
[Federal Register Volume 81, Number 158 (Tuesday, August 16, 2016)]
[Notices]
[Pages 54634-54639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78533; File No. SR-NASDAQ-2016-086]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 1 Thereto, To List and Trade the Shares of the VanEck Vectors Long/
Flat Commodity ETF

August 10, 2016.

I. Introduction

    On June 10, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the VanEck Vectors Long/Flat Commodity ETF (``Fund'') 
under Nasdaq Rule 5735. The Commission

[[Page 54635]]

published notice of the proposed rule change in the Federal Register on 
June 30, 2016.\3\ On July 15, 2016, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\4\ The Commission received no 
comments on the proposed rule change. This order grants approval of the 
proposed rule change, as modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78150 (Jun. 24, 
2016), 81 FR 42768 (``Notice'').
    \4\ In Amendment No. 1 the Exchange clarified the usage of the 
defined terms used for commodities instruments in the portfolio and 
clarified the application of the percentage limitation on equity 
securities that trade in markets that are not members of the 
Intermarket Surveillance Group (``ISG'') or are not parties to a 
comprehensive surveillance sharing agreement with the Exchange. 
Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2016-086/nasdaq2016086-1.pdf. 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.
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares under Nasdaq 
Rule 5735, which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Shares will be offered by VanEck Vectors ETF Trust 
(``Trust''), which was organized as a Delaware statutory trust on March 
15, 2001.\5\ The investment adviser and the administrator to the Fund 
will be Van Eck Absolute Return Advisers Corporation (``Adviser''), and 
the Fund currently does not intend to use a sub-adviser.\6\ Van Eck 
Securities Corporation (``Distributor'') will be the distributor of the 
Fund's Shares. The Bank of New York Mellon will act as the custodian of 
the Fund's assets and provide transfer agency and fund accounting 
services to the Fund.
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    \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. See Registration 
Statement on Form N-1A for the Trust, dated November 12, 2015 (File 
Nos. 333-123257 and 811-10325). In addition, the Exchange states 
that the Trust has obtained certain exemptive relief under the 
Investment Company Act of 1940 (``1940 Act''). See Investment 
Company Act Release No. 29571 (Jan. 24, 2011) (File No. 812-13601).
    \6\ According to the Exchange, the Adviser is not a broker-
dealer, although it is affiliated with Van Eck Securities 
Corporation, a broker-dealer, and has implemented a fire wall with 
respect to its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a 
portfolio. In the event (a) the Adviser becomes newly affiliated 
with a broker-dealer or registers as a broker-dealer, or (b) any new 
adviser or sub-adviser to the Fund is a registered broker-dealer or 
becomes affiliated with a broker-dealer, it will implement a fire 
wall with respect to its relevant personnel or such broker-dealer 
affiliate, if applicable, regarding access to information concerning 
the composition of, and changes to, the portfolio. In addition, 
personnel who make decisions on each Fund's portfolio composition 
will be subject to procedures designed to prevent the use and 
dissemination of material, non-public information regarding such 
portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\7\
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    \7\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice, as modified by Amendment No. 1 thereto, and the 
Registration Statement, as applicable. See Notice, Amendment No. 1 
to the proposed rule change, and Registration Statement, supra notes 
3, 4, and 5, respectively, and accompanying text.
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A. Exchange's Description of the Fund's Principal Investments

    The Fund's investment objective will be to seek long-term capital 
appreciation while seeking to manage volatility and reduce downside 
risk during sustained market declines. The Fund will seek to achieve 
its investment objective by investing, under normal circumstances, in 
exchange-traded commodity futures contracts and, under certain limited 
circumstances, other commodity-linked instruments as set forth in 
``Other Investments'' hereunder (collectively, ``Commodities 
Instruments''). The Fund will invest in Commodities Instruments 
primarily through a wholly-owned subsidiary of the Fund organized under 
the laws of the Cayman Islands (``Subsidiary'').\8\
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    \8\ The Subsidiary will be wholly-owned and controlled by the 
Fund and will be advised by the Adviser. The Exchange represents 
that the Fund's investment in the Subsidiary may not exceed 25% of 
the value of the Fund's total assets at each quarter-end of the 
Fund's fiscal year. The Fund's investment in the Subsidiary is 
expected to provide the Fund with exposure to Commodities 
Instruments within the limits of the federal tax laws, which limit 
the ability of investment companies like the Fund to invest directly 
in such instruments. The Subsidiary will have the same investment 
objective as the Fund and will follow the same general investment 
policies and restrictions, except that unlike the Fund, it may 
invest without limit in Commodities Instruments. In addition, 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. The Trust's board (``Board'') will have 
oversight responsibility for the investment activities of the Fund, 
including its investment in the Subsidiary, and the Fund's role as 
the sole shareholder of the Subsidiary. The Adviser will receive 
certain fees for managing the Subsidiary's assets, and the Adviser 
will waive or credit such amounts against the fees payable to the 
Adviser by the Fund. It is expected that the Subsidiary will become 
party to the existing custody agreement, transfer agency agreement 
and accounting agreement of the Trust and Fund.
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    The Fund (directly or indirectly through the Subsidiary) will 
normally invest in exchange-traded commodity futures contracts that are 
components of the Morningstar[supreg] Long/Flat Commodity Index\SM\ 
(``Benchmark''), an index composed of futures contracts on 20 heavily 
traded commodities across the energy, agriculture, industrial metals, 
precious metals, and livestock sectors. The Adviser will employ a 
rules-based investment approach when selecting Commodities Instruments 
based upon momentum characteristics of the Commodities Instruments. 
Commodities Instruments are assessed on a monthly basis by comparing 
current prices to 12-month moving averages. The Fund's positions will 
be either long \9\ or flat.\10\ The Fund intends to take long positions 
in those Commodities Instruments whose prices are above their 12-month 
moving average. Conversely, the Fund intends to take flat positions to 
manage volatility and reduce downside risk for those Commodities 
Instruments whose prices are below their 12-month moving average. The 
Fund will not be an ``index tracking'' ETF and may not always invest in 
all of the Benchmark's components, or in the same proportion, and it 
may invest in Commodities Instruments outside the Benchmark.\11\
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    \9\ For the purposes of this filing, a ``long'' position is a 
position that will increase in market price if the price of the 
commodity futures contract is rising during the period when the 
position is open.
    \10\ For the purposes of this filing, a ``flat'' position is a 
position that will not increase or decrease in market price whether 
the price of the commodity futures contract to which it relates is 
rising or falling.
    \11\ See Notice, supra note 3, 81 FR at 42770 (providing, in 
table format, detailed information relating to each of the commodity 
futures contracts in the Benchmark, including each instrument's 
trading hours, futures exchange, and ticker symbol). The Exchange 
represents that all of the futures exchanges represented in the 
Benchmark are members of ISG.
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B. Exchange's Description of the Fund's Non-Principal Investments

    As noted above, the Fund intends to invest first in exchange-traded 
commodity futures contracts. However, in the event the Fund reaches the 
position limits applicable to one or more exchange-traded commodity 
futures contracts or a futures exchange imposes limitations on the 
Fund's ability to maintain or increase its positions in an exchange-
traded commodity futures contract after reaching accountability levels 
or a price limit is in effect on an exchange-traded commodity futures 
contract during the last 30 minutes of its regular trading session, the 
Fund's intention is to invest first in commodity-based swap agreements 
cleared through a central clearing house or the clearing house's 
affiliate (``Cleared Swaps'') to the extent

[[Page 54636]]

permitted under the position limits applicable to Cleared Swaps and 
appropriate in light of the liquidity in the Cleared Swaps market, and 
then, using its commercially reasonable judgment, in forward contracts 
on commodities, exchange-traded options on futures contracts, and 
commodity-based swaps other than Cleared Swaps (collectively, including 
Cleared Swaps, ``Other Commodity Instruments'').
    The Fund (and the Subsidiary, as applicable) expects to invest its 
remaining assets in any one or more of the following: U.S. government 
securities; \12\ money market funds; cash and other cash equivalents; 
\13\ treasury inflation-protected securities; sovereign debt 
obligations of non-U.S. countries; and repurchase agreements that 
provide liquidity, serve as margin, or collateralize the Fund's or the 
Subsidiary's investments in exchange-traded commodity futures 
contracts.
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    \12\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \13\ Cash equivalents will include banker's acceptances, 
commercial paper, and certificates of deposit.
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    The Fund also may invest directly in exchange-traded funds 
(``ETFs''),\14\ exchange-traded closed end funds (to the extent 
permitted by the 1940 Act and certain exemptive relief issued in 
thereunder), and exchange-traded notes (``ETNs'') that provide exposure 
to commodities.\15\ The Fund may also invest in commodity-related 
foreign and domestic equity securities.\16\
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    \14\ ETFs in which the Fund invests will be listed and traded in 
the U.S. on registered exchanges. The ETFs in which the Fund will 
invest include Index Fund Shares (as described in Nasdaq Rule 5705), 
Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), 
and Managed Fund Shares (as described in Nasdaq Rule 5735). The 
shares of ETFs in which the Fund may invest will be limited to 
securities that trade in markets that are members of the ISG, which 
includes all U.S. national securities exchanges, or exchanges that 
are parties to a comprehensive surveillance sharing agreement with 
the Exchange. The Exchange represents that the Fund will not hold 
inverse, leveraged, and inverse leveraged ETFs. See Notice, supra 
note 3, 81 FR at 42770, n.14.
    \15\ ETNs in which the Fund invests will be listed and traded in 
the U.S. on registered exchanges. The ETNs in which the Fund will 
invest include Securities Linked to the Performance of Indexes and 
Commodities, Including Currencies (as described in Nasdaq Rule 
5710), and Index-Linked Exchangeable Notes (as described in Nasdaq 
Rule 5711). The Exchange represents that the Fund will not hold 
inverse, leveraged, and inverse leveraged ETNs. See id.
    \16\ Commodity-related foreign and domestic equity securities 
will be comprised of exchange-traded common stocks of companies that 
operate in commodities, natural resources and energy businesses, and 
in associated businesses, as well as companies that provide services 
or have exposure to such businesses.
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C. Exchange's Descriptions of the Fund's Investment Restrictions

    According to the Exchange, the Fund may not make loans, except that 
it may (i) lend portfolio securities, (ii) enter into repurchase 
agreements, (iii) purchase all or a portion of an issue of debt 
securities, bank loan or participation interests, bank certificates of 
deposit, bankers' acceptances, debentures or other securities, whether 
or not the purchase is made upon the original issuance of the 
securities, and (iv) participate in an interfund lending program with 
other registered investment companies, all in accordance with the 1940 
Act. In addition, the Fund may not borrow money, except as permitted 
under the 1940 Act, and as interpreted or modified by regulation from 
time to time. The Fund also may not issue senior securities, except as 
permitted under the 1940 Act, and as interpreted or modified by 
regulation from time to time.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment).\17\ 
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. An illiquid security is 
generally considered to be a security that cannot be sold or disposed 
of in the ordinary course of business within seven days at or near its 
carrying value.
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    \17\ In reaching liquidity decisions, the Adviser may consider 
factors such as but not limited to the following: 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).
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    The Fund may not purchase any security if, as a result of that 
purchase, 25% or more of its total assets would be invested in 
securities of issuers having their principal business activities in the 
same industry. This limit does not apply to securities issued or 
guaranteed by the U.S. Government, its agencies or instrumentalities, 
or securities of other investment companies.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\18\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1 thereto, is 
consistent with Section 6(b)(5) of the Exchange Act,\19\ 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 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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    \18\ 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).
    \19\ 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 Exchange Act,\20\ 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. According to 
the Exchange, 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. Quotation and last-
sale information for any underlying exchange-traded equity will also be 
available via the quote and trade service of their respective primary 
exchanges, as well as in accordance with the Unlisted Trading 
Privileges and the Consolidated Tape Association plans. Quotation and 
last-sale information for any underlying exchange-traded options will 
also be available via the quote and trade service of their respective 
primary exchanges. Quotation and last-sale information for any 
underlying exchange-traded futures contracts will be available via the 
quote and trade service of their respective

[[Page 54637]]

primary exchanges. Information on the Morningstar Long/Flat Commodity 
Index\SM\ will be available on the Morningstar Indexes Web site.
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    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    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,'' as defined in Nasdaq Rule 
5735(c)(2), that will form the basis for the Fund's calculation of NAV 
at the end of the business day.\21\ In addition, an estimated value of 
the Fund, defined in Exchange Rule 5735(c)(3) as ``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 \22\ 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.\23\ The NAV of the Fund will be determined each business day 
as of the close of trading (ordinarily 4:00 p.m. Eastern Time) on 
Nasdaq.\24\ In addition, a basket composition file, which includes the 
security names and quantities required to be delivered in exchange for 
the Fund's Shares, together with estimates and actual cash components, 
will be publicly disseminated daily prior to the opening of the 
Exchange via NSCC.
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    \21\ 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. On a daily basis, the Fund will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of 
the holding (including the type of holding), the identity of the 
security 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.
    \22\ The Exchange states that 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. See 
Notice, supra note 3, 81 FR at 42773, n.26.
    \23\ The Exchange represents that 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. See id. at 42773.
    \24\ According to the Exchange, ETFs, exchange-traded closed-end 
funds, ETNs, and commodity-related foreign and domestic equity 
securities, will be based on the securities' closing prices on local 
markets, when available. Due to the time differences between the 
United States and certain countries, securities on these non-U.S. 
exchanges may not trade at times when Shares of the Fund will trade. 
In the absence of a last reported sales price, or if no sales were 
reported, and for other assets for which market quotes are not 
readily available, values may be based on quotes obtained from a 
quotation reporting system, established market makers or by an 
outside independent pricing service using data reflecting the 
earlier closing of the principal markets for those securities. U.S. 
government securities, treasury inflation-protected securities, and 
sovereign debt obligations of non-U.S. countries will normally be 
valued on the basis of quotes from brokers or dealers, established 
market makers, or an outside independent pricing service. Short-term 
investments purchased with a remaining maturity of 60 days or less, 
including repurchase agreements and cash equivalents, will be valued 
on the basis of quotes from broker dealers, established major market 
makers, an independent pricing service, or at amortized cost. Money 
market funds will be valued at their reported closing NAV. Futures 
contracts and options on futures contracts, which are traded on 
exchanges, will be valued at the current settle price for like 
contracts acquired on the day on which the futures contract will be 
valued as of the close of such exchanges. Other Commodity 
Instruments not traded on exchanges will generally be valued daily 
based upon quotations from market makers or by a pricing service and 
in accordance with the Trust's valuation policies and procedures. 
Prices obtained by an outside independent pricing service may use 
information provided by market makers or estimates of market values 
obtained from yield data related to investments or securities with 
similar characteristics and may use a computerized grid matrix of 
securities and its evaluations in determining what it believes is 
the fair value of the portfolio securities. If a market quotation 
for a security is not readily available or the Adviser believes it 
does not otherwise accurately reflect the market value of the 
security at the time the Fund calculates its NAV, the security will 
be fair valued by the Adviser in accordance with the Trust's 
valuation policies and procedures approved by the Board.
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    Intra-day, executable price quotations on the exchange-traded 
assets held by the Fund and the Subsidiary, including futures 
contracts, options on futures contracts, ETFs, ETNs, closed-end funds, 
and foreign and domestic equity securities are expected to be available 
on the exchange on which they are traded. Intra-day, executable price 
quotations on swaps, money market funds, forward contracts, U.S. 
government securities, cash and other cash equivalents, treasury 
inflation-protected securities, sovereign debt obligations of non-U.S. 
countries, and repurchase agreements will be available from major 
broker-dealer firms. Intra-day price information will also be available 
through subscription services, such as Bloomberg and Reuters. 
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.
    The Commission believes that the proposal to list and trade the 
Shares is reasonably designed to promote fair disclosure of information 
that may be necessary to price the Shares appropriately and to prevent 
trading when a reasonable degree of transparency cannot be assured. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio will be made available to all market 
participants at the same time. Nasdaq will halt trading in the Shares 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may 
be halted because of market conditions or for reasons that, in the view 
of the Exchange, make trading in the Shares inadvisable.\25\ Trading in 
the Shares also will be subject to Rule 5735(d)(2)(D), which sets forth 
circumstances under which trading in the Shares of the Fund may be 
halted. The Exchange represents that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Further, the Commission notes that the Reporting Authority 
\26\ that provides the Disclosed Portfolio must implement and maintain, 
or be subject to, procedures designed to prevent the use and 
dissemination of material, non-public information regarding the actual 
components of the portfolio.\27\ In addition, Nasdaq Rule 5735(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. The Exchange states that the 
Adviser is affiliated with the Distributor, a broker-dealer, and has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition of, and 
changes to, the portfolio.\28\
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    \25\ These may include: (1) The extent to which trading is not 
occurring in the securities and other assets constituting the 
Disclosed Portfolio of the Fund and the Subsidiary; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    \26\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
    \27\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \28\ See supra note 6. The Exchange further represents that an 
investment adviser to an open-end fund is required to be registered 
under the Investment Advisers Act of 1940 (``Advisers Act''). As a 
result, the Adviser and its related personnel are subject to the 
provisions of Rule 204A-1 under the Advisers Act relating to codes 
of ethics. This Rule requires investment advisers to adopt a code of 
ethics that reflects the fiduciary nature of the relationship to 
clients as well as compliance with 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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[[Page 54638]]

    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including the following:
    (1) The Shares will conform to the initial and continued listing 
criteria under Nasdaq Rule 5735.\29\
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    \29\ See Notice, supra note 3, 81 FR at 42774.
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    (2) Trading in the Shares will be subject to the existing trading 
surveillances, administered by both Nasdaq and also the FINRA on behalf 
of the Exchange, and 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.\30\
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    \30\ See id. 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. See 
id. at 42774, n.28.
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    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading information it can obtain relating to the Shares, 
other exchange-traded securities and other assets held by the Fund and 
the Subsidiary, which include exchange-traded commodity-related equity 
securities, exchange-traded futures contracts, exchange-traded options 
on futures contracts, ETNs, ETFs and exchange-traded closed-end funds, 
with other markets and other entities that are members of the ISG, and 
FINRA may obtain trading information regarding trading in the Shares, 
and such exchange-traded securities and other assets 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 such exchange-traded securities and other assets 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.\31\
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    \31\ See id. at 42774.
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    (4) With respect to the exchange-traded commodity futures contracts 
and options on futures contracts (if applicable) held, not more than 
10% of the weight of such futures contracts and options on futures 
contracts in the aggregate shall consist of instruments whose principal 
trading market is not a member of the ISG or is a market with which the 
Exchange does not have a comprehensive surveillance sharing agreement. 
In addition, not more than 10% of the equity securities (including 
shares of ETFs, closed-end funds, and commodity-related foreign and 
domestic equity securities) and ETNs in which the Fund may invest will, 
in the aggregate, be invested in securities that trade in markets that 
are not members of the ISG or are not parties to a comprehensive 
surveillance sharing agreement with the Exchange.
    (5) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (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 the 
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 Exchange 
Act.\32\
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    \32\ See 17 CFR 240.10A-3.
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    (8) The Fund will not hold inverse, leveraged, and inverse 
leveraged ETFs or ETNs.\33\
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    \33\ See supra notes 14 and 15.
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    (9) As noted above, the Fund (directly or indirectly through the 
Subsidiary) intends to invest principally in exchange-traded commodity 
futures contracts. Only in the event the Fund reaches the position 
limits applicable to one or more exchange-traded commodity futures 
contracts or a futures exchange imposes limitations on the Fund's 
ability to maintain or increase its positions in an exchange-traded 
commodity futures contract after reaching accountability levels or a 
price limit is in effect on an exchange-traded commodity futures 
contract during the last 30 minutes of its regular trading session, the 
Fund's intention is to invest first in Cleared Swaps, to the extent 
permitted under the position limits applicable to Cleared Swaps and 
appropriate in light of the liquidity in the Cleared Swaps market, and 
then, using its commercially reasonable judgment, in Other Commodity 
Instruments (other than Cleared Swaps).
    (10) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
deemed illiquid by the Adviser.
    (11) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    The Commission notes that the Fund and the Shares must comply with 
the initial and continued listing criteria in Nasdaq Rule 5735 for the 
Shares to be listed and traded on the Exchange. In addition, 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

[[Page 54639]]

continued listing requirements.\34\ If the Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under the Nasdaq 5800 Series.\35\ This approval 
order is based on all of the Exchange's representations, including 
those set forth above and in the Notice, as modified by Amendment No. 1 
to the proposed rule change.
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    \34\ 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. 
78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015-
100). In the context of this representation, it is the Commission's 
view that ``monitor'' and ``surveil'' both mean ongoing oversight of 
a 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.
    \35\ See id. at 42775.
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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 \36\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\37\ that the proposed rule change (SR-NASDAQ-2016-086), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19442 Filed 8-15-16; 8:45 am]
BILLING CODE 8011-01-P


