multiple exchanges, the primary 
exchange will generally be considered to be the exchange on which 
the security generally has the highest volume of trading activity. 
If it is not possible to determine the last reported sale price on 
the relevant exchange or market on the valuation date, the value of 
the security will be taken to be the most recent mean between the 
bid and asked prices on such exchange or market on the valuation 
date. Absent both bid and asked prices on such exchange, the bid 
price may be used. For securities traded on the Exchange, the 
Exchange official closing price will be used. If such prices are not 
available, the security will be valued based on values supplied by 
independent brokers or by fair value pricing. The prices for foreign 
instruments will be reported in local currency and converted to U.S. 
dollars using currency exchange rates. Exchange rates will be 
provided daily by recognized independent pricing agents. In the 
event that current market valuations are not readily available or 
such valuations do not reflect current market values, the affected 
investments will be valued using fair value pricing pursuant to the 
pricing policy and procedures approved by the Board in accordance 
with the 1940 Act. The frequency with which the Fund's and the 
Subsidiary's investments are valued using fair value pricing will be 
primarily a function of the types of securities and other assets in 
which they invest pursuant to their respective investment 
objectives, strategies, and limitations.
    \32\ More specifically, pricing information for exchange-traded 
commodity futures contracts, exchange-traded options on futures 
contracts, exchange-traded commodity-linked instruments, and 
exchange-traded investment companies (other than exchange-traded 
commodity-linked instruments) will be available on the exchanges on 
which they are traded and through subscription services. Pricing 
information for non-exchange-traded U.S. registered open-end 
investment companies will be available through the applicable fund's 
Web site or major market data vendors. Pricing information for 
swaps, corporate debt obligations, money market instruments (other 
than money market mutual funds), other cash equivalents, and Short-
Term Debt Instruments will be available through subscription 
services and/or broker-dealer firms and/or pricing services. 
Additionally, the Trade Reporting and Compliance Engine (``TRACE'') 
of the Financial Industry Regulatory Authority (``FINRA'') will be a 
source of price information for certain fixed income securities held 
by the Fund.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily, and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time. 
Trading in the Shares also will be subject to 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, Commodities, and other assets constituting 
the Disclosed Portfolio of the Fund and the Subsidiary; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. 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. The 
Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. The 
Exchange also represents that the Adviser is affiliated with a broker-
dealer, and the Adviser has implemented a firewall with respect to its 
broker-dealer affiliate regarding access to information concerning the 
composition of, and changes to, the portfolio.\33\ Moreover, the 
Exchange represents that FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares and in the 
exchange-traded Commodities and exchange-traded investment companies 
not included within the definition of ``Commodities'' (such investment 
companies, together with exchange-traded Commodities, are referred to 
as ``Exchange-Traded Instruments'') held by the Fund and the Subsidiary 
with other markets and other entities that are members of the ISG,\34\ 
and FINRA may obtain trading information regarding trading in the 
Shares and in the Exchange-Traded Instruments held by the Fund and the 
Subsidiary from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and in 
the Exchange-Traded Instruments held by the Fund and the Subsidiary 
from markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange,\35\ will be able to access, as needed, trade 
information for certain

[[Page 25472]]

fixed income securities held by the Fund reported to FINRA's TRACE.
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    \33\ See supra note 7 and accompanying text. An investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and any 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.
    \34\ 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.
    \35\ According to the Exchange, FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement, and the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange 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. In support of this 
proposal, the Exchange has made representations, including:
    (1) The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange represents that its surveillance 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. 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.
    (4) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and in the Exchange-Traded Instruments 
held by the Fund and the Subsidiary with other markets and other 
entities that are members of the ISG and FINRA may obtain trading 
information regarding trading in the Shares and in the Exchange-Traded 
Instruments held by the Fund and the Subsidiary from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and in the Exchange-Traded Instruments 
held by the Fund and the Subsidiary from markets and other entities 
that are members of ISG, which includes securities and futures 
exchanges, or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. 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.
    (5) With respect to the futures contracts and exchange-traded 
options on futures contracts in which the Subsidiary invests, not more 
than 10% of the weight (to be calculated as the value of the contract 
divided by the total absolute notional value of the Subsidiary's 
futures and options contracts) of the futures and options contracts 
held by the Subsidiary in the aggregate shall consist of instruments 
whose principal trading market (a) is not a member of ISG or (b) is a 
market with which the Exchange does not have a comprehensive 
surveillance sharing agreement, provided, that so long as the Exchange 
may obtain market surveillance information with respect to transactions 
occurring on the Commodity Exchange pursuant to the ISG memberships of 
the Chicago Mercantile Exchange, the Chicago Board of Trade and the New 
York Mercantile Exchange, futures and options contracts whose principal 
trading market is the Commodity Exchange shall not be subject to the 
prohibition in (a) above.
    (6) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how and by whom 
information regarding the Intraday Indicative Value and the Disclosed 
Portfolio is disseminated; (d) the risks involved in trading the Shares 
during the Pre-Market and Post-Market Sessions when an updated Intraday 
Indicative Value will not be calculated or publicly disseminated; (e) 
the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (7) For initial and/or continued listing, the Fund and the 
Subsidiary must be in compliance with Rule 10A-3 under the Act.\36\
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    \36\ See 17 CFR 240.10A-3.
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    (8) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser.
    (9) The Fund and the Subsidiary will not invest in any non-U.S. 
equity securities (other than shares of the Subsidiary).
    (10) The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets.
    (11) Investments in non-exchange-cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net assets.
    (12) The exchange-traded investment companies and commodity-linked 
instruments in which the Fund invests will be listed and traded in the 
U.S. on registered exchanges.
    (13) The Fund and the Subsidiary will not invest in leveraged or 
inverse leveraged (e.g., 2X or -3X) commodity-linked instruments or 
securities of investment companies.
    (14) At least 75% of corporate debt obligations will have a minimum 
principal amount outstanding of $100 million or more.
    (15) While the Fund will be permitted to borrow as permitted under 
the 1940 Act, the Fund's investments will be consistent with the Fund's 
investment objective and will not be used to seek performance that is 
the multiple or inverse multiple (i.e., 2X and -3X) of an index.
    (16) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    The Exchange represents that all statements and representations 
made in this filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures shall 
constitute continued listing requirements for listing the Shares on the 
Exchange. In addition, the issuer has represented to the Exchange that 
it will advise the Exchange of any failure by the Fund to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Act, the Exchange will monitor for 
compliance with the continued listing requirements.\37\ If the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq 5800 
Series.
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    \37\ The Commission notes that certain other proposals for the 
listing and trading of Managed Fund Shares include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (Notice of Filing 
of Amendment No. 2, and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, to List and 
Trade Shares of the SPDR DoubleLine Short Duration Total Return 
Tactical ETF of the SSgA Active Trust), available at: http://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the context of this 
representation, it is the Commission's view that ``monitor'' and 
``surveil'' both mean ongoing oversight of the Fund's compliance 
with the continued listing requirements. Therefore, the Commission 
does not view ``monitor'' as a more or less stringent obligation 
than ``surveil'' with respect to the continued listing requirements.
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    This approval order is based on all of the Exchange's 
representations, including those set forth above, in the

[[Page 25473]]

Notice, and in Amendment No. 1 to the proposed rule change. The 
Commission notes that a commenter has expressed support for the 
proposal.\38\ The Commission further notes that the Fund and the Shares 
must comply with the requirements of Nasdaq Rule 5735, including those 
set forth in this proposed rule change, as modified by Amendment No. 1 
thereto, to be listed and traded on the Exchange on an initial and 
continuing basis.
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    \38\ See Anonymous Letter, supra note 4.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \39\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \39\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (SR-NASDAQ-2016-030), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).
    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
Brent J. Fields,
Secretary.
[FR Doc. 2016-09897 Filed 4-27-16; 8:45 am]
 BILLING CODE 8011-01-P


