
[Federal Register Volume 81, Number 101 (Wednesday, May 25, 2016)]
[Notices]
[Pages 33307-33316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12236]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77854; File No. SR-NASDAQ-2016-061]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating To Listing and 
Trading of Shares of the First Trust Equity Market Neutral ETF of the 
First Trust Exchange-Traded Fund VIII

May 19, 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 May 4, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 First Trust 
Equity Market Neutral ETF (the ``Fund'') of First Trust Exchange-Traded 
Fund VIII (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 Nos. 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014) 
(SR-NASDAQ-2014-050) (order approving listing and trading of First 
Trust Strategic Income ETF); 69464 (April 26, 2013), 78 FR 25774 
(May 2, 2013) (SR-NASDAQ-2013-036) (order approving listing and 
trading of First Trust Senior Loan Fund); and 66489 (February 29, 
2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-004) (order 
approving listing and trading of WisdomTree Emerging Markets 
Corporate Bond Fund). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was

[[Page 33308]]

established as a Massachusetts business trust on February 22, 2016.\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 will be 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. 28468 (October 27, 2008) (File 
No. 812-13477) (the ``Exemptive Relief'').
    \6\ See Registration Statement on Form N-1A for the Trust, dated 
March 14, 2016 (File Nos. 333-210186 and 811-23147). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
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    First Trust Advisors L.P. will be the investment adviser 
(``Adviser'') to the Fund. Perella Weinberg Partners Capital Management 
LP will serve as investment sub-adviser (``Sub-Adviser'') to the Fund 
and provide day-to-day portfolio management. First Trust Portfolios 
L.P. (the ``Distributor'') will be the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon 
Corporation (``BNY'') 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. Neither the Adviser nor the Sub-Adviser is a broker-dealer, 
although the Adviser is affiliated with the Distributor, a broker-
dealer registered with the Commission, and the Sub-Adviser is 
affiliated with Perella Weinberg Partners LP, a broker-dealer 
registered with the Commission, and Perella Weinberg Partners UK LLP, a 
broker-dealer regulated by the Financial Conduct Authority, and each 
has implemented and will maintain a fire wall with respect to its 
respective broker-dealer affiliate(s) regarding access to information 
concerning the composition and/or changes to the portfolio. In 
addition, personnel who make decisions on the Fund's portfolio 
composition will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
Fund's portfolio. In the event (a) the Adviser or the Sub-Adviser 
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 and maintain a fire wall with respect to its relevant 
personnel and/or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
portfolio and will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
portfolio.
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    \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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    The Fund intends to qualify each year as a regulated investment 
company (``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.
First Trust Equity Market Neutral ETF
Principal Investments
    The investment objective of the Fund will be to seek long-term 
capital appreciation independent of market direction. Under normal 
market conditions,\8\ the Fund will seek to achieve its investment 
objective by investing at least 80% of its net assets in ``Equity 
Securities'' (as defined below), which may be represented by certain 
derivative instruments, as discussed below,\9\ as well as ETFs \10\ 
that invest primarily in Equity Securities (the ``80% Investments''); 
the 80% Investments will take into account such derivative instruments 
and ETFs. The Equity Securities in which the Fund will invest will be 
listed on a U.S. or a non-U.S. exchange and will consist of the 
following: (i) Common stocks; (ii) preferred securities; (iii) warrants 
to purchase common stocks or preferred securities; (iv) securities 
convertible into common stocks or preferred securities; (v) securities 
issued by real estate investment trusts (``REITs''); \11\ (vi) 
securities issued by master limited partnerships (``MLPs''); and (vii) 
American Depositary Receipts (``ADRs''), European Depositary Receipts 
(``EDRs''), and Global Depositary Receipts (``GDRs'' and,

[[Page 33309]]

together with ADRs and EDRs, ``Depositary Receipts'').\12\
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    \8\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. On a temporary 
basis, including for 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 and/or the Sub-Adviser believes securities in which 
the Fund normally invests have elevated risks due to political or 
economic factors and in other extraordinary circumstances.
    \9\ Such derivatives are defined as ``Principal Derivatives.'' 
See ``The Fund's Use of Derivatives,'' infra.
    \10\ An ETF is an investment company registered under the 1940 
Act that holds a portfolio of securities. Many ETFs are designed to 
track the performance of a securities index, including industry, 
sector, country and region indexes. ETFs included in the Fund will 
be listed and traded in the U.S. on registered exchanges. The Fund 
may invest in the securities of ETFs in excess of the limits imposed 
under the 1940 Act pursuant to exemptive orders obtained by other 
ETFs and their sponsors from the Commission. In addition, the Fund 
may invest in the securities of certain other investment companies 
in excess of the limits imposed under the 1940 Act pursuant to an 
exemptive order that the Trust has obtained from the Commission. See 
Investment Company Act Release No. 30377 (February 5, 2013) (File 
No. 812-13895). The ETFs in which the Fund may invest include Index 
Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depository 
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares 
(as described in Nasdaq Rule 5735). While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged or inverse 
leveraged (e.g., 2X or -3X) ETFs.
    \11\ A REIT is a company that owns and typically operates 
income-producing real estate or related assets.
    \12\ The Fund will not invest in any unsponsored Depositary 
Receipts.
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    The Sub-Adviser will use a long/short strategy in seeking to 
construct a portfolio that it believes, based on its proprietary 
analysis, provides the opportunity for capital preservation and 
appreciation across a wide variety of market conditions.\13\ In 
selecting Equity Securities for the Fund's portfolio based on the long/
short strategy, the Sub-Adviser will analyze certain factors which may 
drive the performance of an Equity Security (e.g., a company's earnings 
estimates and cash flows, among other valuation metrics; ``macro'' or 
thematic factors, such as interest rates, commodity prices and Fed 
policy; specific factors affecting an industry, sector or geographic 
area; and behavioral/sentimental factors, such as general market 
attitudes, news headlines, stock market technical metrics and investor 
sentiment). Additionally, the Sub-Adviser will apply a risk management 
process that focuses on, among other things, liquidity and volatility 
of a company's Equity Securities. Also, a portion of the Fund's 
portfolio will typically be invested in Equity Securities selected by 
the Sub-Adviser through application of an event-driven strategy that 
seeks to identify and capitalize on certain corporate actions which may 
affect the value of Equity Securities, such as mergers and 
acquisitions, divestitures, tender offers, and other corporate 
events.\14\
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    \13\ When the Fund takes a long position in an Equity Security, 
it will purchase the security outright. In contrast, when the Fund 
takes a short position, it will sell a security that the Fund does 
not own at the current market price and deliver to the buyer a 
security that the Fund has borrowed.
    \14\ In connection with its event-driven strategy, the Fund may 
also invest a portion of its assets in Non-Exchange-Traded Equity 
Securities (as defined infra). See note 20 and accompanying text 
under ``Other Investments.''
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The Fund's Use of Derivatives
    The Fund may engage in transactions in derivative instruments as 
described in this paragraph. As noted above under ``Principal 
Investments,'' the Fund's investments in Equity Securities may be 
represented by derivatives. Investments in Equity Securities that are 
represented by derivatives (referred to collectively as ``Principal 
Derivatives'') will be treated as investments in Equity Securities for 
purposes of the 80% Investments. Principal Derivatives will consist of 
the following: (i) Total return swap agreements; \15\ (ii) exchange-
traded options on stock indices; (iii) exchange-traded options on 
equity securities; and (iv) exchange-traded stock index futures 
contracts. In addition to purchasing exchange-traded options on stock 
indices and exchange-traded options on equity securities, the Fund may 
also sell such exchange-traded options, either outright or as part of 
an options strategy (such as a collar \16\ or an option spread \17\). 
Additionally, the Fund may invest, to the extent described below in 
``Other Investments,'' in the following derivatives (referred to 
collectively as ``Non-Principal Derivatives''): (i) Non-U.S. currency 
swap agreements; and (ii) forward foreign currency exchange contracts. 
The Fund may also enter into currency transactions on a spot (i.e., 
cash) basis. The Fund will invest (in the aggregate) no more than 30% 
of the value of its net assets (calculated at the time of investment) 
in Principal Derivatives and Non-Principal Derivatives (the ``30% 
Limitation'').
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    \15\ Total return swap agreements are generally contracts to 
obtain the total return of a referenced asset or index in exchange 
for paying a financing cost. The Fund will only invest in total 
return swap agreements that have (i) referenced assets that are 
exchange-traded securities or (ii) referenced indexes that are 
comprised of exchange-traded securities.
    \16\ A collar is generally created by purchasing a put option 
while simultaneously writing (selling) a call option.
    \17\ An option spread is generally an investment strategy in 
which one has a long position on an option contract while having a 
short position on another option on the same underlying asset.
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    The Fund will only enter into transactions in over-the-counter 
(``OTC'') derivatives (including non-U.S. currency swap agreements, 
total return swap agreements, and forward foreign currency exchange 
contracts) with counterparties that the Adviser and/or the Sub-Adviser 
reasonably believes are capable of performing under the applicable 
contract or agreement.\18\
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    \18\ The Fund will seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser and/or the Sub-Adviser will 
consider the creditworthiness of counterparties on an ongoing basis. 
The Adviser's and/or Sub-Adviser's analysis of potential 
counterparties may incorporate various methods of analysis and may 
include such factors as information provided by credit agencies, as 
well as the Adviser's and/or Sub-Adviser's past experience with the 
counterparty, its known disciplinary history and its share of market 
participation.
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    The Fund's investments in derivative instruments will be made in 
accordance with the 1940 Act, will be consistent with the Fund's 
investment objective and policies, and will not be used to seek to 
achieve a multiple or inverse multiple of an index. To limit the 
potential risk associated with the Fund's derivatives transactions, the 
Fund will segregate or ``earmark'' assets determined to be liquid by 
the Adviser and/or the Sub-Adviser in accordance with procedures 
established by the Board of Trustees of the Trust (``Trust Board'') and 
in accordance with the 1940 Act (or, as permitted by applicable 
regulation, enter into certain offsetting positions) to cover its 
obligations under derivative instruments. These procedures have been 
adopted consistent with Section 18 of the 1940 Act and related 
Commission guidance. In addition, the Fund will include appropriate 
risk disclosure in its offering documents, including leveraging risk. 
Leveraging risk is the risk that certain transactions of the Fund, 
including the Fund's use of derivatives, may give rise to leverage, 
causing the Fund to be more volatile than if it had not been 
leveraged.\19\ Because the markets for certain securities, or the 
securities themselves, may be unavailable or cost prohibitive as 
compared to derivative instruments, suitable derivative transactions 
may be an efficient alternative for the Fund to obtain the desired 
asset exposure.
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    \19\ To mitigate leveraging risk, the Adviser and/or the Sub-
Adviser will segregate or ``earmark'' liquid assets or otherwise 
cover the transactions that may give rise to such risk.
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    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the use of derivatives. Market 
makers and participants should be able to value derivatives as long as 
the positions are disclosed with relevant information. The Adviser 
believes that the price at which Shares trade will continue to be 
disciplined by arbitrage opportunities created by the ability to 
purchase or redeem Creation Units (as defined below) at their net asset 
value (``NAV''), which should ensure that Shares will not trade at a 
material discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of Creation Units (as defined below) in-kind.
Other Investments
    With respect to up to 20% of its net assets, the Fund may invest in 
and/or include in its portfolio (as applicable, as indicated below) the 
following securities and instruments (in the aggregate).
    The Fund may invest in non-exchange-traded equity securities

[[Page 33310]]

(``Non-Exchange-Traded Equity Securities'') acquired in conjunction 
with its event-driven strategy (as described above).\20\ The Fund may 
invest in exchange-traded notes (``ETNs'').
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    \20\ For example, in conjunction with its event-driven strategy, 
the Fund may acquire a Non-Exchange-Traded Equity Security as a 
result of a merger or other corporate reorganization. Certain Non-
Exchange-Traded Equity Securities may be Rule 144A securities; the 
Fund will not invest in Rule 144A securities other than Non-
Exchange-Traded Equity Securities. Additionally, Non-Exchange-Traded 
Equity Securities will not be represented by derivative instruments.
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    The Fund may invest in Non-Principal Derivatives.
    The Fund may invest in short-term debt securities and other short-
term debt instruments (described below), as well as cash equivalents, 
or it may hold cash. The percentage of the Fund invested in such 
holdings or held in cash will vary and will depend on several factors, 
including market conditions. The Fund may invest in the following 
short-term debt instruments: \21\ (1) Fixed rate and floating rate U.S. 
government securities, including bills, notes and bonds differing as to 
maturity and rates of interest, which are either issued or guaranteed 
by the U.S. Treasury or by U.S. government agencies or 
instrumentalities; (2) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (3) bankers' 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (4) repurchase agreements,\22\ which involve 
purchases of debt securities; (5) 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 (6) commercial 
paper, which is short-term unsecured promissory notes.\23\
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    \21\ Short-term debt instruments are issued by issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings 
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P 
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch 
Ratings (``Fitch'') and have a maturity of one year or less.
    \22\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser and/
or the Sub-Adviser to present minimal credit risks in accordance 
with criteria approved by the Trust Board. The Adviser and/or the 
Sub-Adviser will review and monitor the creditworthiness of such 
institutions. The Adviser and/or the Sub-Adviser will monitor the 
value of the collateral at the time the transaction is entered into 
and at all times during the term of the repurchase agreement.
    \23\ The Fund may only invest in commercial paper rated A-1 or 
higher by S&P Ratings, Prime-1 or higher by Moody's or F1 or higher 
by Fitch.
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    The Fund may invest in money market mutual funds, U.S. exchange-
traded closed-end funds and other ETFs \24\ that, in each case, will be 
investment companies registered under the 1940 Act. In addition to ETFs 
and closed-end funds, the Fund may invest in certain other exchange-
traded pooled investment vehicles (``ETPs'').\25\
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    \24\ Such ETFs will not invest primarily in Equity Securities 
(and, therefore, will not be taken into account for purposes of the 
80% Investments), but may otherwise invest in assets of any type.
    \25\ 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).
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    The Fund's portfolio may include exchange-traded and OTC contingent 
value rights (``CVRs'') received by the Fund as consideration in 
connection with a corporate action related to a security held by the 
Fund.\26\
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    \26\ A CVR is a type of right given to shareholders of an 
acquired company (or a company facing major restructuring) that 
entitles them to receive an additional benefit upon the occurrence 
of a specified event, and is similar to an option because it often 
has an expiration date that relates to the time the contingent event 
must occur. For the avoidance of doubt, CVRs will not be taken into 
account for purposes of the 30% Limitation.
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Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser and/or 
the Sub-Adviser.\27\ 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.\28\
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    \27\ In reaching liquidity decisions, the Adviser and/or the 
Sub-Adviser may consider the following factors: The frequency of 
trades and quotes for the security; the number of dealers wishing to 
purchase or sell the security and the number of other potential 
purchasers; dealer undertakings to make a market in the security; 
and the nature of the security and the nature of the marketplace in 
which it trades (e.g., the time needed to dispose of the security, 
the method of soliciting offers and the mechanics of transfer). See 
also note 28 and accompanying text.
    \28\ 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), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry. This restriction 
does not apply to (a) obligations issued or guaranteed by the U.S. 
government, its agencies or instrumentalities or (b) securities of 
other investment companies.\29\
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    \29\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
\30\ only in large blocks of Shares (``Creation Units'') in 
transactions with authorized participants, generally including broker-
dealers and large institutional investors (``Authorized 
Participants''). Creation Units generally will consist of 50,000 
Shares, although this may change from time to time. Creation Units, 
however, are not expected to consist of less than 50,000 Shares. As 
described in the Registration Statement and consistent with the 
Exemptive Relief, the Fund will issue and redeem Creation Units in 
exchange for an in-kind portfolio of instruments and/or cash in lieu of 
such instruments (the ``Creation Basket'').\31\ In addition, if there 
is a difference between the NAV attributable to a Creation Unit and the 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will pay to the 
other an amount in cash

[[Page 33311]]

equal to the difference (referred to as the ``Cash Component'').
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    \30\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m., 
Eastern Time (the ``NAV Calculation Time''). NAV per Share will be 
calculated by dividing the Fund's net assets by the number of Fund 
Shares outstanding. For more information regarding the valuation of 
Fund investments in calculating the Fund's NAV, see the Registration 
Statement.
    \31\ Subject to, and in accordance with, the provisions of the 
Exemptive Relief, it is expected that the Fund will typically issue 
and redeem Creation Units for a combination of in-kind instruments 
and cash; however, at times, it may issue and redeem Creation Units 
on a solely cash or solely in-kind basis.
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    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor and BNY with respect to creations and redemptions of 
Creation Units. All standard orders to create Creation Units must be 
received by the transfer agent no later than the closing time of the 
regular trading session on the NYSE (ordinarily 4:00 p.m., Eastern 
Time) (the ``Closing Time'') in each case on the date such order is 
placed in order for the creation of Creation Units to be effected based 
on the NAV of Shares as next determined on such date after receipt of 
the order in proper form. Shares may be redeemed only in Creation Units 
at their NAV next determined after receipt not later than the Closing 
Time of a redemption request in proper form by the Fund through the 
transfer agent and only on a business day.
    The Fund's custodian, through the National Securities Clearing 
Corporation, will make available on each business day, prior to the 
opening of business of the Exchange, the list of the names and 
quantities of the instruments comprising the Creation Basket, as well 
as the estimated Cash Component (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following business day prior to commencement of trading in the 
Shares.
Net Asset Value
    The Fund's NAV will be determined as of the close of regular 
trading on the NYSE (ordinarily 4:00 p.m., Eastern Time) on each day 
the NYSE is open for trading. If the NYSE closes early on a valuation 
day, the NAV will be determined as of that time. NAV per Share will be 
calculated for the Fund by taking the value of the Fund's total assets, 
including interest or dividends accrued but not yet collected, less all 
liabilities, including accrued expenses and dividends declared but 
unpaid, and dividing such amount by the total number of Shares 
outstanding. The result, rounded to the nearest cent, will be the NAV 
per Share. All valuations will be subject to review by the Trust Board 
or its delegate.
    The Fund's investments will be valued daily. As described more 
specifically below, investments traded on an exchange (i.e., a 
regulated market), will generally be valued at market value prices that 
represent last sale or official closing prices. In addition, as 
described more specifically below, non-exchange traded investments will 
generally be valued using prices obtained from third-party pricing 
services (each, a ``Pricing Service'').\32\ If, however, valuations for 
any of the Fund's investments cannot be readily obtained as provided in 
the preceding manner, or the Pricing Committee of the Adviser (the 
``Pricing Committee'') \33\ questions the accuracy or reliability of 
valuations that are so obtained, such investments will be valued at 
fair value, as determined by the Pricing Committee, in accordance with 
valuation procedures (which may be revised from time to time) adopted 
by the Trust Board (the ``Valuation Procedures''), and in accordance 
with provisions of the 1940 Act. The Pricing Committee's fair value 
determinations may require subjective judgments about the value of an 
investment. The fair valuations attempt to estimate the value at which 
an investment could be sold at the time of pricing, although actual 
sales could result in price differences, which could be material. 
Valuing the Fund's investments using fair value pricing can result in 
using prices for those investments (particularly investments that trade 
in foreign markets) that may differ from current market valuations.
---------------------------------------------------------------------------

    \32\ The Adviser may use various Pricing Services or discontinue 
the use of any Pricing Services, as approved by the Trust Board from 
time to time.
    \33\ The Pricing Committee will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the Fund's portfolio.
---------------------------------------------------------------------------

    Certain securities in which the Fund may invest will not be listed 
on any securities exchange or board of trade. Such securities will 
typically be bought and sold by institutional investors in individually 
negotiated private transactions that function in many respects like an 
OTC secondary market, although typically no formal market makers will 
exist. Certain securities, particularly debt securities, will have few 
or no trades, or trade infrequently, and information regarding a 
specific security may not be widely available or may be incomplete. 
Accordingly, determinations of the value of debt securities may be 
based on infrequent and dated information. Because there is less 
reliable, objective data available, elements of judgment may play a 
greater role in valuation of debt securities than for other types of 
securities.
    The information summarized below is based on the Valuation 
Procedures as currently in effect; however, as noted above, the 
Valuation Procedures are amended from time to time and, therefore, such 
information is subject to change.
    The following investments will typically be valued using 
information provided by a Pricing Service: (a) Non-U.S. currency swap 
agreements and total return swap agreements; (b) Non-Exchange-Traded 
Equity Securities (including without limitation Rule 144A securities); 
(c) except as provided below, short-term U.S. government securities, 
commercial paper, and bankers' acceptances, all as set forth under 
``Other Investments'' (collectively, ``Short-Term Debt Instruments''); 
and (d) currency spot transactions. Debt instruments may be valued at 
evaluated mean prices, as provided by Pricing Services. Pricing 
Services typically value non-exchange-traded instruments utilizing a 
range of market-based inputs and assumptions, including readily 
available market quotations obtained from broker-dealers making markets 
in such instruments, cash flows, and transactions for comparable 
instruments. In pricing certain instruments, the Pricing Services may 
consider information about an instrument's issuer or market activity 
provided by the Adviser and/or the Sub-Adviser.
    Short-Term Debt Instruments having a remaining maturity of 60 days 
or less when purchased will typically be valued at cost adjusted for 
amortization of premiums and accretion of discounts, provided the 
Pricing Committee has determined that the use of amortized cost is an 
appropriate reflection of value given market and issuer-specific 
conditions existing at the time of the determination.
    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.
    Certificates of deposit and bank time deposits will typically be 
valued at cost.
    OTC CVRs will typically be fair valued at the mean of the bid and 
asked price, if available, and otherwise at their closing bid price.
    Common stocks and other equity securities (including Equity 
Securities; closed-end funds; ETFs; and ETPs), as well as ETNs, that 
are listed on any exchange other than the Exchange and the London Stock 
Exchange Alternative Investment Market (``AIM'') will typically be 
valued at the last sale price on the exchange on which they are 
principally traded on the business day as of which such value is being 
determined. Such securities listed on

[[Page 33312]]

the Exchange or the AIM will typically be valued at the official 
closing price on the business day as of which such value is being 
determined. If there has been no sale on such day, or no official 
closing price in the case of securities traded on the Exchange or the 
AIM, such securities will typically be valued using fair value pricing. 
Such securities traded on more than one securities exchange will be 
valued at the last sale price or official closing price, as applicable, 
on the business day as of which such value is being determined at the 
close of the exchange representing the principal market for such 
securities.
    Money market mutual funds will typically be valued at their net 
asset values as reported by such funds to Pricing Services.
    Exchange-traded derivatives (including options on stock indices; 
options on equity securities; and stock index futures contracts) and 
exchange-traded CVRs will typically be valued at the closing price in 
the market where such instruments are principally traded. If no closing 
price is available, such instruments will be fair valued at the mean of 
their most recent bid and asked price, if available, and otherwise at 
their closing bid price.
    Forward foreign currency exchange contracts will typically be 
valued at the current day's interpolated foreign exchange rate, as 
calculated using the current day's spot rate, and the thirty, sixty, 
ninety and one-hundred-eighty day forward rates provided by a Pricing 
Service or by certain independent dealers in such contracts.
    Because foreign exchanges may be open on different days than the 
days during which an investor may purchase or sell Shares, the value of 
the Fund's assets may change on days when investors are not able to 
purchase or sell Shares. Assets denominated in foreign currencies will 
be translated into U.S. dollars at the exchange rate of such currencies 
against the U.S. dollar as provided by a Pricing Service. The value of 
assets denominated in foreign currencies will be converted into U.S. 
dollars at the exchange rates in effect at the time of valuation.
Availability of Information
    The Fund's Web site (www.ftportfolios.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include the Shares' ticker, CUSIP, and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price''),\34\ 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 \35\ 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.\36\
---------------------------------------------------------------------------

    \34\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \35\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m., Eastern Time).
    \36\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include sufficient information for market participants 
to 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, index 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 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 Disclosed Portfolio, will be 
disseminated. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service,\37\ will be 
based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. The Intraday Indicative 
Value will be based on quotes and closing prices from the securities' 
local market and may not reflect events that occur subsequent to the 
local market's close. Premiums and discounts between the Intraday 
Indicative Value and the market price may occur. This should not be 
viewed as a ``real time'' update of the NAV per Share of the Fund, 
which is calculated only once a day.
---------------------------------------------------------------------------

    \37\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the Nasdaq OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and Intraday Indicative Values for ETFs. 
GIDS provides investment professionals with the daily information 
needed to track or trade Nasdaq indexes, listed ETFs, or third-party 
partner indexes and ETFs.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Fund, and those documents 
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded 
from the Commission's Web site at www.sec.gov. Information regarding 
market price and trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. Information regarding the 
previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information for the Shares will be available 
via Nasdaq proprietary quote and trade services, as well as in 
accordance with the Unlisted Trading Privileges and the Consolidated 
Tape Association (``CTA'') plans for the

[[Page 33313]]

Shares. Quotation and last sale information for the following equity 
securities (to the extent traded on a U.S. exchange) \38\ will be 
available from the exchanges on which they are traded as well as in 
accordance with any applicable CTA plans: Equity Securities; ETFs; 
closed-end funds; and ETPs. Quotation and last sale information for 
U.S. exchange-traded options (including U.S. exchange-traded options on 
equity securities and U.S. exchange-traded options on stock indices) 
\39\ will be available via the Options Price Reporting Authority. 
Quotation and last sale information for U.S. exchange-traded stock 
index futures contracts, ETNs and CVRs will be available from the 
exchanges on which they are traded.\40\
---------------------------------------------------------------------------

    \38\ Pricing information for exchange-traded equity securities 
generally (including those traded on non-U.S. exchanges) is 
discussed in the next paragraph.
    \39\ Pricing information for exchange-traded options generally 
(including those traded on non-U.S. exchanges) is discussed in the 
next paragraph.
    \40\ Pricing information for exchange-traded stock index futures 
contracts, ETNs and CVRs generally (including those traded on non-
U.S. exchanges) is discussed in the next paragraph.
---------------------------------------------------------------------------

    Pricing information for Non-Exchange-Traded Equity Securities 
(including without limitation Rule 144A securities), Short-Term Debt 
Instruments, repurchase agreements, OTC CVRs, non-U.S. currency swap 
agreements, total return swap agreements, forward foreign currency 
exchange contracts, bank time deposits, certificates of deposit and 
currency spot transactions will be available from major broker-dealer 
firms and/or major market data vendors and/or Pricing Services. Pricing 
information for exchange-traded equity securities (including Equity 
Securities; closed-end funds; ETFs; and ETPs), ETNs, exchange-traded 
CVRs and exchange-traded derivatives (including options on stock 
indices; options on equity securities; and stock index futures 
contracts) will be available from the applicable listing exchange and 
from major market data vendors. Money market mutual funds are typically 
priced once each business day and their prices will be available 
through the applicable fund's Web site or from major market data 
vendors.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes will be 
included in the Registration Statement.
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 continued 
listing, the Fund must be in compliance with Rule 10A-3 \41\ under the 
Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \41\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and/or the other assets constituting the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m., Eastern Time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\42\ 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.
---------------------------------------------------------------------------

    \42\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and the exchange-traded securities and 
instruments held by the Fund (including Equity Securities; closed-end 
funds; ETFs; ETPs; ETNs; exchange-traded CVRs; options on stock 
indices; options on equity securities; and stock index futures 
contracts) with other markets and other entities that are members of 
the Intermarket Surveillance Group (``ISG''),\43\ 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 the exchange-traded securities and 
instruments held by the Fund from markets and other entities that are 
members of ISG, which includes securities and futures exchanges, or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. Moreover, FINRA, on behalf of the Exchange, will be 
able to access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \43\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    At least 90% of the Fund's net assets that are invested (in the 
aggregate) in exchange-traded derivatives (including options on stock 
indices; options on equity securities; and stock index futures 
contracts) and in exchange-traded CVRs will be invested in instruments 
that trade in markets that

[[Page 33314]]

are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange. At least 90% of the Fund's net 
assets that are invested (in the aggregate) in ETNs and in exchange-
traded equity securities (including Equity Securities; closed-end 
funds; ETFs; and ETPs) 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.
    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 the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Market and Post-Market Sessions when an updated Intraday Indicative 
Value will not be calculated or publicly disseminated; (5) the 
requirement that members deliver a prospectus to investors purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction; and (6) trading information. The Information Circular will 
also discuss any exemptive, no-action and interpretive relief granted 
by the Commission from any rules under the Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site.
    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. If the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under the Nasdaq 5800 Series.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act in particular in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances, administered by both Nasdaq and also 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws.
    Neither the Adviser nor the Sub-Adviser is a broker-dealer, but 
each is affiliated with at least one broker-dealer, and is required to 
implement a ``fire wall'' with respect to its respective broker-dealer 
affiliate(s) regarding access to information concerning the composition 
and/or changes to the Fund's portfolio. In addition, paragraph (g) of 
Nasdaq Rule 5735 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the open-end fund's portfolio.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and the exchange-traded securities and 
instruments held by the Fund (including Equity Securities; closed-end 
funds; ETFs; ETPs; ETNs; exchange-traded CVRs; options on stock 
indices; options on equity securities; and stock index futures 
contracts) with other markets and other entities that are members of 
ISG, 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 the 
exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, will be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's TRACE.
    At least 90% of the Fund's net assets that are invested (in the 
aggregate) in exchange-traded derivatives (including options on stock 
indices; options on equity securities; and stock index futures 
contracts) and in exchange-traded CVRs will be invested in instruments 
that trade in markets that are members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. At 
least 90% of the Fund's net assets that are invested (in the aggregate) 
in ETNs and in exchange-traded equity securities (including Equity 
Securities; closed-end funds; ETFs; and ETPs) 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.
    The investment objective of the Fund will be to seek long-term 
capital appreciation independent of market direction. Under normal 
market conditions, the Fund will seek to achieve its investment 
objective by investing at least 80% of its net assets in ``Equity 
Securities,'' which may be represented by certain derivative 
instruments as well as ETFs that invest primarily in Equity Securities; 
the 80% Investments will take into account such derivative instruments 
and ETFs. The Fund will invest (in the aggregate) no more than 30% of 
the value of its net assets (calculated at the time of investment) in 
Principal Derivatives and Non-Principal Derivatives. The Fund's 
investments in derivative instruments will be made in accordance with 
the 1940 Act, will be consistent with the Fund's investment objective 
and policies, and will not be used to seek to achieve a multiple or 
inverse multiple of an index. Also, the Fund may hold

[[Page 33315]]

up to an aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), including Rule 144A securities 
deemed illiquid by the Adviser and/or the Sub-Adviser. The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service, will be widely disseminated by one or 
more major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services, and quotation and last sale information for the 
Shares will be available via Nasdaq proprietary quote and trade 
services, as well as in accordance with the Unlisted Trading Privileges 
and the CTA plans for the Shares. Quotation and last sale information 
for the following equity securities (to the extent traded on a U.S. 
exchange) will be available from the exchanges on which they are traded 
as well as in accordance with any applicable CTA plans: Equity 
Securities; ETFs; closed-end funds; and ETPs. Quotation and last sale 
information for U.S. exchange-traded options (including U.S. exchange-
traded options on equity securities and U.S. exchange-traded options on 
stock indices) will be available via the Options Price Reporting 
Authority. Quotation and last sale information for U.S. exchange-traded 
stock index futures contracts, ETNs and CVRs will be available from the 
exchanges on which they are traded.
    Pricing information for Non-Exchange-Traded Equity Securities 
(including without limitation Rule 144A securities), Short-Term Debt 
Instruments, repurchase agreements, OTC CVRs, non-U.S. currency swap 
agreements, total return swap agreements, forward foreign currency 
exchange contracts, bank time deposits, certificates of deposit and 
currency spot transactions will be available from major broker-dealer 
firms and/or major market data vendors and/or Pricing Services. Pricing 
information for exchange-traded equity securities (including Equity 
Securities; closed-end funds; ETFs; and ETPs), ETNs, exchange-traded 
CVRs and exchange-traded derivatives (including options on stock 
indices; options on equity securities; and stock index futures 
contracts) will be available from the applicable listing exchange and 
from major market data vendors. Money market mutual funds are typically 
priced once each business day and their prices will be available 
through the applicable fund's Web site or from major market data 
vendors.
    The Fund's Web site will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Fund will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121 or because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The Fund's investments will be valued daily. Investments traded on 
an exchange (i.e., a regulated market), will generally be valued at 
market value prices that represent last sale or official closing 
prices. Non-exchange traded investments will generally be valued using 
prices obtained from a Pricing Service. If, however, valuations for any 
of the Fund's investments cannot be readily obtained as provided in the 
preceding manner, or the Pricing Committee questions the accuracy or 
reliability of valuations that are so obtained, such investments will 
be valued at fair value, as determined by the Pricing Committee, in 
accordance with the Valuation Procedures and in accordance with 
provisions of the 1940 Act.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and the exchange-traded securities and instruments held by the Fund 
(including Equity Securities; closed-end funds; ETFs; ETPs; ETNs; 
exchange-traded CVRs; options on stock indices; options on equity 
securities; and stock index futures contracts) with other markets and 
other entities that are members of ISG, 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 the exchange-traded securities and 
instruments held by the Fund from markets and other entities that are 
members of ISG, which includes securities and futures exchanges, or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. Moreover, FINRA, on behalf of the Exchange, will be 
able to access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's TRACE. 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

[[Page 33316]]

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
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-061 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street NE., Washington, 
DC 20549-9303.

All submissions should refer to File Number SR-NASDAQ-2016-061. 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-2016-061 and should be submitted 
on or before June 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12236 Filed 5-24-16; 8:45 am]
 BILLING CODE 8011-01-P


