
[Federal Register Volume 82, Number 149 (Friday, August 4, 2017)]
[Notices]
[Pages 36460-36467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16400]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81265; File No. SR-NASDAQ-2017-038]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 1, and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendments No. 1 and 
2, Relating to the First Trust Municipal High Income ETF

July 31, 2017.

I. Introduction

    On May 16, 2017, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to the First Trust Municipal High Income 
ETF (``Fund'') of First Trust Exchange-Traded Fund III (``Trust''), the 
shares of which have been approved by the Commission for listing and 
trading under Nasdaq Rule 5735 (``Managed Fund Shares''). The proposed 
rule change was published for

[[Page 36461]]

comment in the Federal Register on June 2, 2017.\3\ On July 10, 2017, 
the Exchange filed Amendment No. 1 to the proposed rule change.\4\ On 
July 11, 2017, the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On July 13, 2017, the Exchange filed Amendment 
No. 2 to the proposed rule change.\6\ The Commission has received no 
comments on the proposal. The Commission is publishing this notice to 
solicit comments on Amendment No. 1 from interested persons, and is 
approving the proposed rule change, as modified by Amendments No. 1 and 
2, on an accelerated basis.
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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. 80802 (May 26, 
2017), 82 FR 25648 (Jun. 2, 2017) (``Notice'').
    \4\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange: (a) modified the 
requirement that the Fund invest at least 65% of its net assets in 
Municipal Securities (as defined herein) that are rated below 
investment grade to at least 50% of its net assets; (b) modified the 
limitation that the Fund invest up to 35% of its net assets in 
investment grade Municipal Securities to up to 50% of its net 
assets; and (c) removed references to the Liquidity Rule. Amendment 
No. 1 to the proposed rule change is available on the Commission's 
Web site at: https://www.sec.gov/comments/sr-nasdaq-2017-038/nasdaq2017038-1841718-155073.pdf.
    \5\ See Securities Exchange Act Release No. 81123 (Jul. 11, 
2017), 82 FR 32737 (Jul. 17, 2017). The Commission designated August 
31, 2017, as the date by which the Commission shall either approve 
or disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change. See id.
    \6\ In Amendment No. 2, which partially amended the proposed 
rule change, as modified by Amendment No. 1, the Exchange provided 
the rationale with respect to the modifications to the percentages 
of investment grade and non-investment grade Municipal Securities in 
which the Fund may invest. Because Amendment No. 2 makes clarifying 
changes and does not present unique or novel regulatory issues, it 
is not subject to notice and comment. Amendment No. 2 is available 
on the Commission's Web site at: https://www.sec.gov/comments/sr-nasdaq-2017-038/nasdaq2017038-1851791-155341.pdf. See infra notes 
30-32 (noting where the Exchange provided the rationale with respect 
to the modifications to the percentages of investment grade and non-
investment grade Municipal Securities in Amendment No. 2).
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendments No. 1 and 2

    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 Commission has approved the listing and trading of Shares under 
Nasdaq Rule 5735, which governs the listing and trading of Managed Fund 
Shares on the Exchange.\7\ However, no Shares are currently listed and 
traded on the Exchange. The Exchange believes the proposed rule change 
reflects no significant issues not previously addressed in the Prior 
Release.
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    \7\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). The Commission previously approved 
the listing and trading of the Shares of the Fund. See Securities 
Exchange Act Release No. 78913 (September 23, 2016), 81 FR 69109 
(October 5, 2016) (SR-NASDAQ-2016-002) (``Prior Release'').
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    The Fund is an actively-managed exchange-traded fund (``ETF''). The 
Shares will be offered by the Trust, which was established as a 
Massachusetts business trust on January 9, 2008. The Trust, which is 
registered with the Commission as an investment company under the 
Investment Company Act of 1940 (the ``1940 Act''), has filed a 
registration statement on Form N-1A (``Registration Statement'') 
relating to the Fund with the Commission. \8\ The Fund is a series of 
the Trust.
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    \8\ See Post-Effective Amendment No. 27 to Registration 
Statement on Form N-1A for the Trust, dated August 31, 2015 (File 
Nos. 333-176976 and 811-22245). The descriptions of the Fund and the 
Shares contained herein are based, in part, on information in the 
Registration Statement. Before Shares are publicly offered, the 
Trust will file a post-effective amendment to its Registration 
Statement. The changes in this proposed rule change will not be 
implemented for the Fund until the post-effective amendment to the 
Registration Statement becomes effective. First Trust Advisors L.P. 
(the ``Adviser'') represents that the Adviser will not implement the 
changes described herein until the instant proposed rule change is 
operative.
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    The primary purpose of this proposed rule change is to modify 
certain representations set forth in the Prior Release. Since the Prior 
Release, in evaluating its ability to construct a portfolio that would 
both enable the Fund to pursue its investment objectives effectively 
and satisfy the representations set forth in the Prior Release, the 
Adviser determined that, based on certain factors, including regulatory 
and market developments with portfolio management implications, 
additional flexibility would be needed to launch and operate the Fund. 
Additionally, the Adviser took into account that recent increases in 
interest rates have been accompanied by substantial outflows from 
mutual funds and ETFs, and that future interest rate swings may spark 
increased market volatility and trigger potentially dramatic inflows 
and outflows. To enable the Fund to operate effectively (including, in 
addition to pursuing its investment objectives, responding to potential 
market volatility), the Adviser believes that additional portfolio 
management flexibility is needed and warranted. Additionally, for the 
reasons discussed in more detail below, the Exchange believes that the 
proposal is consistent with Section 6(b)(5) of the Act.
    As a related matter, the Exchange notes that although the Prior 
Release included certain representations that were based on the generic 
listing standards for index-based ETFs, the Exchange's ``generic 
listing standards'' for actively-managed ETFs (the ``Active ETF Generic 
Listing Standards'') \9\ were recently adopted and, with one exception, 
the Fund's proposed revised representations would meet or exceed 
similar requirements for portfolios of fixed income securities set 
forth in Nasdaq Rule 5735(b)(1)(B) under the Active ETF Generic Listing 
Standards (``Rule 5735(b)(1)(B)''). In addition, this proposed rule 
change would make certain changes to the description of the Fund's 
investments. Further, to provide the Adviser with greater flexibility 
in hedging interest rate risks associated with the Fund's portfolio 
investments, this proposed rule change would expand the Fund's ability 
to invest in derivatives by permitting it to invest in over-the-counter 
(``OTC'') forward contracts and OTC swaps, subject to a limitation that 
would be consistent with the limitation on investments in OTC 
derivatives set forth in Nasdaq Rule 5735(b)(1)(E) under the Active ETF 
Generic Listing Standards (``Rule 5735(b)(1)(E)'').
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    \9\ See Securities Exchange Act Release No. 78918 (September 23, 
2016), 81 FR 67033 (September 29, 2016).
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Changes to Representations
    The Prior Release noted that the Fund would be actively managed and 
not tied to an index, but that under normal market conditions, on a 
continuous basis determined at the time of purchase, its portfolio of 
Municipal Securities (as defined in the Prior Release) would generally 
meet, as applicable, all except for two of the criteria for non-
actively managed, index-based, fixed income ETFs contained in Nasdaq 
Rule 5705(b)(4)(A),

[[Page 36462]]

as described therein. More specifically, the Prior Release stated that, 
under normal market conditions, the Fund's portfolio of Municipal 
Securities would meet the requirements of: (i) Nasdaq Rule 
5705(b)(4)(A)(i) (requiring that the index or portfolio consist of 
``Fixed Income Securities''); (ii) Nasdaq Rule 5705(b)(4)(A)(iv) 
(requiring that no component fixed income security (excluding Treasury 
securities) represent more than 30% of the weight of the index or 
portfolio, and that the five highest weighted component fixed income 
securities do not, in the aggregate, account for more than 65% of the 
weight of the index or portfolio); and (iii) Nasdaq Rule 
5705(b)(4)(A)(v) (requiring that an underlying index or portfolio 
(excluding one consisting entirely of exempted securities) include 
securities from a minimum of 13 non-affiliated issuers) (collectively, 
the ``Rule 5705-Related Representations'').
    Additionally, the Prior Release noted that Nasdaq Rule 
5705(b)(4)(A)(iii) (relating to convertible securities) was 
inapplicable to the Fund's portfolio of Municipal Securities. Further, 
the Prior Release provided that the Fund's portfolio of Municipal 
Securities may not satisfy 5705(b)(4)(A)(vi) (requiring that component 
securities that in the aggregate account for at least 90% of the weight 
of the index or portfolio be either exempted securities or from a 
specified type of issuer) and that it would not generally satisfy Rule 
5705(b)(4)(A)(ii) (requiring that components that in the aggregate 
account for at least 75% of the weight of the index or portfolio have a 
minimum original principal amount outstanding of $100 million or more). 
However, the Prior Release stated that under normal market conditions, 
at least 40% (based on dollar amount invested) of the Municipal 
Securities in which the Fund invested would be issued by issuers with 
total outstanding debt issuances that, in the aggregate, have a minimum 
amount of municipal debt outstanding at the time of purchase of $75 
million or more (the ``40/75 Representation'').\10\
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    \10\ As noted in the Prior Release, the Commission has 
previously issued orders approving proposed rule changes relating to 
the listing and trading under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02 (which governs the listing and trading of fixed-
income index ETFs on NYSE Arca, Inc.) to various ETFs that track 
indexes comprised of municipal securities (including high-yield 
municipal index ETFs) that did not meet the analogous requirement 
included in Commentary .02(a)(2) to NYSE Arca Equities Rule 
5.2(j)(3), but demonstrated that the portfolio of municipal 
securities in which the ETFs would invest would be sufficiently 
liquid (including Securities Exchange Act Release Nos. 75376 (July 
7, 2015), 80 FR 40113 (July 13, 2015) (SR-NYSEArca-2015-18) (order 
approving listing and trading of Vanguard Tax-Exempt Bond Index 
Fund); 71232 (January 3, 2014), 79 FR 1662 (January 9, 2014) (SR-
NYSEArca-2013-118) (order approving listing and trading of Market 
Vectors Short High-Yield Municipal Index ETF); and 63881 (February 
9, 2011), 76 FR 9065 (February 16, 2011) (SR-NYSEArca-2010-120) 
(order approving listing and trading of SPDR Nuveen S&P High Yield 
Municipal Bond ETF)). See also Securities Exchange Act Release Nos. 
67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving listing and trading of iShares 
2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-Free 
Municipal Series); 72464 (June 25, 2014), 79 FR 37373 (July 1, 2014) 
(SR-NYSEArca-2014-45) (order approving continued listing and trading 
of PowerShares Insured California Municipal Bond Portfolio, 
PowerShares Insured National Municipal Bond Portfolio and 
PowerShares Insured New York Municipal Bond Portfolio); 72523 (July 
2, 2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order 
approving listing and trading of iShares 2020 S&P AMT-Free Municipal 
Series); 75468 (July 16, 2015), 80 FR 43500 (July 22, 2015) (SR-
NYSEArca-2015-25) (order approving listing and trading of iShares 
iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 
AMT-Free Muni Bond ETF); 78329 (July 14, 2016), 81 FR 47217 (July 
20, 2016) (SR-BatsBZX-2016-01) (order approving listing and trading 
of VanEck Vectors AMT-Free 6-8 Year Municipal Index ETF, VanEck 
Vectors AMT-Free 8-12 Year Municipal Index ETF, and VanEck Vectors 
AMT-Free 12-17 Year Municipal Index ETF); and 79885 (January 26, 
2017), 82 FR 8963 (February 1, 2017) (SR-NYSEArca-2016-100) (order 
approving listing and trading of Direxion Daily Municipal Bond 
Taxable Bear 1X Fund).
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    In addition to the Rule 5705-Related Representations and the 40/75 
Representation, the Prior Release provided that under normal market 
conditions, except for the initial invest-up period and periods of high 
cash inflows or outflows,\11\ the Fund's investments in Municipal 
Securities would provide exposure (based on dollar amount invested) to 
(a) at least 10 different industries (with no more than 25% of the 
value of the Fund's net assets comprised of Municipal Securities that 
provide exposure to any single industry) and (b) at least 15 different 
states (with no more than 30% of the value of the Fund's net assets 
comprised of Municipal Securities that provide exposure to any single 
state) (collectively, the ``Industry/State Representations''). 
Additionally, the Prior Release stated that under normal market 
conditions, except for the initial invest-up period and periods of high 
cash inflows or outflows, (a) with respect to 75% of the Fund's net 
assets, the Fund's exposure to any single borrower (based on dollar 
amount invested) would not exceed 3% of the value of the Fund's net 
assets and (b) with respect to 15% of the Fund's net assets, the Fund's 
exposure to any single borrower (based on dollar amount invested) would 
not exceed 5% of the value of the Fund's net assets (collectively, the 
``Borrower Exposure Representations'').
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    \11\ As described in the Prior Release, the term ``initial 
invest-up period'' means the six-week period following the 
commencement of trading of Shares on the Exchange and the term 
``periods of high cash inflows or outflows'' means rolling periods 
of seven calendar days during which inflows or outflows of cash, in 
the aggregate, exceed 10% of the Fund's net assets as of the opening 
of business on the first day of such periods.
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    The Prior Release also provided that under normal market 
conditions, except for the initial invest-up period and periods of high 
cash inflows or outflows, (a) with respect to the Municipal Securities 
in which the Fund invested that were rated investment grade by each 
nationally recognized statistical rating organization (``NRSRO'') 
rating such securities, at the time of purchase, the applicable 
borrower would be obligated to pay debt service on issues of municipal 
obligations that have an aggregate principal amount outstanding of $100 
million or more and (b) with respect to all other Municipal Securities 
in which the Fund invested (referred to as ``Clause B Munis''), at the 
time of purchase of a Clause B Muni, the borrowers of all Clause B 
Munis held by the Fund, in the aggregate, would have a weighted average 
of principal municipal debt outstanding of $50 million or more 
(collectively, the ``Borrower Debt Representations'' and, together with 
the Borrower Exposure Representations, the Industry/State 
Representations, the 40/75 Representation and the Rule 5705-Related 
Representations, the ``Prior Representations'').
    As indicated above, the Adviser has reconsidered the Prior 
Representations and concluded that additional flexibility will be 
needed to launch and operate the Fund. As a result, in this proposed 
rule change, the Exchange is proposing that, going forward: (a) The 
Prior Representations, except for the Industry/State Representations, 
would be deleted and (b) the representations included in the next two 
paragraphs (referred to as the ``New Representations'') would be added. 
Further, the Exchange notes that the New Representations have been 
designed to correspond to the requirements of Rule 5735(b)(1)(B), as 
these are more readily adapted to the Fund (as an actively-managed ETF) 
than the generic listing standards for index-based ETFs upon which the 
Rule 5705-Related Representations were based.
    Although as described below, certain of the New Representations 
would meet or exceed similar requirements set forth in Rule 
5735(b)(1)(B), it is not anticipated that the Fund would meet the 
requirement that components that in the aggregate account for at least 
75% of the fixed income weight of the portfolio each have a minimum 
original principal

[[Page 36463]]

amount outstanding of $100 million or more (the ``Generic 100 
Requirement'').\12\ In general terms, the Fund would operate as an 
actively-managed ETF that normally invests in a portfolio of Municipal 
Securities (as defined in the Prior Release, with the modification 
described below). The Adviser notes that debt issuance sizes for 
municipal obligations are generally smaller than for corporate 
obligations.\13\ Furthermore, as a general matter, municipal borrowers 
in certain industries in which the Fund currently intends to invest 
significantly \14\ tend to have less outstanding debt than municipal 
borrowers in other municipal industries. Therefore, under normal market 
conditions, except for the initial invest-up period and periods of high 
cash inflows or outflows,\15\ at least 40% (based on dollar amount 
invested) of the Municipal Securities in which the Fund invests \16\ 
would be issued by issuers with total outstanding debt issuances that, 
in the aggregate, have a minimum amount of municipal debt outstanding 
at the time of purchase of $50 million or more (the ``40/50 
Representation''). Based on its expertise and understanding of the 
municipal securities market and the manner in which municipal 
securities generally trade, the Adviser believes that, notwithstanding 
both the previous more stringent 40/75 Representation and the Generic 
100 Requirement, the 40/50 Representation is appropriate in light of 
the Fund's investment objectives and the manner in which the Fund 
intends to pursue them.\17\ Given the nature of the municipal 
securities market and the manner in which municipal securities 
generally trade, the expected availability of Municipal Securities that 
would satisfy the Fund's investment parameters, and the debt issuance 
profiles of the corresponding issuers and borrowers, the 40/50 
Representation should both provide the Fund with flexibility to 
construct its portfolio and, when combined with the Industry/State 
Representations and the other New Representations included in this 
filing (including certain representations set forth below pertaining to 
fixed income securities weightings and number of non-affiliated issuers 
that are based on, but more stringent than, as applicable, the 
requirements set forth in Rule 5735(b)(1)(B)), should support the 
potential for diversity and liquidity, thereby mitigating the 
Commission's concerns about manipulation.\18\
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    \12\ See Nasdaq Rule 5735(b)(1)(B)(i).
    \13\ As indicated above in note 10, various ETFs seeking to 
track indexes comprised of municipal securities have previously 
sought and obtained approval by the Commission of proposed rule 
changes because they would not meet the requirement under the 
applicable generic listing standards that is similar to the Generic 
100 Requirement.
    \14\ These industries include charter schools, senior living 
facilities (i.e., continuing care retirement communities 
(``CCRCs'')) and special tax districts, among others. As noted in 
the Prior Release, in the case of a municipal conduit financing (in 
general terms, the issuance of municipal securities by an issuer to 
finance a project to be used primarily by a third party (the 
``conduit borrower'')), the ``borrower'' is the conduit borrower 
(i.e., the party on which a bondholder must rely for repayment) and 
in the case of other municipal financings, the ``borrower'' is the 
issuer of the municipal securities.
    \15\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.''
    \16\ For the avoidance of doubt, in the case of Municipal 
Securities that are issued by entities whose underlying assets are 
municipal bonds (``Municipal Entities''), the underlying municipal 
bonds would be taken into account.
    \17\ The Adviser notes that individual issues of municipal 
securities represented by CUSIPs (i.e., the specific identifying 
numbers for securities) may be placed into categories according to 
common characteristics (such as rating, geographical region, 
purpose, and maturity). Municipal securities that share similar 
characteristics generally tend to trade similarly to one another; 
therefore, within these categories, issues may be considered 
somewhat fungible from a portfolio management perspective, allowing 
one CUSIP to be represented by another that shares similar 
characteristics for purposes of developing an investment strategy. 
Moreover, when municipal securities are close substitutes for one 
another, pricing vendors may be able to use executed trade 
information from similar municipal securities as pricing inputs for 
an individual security. This can make individual securities more 
liquid because valuations for a single security are generally better 
estimators of actual trading prices when they are informed by trades 
in a large group of closely related securities.
    \18\ The Exchange notes that, in addition to approving the Fund 
in the Prior Release, the Commission has also approved for listing 
and trading shares of other actively-managed ETFs that principally 
hold municipal securities. See, e.g., Securities Exchange Act 
Release Nos. 60981 (November 10, 2009), 74 FR 59594 (November 18, 
2009) (SR-NYSEArca-2009-79) (order approving listing and trading of 
PIMCO Short Term Municipal Bond Strategy Fund and PIMCO Intermediate 
Municipal Bond Strategy Fund); 71617 (February 26, 2014), 79 FR 
12257 (March 4, 2014) (SR-NYSEArca-2013-135) (order approving 
listing and trading of db-X Managed Municipal Bond Fund); 71913 
(April 9, 2014), 79 FR 21333 (April 15, 2014) (SR-NASDAQ-2014-019) 
(order approving listing and trading of First Trust Managed 
Municipal ETF); and 79293 (November 10, 2016), 81 FR 81189 (November 
17, 2016) (SR-NYSEArca-2016-107) (order approving listing and 
trading of Cumberland Municipal Bond ETF).
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    Under normal market conditions, except for the initial invest-up 
period and periods of high cash inflows or outflows,\19\ no component 
fixed income security (excluding the U.S. government securities 
described under the heading ``Other Investments'' in the Prior Release) 
would represent more than 15% of the Fund's net assets, and the five 
most heavily weighted component fixed income securities in the Fund's 
portfolio (excluding U.S. government securities) would not, in the 
aggregate, account for more than 25% of the Fund's net assets.\20\ 
Further, under normal market conditions, except for the initial invest-
up period and periods of high cash inflows or outflows,\21\ the Fund's 
portfolio of Municipal Securities would include securities from a 
minimum of 30 non-affiliated issuers.\22\ Moreover, under normal market 
conditions, except for the initial invest-up period and periods of high 
cash inflows or outflows,\23\ component securities that in the 
aggregate account for at least 90% of the weight of the Fund's 
portfolio of Municipal Securities would be exempted securities as 
defined in Section 3(a)(12) of the Act (the ``Exempted Securities 
Representation'').\24\ Additionally, to the

[[Page 36464]]

extent the Fund invests in Municipal Securities that are mortgage-
backed or asset-backed securities, such investments would not account, 
in the aggregate, for more than 20% of the weight of the fixed income 
portion of the Fund's portfolio.\25\
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    \19\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.''
    \20\ See the Active ETF Generic Listing Standards requirement 
set forth in Nasdaq Rule 5735(b)(1)(B)(ii), which provides that no 
component fixed income security (excluding U.S. Treasury securities 
and government-sponsored entity (``GSE'') securities) may represent 
more than 30% of the fixed income weight of the portfolio, and that 
the five most heavily weighted component fixed income securities in 
the portfolio (excluding U.S. Treasury securities and GSE 
securities) may not in the aggregate account for more than 65% of 
the fixed income weight of the portfolio. For the avoidance of 
doubt, in the case of Municipal Securities that are issued by 
Municipal Entities, the underlying municipal bonds would be taken 
into account.
    \21\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.''
    \22\ For the avoidance of doubt, in the case of Municipal 
Securities that are issued by Municipal Entities, the underlying 
municipal bonds would be taken into account. Additionally, for 
purposes of this restriction, each state and each separate political 
subdivision, agency, authority, or instrumentality of such state, 
each multi-state agency or authority, and each guarantor, if any, 
would be treated as separate, non-affiliated issuers of Municipal 
Securities. The Active ETF Generic Listing Standards requirement set 
forth in Nasdaq Rule 5735(b)(1)(B)(iii) provides that generally, an 
underlying portfolio (excluding exempted securities) that includes 
fixed income securities must include a minimum of 13 non-affiliated 
issuers. Although not required, if the Fund's portfolio of Municipal 
Securities is comprised entirely of securities that meet the 
definition of ``municipal securities'' set forth in Section 3(a)(29) 
of the Act, then such portfolio would also be comprised entirely of 
``exempted securities'' as defined in Section 3(a)(12) of the Act 
and, therefore, the requirements of Rule 5735(b)(1)(B)(iii) would 
not pertain to such portfolio; see the Exempted Securities 
Representation below (which refers to 90% of the weight of the 
Fund's portfolio of Municipal Securities).
    \23\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.''
    \24\ See the Active ETF Generic Listing Standards requirement 
set forth in Nasdaq Rule 5735(b)(1)(B)(iv)(d). For the avoidance of 
doubt, in the case of Municipal Securities that are issued by 
Municipal Entities, the underlying municipal bonds would be taken 
into account.
    \25\ See the Active ETF Generic Listing Standards requirement 
set forth in Nasdaq Rule 5735(b)(1)(B)(v).
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    The New Representations differ from the Prior Representations and 
do not, in certain respects, comply with Rule 5735(b)(1)(B) 
(particularly with respect to the Generic 100 Requirement). However, 
taking into account the nature of the municipal securities market and 
the manner in which municipal securities generally trade, in light of 
the requirements that the New Representations and the Industry/State 
Representations would impose (e.g., concerning municipal debt 
outstanding, fixed income securities weightings, issuer 
diversification, the nature of the securities in which the Fund would 
invest (including representations relating to exempted securities and 
mortgage-backed and asset-backed securities), and exposure to 
industries and states), they should provide support regarding the 
anticipated diversity and liquidity of the Fund's Municipal Securities 
portfolio and should mitigate the risks associated with manipulation, 
while also providing the Adviser with the necessary flexibility to 
operate the Fund as intended.
Changes to Description of Certain Fund Investments
    The Prior Release stated that under normal market conditions, the 
Fund would seek to achieve its investment objectives by investing at 
least 80% of its net assets (including investment borrowings) in 
municipal debt securities that pay interest that is exempt from regular 
federal income taxes which are ``exempted securities'' under Section 
3(a)(12) of the Act (collectively, ``Municipal Securities''). In light 
of the Exempted Securities Representation, going forward, the Exchange 
proposes to revise the foregoing by deleting the phrase ``which are 
`exempted securities' under Section 3(a)(12) of the Act.'' In addition, 
the Prior Release stated that the Fund ``may invest up to 20% of its 
net assets in short-term debt instruments . . . , taxable municipal 
securities or tax-exempt municipal securities that are not exempted 
securities under Section 3(a)(12) under the Act, or it may hold cash.'' 
Going forward, the Exchange proposes to revise the foregoing by 
replacing the phrase ``taxable municipal securities or tax-exempt 
municipal securities that are not exempted securities under Section 
3(a)(12) under the Act,'' with the phrase ``and taxable municipal 
securities and other municipal securities that are not Municipal 
Securities,''.
    Additionally, the Prior Release stated that under normal market 
conditions, the Fund would invest at least 65% of its net assets in 
Municipal Securities that are, at the time of investment, rated below 
investment grade (i.e., not rated Baa3/BBB- or above) by at least one 
NRSRO rating such securities (or Municipal Securities that are unrated 
and determined by the Adviser to be of comparable quality) (the ``Below 
Investment Grade Requirement''). The Prior Release also provided that 
the Fund could invest up to 35% of its net assets in ``investment 
grade'' Municipal Securities (meaning Municipal Securities that are, at 
the time of investment, rated investment grade (i.e., rated Baa3/BBB- 
or above) by each NRSRO rating such securities (or Municipal Securities 
that are unrated and determined by the Adviser to be of comparable 
quality)) (the ``Investment Grade Limitation''). Going forward, the 
Exchange proposes to modify the Below Investment Grade Requirement by 
replacing the phrase ``Under normal market conditions, the Fund will 
invest at least 65% of its net assets'' with the following: ``Under 
normal market conditions, except for the initial invest-up period and 
periods of high cash inflows or outflows, the Fund will invest at least 
50% of its net assets''.\26\ Further, the Exchange proposes to modify 
the Investment Grade Limitation by replacing the phrase ``The Fund may 
invest up to 35% of its net assets'' with the following: ``Under normal 
market conditions, except for the initial invest-up period and periods 
of high cash inflows or outflows, the Fund may not invest more than 50% 
of its net assets''.\27\
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    \26\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.'' 
In addition, to conform to the change to the Below Investment Grade 
Requirement, the Exchange proposes that, going forward, the phrase 
``65% investment requirement'' be replaced with ``50% investment 
requirement'' in the following statement included in the Prior 
Release: ``The Municipal Securities in which the Fund will invest to 
satisfy this 65% investment requirement may include Municipal 
Securities that are currently in default and not expected to pay the 
current coupon (``Distressed Municipal Securities'').''
    \27\ See note 11 regarding the meaning of the terms ``initial 
invest-up period'' and ``periods of high cash inflows or outflows.'' 
In addition, to conform to the change to the Investment Grade 
Limitation, the Exchange proposes that, going forward, the phrase 
``35% investment limitation'' be replaced with ``50% investment 
limitation'' in the following statement included in the Prior 
Release: ``If, subsequent to purchase by the Fund, a Municipal 
Security held by the Fund experiences an improvement in credit 
quality and becomes investment grade, the Fund may continue to hold 
the Municipal Security and it will not cause the Fund to violate the 
35% investment limitation; however, the Municipal Security will be 
taken into account for purposes of determining whether purchases of 
additional Municipal Securities will cause the Fund to violate such 
limitation.''
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Changes To Expand Permitted Derivatives Investments
    As described in the Prior Release, the Fund may (i) invest in 
exchange-listed options on U.S. Treasury securities, exchange-listed 
options on U.S. Treasury futures contracts, and exchange-listed U.S. 
Treasury futures contracts (collectively, the ``Listed Derivatives'') 
and (ii) acquire short positions in the Listed Derivatives. No changes 
are being proposed with respect to the Fund's investments in the Listed 
Derivatives. Going forward, however, the Exchange proposes that the 
Fund's ability to invest in derivatives would be expanded to permit it 
to also invest in OTC forward contracts and OTC swaps (collectively, 
the ``OTC Derivatives'') to hedge interest rate risks associated with 
the Fund's portfolio investments.
    On both an initial and continuing basis, no more than 20% of the 
assets in the Fund's portfolio would be invested in the OTC Derivatives 
and, for purposes of calculating this limitation, the Fund's investment 
in the OTC Derivatives would be calculated as the aggregate gross 
notional value of the OTC Derivatives.\28\ The Fund would only enter 
into transactions in the OTC Derivatives with counterparties that the 
Adviser reasonably believes are capable of performing under the 
applicable contract or agreement.\29\ The Fund's investments in both 
Listed Derivatives and OTC Derivatives would be consistent with the 
Fund's investment objectives and the 1940 Act and would not be used to 
seek to achieve a multiple or inverse multiple of an index.
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    \28\ This limitation is consistent with the limitation set forth 
in Rule 5735(b)(1)(E).
    \29\ The Fund would seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser would evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser's analysis 
would evaluate each approved counterparty using various methods of 
analysis and may consider the Adviser's past experience with the 
counterparty, its known disciplinary history and its share of market 
participation.
---------------------------------------------------------------------------

    The OTC Derivatives would typically be valued using information 
provided by a Pricing Service (as defined in the Prior Release). 
Pricing information for the OTC Derivatives would be available from 
major broker-dealer firms and/or

[[Page 36465]]

major market data vendors and/or Pricing Services (as defined in the 
Prior Release).
    The Adviser represents that there would be no change to the Fund's 
investment objectives. Except as provided herein, all other facts 
presented and representations made in the Prior Release would remain 
unchanged. The Fund and the Shares would comply with all initial and 
continued listing requirements under Nasdaq Rule 5735.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act, in particular, in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest. Except as provided herein, all other 
facts presented and representations made in the Prior Release would 
remain unchanged. The Fund would comply with all the initial and 
continued listing requirements under Nasdaq Rule 5735.
    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 continued listing criteria in Nasdaq Rule 5735 and, except 
as provided herein, all other facts presented and representations made 
in the Prior Release would remain unchanged. The Exchange notes that 
Shares have not yet been listed on the Exchange. Consistent with the 
Prior Release, the Exchange represents that trading in the Shares would 
be subject to the existing trading surveillances, administered by both 
Nasdaq and also the Financial Industry Regulatory Authority 
(``FINRA''), on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Adviser represents that taking into account the nature of the 
municipal securities market and the manner in which municipal 
securities generally trade, in light of the requirements that the New 
Representations, the Industry/State Representations, the modified Below 
Investment Grade Requirement and the modified Investment Grade 
Limitation would impose (e.g., concerning municipal debt outstanding, 
fixed income securities weightings, issuer diversification, the nature 
of the securities in which the Fund would invest (including 
representations relating to exempted securities and mortgage-backed and 
asset-backed securities), exposure to industries and states, and 
investments in below investment grade Municipal Securities), they 
should provide support regarding the anticipated diversity and 
liquidity of the Fund's Municipal Securities portfolio and should 
mitigate the risks associated with manipulation, while also providing 
the Adviser with the necessary flexibility to operate the Fund as 
intended.\30\
---------------------------------------------------------------------------

    \30\ See Amendment No. 2, supra note 6.
---------------------------------------------------------------------------

    With one exception, the New Representations would meet or exceed 
similar requirements for portfolios of fixed income securities set 
forth in Rule 5735(b)(1)(B). In this regard, it is not anticipated that 
the Fund would meet the Generic 100 Requirement. Based on its expertise 
and understanding of the municipal securities market and the manner in 
which municipal securities generally trade, the Adviser believes that, 
notwithstanding both the previous more stringent 40/75 Representation 
and the Generic 100 Requirement, the 40/50 Representation is 
appropriate in light of the Fund's investment objectives and the manner 
in which the Fund intends to pursue them. Further, given the nature of 
the municipal securities market and the manner in which municipal 
securities generally trade, the expected availability of Municipal 
Securities that would satisfy the Fund's investment parameters, and the 
debt issuance profiles of the corresponding issuers and borrowers, the 
40/50 Representation should both provide the Fund with flexibility to 
construct its portfolio and, when combined with the Industry/State 
Representations, the other New Representations, the modified Below 
Investment Grade Requirement and the modified Investment Grade 
Limitation, should support the potential for diversity and liquidity, 
thereby mitigating the Commission's concerns about manipulation.\31\
---------------------------------------------------------------------------

    \31\ See id.
---------------------------------------------------------------------------

    In connection with the proposal to modify the Below Investment 
Grade Requirement and the Investment Grade Limitation, the Exchange 
notes that the Fund's ability to invest in investment grade Municipal 
Securities would be expanded. Accordingly, Nasdaq believes that this is 
consistent with the Act because the liquidity profile of the Fund's 
potential pool of Municipal Securities is expected to increase, which 
should lessen manipulation concerns.\32\
---------------------------------------------------------------------------

    \32\ See id.
---------------------------------------------------------------------------

    Further, in connection with the proposal to permit the Fund to 
invest in the OTC Derivatives, the Exchange notes that the ability to 
invest in the OTC Derivatives would provide the Adviser with additional 
flexibility in hedging interest rate risks associated with the Fund's 
portfolio investments and would be subject to a limitation that is 
consistent with the limitation set forth in Rule 5735(b)(1)(E). 
Additionally, the Fund would only enter into transactions in the OTC 
Derivatives with counterparties that the Adviser reasonably believes 
are capable of performing under the applicable contract or agreement.
    In addition, a large amount of information would be publicly 
available regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the Intraday Indicative Value (as described in 
the Prior Release), available on the NASDAQ OMX Information LLC 
proprietary index data service, would be widely disseminated by one or 
more major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund would disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day.
    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. The Exchange notes that the Fund does not yet have 
publicly offered Shares and does not yet have Shares listed and traded 
on the Exchange. Before Shares are publicly offered, the Trust will 
file a post-effective amendment to its Registration Statement. The 
Shares will not be publicly offered until the post-effective amendment 
to the Registration Statement becomes effective.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance

[[Page 36466]]

of the purposes of the Act. The Exchange believes that the proposed 
rule change would provide the Adviser with the flexibility needed to 
proceed with launching the Fund, accommodating the listing and trading 
of Managed Fund Shares for an additional actively-managed exchange-
traded product, thereby enhancing competition among market 
participants, to the benefit of investors and the marketplace.

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

    No written comments were either solicited or received.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal is consistent with the requirements of Section 6 of the Act 
\33\ and the rules and regulations thereunder applicable to a national 
securities exchange.\34\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\35\ 
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.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f.
    \34\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the Exchange proposes to: (a) Delete all of the 
Prior Representations (including the 40/75 Representation), except for 
the Industry/State Representations; and (b) apply the New 
Representations. According to the Exchange, the Fund's proposed New 
Representations would meet the requirements of Nasdaq Rule 
5735(b)(1)(B), with the exception of the Generic 100 Requirement. In 
lieu of the Generic 100 Requirement, the Exchange proposes to apply New 
Representations, which include the 40/50 Representation. Specifically, 
the 40/50 Representation requires that, under normal market conditions 
and except for the initial invest-up period and periods of high cash 
inflows or outflows, at least 40% (based on dollar amount invested) of 
the Municipal Securities in which the Fund invests would be issued by 
issuers with total outstanding debt issuances that, in the aggregate, 
have a minimum amount of municipal debt outstanding at the time of 
purchase of $50 million or more.
    The Commission believes that, because this Fund is a series of 
Managed Fund Shares under Nasdaq Rule 5735, it is reasonable and 
appropriate for the Exchange to use the Active ETF Generic Listing 
Standards of Nasdaq Rule 5735 as a point of comparison, rather than to 
apply the 5705-Related Representations from the Prior Release, which 
were based on standards applicable to the listing and trading of Index 
Fund Shares.\36\ The Exchange acknowledges that the 40/50 
Representation is less stringent than the 40/75 Representation provided 
in the Prior Release. The Commission notes, however, that the 
Exchange's proposed 40/50 Representation is consistent with similar 
requirements applicable to other series of Managed Fund Shares that 
invest in municipal securities.\37\ The Commission also notes that, 
according to the Exchange, the ``Industry/State Representations'' from 
the Prior Release would remain in effect with respect to this Fund.
---------------------------------------------------------------------------

    \36\ See supra note 9 (order approving the adoption of generic 
listing standards for Managed Fund Shares).
    \37\ See, e.g., Securities Exchange Act Release No. 80745 (May 
23, 2017), 82 FR 24755 (May 30, 2016) (SR-NASDAQ-2017-033) (order 
approving the listing and trading of shares of the First Trust 
California Municipal High Income ETF) (``CA Municipal ETF'').
---------------------------------------------------------------------------

    The Commission further notes that, as part of the proposed New 
Representations, the Exchange has made the following additional 
representations with respect to the Fund and the requirements 
applicable to its Municipal Securities investments:
    (1) No component fixed income security (excluding the U.S. 
government securities described under the heading ``Other Investments'' 
in the Prior Release) would represent more than 15% of the Fund's net 
assets, and the five most heavily weighted component fixed income 
securities in the Fund's portfolio (excluding U.S. government 
securities) would not, in the aggregate, account for more than 25% of 
the Fund's net assets.\38\
---------------------------------------------------------------------------

    \38\ See Nasdaq Rule 5735(b)(1)(B)(ii) (requiring that no 
component fixed income security (excluding U.S. Treasury securities 
and government-sponsored entity (``GSE'') securities) may represent 
more than 30% of the fixed income weight of the portfolio, and that 
the five most heavily weighted component fixed income securities in 
the portfolio (excluding U.S. Treasury securities and GSE 
securities) may not in the aggregate account for more than 65% of 
the fixed income weight of the portfolio).
---------------------------------------------------------------------------

    (2) Under normal market conditions, except for the initial invest-
up period and periods of high cash inflows or outflows, the Fund's 
portfolio of Municipal Securities would include securities from a 
minimum of 30 non-affiliated issuers.\39\
---------------------------------------------------------------------------

    \39\ The Exchange has clarified that, for purposes of this 
restriction, each state and each separate political subdivision, 
agency, authority, or instrumentality of such state, each multi-
state agency or authority, and each guarantor, if any, would be 
treated as separate, non-affiliated issuers of Municipal Securities. 
See Nasdaq Rule 5735(b)(1)(B)(iii) (requiring that an underlying 
portfolio that includes fixed income securities, excluding exempted 
securities, must include a minimum of 13 non-affiliated issuers). 
The Exchange further clarifies that if the Fund's portfolio of 
Municipal Securities is composed entirely of securities that meet 
the definition of ``municipal securities'' set forth in Section 
3(a)(29) of the Act, then the portfolio would also be composed 
entirely of ``exempted securities'' as defined in Section 3(a)(12) 
of the Act and, therefore, the requirements of Rule 
5735(b)(1)(B)(iii) would not pertain to the portfolio.
---------------------------------------------------------------------------

    (3) Under normal market conditions, except for the initial invest-
up period and periods of high cash inflows or outflows, component 
securities that in the aggregate account for at least 90% of the weight 
of the Fund's portfolio of Municipal Securities would be exempted 
securities as defined in Section 3(a)(12) of the Act.\40\
---------------------------------------------------------------------------

    \40\ See Nasdaq Rule 5735(b)(1)(B)(iv)(d). See also id. 
(describing Nasdaq Rule 5735(b)(1)(B)(iii) and applicability of this 
requirement if the Fund's portfolio of Municipal Securities is 
comprised entirely of securities that meet the definition of 
``exempted securities'' under the Act).
---------------------------------------------------------------------------

    (4) To the extent the Fund invests in Municipal Securities that are 
mortgage-backed or asset-backed securities, such investments would not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the Fund's portfolio.\41\
---------------------------------------------------------------------------

    \41\ See Nasdaq Rule 5735(b)(1)(B)(v) (requiring that non-
agency, non-GSE and privately-issued mortgage-related and other 
asset-backed securities components of a portfolio must not account, 
in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio).
---------------------------------------------------------------------------

    (5) No more than 20% of the Fund's assets will be invested in OTC 
Derivatives, and, for purposes of calculating this limitation, the 
Fund's investment in the OTC Derivatives would be calculated as the 
aggregate gross notional value of the OTC Derivatives.
    The Exchange also proposes to change the description of certain 
fund investments to remove references to ``exempted securities'' as a 
redundancy because Section 3(a)(12) of the Act exempts certain 
Municipal Securities. The Commission believes that this clarifying 
change is reasonable, in light of the representations provided by the 
Exchange with respect to the Fund's Municipal Securities investment 
restrictions.

[[Page 36467]]

    The Commission notes that the Exchange has represented that, other 
than the proposed changes, the Fund and the Shares will comply with all 
other initial and continued listing requirements under Nasdaq Rule 
5735. The Commission notes that, according to the Exchange, there is no 
change to the Fund's investment objectives and that, except as provided 
herein, all other facts presented and representations made in the Prior 
Release would remain unchanged. Specifically, the Commission notes that 
in the Prior Release, the Exchange represented that all statements and 
representations made in the proposed rule change 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 constitute continued listing requirements for 
listing the Shares on the Exchange. In addition, the issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by the Fund to comply with the continued listing requirements, 
and, pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. If the Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under the Nasdaq 5800 Series.\42\
---------------------------------------------------------------------------

    \42\ See supra note 7.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's 
representations, including those set forth above, in the Notice, and in 
the Prior Release, as applicable, and the Exchange's description of the 
Fund. The Commission notes that the Fund and the Shares must comply 
with the requirements of Nasdaq Rule 5735 to be listed and traded on 
the Exchange.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendments No. 1 and 2, is consistent with 
Section 6(b)(5) of the Act \43\ and the rules and regulations 
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2017-038 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-038. 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-2017-038, and should 
be submitted on or before August 25, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendments No. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendments No. 1 and 2, prior to the thirtieth 
day after the date of publication of notice of the filing of Amendment 
No. 1 in the Federal Register. In Amendment No. 1, the Exchange: (a) 
Modified the requirement that the Fund invest at least 65% of its net 
assets in Municipal Securities that are rated below investment grade to 
at least 50% of its net assets; (b) modified the limitation that the 
Fund invest up to 35% of its net assets in investment grade Municipal 
Securities to up to 50% of its net assets; and (c) removed references 
to the Liquidity Rule.
    The Commission notes that Amendment No. 1 supplements the proposed 
rule change by providing additional information regarding the scope of 
the Fund's permitted investments in investment grade and below 
investment grade Municipal Securities. The Commission believes that the 
proposed change to the Fund's investment parameters does not change the 
Commission's determination in the Prior Release that the listing and 
trading of the Shares on the Exchange is consistent with the 
requirements of the Act. In addition, the Commission believes that 
Amendment No. 1 clarifies the proposed rule change by deleting 
references to the Liquidity Rule under the 1940 Act. The Commission 
believes that Amendment No. 1 does not raise any novel or unique 
regulatory issues under the Act. The changes and additional information 
in Amendment No. 1 helped the Commission to evaluate whether the 
listing and trading of the Shares would be consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\44\ to approve the proposed rule change, as modified by Amendments 
No. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\45\ that the proposed rule change (SR-NASDAQ-2017-038), 
as modified by Amendments No. 1 and 2 be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \45\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16400 Filed 8-3-17; 8:45 am]
 BILLING CODE 8011-01-P


