
[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Notices]
[Pages 65184-65186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27409]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84812; File No. SR-NASDAQ-2018-079]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Nasdaq Rules 5705 and 
5710 To Adopt a Disclosure Requirement for Certain Securities

December 13, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 29, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Nasdaq Rules 5705 and 5710 to adopt 
a disclosure requirement for certain securities that seek to provide a 
return based on a specified multiple or inverse multiple of an 
underlying index or reference asset. Nasdaq is also proposing to amend 
Nasdaq Rules 5705 and 5710 to include certain defined terms.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    Nasdaq rules allow the listing of securities that seek to exceed by 
a multiple the performance (leveraged) or exceed by a multiple the 
inverse of the performance (inverse) of an underlying index or 
reference asset. Some of these products are designed to track the daily 
performance of an underlying instrument and holding these products for 
longer than a day can result in investment returns that are 
significantly different than the target return. Nasdaq believes that 
some investors may not fully understand this risk and therefore 
proposes to amend Nasdaq Rules

[[Page 65185]]

5705(b) (Index Fund Shares) and 5710 (Securities Linked to the 
Performance of Indexes and Commodities (Including Currencies) to adopt 
an additional disclosure requirement.
    Specifically, the Exchange is proposing to amend Nasdaq Rule 
5705(b)(1)(B) and Nasdaq 5710(d) to provide that issuers of leveraged 
or inverse products that seek returns on a daily basis (``Multiple/
Inverse Daily Products'') must provide additional website disclosure 
that highlights the daily return feature of these products including 
the risks associated with holding these products for longer than one 
day. The Exchange is also making clarifying changes to existing rule 
language.
    Currently, Nasdaq Rule 5705(b)(1)(B)(iv), which applies to issuers 
of Index Fund Shares, requires that issuers make daily public website 
disclosure of the holdings of leveraged and inverse products.\3\ The 
Exchange proposes to amend this rule to require that issuers of 
Multiple/Inverse Daily Products include on the product website a 
statement that the product seeks returns for a single day and due to 
the compounding of returns, holding periods of longer than one day can 
result in investment returns that are significantly different than the 
product's target returns. The disclosure would also direct investors to 
consult the prospectus for further information on the calculation of 
the returns and other risks associated with investing in this type of 
product. While issuer websites already typically contain language 
similar to the disclosure proposed herein, Nasdaq believes that 
providing example language enhances the transparency of the proposed 
listing standard.
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    \3\ Nasdaq Rule 5705(b)(1)(B)(iv) requires: ``Daily public 
website disclosure of portfolio holdings that will form the basis 
for the calculation of the net asset value by the issuer of such 
series, including, as applicable, the following instruments: a. The 
identity and number of shares held of each specific equity security; 
b. The identity and amount held for each specific fixed income 
security; c. The specific types of Financial Instruments and 
characteristics of such Financial Instruments; and d. Cash 
equivalents and the amount of cash held in the portfolio.''
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    Additionally, the Exchange proposes to amend Nasdaq Rule 
5705(b)(1)(B) to define certain terms and clarify the rules. Nasdaq 
also proposes to amend the preamble of Nasdaq Rule 5710 to include a 
definition for ``Closing Indicative Value''.
    In addition, Nasdaq proposes to modify Nasdaq Rule 5710(d), which 
relates to Linked Securities, to include the same disclosure 
requirement for Multiple/Inverse Daily Products that are Linked 
Securities. Further, the Exchange proposes to amend Nasdaq Rule 5710(d) 
to clarify that the limitations on leverage and inverse multiples are 
based on the Closing Indicative Value (definition as proposed herein) 
and measured on a daily basis, up to, and including the date of 
maturity or redemption, as applicable. Nasdaq believes that this more 
closely aligns the application of the listing standards to the proposed 
disclosure requirements, as well as the daily values that determine the 
daily performance of such products.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\5\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to, and perfect 
the mechanisms 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendments requiring 
additional disclosure for Multiple/Inverse Daily Products would enhance 
investor protection and provide investors with valuable information 
regarding the investment risks associated with these products. Further, 
the additional proposed amendments, including amending Nasdaq Rule 
5710(d) to include a definition of Closing Indicative Value, will 
provide for additional transparency around listing standards and more 
closely aligns the application of such listing standards to the 
proposed disclosure requirements.
    As such, the Exchange believes the proposed amendment is consistent 
with the investor protection requirement of Section 6(b)(5).

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 not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed 
amendments are not intended to address competitive issues, but rather 
to provide additional website disclosure that highlights the daily 
return feature of Multiple/Inverse Daily Products, including the risks 
associated with holding these products for longer than one day. The 
Exchange believes that this change will provide additional investor 
protection through enhanced transparency around the investment risk 
associated with Multiple/Inverse Daily Products. Nasdaq also believes 
that adding a definition for Closing Indicative Value to Nasdaq Rule 
5710 will provide for additional clarity around listing standards and 
more closely align the application of such listing standards to the 
proposed disclosure requirements.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number NASDAQ-2018-079 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 NASDAQ-2018-079. 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 website (http://www.sec.gov/

[[Page 65186]]

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 website 
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. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number NASDAQ-2018-079, and should be 
submitted on or before January 9, 2019.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27409 Filed 12-18-18; 8:45 am]
BILLING CODE 8011-01-P


