[Federal Register Volume 83, Number 203 (Friday, October 19, 2018)]
[Notices]
[Pages 53124-53127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22775]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84425; File No. SR-NASDAQ-2018-050]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 1, Relating to the First Trust Senior Loan Fund of First Trust 
Exchange-Traded Fund IV

October 15, 2018.

I. Introduction

    On June 27, 2018, 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 Senior Loan Fund 
(``Fund'') of First Trust Exchange-Traded Fund IV, the shares 
(``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 comment in the Federal Register 
on July 17, 2018.\3\ On August 30, 2018, pursuant to Section 19(b)(2) 
of the Act,\4\ 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 October 11, 2018, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the original filing in its entirety.\6\ The Commission has 
received no comments on the proposed rule change. This order grants 
approval of the proposed rule change, as modified by Amendment No. 1.
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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. 83618 (July 11, 
2018), 83 FR 33277.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 84003, 83 FR 45289 
(September 6, 2018). The Commission designated October 15, 2018 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, the Exchange: (i) Represented that the 
Adviser will not implement the proposed changes until a post-
effective amendment to the Registration Statement that, to the 
extent necessary, reflects such changes is effective; (ii) clarified 
the descriptions of the Primary Index and the Secondary Index; (iii) 
clarified that the Fund may not meet the criteria in Nasdaq Rules 
5705(b)(4)(A)(i), 5705(b)(4)(A)(iii), and 5705(b)(4)(A)(vi); (iv) 
clarified the description of secondary loan trading volume; (v) 
clarified that Received Instruments will be equity, warrants, 
corporate bonds, and other such equity and fixed income securities; 
(vi) represented that the Exchange would communicate as needed 
regarding trading in the Shares and the exchange-listed instruments 
held by the Fund with other markets and other entities that are 
members of the Intermarket Surveillance Group (``ISG''), and that 
the Exchange may obtain information regarding trading in the Shares 
and the exchange-listed instruments held by the Fund from markets 
and other entities with which it has in place a comprehensive 
surveillance sharing agreement; and (vii) made technical and 
conforming changes. Because Amendment No. 1 does not materially 
alter the substance of the proposed rule change or raise unique or 
novel regulatory issues, it is not subject to notice and comment. 
Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2018-050/srnasdaq2018050-4509572-175991.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 \7\
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    \7\ For more information regarding the Fund and the Shares, see 
Amendment No. 1, supra note 6.
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    The Commission previously approved the listing and trading of the 
Shares of the Fund.\8\
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    \8\ See Securities Exchange Act Release Nos. 69072 (March 7, 
2013), 78 FR 16006 (March 13, 2013) (``Prior Notice'') and 69464 
(April 26, 2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) 
(``Prior Order'' and, together with the Prior Notice, the ``Prior 
Release''). First Trust Advisors L.P. (``Adviser'') represents that 
it will not implement the proposed changes until (i) the proposed 
rule change is operative and (ii) a post-effective amendment to the 
Registration Statement that, to the extent necessary, reflects such 
changes is effective.
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    The Exchange is proposing to: (i) Amend the definition of the term 
``under normal market conditions;'' (ii) permit the Fund to invest a 
limited amount of its net assets in Senior Loans \9\ and other floating 
rate loans that are in default (``Defaulted Loans''); and (iii) modify 
the Fund's ability to retain various instruments that, although not 
specifically selected by the Adviser, may be received by the Fund under 
certain circumstances. Except as provided in the Exchange's current 
proposal, all other representations made in the Prior Notice remain 
unchanged.
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    \9\ As stated in the Prior Notice, the Adviser considers Senior 
Loans to be first lien senior secured floating rate bank loans. The 
Prior Notice included certain descriptions of Senior Loans and the 
Senior Loan market, and the Exchange provides updated descriptions 
in the current proposal.
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A. Definition of ``Under Normal Market Conditions''

    The Prior Notice stated that the Fund, under normal market 
conditions, would seek to outperform the S&P/LSTA U.S. Leveraged Loan 
100 Index (``Primary Index'') and the Markit iBoxx USD Liquid Leveraged 
Loan Index (``Secondary Index'') by investing at least 80% of its net 
assets (plus any borrowings for investment purposes) in Senior Loans. 
The Prior Notice defined ``under normal market conditions'' as follows:

    The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the fixed income markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. In periods of 
extreme market disturbance, the Fund may take temporary defensive 
positions, by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objective. 
Specifically, the Fund would continue to invest in Senior Loans (as 
defined herein). In response to prolonged periods of constrained or 
difficult market conditions the Adviser will likely focus on 
investing in the largest and most liquid loans available in the 
market.

The Exchange proposes to amend the definition of ``under normal market 
conditions'' as follows:

    The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the fixed income markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. The Fund may 
adopt a defensive strategy (and depart from its principal investment 
strategies) when the Adviser believes securities in which the Fund 
normally invests have elevated risks due to political or economic 
factors and in other extraordinary circumstances. In addition, on a 
temporary basis, including for defensive purposes,

[[Page 53125]]

during periods of extreme market disturbance and during periods of 
high cash inflows or outflows (i.e., 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), the Fund may depart from 
its principal investment strategies; for example, it may hold a 
higher than normal proportion of its assets in cash. Under the 
circumstances described in the prior two sentences, the Fund may not 
be able to achieve its investment objectives; however, to the extent 
possible, the Adviser would continue to seek to achieve the Fund's 
investment objectives by continuing to invest in Senior Loans (as 
defined herein). In response to prolonged periods of constrained or 
difficult market conditions the Adviser will likely focus on 
investing in the largest and most liquid loans available in the 
market.

B. Investments in Defaulted Loans

    In the Prior Notice, the Exchange represented that the Adviser does 
not intend to purchase Senior Loans that are in default, but the Fund 
may hold a Senior Loan that has defaulted subsequent to its purchase by 
the Fund. In discussing the Fund's other investments, the Exchange also 
represented that the Fund will not invest in floating rate loans of 
companies whose financial condition is troubled or uncertain and that 
have defaulted on current debt obligations, as measured at the time of 
investment.
    The Exchange proposes to permit the Fund to invest a limited 
portion of its net assets in Senior Loans and other floating rate loans 
that are in default. As proposed, Defaulted Loans would comprise no 
more than 15% of the Fund's net assets, as determined at the time of 
purchase (``15% Limitation''). If, subsequent to being purchased or 
otherwise obtained by the Fund, a Senior Loan or other floating rate 
loan defaults, the Fund may continue to hold such Senior Loan or other 
floating rate loan without regard to the 15% Limitation; however, such 
Senior Loan or other floating rate loan would be considered a Defaulted 
Loan for purposes of determining whether the Fund's purchase of 
additional Defaulted Loans would comply with the 15% Limitation.\10\
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    \10\ The Exchange also proposes to make conforming changes to 
the descriptions in the Prior Notice regarding the characteristics 
of borrowers that will be included in the Fund. In particular, the 
Exchange proposes the following revised ``Credit Metrics 
Representation'': ``As a general matter, the Fund will include 
borrowers that the Adviser believes have strong credit metrics, 
based on its evaluation of cash flows, collateral coverage and 
management teams.'' The Exchange also proposes the following revised 
``Senior Loan/Other Debt Representations'': ``As a general matter, 
the Adviser intends to invest in Senior Loans or other debt of 
companies that it believes have developed strong positions within 
their respective markets and exhibit the potential to maintain 
sufficient cash flows and profitability to service their obligations 
in a range of economic environments. The Adviser will generally seek 
to invest in Senior Loans or other debt of companies that it 
believes possess advantages in scale, scope, customer loyalty, 
product pricing, or product quality versus their competitors, 
thereby minimizing business risk and protecting profitability. As a 
general matter, the Adviser will seek to invest in Senior Loans or 
other debt of established companies it believes have demonstrated a 
record of profitability and cash flows over several economic cycles. 
The Adviser does not generally intend to invest in Senior Loans or 
other debt of primarily start-up companies, companies in turnaround 
situations or companies with speculative business plans; however, it 
may invest in such companies from time to time. As a general matter, 
the Adviser intends to focus on investments in which the Senior 
Loans or other debt of a target company has an experienced 
management team with an established track record of success. The 
Adviser will generally require companies to have in place proper 
incentives to align management's goals with the Fund's goals.''
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C. Received Instruments

    As described in the Prior Notice, the Fund may receive equity, 
warrants, corporate bonds and other such securities \11\ (collectively, 
``Received Instruments'') as a result of the restructuring of the debt 
of an issuer, or a reorganization of a senior loan or bond, or acquired 
together with a high yield bond or senior loan(s) of an issuer 
(collectively, ``Received Instruments Triggers''). These investments 
are subject to the Fund's investment objectives, restrictions, and 
strategies.
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    \11\ The Exchange states in the current proposal that Received 
Instruments will be either equity or fixed income securities.
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a. Received Instruments Triggers
    The Exchange proposes to modify the Received Instruments Triggers 
to provide that the Fund may receive Received Instruments (i) in 
conjunction with the restructuring or reorganization, as applicable, of 
an issuer or any debt issued by an issuer, whether accomplished within 
or outside of a bankruptcy proceeding under 11 U.S.C. 101 et seq. (or 
any other similar statutory restructuring or reorganization proceeding) 
or (ii) together with one or more Senior Loans (or other debt 
instruments) of an issuer.
b. Equity and Equity-Like Instruments and Interests
    The Prior Notice stated that except for investments in exchange-
traded funds that may hold non-U.S. issues, the Fund would not 
otherwise invest in non-U.S. equity issues (``Non-U.S. Equity 
Restriction''). The Prior Notice also stated that the equity securities 
in which the Fund may invest would be limited to securities that trade 
in markets that are members of the ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange (``ISG 
Restriction'').
    The Exchange proposes to permit the Fund to retain, without regard 
to the Non-U.S. Equity Restriction or the ISG Restriction, Received 
Instruments that would encompass a broad range of U.S. and non-U.S. 
equity and equity-like positions and interests (``Equity-Based Received 
Instruments''). As proposed, Equity-Based Received Instruments means 
any one or more of the following (whether received individually or as 
part of a unit or package of securities and/or other instruments): (i) 
Common and preferred equity interests in corporations; (ii) membership 
interests (e.g., in limited liability companies), partnership 
interests, and interests in other types of entities (e.g., state law 
business trusts and real estate investment companies); (iii) warrants; 
(iv) Tax Receivable Agreement (TRA) rights; (v) claims (generally, 
rights to payment, which can come in various forms, including without 
limitation claims units and claims trusts); (vi) trust certificates 
representing an interest in a trust established under a confirmed plan 
of reorganization; (vii) interests in liquidating, avoidance, or other 
types of trusts; (viii) interests in joint ventures; and (ix) rights to 
acquire any of the Equity-Based Received Instruments described in 
clauses (i) through (viii).\12\ As proposed, the Fund's aggregate 
holdings in (i) Received Instruments that are not Senior Loans and (ii) 
Received Instruments that are Senior Loans and do not satisfy the Par 
Amount Representation (as defined below) would be limited to 20% of the 
Fund's net assets. The Exchange also represents that the Fund would not 
hold more than 20% of its net assets in Equity-Based Received 
Instruments and that the Adviser expects that, generally, over time, 
significantly less than 20% of the Fund's net assets would be comprised 
of Equity-Based Received Instruments.
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    \12\ The Fund may be entitled to acquire additional Equity-Based 
Received Instruments by exercising warrants (included in clause 
(iii)) and/or rights (included in clause (ix)). The Fund's ability 
to retain Equity-Based Received Instruments that it acquires by 
exercising such warrants and/or rights will be the same as its 
ability to retain Equity-Based Received Instruments that it 
otherwise receives.
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c. Convertible Securities/Debt Instruments
    In the Prior Notice, the Exchange represented that each of the 
Fund's Senior Loan investments was expected to have no less than $250 
million par outstanding (``Par Amount

[[Page 53126]]

Representation'').\13\ The Exchange also represented that the Fund 
would not typically invest in convertible securities, but that should 
the Fund make such investments, the Adviser would direct the Fund to 
divest any converted equity security as soon as practicable 
(``Convertible Securities Restriction'').
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    \13\ The Par Amount Representation also includes the 
representation from the Prior Notice that the Fund may invest in 
Senior Loans borrowed by entities that would not meet the criteria 
set forth in Nasdaq Rule 5705(b)(4)(A)(vi) provided the borrower has 
at least $250 million outstanding in Senior Loans.
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    The Exchange proposes to permit the Fund to retain Received 
Instruments in its portfolio, without regard to the Par Amount 
Representation or the Convertible Securities Restriction.\14\ Further, 
the Exchange proposes to permit the Fund to continue to retain in its 
portfolio Received Instruments that are convertible securities after 
such securities have converted (i.e., as Equity-Based Received 
Instruments) without regard to the Convertible Securities Restriction, 
the Non-U.S. Equity Restriction, or the ISG Restriction. Consistent 
with the Prior Release, Received Instruments that are convertible 
securities, bonds, loans, or other debt instruments of any type may be 
issued by U.S. and/or non-U.S. issuers. As noted above, the Fund would 
not hold more than 20% of its net assets in the aggregate in (i) 
Received Instruments that are not Senior Loans and (ii) Received 
Instruments that are Senior Loans and do not satisfy the Par Amount 
Representation.
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    \14\ Also, neither the Credit Metrics Representation (as 
modified) nor the Senior Loan/Other Debt Representations (as 
modified) would preclude the Fund from retaining Received 
Instruments.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\15\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\16\ which requires, among other 
things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed definition of ``under 
normal market conditions'' would provide flexibility under certain 
conditions where the Adviser may find that it is appropriate for the 
Fund to depart from its principal investment strategies, which could 
potentially help the Fund to mitigate risks that may accompany these 
conditions.\17\
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    \17\ In particular, the proposal would provide flexibility to 
the Adviser when the Adviser believes that the securities in which 
the Fund normally invests have elevated risks due to political or 
economic factors, in other extraordinary circumstances, and during 
periods of high cash inflows or outflows. The Commission notes that 
the proposed definition is consistent with the definitions from 
other recently approved proposals. See Securities Exchange Act 
Release Nos. 80745 (May 23, 2017), 82 FR 24755 (May 30, 2017) (SR-
NASDAQ-2017-033) (order approving listing and trading of First Trust 
California Municipal High Income ETF) and 78913 (September 23, 
2016), 81 FR 69109 (October 5, 2016) (SR-NASDAQ-2016-002) (order 
approving listing and trading of First Trust Municipal High Income 
ETF).
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    With respect to the aspect of the proposal that would permit the 
Fund to invest a portion of its net assets in Defaulted Loans, the 
Commission believes that the proposal would provide the Adviser with 
additional flexibility, but would be limited in scope. As discussed 
above, Defaulted Loans would be subject to the 15% Limitation. If, 
subsequent to being purchased or otherwise obtained by the Fund, a 
Senior Loan or other floating rate loan defaults, the Fund may continue 
to hold such Senior Loan or other floating rate loan without regard to 
the 15% Limitation; however, such Senior Loan or other floating rate 
loan would be considered a Defaulted Loan for purposes of determining 
whether the Fund's purchase of additional Defaulted Loans would comply 
with the 15% Limitation.\18\
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    \18\ The Commission notes that, currently, the Fund may continue 
to hold Senior Loans that default subsequent to being purchased by 
the Fund. The Commission also notes that it has previously approved 
the listing and trading of other funds that could invest a portion 
of their assets in defaulted securities. See, e.g., Securities 
Exchange Act Release Nos. 80946 (June 15, 2017), 82 FR 28126 (June 
20, 2017) (SR-NASDAQ-2017-039) (order approving listing and trading 
of Guggenheim Limited Duration ETF); 80865 (June 6, 2017), 82 FR 
26970 (June 12, 2017) (SR-NYSEArca-2017-48) (order approving listing 
and trading of Franklin Liberty Intermediate Municipal Opportunities 
ETF); 80745 (May 23, 2017), 82 FR 24755 (May 30, 2017) (SR-NASDAQ-
2017-033) (order approving listing and trading of First Trust 
California Municipal High Income ETF); 78913 (September 23, 2016), 
81 FR 69109 (October 5, 2016) (SR-NASDAQ-2016-002) (order approving 
listing and trading of First Trust Municipal High Income ETF); and 
68972 (February 22, 2013), 78 FR 13721 (February 28, 2013) (SR-
NASDAQ-2012-147) (order approving listing and trading of First Trust 
High Yield Long/Short ETF).
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    As discussed above, the Exchange also proposes to amend the 
Received Instruments Triggers and to permit the Fund to retain a 
limited amount of Received Instruments. The Commission notes that the 
Fund's ability to retain Received Instruments would be limited in 
scope. As discussed above, the Fund's aggregate holdings in (a) 
Received Instruments that are not Senior Loans and (b) Received 
Instruments that are Senior Loans and do not satisfy the Par Amount 
Representation would be limited to 20% of the Fund's net assets.\19\
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    \19\ As a result, although it is possible that the Fund's 
holdings may include certain Received Instruments that are Senior 
Loans that do not satisfy the Par Amount Representation, at least 
80% of the Fund's net assets will be comprised of Senior Loans that 
do satisfy the Par Amount Representation. Similarly, as discussed 
above, Equity-Based Received Instruments would comprise no more than 
20% of the Fund's net assets and the Adviser expects that, 
generally, over time, significantly less than 20% of the Fund's net 
assets would be comprised of Equity-Based Received Instruments.
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    The Commission notes that the Exchange does not propose to change 
the Fund's investment objectives and, except as provided in the current 
proposal, all other representations made in the Prior Notice would 
remain unchanged. The Commission notes that, notwithstanding the 
proposed changes, the Exchange anticipates that the Fund, in accordance 
with its principal investment strategy, would continue to invest 
approximately 50% to 75% of its net assets in Senior Loans that are 
eligible for inclusion in and meet the liquidity thresholds of the 
Primary Index and/or the Secondary Index.\20\ Moreover, the aggregate 
amount of the Fund's net assets permitted to be held in illiquid 
securities (calculated at the time of investment), including Rule 144A 
securities, junior subordinated loans, and unsecured loans deemed 
illiquid by the Adviser, would continue to be limited to 15%.\21\ In 
addition, except for the generic listing standards

[[Page 53127]]

under Nasdaq Rule 5735(b)(1) \22\ and as otherwise provided in the 
current proposal, the Fund and the Shares would continue to comply with 
the requirements applicable to Managed Fund Shares under Nasdaq Rule 
5735.
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    \20\ The Exchange provided descriptions of the eligibility 
criteria for the Primary Index and the Secondary Index in the Prior 
Notice and updates certain of those descriptions in the current 
proposal.
    \21\ The Exchange also represents that the proposed changes 
would not conflict with the Fund's investment objectives or overall 
investment strategies, or be inconsistent with the Adviser's overall 
approach to managing the Fund. According to the Exchange, in 
selecting securities for the Fund, the Adviser would continue to 
seek to construct a portfolio of loans that it believes is less 
volatile than the general loan market. In addition, when making 
investments, the Adviser would continue to seek to maintain 
appropriate liquidity and price transparency for the Fund, and the 
key considerations of portfolio construction would continue to 
include liquidity, diversification, and relative value.
    \22\ The Fund would continue to generally satisfy the generic 
fixed income listing requirements in Nasdaq Rule 5705(b)(4) on a 
continuous basis measured at the time of purchase, subject to 
certain exceptions and modifications described in the Prior Notice 
and the current proposal. In particular, the Fund may not meet the 
criteria in Nasdaq Rules 5705(b)(4)(A)(i) and 5705(b)(4)(A)(iii), 
and the Prior Notice permitted a modification to the criteria under 
Nasdaq Rule 5705(b)(4)(A)(vi).
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\23\ which sets forth Congress's 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities. As proposed, intra-day executable price quotations for the 
Senior Loans, fixed income securities, and other assets (including any 
Received Instruments and Defaulted Loans) held by the Fund would be 
available from major broker-dealer firms and/or market data vendors 
(and/or, if applicable, on the exchange on which they are traded). 
Intra-day price information for the holdings of the Fund would be 
available through subscription services, such as Markit, Bloomberg, and 
Thomson Reuters, which can be accessed by authorized participants and 
other investors, and/or from independent pricing services.
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    On each business day, before commencement of trading in Shares in 
the Regular Market Session on the Exchange, the Fund would continue to 
disclose on www.ftportfolios.com the Disclosed Portfolio (as defined in 
Nasdaq Rule 5735(c)(2)) that will form the basis for the Fund's 
calculation of net asset value (``NAV'') at the end of the business 
day. NAV per Share would continue to be calculated daily, and the NAV 
and the Disclosed Portfolio would continue to be made available to all 
market participants at the same time. Further, the Intraday Indicative 
Value (as defined in Nasdaq Rule 5735(c)(3)) for the Fund would 
continue to be widely disseminated by one or more major market data 
vendors and broadly displayed at least every 15 seconds during the 
Regular Market Session.
    In support of this proposal, the Exchange also represents that 
trading in the Shares will be subject to the existing trading 
surveillances, administered by both the Exchange and 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,\24\ and these procedures are 
adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and applicable federal securities laws. FINRA, on behalf of the 
Exchange, and the Exchange would communicate as needed regarding 
trading in the Shares and the exchange-listed instruments held by the 
Fund (including exchange-listed Equity-Based Received Instruments (if 
any) and any other exchange-listed equity securities) with other 
markets and other entities that are members of ISG. FINRA and the 
Exchange both may obtain trading information regarding trading in the 
Shares and such exchange-listed instruments held by the Fund from 
markets and other entities that are members of ISG, which include 
securities exchanges. The Exchange may also obtain information 
regarding trading in the Shares and such exchange-listed instruments 
held by the Fund from markets and other entities with which it has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, would be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine.
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    \24\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement, and the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the portfolio or 
reference assets, (b) limitations on portfolio holdings or reference 
assets, (c) dissemination and availability of the reference asset or 
intraday indicative values, or (d) the applicability of Exchange 
listing rules shall constitute continued listing requirements for 
listing the Shares on the Exchange. In addition, the issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by the Fund to comply with the continued listing requirements, 
and, pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor \25\ 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.
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    \25\ The Commission notes that certain proposals for the listing 
and trading of exchange-traded products include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the 
Commission's view that ``monitor'' and ``surveil'' both mean ongoing 
oversight of compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
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    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
1.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \26\ and Section 11A(a)(1)(C)(iii) of the Act \27\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.
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    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NASDAQ-2018-050), as 
modified by Amendment No. 1 be, and hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22775 Filed 10-18-18; 8:45 am]
 BILLING CODE 8011-01-P


