
[Federal Register Volume 81, Number 200 (Monday, October 17, 2016)]
[Notices]
[Pages 71549-71556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24978]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79082; File No. SR-NASDAQ-2016-134]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To List and Trade Exchange-
Traded Managed Funds

October 11, 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 September 28, 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 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade under Nasdaq Rule 5745 
(Exchange-Traded Managed Fund Shares (``NextShares'')) the common 
shares (``Shares'') of the exchange-traded managed funds described 
herein (each, a ``Fund,'' and collectively, the ``Funds'').\3\
---------------------------------------------------------------------------

    \3\ Except for the specific Fund information set forth below, 
this rule filing conforms to the rule filing, as modified by 
amendments 1 and 2 thereto, relating to the listing and trading on 
Nasdaq of the shares of 18 series of the Eaton Vance ETMF Trust and 
the Eaton Vance ETMF Trust II, as approved by the Commission in 
Securities Exchange Act Release No. 75499 (July 21, 2015), 80 FR 
44406 (July 21, 2015) (SR-NASDAQ-2015-036).

---------------------------------------------------------------------------

[[Page 71550]]

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 each Fund 
under Nasdaq Rule 5745, which governs the listing and trading of 
exchange-traded managed fund shares or NextShares, as defined in Nasdaq 
Rule 5745(c)(1), on the Exchange.\4\ Each Fund listed below is 
registered with the Commission as an open-end investment company and 
has filed a registration statement on Form N-1A (``Registration 
Statement'') with the Commission. Each Fund is a series of the Trust 
listed below and will be advised by an investment adviser registered 
under the Investment Advisers Act of 1940 (``Adviser''), as described 
below. Each Fund will be actively managed and will pursue various 
principal investment strategies, as noted below.\5\
---------------------------------------------------------------------------

    \4\ The Commission approved Nasdaq Rule 5745 in Securities 
Exchange Act Release No. 73562 (Nov. 7, 2014), 79 FR 68309 (Nov. 14, 
2014) (SR-NASDAQ-014-020) [sic].
    \5\ Additional information regarding the Funds will be available 
on the free public Web site for the Funds and in the Registration 
Statements for the Funds.
---------------------------------------------------------------------------

1. Gabelli NextSharesTM Trust
    Gabelli NextSharesTM Trust (the ``Trust'') is registered 
with the Commission as an open-end investment company and has filed a 
Registration Statement with the Commission.\6\ Each of the following 
Funds is a series of the Trust.\7\
---------------------------------------------------------------------------

    \6\ See Registration Statement on Form N-1A for the Trust dated 
June 6, 2016 (File Nos. 333-211881 and 811-23160). The descriptions 
of the Funds and the Shares contained herein conform to the 
Registration Statement.
    \7\ The Commission has issued an order granting the Trust and 
certain affiliates exemptive relief under the Investment Company 
Act. See Investment Company Act Release No. 31608 (May 19, 2015) 
(File No. 812-14438).
---------------------------------------------------------------------------

    Gabelli Funds, LLC will be the Adviser to the Funds. The Adviser is 
not a registered broker-dealer, although it is affiliated with a 
broker-dealer. Gabelli Funds, LLC will also act as administrator to the 
Funds. The Adviser has implemented a fire wall with respect to its 
affiliated broker-dealer regarding access to information concerning the 
composition and/or changes to each Fund's portfolio. In the future 
event that (a) the Adviser registers as a broker-dealer or becomes 
newly affiliated with a broker-dealer, or (b) any new adviser or a sub-
adviser to a 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 and/or such broker-dealer affiliate, if applicable, 
regarding access to information concerning the composition and/or 
changes to the relevant Fund's portfolio and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio. G.distributors, LLC, 
will be the principal underwriter and distributor of each Fund's 
Shares. BNY Mellon Investment Servicing (US) Inc. will act as the 
custodian, transfer agent, and sub-administrator to the Funds. 
Interactive Data Pricing and Reference Data, Inc. will be the intraday 
indicative value (``IIV'') calculator to the Funds.
    Each Fund will be actively managed and will pursue the various 
principal investment strategies described below.\8\
---------------------------------------------------------------------------

    \8\ Additional information regarding the Funds will be available 
on a free public Web site for the Funds (www.gabelli.com or 
www.nextshares.com.) and in the Registration Statement for the 
Funds.
---------------------------------------------------------------------------

a. Gabelli ESG NextSharesTM (the ``Gabelli ESG Fund'')
    The Gabelli ESG Fund seeks to provide capital appreciation. The 
Gabelli ESG Fund seeks to achieve its objective by investing 
substantially all, and in any case no less than 80%, of its net assets 
plus borrowings for investment purposes in common and preferred stocks 
of companies that meet the Gabelli ESG Fund's guidelines for social 
responsibility at the time of investment. Pursuant to its social 
responsibility guidelines, the Gabelli ESG Fund will not invest in 
publicly traded fossil fuel (coal, oil, and gas) companies, the top 50 
defense/weapons contractors, or in companies that derive more than 5% 
of their revenues from the following areas: Tobacco, alcohol, gaming, 
defense/weapons production, and companies involved in the manufacture 
of abortion related products.
b. Gabelli All Cap NextSharesTM (the ``Gabelli All Cap 
Fund'')
    The Gabelli All Cap Fund primarily seeks to provide capital 
appreciation. The Gabelli All Cap Fund's secondary goal is current 
income. Under normal market conditions, the Gabelli All Cap Fund 
invests at least 80% of its net assets plus borrowings for investment 
purposes in stocks that are listed on a recognized securities exchange 
or similar market. The Gabelli All Cap Fund may also invest in common 
and preferred securities of foreign issuers.
c. Gabelli Equity Income NextSharesTM (the ``Gabelli Equity 
Income Fund'')
    The Gabelli Equity Income Fund seeks a high level of total return 
on its assets with an emphasis on income. The Gabelli Equity Income 
Fund will seek to achieve its investment objective through a 
combination of capital appreciation and current income by investing, 
under normal market conditions, at least 80% of its net assets plus 
borrowings for investment purposes in income producing equity 
securities. Income producing equity securities include, for example, 
common stock and preferred stock.
d. Gabelli Small and Mid Cap Value NextSharesTM (the 
``Gabelli Small and Mid Cap Value Fund'')
    The Gabelli Small and Mid Cap Value Fund seeks long-term capital 
growth. Under normal market conditions, the Gabelli Small and Mid Cap 
Value Fund invests at least 80% of its net assets plus borrowings for 
investment purposes (``80% Policy'') in equity securities (such as 
common stock and preferred stock) of companies with small or medium-
sized market capitalizations (``small cap'' and ``mid cap'' companies, 
respectively). A company's market capitalization is generally 
calculated by multiplying the number of a company's shares outstanding 
by its stock price. The Gabelli Small and Mid Cap Value Fund defines 
``small cap companies'' as those with a market capitalization generally 
less than $3 billion at the time of investment and ``mid cap 
companies'' as those with a market capitalization between $3 billion 
and $12 billion at the time of investment. Subject to its 80% Policy, 
the Gabelli Small and Mid Cap Value Fund may invest in equity 
securities of companies of any market capitalization. In addition, the 
Gabelli Small and Mid Cap Value Fund may invest up to 25% of its total 
assets in securities of issuers in a single industry.

[[Page 71551]]

e. Gabelli Media Mogul NextSharesTM (the ``Gabelli Media 
Mogul Fund'')
    The Gabelli Media Mogul Fund seeks to provide capital appreciation. 
Under normal market conditions, the Fund invests at least 80% of net 
assets plus borrowings for investment purposes in companies that were 
spun-off from or that are tracking stocks issued by Liberty Media 
Corporation, as well as in companies that resulted from subsequent 
mergers of any such spin-offs or stocks that track performance of 
companies that resulted from subsequent mergers of any such spin-offs 
or tracking stocks, and in public companies in which Liberty Media 
Corporation and its successor companies invest. The current investable 
universe includes approximately 28 U.S. and non-U.S. listed companies 
in the telecommunications, media, publishing, and entertainment 
industries.
Creations and Redemptions of Shares
    Shares will be issued and redeemed on a daily basis for each Fund 
at the next-determined net asset value (``NAV'') \9\ in specified 
blocks of Shares called ``Creation Units.'' A Creation Unit will 
consist of at least 25,000 Shares. Creation Units may be purchased and 
redeemed by or through ``Authorized Participants.'' \10\ Purchases and 
sales of Shares in amounts less than a Creation Unit may be effected 
only in the secondary market, as described below, and not directly with 
a Fund.
---------------------------------------------------------------------------

    \9\ As with other registered open-end investment companies, NAV 
generally will be calculated daily Monday through Friday as of the 
close of regular trading on the New York Stock Exchange, normally 
4:00 p.m. Eastern Time. NAV will be calculated by dividing a Fund's 
net asset value by the number of Shares outstanding. Information 
regarding the valuation of investments in calculating a Fund's NAV 
will be contained in the Registration Statement for its Shares.
    \10\ ``Authorized Participants'' will be either: (1) 
``Participating parties,'' i.e., brokers or other participants in 
the Continuous Net Settlement System (``CNS System'') of the 
National Securities Clearing Corporation (``NSCC''), a clearing 
agency registered with the Commission and affiliated with the 
Depository Trust Company (``DTC''), or (2) DTC participants, which 
in either case have executed participant agreements with the Fund's 
distributor and transfer agent regarding the creation and redemption 
of Creation Units. Investors will not have to be Authorized 
Participants in order to transact in Creation Units, but must place 
an order through and make appropriate arrangements with an 
Authorized Participant for such transactions.
---------------------------------------------------------------------------

    The creation and redemption process for Funds may be effected ``in 
kind,'' in cash, or in a combination of securities and cash. Creation 
``in kind'' means that an Authorized Participant--usually a brokerage 
house or large institutional investor--purchases the Creation Unit with 
a basket of securities equal in value to the aggregate NAV of the 
Shares in the Creation Unit. When an Authorized Participant redeems a 
Creation Unit in kind, it receives a basket of securities equal in 
value to the aggregate NAV of the Shares in the Creation Unit.\11\
---------------------------------------------------------------------------

    \11\ In compliance with Nasdaq Rule 5745(b)(5), which applies to 
Shares based on an international or global portfolio, each Fund's 
application for exemptive relief under the Investment Company Act 
states that the Fund must comply with the federal securities laws in 
accepting securities for deposits and satisfying redemptions with 
securities, including that the securities accepted for deposits and 
the securities used to satisfy redemption requests are sold in 
transactions that would be exempt from registration under the 
Securities Act of 1933, as amended (15 U.S.C. 77a) (``Securities 
Act'').
---------------------------------------------------------------------------

Composition File
    As defined in Nasdaq Rule 5745(c)(3), the Composition File is the 
specified portfolio of securities and/or cash that a Fund will accept 
as a deposit in issuing a Creation Unit of Shares, and the specified 
portfolio of securities and/or cash that a Fund will deliver in a 
redemption of a Creation Unit of Shares. The Composition File will be 
disseminated through the NSCC once each business day before the open of 
trading in Shares on such day and also will be made available to the 
public each day on a free Web site. Because the Funds seek to preserve 
the confidentiality of their current portfolio trading program, a 
Fund's Composition File generally will not be a pro rata reflection of 
the Fund's investment positions. Each security included in the 
Composition File will be a current holding of the Fund, but the 
Composition File generally will not include all of the securities in 
the Fund's portfolio or match the weightings of the included securities 
in the portfolio. Securities that the Adviser is in the process of 
acquiring for a Fund generally will not be represented in the Fund's 
Composition File until their purchase has been completed. Similarly, 
securities that are held in a Fund's portfolio but in the process of 
being sold may not be removed from its Composition File until the sale 
program is substantially completed. Funds creating and redeeming Shares 
in kind will use cash amounts to supplement the in-kind transactions to 
the extent necessary to ensure that Creation Units are purchased and 
redeemed at NAV. The Composition File also may consist entirely of 
cash, in which case it will not include any of the securities in the 
Fund's portfolio.\12\
---------------------------------------------------------------------------

    \12\ In determining whether a Fund will issue or redeem Creation 
Units entirely on a cash basis, the key consideration will be the 
benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution for a Fund than Authorized Participants because of 
the Adviser's size, experience and potentially stronger 
relationships in the fixed-income markets.
---------------------------------------------------------------------------

Transaction Fees
    All persons purchasing or redeeming Creation Units of a Fund are 
expected to incur a transaction fee to cover the estimated cost to that 
Fund of processing the transaction, including the costs of clearance 
and settlement charged to it by NSCC or DTC, and the estimated trading 
costs (i.e., brokerage commissions, bid-ask spread, and market impact) 
to be incurred in converting the Composition File to or from the 
desired portfolio holdings. The transaction fee is determined daily and 
will be limited to amounts determined by the Adviser to be appropriate 
to defray the expenses that a Fund incurs in connection with the 
purchase or redemption of Creation Units. The purpose of transaction 
fees is to protect a Fund's existing shareholders from the dilutive 
costs associated with the purchase and redemption of Creation Units. 
Transaction fees will differ among Funds and may vary over time for a 
given Fund depending on the estimated trading costs for its portfolio 
positions and Composition File, processing costs and other 
considerations. Funds that specify greater amounts of cash in their 
Composition File may impose higher transaction fees. In addition, Funds 
that include in their Composition File instruments that clear through 
DTC may impose higher transaction fees than Funds with a Composition 
File that consists solely of instruments that clear through NSCC, 
because DTC may charge more than NSCC in connection with Creation Unit 
transactions.\13\ The transaction fees applicable to each Fund's 
purchases and redemptions on a given business day will be disseminated 
through the NSCC prior to the open of market trading on that day and 
also will be made available to the public each day on a free Web site. 
In all cases, the transaction fees will be limited in accordance with 
the requirements of the Commission applicable to open-end management 
investment companies offering redeemable securities.
---------------------------------------------------------------------------

    \13\ Authorized Participants that participate in the CNS System 
of the NSCC are expected to be able to use the enhanced NSCC/CNS 
process for effecting in-kind purchases and redemptions of ETFs (the 
``NSCC Process'') to purchase and redeem Creation Units of Funds 
that limit the composition of their baskets to include only NSCC 
Process-eligible instruments (generally domestic equity securities 
and cash). Because the NSCC Process is generally more efficient than 
the DTC clearing process, NSCC is likely to charge a Fund less than 
DTC to settle purchases and redemptions of Creation Units.

---------------------------------------------------------------------------

[[Page 71552]]

NAV-Based Trading
    Because Shares will be listed and traded on the Exchange, Shares 
will be available for purchase and sale on an intraday basis. Shares 
will be purchased and sold in the secondary market at prices directly 
linked to a Fund's next-determined NAV using a new trading protocol 
called ``NAV-Based Trading.'' \14\ All bids, offers and execution 
prices of Shares will be expressed as a premium/discount (which may be 
zero) to the Fund's next-determined NAV (e.g., NAV-$0.01, NAV+$0.01). A 
Fund's NAV will be determined each business day, normally as of 4:00 
p.m. Eastern Time. Trade executions will be binding at the time orders 
are matched on Nasdaq's facilities, with the transaction prices 
contingent upon the determination of NAV.
---------------------------------------------------------------------------

    \14\ Aspects of NAV-Based Trading are protected intellectual 
property subject to issued and pending U.S. patents held by 
NextShares Solutions LLC (``NextShares Solutions''), a wholly owned 
subsidiary of Eaton Vance Corp. Nasdaq will enter into a license 
agreement with NextShares Solutions to allow for NAV-Based Trading 
on the Exchange of exchange-traded managed funds that have 
themselves entered into license agreements with NextShares 
Solutions.
---------------------------------------------------------------------------

Trading Premiums and Discounts
    Bid and offer prices for Shares will be quoted throughout the day 
relative to NAV. The premium or discount to NAV at which Share prices 
are quoted and transactions are executed will vary depending on market 
factors, including the balance of supply and demand for Shares among 
investors, transaction fees and other costs in connection with creating 
and redeeming Creation Units of Shares, the cost and availability of 
borrowing Shares, competition among market makers, the Share inventory 
positions and inventory strategies of market makers, the profitability 
requirements and business objectives of market makers, and the volume 
of Share trading. Reflecting such market factors, prices for Shares in 
the secondary market may be above, at or below NAV. Funds with higher 
transaction fees may trade at wider premiums or discounts to NAV than 
other Funds with lower transaction fees, reflecting the added costs to 
market makers of managing their Share inventory positions through 
purchases and redemptions of Creation Units.
    Because making markets in Shares will be simple to manage and low 
risk, competition among market makers seeking to earn reliable, low-
risk profits should enable the Shares to routinely trade at tight bid-
ask spreads and narrow premiums/discounts to NAV. As noted below, each 
Fund will maintain a public Web site that will be updated on a daily 
basis to show current and historical trading spreads and premiums/
discounts of Shares trading in the secondary market.
Transmitting and Processing Orders
    Member firms will utilize certain existing order types and 
interfaces to transmit Share bids and offers to Nasdaq, which will 
process Share trades like trades in shares of other listed 
securities.\15\ In the systems used to transmit and process 
transactions in Shares, a Fund's next-determined NAV will be 
represented by a proxy price (e.g., 100.00) and a premium/discount of a 
stated amount to the next-determined NAV to be represented by the same 
increment/decrement from the proxy price used to denote NAV (e.g., NAV-
$0.01 would be represented as 99.99; NAV+$0.01 as 100.01).
---------------------------------------------------------------------------

    \15\ As noted below, all orders to buy or sell Shares that are 
not executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. Prior to the 
commencement of trading in a Fund, the Exchange will inform its 
members in an Information Circular of the effect of this 
characteristic on existing order types.
---------------------------------------------------------------------------

    To avoid potential investor confusion, Nasdaq will work with member 
firms and providers of market data services to seek to ensure that 
representations of intraday bids, offers and execution prices of Shares 
that are made available to the investing public follow the ``NAV-$0.01/
NAV+$0.01'' (or similar) display format. All Shares listed on the 
Exchange will have a unique identifier associated with their ticker 
symbols, which would indicate that the Shares are traded using NAV-
Based Trading. Nasdaq makes available to member firms and market data 
services certain proprietary data feeds that are designed to supplement 
the market information disseminated through the consolidated tape 
(``Consolidated Tape''). Specifically, the Exchange will use the NASDAQ 
Basic and NASDAQ Last Sale data feeds to disseminate intraday price and 
quote data for Shares in real time in the ``NAV-$0.01/NAV+$0.01'' (or 
similar) display format. Member firms could use the NASDAQ Basic and 
NASDAQ Last Sale data feeds to source intraday Share prices for 
presentation to the investing public in the ``NAV-$0.01/NAV+$0.01'' (or 
similar) display format. Alternatively, member firms could source 
intraday Share prices in proxy price format from the Consolidated Tape 
and other Nasdaq data feeds (e.g., Nasdaq TotalView and Nasdaq Level 2) 
and use a simple algorithm to convert prices into the ``NAV-$0.01/
NAV+$0.01'' (or similar) display format. As noted below, prior to the 
commencement of trading in a Fund, the Exchange will inform its members 
in an Information Circular of the identities of the specific Nasdaq 
data feeds from which intraday Share prices in proxy price format may 
be obtained.
Intraday Reporting of Quotes and Trades
    All bids and offers for Shares and all Share trade executions will 
be reported intraday in real time by the Exchange to the Consolidated 
Tape \16\ and separately disseminated to member firms and market data 
services through the Exchange data feeds listed above. The Exchange 
will also provide the member firms participating in each Share trade 
with a contemporaneous notice of trade execution, indicating the number 
of Shares bought or sold and the executed premium/discount to NAV.\17\
---------------------------------------------------------------------------

    \16\ Due to systems limitations, the Consolidated Tape will 
report intraday execution prices and quotes for Shares using a proxy 
price format. As noted, Nasdaq will separately report real-time 
execution prices and quotes to member firms and providers of market 
data services in the ``NAV-$0.01/NAV+$0.01'' (or similar) display 
format, and otherwise seek to ensure that representations of 
intraday bids, offers and execution prices for Shares that are made 
available to the investing public follow the same display format.
    \17\ All orders to buy or sell Shares that are not executed on 
the day the order is submitted will be automatically cancelled as of 
the close of trading on such day.
---------------------------------------------------------------------------

Final Trade Pricing, Reporting and Settlement
    All executed Share trades will be recorded and stored intraday by 
Nasdaq to await the calculation of such Fund's end-of-day NAV and the 
determination of final trade pricing. After a Fund's NAV is calculated 
and provided to the Exchange, Nasdaq will price each Share trade 
entered into during the day at the Fund's NAV plus/minus the trade's 
executed premium/discount. Using the final trade price, each executed 
Share trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.\18\ After the pricing is finalized, Nasdaq will deliver the 
Share trading data to NSCC for clearance and settlement, following the 
same processes used for the clearance

[[Page 71553]]

and settlement of trades in other exchange-traded securities.
---------------------------------------------------------------------------

    \18\ File Transfer Protocol (``FTP'') is a standard network 
protocol used to transfer computer files on the Internet. Nasdaq 
will arrange for the daily dissemination of an FTP file with 
executed Share trades to member firms and market data services.
---------------------------------------------------------------------------

Availability of Information
    Prior to the commencement of market trading in Shares, each Fund 
will be required to establish and maintain a public Web site through 
which its current prospectus may be downloaded. The Web site will 
include additional Fund information updated on a daily basis, including 
the prior business day's NAV, and the following trading information for 
such business day expressed as premiums/discounts to NAV: (a) Intraday 
high, low, average and closing prices of Shares in Exchange trading; 
(b) the midpoint of the highest bid and lowest offer prices as of the 
close of Exchange trading, expressed as a premium/discount to NAV (the 
``Closing Bid/Ask Midpoint''); and (c) the spread between highest bid 
and lowest offer prices as of the close of Exchange trading (the 
``Closing Bid/Ask Spread.''). The Web site will also contain charts 
showing the frequency distribution and range of values of trading 
prices, Closing Bid/Ask Midpoints and Closing Bid/Ask Spreads over 
time.
    The Composition File will be disseminated through the NSCC before 
the open of trading in Shares on each business day and also will be 
made available to the public each day on a free Web site as noted 
above. Consistent with the disclosure requirements that apply to 
traditional open-end investment companies, a complete list of current 
Fund portfolio positions will be made available at least once each 
calendar quarter, with a reporting lag of not more than 60 days. Funds 
may provide more frequent disclosures of portfolio positions at their 
discretion.
    Reports of Share transactions will be disseminated to the market 
and delivered to the member firms participating in the trade 
contemporaneous with execution. Once a Fund's daily NAV has been 
calculated and disseminated, Nasdaq will price each Share trade entered 
into during the day at the Fund's NAV plus/minus the trade's executed 
premium/discount. Using the final trade price, each executed Share 
trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.
    Information regarding NAV-based trading prices, best bids and 
offers for Shares, and volume of Shares traded will be continuously 
available on a real-time basis throughout each trading day on brokers' 
computer screens and other electronic services.
Initial and Continued Listing
    Shares will conform to the initial and continued listing criteria 
as set forth under Nasdaq Rule 5745. A minimum of 50,000 Shares and no 
less than two Creation Units of each Fund 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 (on each business day that the New York Stock 
Exchange is open for trading) and provided to Nasdaq via the Mutual 
Fund Quotation Service (``MFQS'') by the fund accounting agent. As soon 
as the NAV is entered into MFQS, Nasdaq will disseminate the value to 
market participants and market data vendors via the Mutual Fund 
Dissemination Service (``MFDS'') so all firms will receive the NAV per 
share at the same time. The Reporting Authority \19\ also will ensure 
that the Composition File will implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding each Fund's portfolio 
positions and changes in the positions.
---------------------------------------------------------------------------

    \19\ See Nasdaq Rule 5745(c)(4).
---------------------------------------------------------------------------

    For each Fund, an estimated value of an individual Share, defined 
in Nasdaq Rule 5745(c)(2) as the ``Intraday Indicative Value,'' will be 
calculated and disseminated at intervals of not more than 15 minutes 
throughout the Regular Market Session \20\ when Shares trade on the 
Exchange. The Exchange will obtain a representation from the issuer of 
the Shares that the IIV will be calculated on an intraday basis and 
provided to Nasdaq for dissemination via the Nasdaq Global Index 
Service (``GIDS'').
---------------------------------------------------------------------------

    \20\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
---------------------------------------------------------------------------

    The IIV will be based on current information regarding the value of 
the securities and other assets held by a Fund.\21\ The purpose of the 
IIVs is to enable investors to estimate the next-determined NAV so they 
can determine the number of Shares to buy or sell if they want to 
transact in an approximate dollar amount (e.g., if an investor wants to 
acquire approximately $5,000 of a Fund, how many Shares should the 
investor buy?).\22\
---------------------------------------------------------------------------

    \21\ IIVs disseminated throughout each trading day would be 
based on the same portfolio as used to calculate that day's NAV. 
Funds will reflect purchases and sales of portfolio positions in 
their NAV the next business day after trades are executed.
    \22\ Because, in NAV-Based Trading, prices of executed trades 
are not determined until the reference NAV is calculated, buyers and 
sellers of Shares during the trading day will not know the final 
value of their purchases and sales until the end of the trading day. 
A Fund's Registration Statement, Web site and any advertising or 
marketing materials will include prominent disclosure of this fact. 
Although IIVs may provide useful estimates of the value of intraday 
trades, they cannot be used to calculate with precision the dollar 
value of the Shares to be bought or sold.
---------------------------------------------------------------------------

    If the Adviser is a registered broker-dealer or affiliated with a 
broker-dealer, the Adviser has implemented a fire wall with respect to 
its relevant broker-dealer personnel or broker-dealer affiliate, as 
applicable, regarding access to information concerning the composition 
and/or changes to each Fund's portfolio. In the future event that (a) 
the Adviser registers as a broker-dealer or becomes newly affiliated 
with a broker-dealer, or (b) any new adviser or a sub-adviser to a 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 and/or such broker-dealer affiliate, if applicable, regarding 
access to information concerning the composition and/or changes to the 
relevant Fund's portfolio and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
Trading Halts
    The Exchange may consider all relevant factors in exercising its 
discretion to halt or suspend trading in Shares. Nasdaq will halt 
trading in Shares under the conditions specified in Nasdaq Rule 4120 
and in Nasdaq Rule 5745(d)(2)(C). Additionally, Nasdaq may cease 
trading Shares if other unusual conditions or circumstances exist 
which, in the opinion of Nasdaq, make further dealings on Nasdaq 
detrimental to the maintenance of a fair and orderly market. To manage 
the risk of a non-regulatory Share trading halt, Nasdaq has in place 
back-up processes and procedures to ensure orderly trading. Because, in 
NAV-Based Trading, all trade execution prices are linked to end-of-day 
NAV, buyers and sellers of Shares should be less exposed to risk of 
loss due to intraday trading halts than buyers and sellers of 
conventional exchange-traded funds (``ETFs'') and other exchange-traded 
securities.
Trading Rule
    Nasdaq deems Shares to be equity securities, thus rendering trading 
in

[[Page 71554]]

Shares to be subject to Nasdaq's existing rules governing the trading 
of equity securities. Nasdaq will allow trading in Shares from 9:30 
a.m. until 4:00 p.m. Eastern Time.
    Every order to trade Shares of the Funds is subject to the proxy 
price protection threshold of plus/minus $1.00, which determines the 
lower and upper threshold for the life of the order and whereby the 
order will be cancelled at any point if it exceeds $101.00 or falls 
below $99.00, the established thresholds.\23\ With certain exceptions, 
each order also must contain the applicable order attributes, including 
routing instructions and time-in-force information, as described in 
Nasdaq Rule 4703.\24\
---------------------------------------------------------------------------

    \23\ See Nasdaq Rule 5745(h).
    \24\ See Nasdaq Rule 5745(b)(6).
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in Shares will be subject to 
the existing trading surveillances, administered by both Nasdaq and the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\25\ The Exchange represents 
that these procedures are adequate to properly monitor trading of 
Shares on the Exchange and to deter and detect violations of Exchange 
rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \25\ FINRA provides surveillance of 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 with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG'') \26\ regarding trading in Shares, and in 
exchange-traded securities and instruments held by the Funds (to the 
extent such exchange-traded securities and instruments are known 
through the publication of the Composition File and periodic public 
disclosures of a Fund's portfolio holdings), and FINRA may obtain 
trading information regarding such trading from other markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in Shares, and in exchange-traded securities and instruments 
held by the Funds (to the extent such exchange-traded securities and 
instruments are known through the publication of the Composition File 
and periodic public disclosures of a Fund's portfolio holdings), 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.
---------------------------------------------------------------------------

    \26\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of a 
Fund's portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    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 in a Fund, 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 noting that Shares are not individually redeemable); (2) 
Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq 
members with respect to recommending transactions in Shares to 
customers; (3) how information regarding the IIV and Composition File 
is disseminated; (4) the requirement that members deliver a prospectus 
to investors purchasing Shares prior to or concurrently with the 
confirmation of a transaction; and (5) information regarding NAV-Based 
Trading protocols.
    As noted above, all orders to buy or sell Shares that are not 
executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. The Information 
Circular will discuss the effect of this characteristic on existing 
order types. The Information Circular also will identify the specific 
Nasdaq data feeds from which intraday Share prices in proxy price 
format may be obtained.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Funds. Members purchasing Shares from a Fund for 
resale to investors will deliver a summary prospectus to such 
investors. The Information Circular will also discuss any exemptive, 
no-action and interpretive relief granted by the Commission from any 
rules under the Act.
    The Information Circular also will reference that the Funds are 
subject to various fees and expenses described in the Registration 
Statements. The Information Circular will also disclose the trading 
hours of the Shares and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares will be publicly available on the Fund's Web site.
    Information regarding Fund trading protocols will be disseminated 
to Nasdaq members in accordance with current processes for newly listed 
products. Nasdaq intends to provide its members with a detailed 
explanation of NAV-Based Trading through a Trading Alert issued prior 
to the commencement of trading in Shares on the Exchange.
    All statements and representations made in this filing regarding 
(a) the description of the Funds' portfolios, (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 of the Funds on the 
Exchange. The issuer has represented to the Exchange that it will 
advise the Exchange of any failure by any 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 a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Nasdaq Rule 5800, et. seq.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \27\ in general, and Section 6(b)(5) of the Act \28\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares would be listed and traded on the Exchange pursuant to the 
initial and

[[Page 71555]]

continued listing criteria in Nasdaq Rule 5745. The Exchange believes 
that its surveillance procedures are adequate to properly monitor the 
trading of Shares on Nasdaq and to deter and detect violations of 
Exchange rules and the applicable federal securities laws. If the 
Adviser is a registered broker-dealer or affiliated with a broker-
dealer, the Adviser has implemented a ``fire wall'' between the Adviser 
and the relevant broker-dealer personnel or broker-dealer affiliate 
with respect to access to information concerning the composition and/or 
changes to the Funds' portfolio holdings. The Exchange may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement, to the extent necessary.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
The Exchange will obtain a representation from each issuer of Shares 
that the NAV per Share will be calculated on each business day that the 
New York Stock Exchange is open for trading and that the NAV will be 
made available to all market participants at the same time. In 
addition, a large amount of information would be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency.
    Prior to the commencement of market trading in Shares, the Funds 
will be required to establish and maintain a public Web site through 
which its current prospectus may be downloaded. The Web site will 
display additional Fund information updated on a daily basis, including 
the prior business day's NAV, and the following trading information for 
such business day expressed as premiums/discounts to NAV: (a) Intraday 
high, low, average and closing prices of Shares in Exchange trading; 
(b) the Closing Bid/Ask Midpoint; and (c) the Closing Bid/Ask Spread. 
The Web site will also contain charts showing the frequency 
distribution and range of values of trading prices, Closing Bid/Ask 
Midpoints, and Closing Bid/Ask Spreads over time. The Composition File 
will be disseminated through the NSCC before the open of trading in 
Shares on each business day and also will be made available to the 
public each day on a free Web site. The Exchange will obtain a 
representation from the issuer of the Shares that the IIV will be 
calculated and disseminated on an intraday basis at intervals of not 
more than 15 minutes during trading on the Exchange and provided to 
Nasdaq for dissemination via GIDS. A complete list of current portfolio 
positions for the Funds will be made available at least once each 
calendar quarter, with a reporting lag of not more than 60 days. Funds 
may provide more frequent disclosures of portfolio positions at their 
discretion.
    Transactions in Shares will be reported to the Consolidated Tape at 
the time of execution in proxy price format and will be disseminated to 
member firms and market data services through Nasdaq's trading service 
and market data interfaces, as defined above. Once each Fund's daily 
NAV has been calculated and the final price of its intraday Share 
trades has been determined, Nasdaq will deliver a confirmation with 
final pricing to the transacting parties. At the end of the day, Nasdaq 
will also post a newly created FTP file with the final transaction data 
for the trading and market data services. The Exchange expects that 
information regarding NAV-based trading prices and volumes of Shares 
traded will be continuously available on a real-time basis throughout 
each trading day on brokers' computer screens and other electronic 
services. Because Shares will trade at prices based on the next-
determined NAV, investors will be able to buy and sell individual 
Shares at a known premium or discount to NAV that they can limit by 
transacting limit orders at the time of order entry. Trading in Shares 
will be subject to Nasdaq Rules 5745(d)(2)(B) and (C), which provide 
for the suspension of trading or trading halts under certain 
circumstances, including if, in the view of the Exchange, trading in 
Shares becomes inadvisable.
    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 
the Funds, which seek to provide investors with access to a broad range 
of actively managed investment strategies in a structure that offers 
the cost and tax efficiencies and shareholder protections of ETFs, 
while removing the requirement for daily portfolio holdings disclosure 
to ensure a tight relationship between market trading prices and NAV.
    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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the introduction of the Funds would promote 
competition by making available to investors a broad range of actively 
managed investment strategies in a structure that offers the cost and 
tax efficiencies and shareholder protections of ETFs, while removing 
the requirement for daily portfolio holdings disclosure to ensure a 
tight relationship between market trading prices and NAV. Moreover, the 
Exchange believes that the proposed method of Share trading would 
provide investors with transparency of trading costs, and the ability 
to control trading costs using limit orders, that is not available for 
conventionally traded ETFs.
    These developments could significantly enhance competition to the 
benefit of the markets and investors.

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

    No written comments were either solicited or 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-2016-134 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities

[[Page 71556]]

and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-134. 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 the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-134 and should 
be submitted on or before November 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24978 Filed 10-14-16; 8:45 am]
 BILLING CODE 8011-01-P


