[Federal Register Volume 85, Number 69 (Thursday, April 9, 2020)]
[Notices]
[Pages 19984-19994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07440]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88561; File No. SR-NASDAQ-2019-090]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 4 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 4, To 
Adopt Nasdaq Rule 5704 Governing the Listing and Trading of Exchange 
Traded Fund Shares

April 3, 2020.
    On November 8, 2019, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC), 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 to, among other things, adopt new 
Nasdaq Rule 5704 to list and trade Exchange Traded Fund Shares. The 
proposed rule change was published for comment in the Federal Register 
on November 22, 2019.\3\
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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. 87559 (November 18, 
2019), 84 FR 64574.
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    On December 17, 2019, 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 February 6, 2020, the Exchange filed Amendment No. 1 to 
the proposed rule change, which amended and replaced the proposed rule 
change in its entirety.\6\ On February 20, 2020, the Commission 
published the proposed rule change, as modified by Amendment No. 1, for 
notice and comment and instituted proceedings to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.\7\ On March 3, 2020, March 17, 2020, and March 19, 
2020, the Exchange filed Amendments No. 2, No. 3, and No. 4 to the 
proposed rule change, respectively.\8\ The Commission has received no 
comment letters on the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87776, 84 FR 70610 
(December 23, 2019).
    \6\ See infra note 8.
    \7\ See Securities Exchange Act Release No. 88207 (February 13, 
2020), 85 FR 9879.
    \8\ Each of Amendments No. 2, 3, and 4 amended and replaced the 
proposed rule change, as modified by the prior amendment, in its 
entirety. All amendments to the proposed rule change are available 
on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2019-090/srnasdaq2019090.htm.
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    The Commission is publishing this notice to solicit comments on 
Amendment No. 4 to the proposed rule change from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
4, on an accelerated basis.

I. Exchange's Description of the Proposal, as Modified by Amendment No. 
4

    The Exchange proposes to adopt new Nasdaq Rule 5704 to list and 
trade shares of securities issued by an exchange-traded fund as defined 
herein, as well as amendments to Nasdaq Rule 4120 (Limit Up-Limit Down 
Plan and Trading Halts) and Nasdaq Rule 5615 (Exemptions from Certain 
Corporate Governance Requirements), Nasdaq Rule 5705(b) (Index Fund 
Shares), Nasdaq Rule 5735 (Managed Fund Shares), and to discontinue the 
quarterly reports currently required with respect to Managed Fund 
Shares under Nasdaq Rule 5735(b). This Amendment No. 4 replaces and 
supersedes the original filing and Amendments No. 1, No. 2 and No. 3 in 
their entirety.
    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
    The Exchange proposes Nasdaq Rule 5704 to establish generic listing 
standards that permit the listing and trading of shares (``Exchange 
Traded Fund Shares'') of exchange-traded funds (``ETFs'' as defined 
below) that meet the criteria established by the Commission in its 
adoption of Rule 6c-11 \9\ (``Rule 6c-11'') under the Investment 
Company Act of 1940, as amended (``1940 Act''), to operate without 
obtaining an exemptive order from the SEC under the 1940 Act.\10\ This 
will help to accomplish the SEC's goal in adopting Rule 6c-11 to allow 
such ETFs to come directly to market without the cost and delay of 
obtaining exemptive relief while still protecting the interests of 
investors and other market participants. Rule 6c-11 will provide 
exemptions applicable to both index-based and transparent actively 
managed ETFs. Rule 6c-11 will enhance the regulatory framework through 
streamlining existing procedures and reducing the costs and time frames 
associated with bringing ETFs to market. This, in turn, will also serve 
to enhance competition among ETF issuers and ultimately reduce investor 
costs.\11\
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    \9\ Specifically, Rule 6c-11 applies to open-end funds that (i) 
issue and redeem creation units to and from authorized participants 
in exchange for a basket of securities and other assets (and any 
cash balancing amount), and (ii) whose shares are listed on a 
national securities exchange and trade at market-determined prices. 
Rule 6c-11 does not apply to leveraged, inverse, non-transparent, 
share classes, or exchange-traded funds structured as unit 
investment trusts.
    \10\ See Release No. 33-10695; IC-33646; File No. S7-15-18 
(Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October 
24, 2019) (``Adopting Release'').
    \11\ The SEC said in the Adopting Release that Rule 6c-11 ``will 
modernize the regulatory framework for ETFs to reflect our more than 
two decades of experience with these investment products. The rule 
is designed to further important Commission objectives, including 
establishing a consistent, transparent, and efficient regulatory 
framework for ETFs and facilitating greater competition and 
innovation among ETFs.'' See Adopting Release at 57163. The SEC also 
said that in reference to the impact of Rule 6c-11 that: ``We 
believe rule 6c-11 will establish a regulatory framework that: (1) 
Reduces the expense and delay currently associated with forming and 
operating certain ETFs unable to rely on existing orders; and (2) 
creates a level playing field for ETFs that can rely on the rule. As 
such, the rule will enable increased product competition among 
certain ETF providers, which can lead to lower fees for investors, 
encourage financial innovation, and increase investor choice in the 
ETF market.'' See Adopting Release at 57204.

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[[Page 19985]]

    Nasdaq believes that the proposed generic listing rules for 
Exchange Traded Fund Shares, described below, will facilitate efficient 
procedures for ETFs that are permitted to operate in reliance on Rule 
6c-11. The Exchange also believes that proposed Nasdaq Rule 5704 is 
consistent with, and will further, the Commission's goals in adopting 
Rule 6c-11. Exchange Traded Fund Shares that are permitted to operate 
in reliance on Rule 6c-11 will be permitted to be listed and traded on 
the Exchange without a prior Commission approval order or notice of 
effectiveness pursuant to Section 19(b) of the Act. This will 
significantly reduce the time frame and costs associated with bringing 
Exchange Traded Fund Shares to market, which, in turn, will promote 
competition among issuers of Exchange Traded Fund Shares, to the 
benefit of investors.
    Nasdaq will notify the Commission through the filing of a Form 19b-
4(e) when an ETF lists on Nasdaq pursuant to proposed Nasdaq Rule 5704. 
The Form 19b-4(e) will identify the Nasdaq rule under which the ETF is 
being generically listed. The Exchange will retain its right to file a 
Form 19b-4 under Nasdaq Rule 5705(b) and Nasdaq Rule 5735, 
respectively, for the listing and trading of Index Fund Shares or 
Managed Fund Shares. Additionally, Nasdaq will also file a Form 19b-
4(e) for ETFs that decide to switch from operating under Nasdaq rules 
other than proposed Nasdaq Rule 5704 to operating in compliance with 
Rule 6c-11 and in conformity with proposed Nasdaq Rule 5704.
    The Exchange also proposes to amend Nasdaq Rule 4120 (Limit Up-
Limit Down Plan and Trading Halts) and Nasdaq Rule 5615 (Exemptions 
from Certain Corporate Governance Requirements), Nasdaq Rule 5705(b) 
(Index Fund Shares), Nasdaq Rule 5735 (Managed Fund Shares), and to 
discontinue the quarterly reports currently required with respect to 
Managed Fund Shares under Nasdaq Rule 5735(b).
    Proposed Nasdaq Rule 5704 will enable ETFs, whether index-based or 
actively managed, to qualify for listing and trading on the Exchange 
both on an initial and continued basis by meeting and maintaining 
compliance with the criteria set forth in Rule 6c-11.\12\ The specific 
provisions of proposed Nasdaq Rule 5704 are presented below, as well as 
amendments to Nasdaq Rule 4120 (Limit Up-Limit Down Plan and Trading 
Halts), Nasdaq Rule 5615 (Exemptions from Certain Corporate Governance 
Requirements), Nasdaq Rule 5705(b) (Index Fund Shares), and Nasdaq Rule 
5735 (Managed Fund Shares), which would be necessitated by adoption of 
the proposed rule. Additionally, the proposed rule change to 
discontinue the quarterly reports currently required with respect to 
Managed Fund Shares under Nasdaq Rule 5735(b) is also discussed below.
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    \12\ Rule 6c-11 is now effective so Exchange Traded Fund Shares 
that are permitted to operate in reliance on Rule 6c-11 would be 
eligible for listing and trading on Nasdaq under proposed Nasdaq 
Rule 5704.
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Proposed Nasdaq Rule 5704
Proposed Definitions
    Proposed Nasdaq Rule 5704(a)(1)(A) defines the term ``Exchange 
Traded Fund'' (``ETF'') as having the same meaning as the term 
``exchange-traded fund'' as defined in Rule 6c-11.\13\ In the case of 
an ETF that is not currently listed on a national securities exchange, 
the portion of the definition found in Rule 6c-11 requiring such 
listing will become applicable if the ETF is listed on a national 
securities exchange.
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    \13\ Rule 6c-11(a)(1) defines ``exchange-traded fund'' as a 
registered open-end management company: (i) That issues (and 
redeems) creation units to (and from) authorized participants in 
exchange for a basket and a cash balancing amount if any; and (ii) 
Whose shares are listed on a national securities exchange and traded 
at market-determined prices. The terms ``authorized participant,'' 
``basket'' and ``creation unit'' are defined in Rule 6c-11(a)(1).
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    Proposed Nasdaq Rule 5704(a)(1)(B) defines the term ``Exchange 
Traded Fund Share'' as having the same meaning as the term is defined 
as having in Rule 6c-11.\14\
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    \14\ Rule 6c-11(a)(1) defines ``exchange-traded fund share'' as 
a share of stock issued by an exchange-traded fund.
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    Proposed Nasdaq Rule 5704(a)(1)(C) defines the term ``Reporting 
Authority'' in respect of a particular series of Exchange Traded Fund 
Shares to mean Nasdaq, a wholly-owned subsidiary of Nasdaq, or an 
institution or reporting service designated by Nasdaq or its subsidiary 
as the official source for calculating and reporting information 
relating to such series, including, but not limited to, any current 
index or portfolio value; the current value of the portfolio of any 
securities required to be deposited in connection with issuance of 
Exchange Traded Fund Shares; the amount of any dividend equivalent 
payment or cash distribution to holders of Exchange Traded Fund Shares, 
net asset value, and other information relating to the issuance, 
redemption or trading of Exchange Traded Fund Shares.\15\ The 
definition also notes that it does not imply that an institution or 
reporting service that is the source for calculating and reporting 
information relating to Exchange Traded Fund Shares must be designated 
by Nasdaq or its subsidiary; the term ``Reporting Authority'' does not 
refer to an institution or reporting service not so designated.
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    \15\ The proposed definition of ``Reporting Authority'' is 
substantively identical to the definition for this term in Nasdaq 
Rule 5705(b)(1)(C) (Index Fund Shares) and in Nasdaq Rule 5735(c)(4) 
(Managed Fund Shares).
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    Initial and Continued Listing.\16\ Proposed Nasdaq Rule 5704(b) 
states that Nasdaq may approve a series of Exchange Traded Fund Shares 
for listing and trading pursuant to Rule 19b-4(e) under the Act, 
provided each series of Exchange Traded Fund Shares is eligible to 
operate in reliance on Rule 6c-11 and satisfies the requirements of 
Rule 5704 on an initial and continued listing basis.\17\
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    \16\ Nasdaq may list and trade a series of Exchange Traded Fund 
Shares based on one or more foreign or domestic indexes or 
portfolios. Each series of Exchange Traded Fund Shares based on each 
particular index or portfolio, or combination thereof, will be 
designated as a separate series and will be identified by a unique 
symbol. The components that are included in an index or portfolio on 
which a series of Exchange Traded Fund Shares is based will be 
selected by such person, which may be Nasdaq or an agent or wholly-
owned subsidiary thereof, as will have authorized use of such index 
or portfolio. Such index or portfolio may be revised from time to 
time as may be deemed necessary or appropriate to maintain the 
quality and character of the index or portfolio.
    \17\ Rule 6c-11(c) sets forth certain conditions applicable to 
exchange-traded funds, and specifies the information required to be 
disclosed prominently on the fund's website free of charge, 
including the following: (i) Before the opening of regular trading 
on the primary listing exchange of the exchange-traded fund shares, 
the estimated cash balancing amount (if any) and the following 
information (as applicable) for each portfolio holding that will 
form the basis of the next calculation of current net asset value 
per share: (A) Ticker symbol; (B) CUSIP or other identifier; (C) 
Description of holding; (D) Quantity of each security or other asset 
held; and (E) Percentage weight of the holding in the portfolio; 
(ii) The exchange-traded fund's current net asset value per share, 
market price, and premium or discount, each as of the end of the 
prior business day; (iii) A table showing the number of days the 
exchange-traded fund's shares traded at a premium or discount during 
the most recently completed calendar year and the most recently 
completed calendar quarters since that year (or the life of the 
exchange-traded fund, if shorter); (iv) A line graph showing 
exchange-traded fund share premiums or discounts for the most 
recently completed calendar year and the most recently completed 
calendar quarters since that year (or the life of the exchange-
traded fund, if shorter); (v) The exchange-traded fund's median bid-
ask spread, expressed as a percentage rounded to the nearest 
hundredth (and computed in a manner described in Rule 6c-11(c)(v)(A) 
through (D)); and (vi) If the exchange-traded fund's premium or 
discount is greater than 2% for more than seven consecutive trading 
days, a statement that the exchange-traded fund's premium or 
discount, as applicable, was greater than 2% and a discussion of the 
factors that are reasonably believed to have materially contributed 
to the premium or discount, which must be maintained on the website 
for at least one year thereafter. Rule 6c-11(c)(4) provides that the 
exchange-traded fund may not seek, directly or indirectly, to 
provide investment returns that correspond to the performance of a 
market index by a specified multiple, or to provide investment 
returns that have an inverse relationship to the performance of a 
market index, over a predetermined period of time.

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[[Page 19986]]

    Proposed Nasdaq Rule 5704(b)(1) says that each series of Exchange 
Traded Fund Shares must also satisfy the follow criteria on an initial 
and continued listing (except for paragraph (A) below) basis:
    Proposed Nasdaq Rule 5704(b)(1)(A) states that for each series of 
Exchange Traded Fund Shares, Nasdaq will establish a minimum number of 
Exchange Traded Fund Shares required to be outstanding at the time of 
commencement of trading on Nasdaq.\18\
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    \18\ Nasdaq will generally consider at least one creation unit 
outstanding at the time of listing to be sufficient for the purposes 
of complying with this requirement.
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    Proposed Nasdaq Rule 5704(b)(1)(B) sets forth the requirements 
regarding index calculation and dissemination that must be satisfied on 
both an initial and continued listing basis. Proposed Nasdaq Rule 
5704(b)(1)(B)(i) states that if the investment adviser to an ETF is 
affiliated with a broker-dealer, such investment adviser will erect and 
maintain a ``fire wall'' between the investment adviser and the broker-
dealer with respect to access to information concerning the composition 
and/or changes to the underlying portfolio. Additionally, personnel who 
make decisions on the ETF's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable ETF portfolio. Proposed 
Nasdaq Rule 5704(b)(1)(B)(ii) states that the Reporting Authority that 
provides the ETF's portfolio must implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of the 
portfolio. Proposed Nasdaq Rule 5704(b)(1)(B)(iii) states that if the 
index underlying a series of Exchange Traded Fund Shares is maintained 
by a broker-dealer or fund adviser, the broker-dealer or fund adviser 
shall erect and maintain a ``fire wall'' around the personnel who have 
access to information concerning changes and adjustments to the index 
and the index will be calculated by a third party who is not a broker-
dealer or fund adviser. Proposed Nasdaq Rule 5704(b)(1)(B)(iv) states 
that any advisory committee, supervisory board, or similar entity that 
advises a Reporting Authority or that makes decisions on the index 
composition, methodology and related matters, must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable index.\19\
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    \19\ The proposed requirements are substantively identical to 
those included in Nasdaq Rule 5705(b) (Index Fund Shares) and in 
Nasdaq Rule 5735 (Managed Fund Shares).
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    Proposed Nasdaq Rule 5704(b)(1)(C) states that regular market 
session trading will occur between 9:30 a.m. and either 4:00 p.m. or 
4:15 p.m. for each series of Exchange Traded Fund Shares, as specified 
by Nasdaq. In addition, Nasdaq may designate a series of Exchange 
Traded Fund Shares for trading during a pre-market session beginning at 
4:00 a.m. and/or a post-market session ending at 8:00 p.m.
    Proposed Nasdaq Rule 5704(b)(1)(D) states that the minimum price 
variation for quoting and entry of orders in Exchange Traded Fund 
Shares is $0.01.\20\
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    \20\ The proposed minimum price variation for quoting and entry 
of orders is substantively identical to the requirement included in 
Nasdaq Rule 5745(b)(3) (Exchange-Traded Managed Fund Shares 
(``NextShares'')).
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    Proposed Nasdaq Rule 5704(b)(2) sets forth the circumstances under 
which Nasdaq will consider the suspension of trading and removal in, 
and will initiate delisting proceedings under the Nasdaq Rule 5800 
Series of, a series of Exchange Traded Fund Shares. These circumstances 
will include the following: (i) Proposed Nasdaq Rule 5704(b)(2)(A) 
states that if Nasdaq becomes aware that the series of Exchange Traded 
Fund Shares is no longer eligible to operate in reliance on Rule 6c-11; 
(ii) Proposed Nasdaq Rule 5704(b)(2)(B) states that if, following the 
initial twelve month period after commencement of trading on Nasdaq of 
the series of Exchange Traded Fund Shares, there are fewer than 50 
beneficial holders; (iii) Proposed Nasdaq Rule 5704(b)(2)(C) states 
that if any of the other requirements set forth in this rule are not 
continuously maintained; or (iv) Proposed Nasdaq Rule 5704(b)(2)(D) 
states that if such other event will occur or condition exists which in 
the opinion of Nasdaq, makes further dealings on Nasdaq 
inadvisable.\21\
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    \21\ Nasdaq may also submit a separate rule filing under Section 
19(b) of the Act to permit the listing and trading of a series of 
Exchange Traded Fund Shares. If Nasdaq submits such a rule filing, 
any of the statements or representations regarding (a) the index 
composition; (b) the description of the portfolio; (c) limitations 
on portfolio holdings or reference assets; (d) dissemination and 
availability of the index, portfolio information, or intraday 
indicative values; or (e) the applicability of Nasdaq listing rules 
specified in such proposals are not continuously maintained, will 
constitute continued listing standards with respect to that series 
of Exchange Traded Fund Shares.
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    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in a series of Exchange Traded Fund Shares. Trading in Exchange 
Traded Fund Shares will be halted if the circuit breaker parameters in 
Nasdaq Rule 4120 have been reached. Trading also may be halted because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in Exchange Traded Fund Shares inadvisable. An example of 
such an event as mentioned above in proposed Nasdaq Rule 5704(b)(2)(D) 
would include if the value of the index or portfolio of securities on 
which the series of Exchange Traded Fund Shares is based is no longer 
calculated or available or an interruption to the dissemination 
persists past the trading day in which it occurred. Another example 
includes the extent to which certain information about the Exchange 
Traded Fund Shares that is required to be disclosed under Rule 6c-11 of 
the 1940 Act is not being made available.
    The Exchange will also halt trading if it becomes aware that the 
net asset value for a series of Exchange Traded Fund Shares is not 
being disseminated to all market participants at the same time.\22\ In 
addition, as proposed herein, Nasdaq may halt trading in Exchange 
Traded Fund Shares if trading in the underlying securities compromising 
[sic] the index or portfolio applicable to such series of Exchange 
Traded Fund Shares has been halted in the primary market(s), or if 
trading has ceased in securities underlying the index or portfolio, or 
in the presence of other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market.\23\
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    \22\ See Nasdaq Rule 4120(a)(10). Nasdaq may resume trading once 
the net asset value becomes available to all market participants.
    \23\ See Proposed Nasdaq Rule 4120(a)(9).
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    Proposed Nasdaq Rule 5704(c) states that Nasdaq will implement and 
maintain written surveillance procedures for Exchange Traded Fund 
Shares. The Exchange believes that the proposal is designed to prevent 
fraudulent and manipulative acts and practices because the Exchange 
will perform ongoing surveillance of Exchange Traded Fund Shares listed 
on

[[Page 19987]]

the Exchange in order to ensure compliance with Rule 6c-11 and the 1940 
Act on an ongoing basis. Nasdaq believes that the manipulation concerns 
that such standards are intended to address are otherwise mitigated by 
a combination of the Exchange's surveillance procedures, Nasdaq's 
ability to halt trading under the proposed Rule Nasdaq Rule 4120(a)(9), 
Nasdaq Rule 4120(a)(10), and the Exchange's ability to suspend trading 
and commence delisting proceedings under proposed Nasdaq Rule 
5704(b)(2)(B). As previously stated, Nasdaq is proposing to amend 
Nasdaq Rule 4120(b)(4)(A) to clarify that Exchange Traded Fund Shares 
are subject to Nasdaq's halt authority.
    Nasdaq also believes that such concerns are further mitigated by 
enhancements to the arbitrage mechanism that will come from compliance 
with Rule 6c-11, specifically the additional flexibility provided to 
issuers of Exchange Traded Fund Shares through the use of custom 
baskets for creations and redemptions and the additional information 
made available to the public through the additional disclosure 
obligations.\24\ The Exchange believes that the combination of these 
factors will act to keep Exchange Traded Fund Shares trading near the 
value of their underlying holdings and further mitigate concerns around 
manipulation of Exchange Traded Fund Shares on Nasdaq.
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    \24\ The Exchange notes that the Commission came to a similar 
conclusion in several places in the Rule 6c-11 Release. See Adopting 
Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
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    The Exchange will monitor for compliance with Rule 6c-11 to ensure 
that the continued listing standards are being met. The Exchange will 
also periodically review the website of series of Exchange Traded Fund 
Shares to ensure that the requirements of Rule 6c-11 are being met. 
Nasdaq also will employ intraday alerts that will notify Exchange 
personnel of unusual trading activity throughout the day that could be 
indicative of unusual conditions or circumstances that could be 
detrimental to the maintenance of a fair and orderly market. The 
Exchange also notes that Nasdaq Rule 5701(d) would require an issuer of 
Exchange Traded Fund Shares to notify Nasdaq with prompt notification 
after the issuer becomes aware of any non-compliance with the 
requirements of the Nasdaq Rule 5700 Series, which would encompass any 
failure of the issuer to comply with Rule 6c-11 or the 1940 Act.\25\
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    \25\ The Exchange notes that failure by an issuer to notify the 
Exchange of non-compliance pursuant to Nasdaq Rule 5701(d) would 
itself be considered non-compliance with the requirements of the 
Nasdaq Rule 5700 Series and subject to potential trading halts and 
the delisting process in the Nasdaq Rule 5800 Series.
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    Additionally, Nasdaq represents that its surveillance procedures 
are adequate to properly monitor the trading of the Exchange Traded 
Fund Shares in all trading sessions and to deter and detect violations 
of Exchange rules and applicable federal securities laws.\26\ 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to Nasdaq-listed securities, which are currently 
applicable to Index Fund Shares and Exchange Traded Fund Shares, among 
other product types, to monitor trading in Exchange Traded Fund Shares. 
The Exchange or the Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Exchange Traded Fund Shares and certain of their 
applicable underlying components with other markets that are members of 
the Intermarket Surveillance Group (``ISG'') or with which Nasdaq has 
in place a comprehensive surveillance sharing agreement (``CSSA'').
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    \26\ Nasdaq will obtain a representation from the ETF that the 
net asset value per share for each series of Exchange Traded Fund 
Shares will be calculated daily and will be made available to all 
market participants at the same time. Nasdaq will also obtain a 
representation from the issuers of each series of Exchange Traded 
Fund Shares that the requirements of proposed Nasdaq Rule 5704 will 
be satisfied.
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    Additionally, FINRA, on behalf of the Exchange, is able to access, 
as needed, trade information for certain fixed income securities that 
may be held by a series of Exchange Traded Fund Shares reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE''). FINRA also 
can access data obtained from the Municipal Securities Rulemaking 
Board's (``MSRB'') Electronic Municipal Market Access (``EMMA'') system 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in a series of Exchange Traded Fund Shares, 
to the extent that a series of Exchange Traded Fund Shares holds 
municipal securities. Finally, as noted above, the issuer of a series 
of Exchange Traded Fund Shares will be required to comply with Rule 
10A-3 under the Act for the initial and continued listing of Exchange-
Traded Fund Shares, as provided under Nasdaq Rule 5615(a)(6)(A) and the 
changes to Nasdaq Rule 5615(a)(6)(B) as proposed herein.
    The Exchange notes that Exchange Traded Fund Shares will be subject 
to all Exchange rules applicable to equities trading, including rules 
governing Exchange member disclosure obligations in connection with 
equities trading, and that Rule 6c-11 does not change the applicability 
of these Exchange rules with respect to these securities.\27\
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    \27\ With respect to trading in Exchange Traded Fund Shares, all 
of the Nasdaq member obligations relating to product description and 
prospectus delivery requirements will continue to apply in 
accordance with the Exchange rules and federal securities laws, and 
Nasdaq will continue to monitor its members for compliance with such 
requirements, which are not changing as a result of Rule 6c-11 under 
the 1940 Act.
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    Proposed Nasdaq Rule 5704(d) states that upon termination of an 
ETF, Nasdaq requires that each series of Exchange Traded Fund Shares 
issued in connection with such entity be removed from listing.
    Proposed Nasdaq Rule 5704(e) states that neither Nasdaq, the 
Reporting Authority, nor any agent of Nasdaq will have any liability 
for damages, claims, losses or expenses caused by any errors, 
omissions, or delays in calculating or disseminating any current index 
or portfolio value, the current value of the portfolio of securities 
required to be deposited to the open-end management investment company 
in connection with issuance of a series of Exchange Traded Fund Shares; 
the amount of any dividend equivalent payment or cash distribution to 
holders of a series of Exchange Traded Fund Shares; net asset value; or 
other information relating to the purchase, redemption or trading of a 
series of Exchange Traded Fund Shares, resulting from any negligent act 
or omission by Nasdaq, the Reporting Authority or any agent of Nasdaq, 
or any act, condition or cause beyond the reasonable control of Nasdaq, 
its agent, or the Reporting Authority, including, but not limited to, 
an act of God; fire; flood; extraordinary weather conditions; war; 
insurrection; riot; strike; accident; action of government; 
communications or power failure; equipment or software malfunction; or 
any error, omission or delay in the reports of transactions in one or 
more underlying securities.\28\
---------------------------------------------------------------------------

    \28\ The proposed requirements are substantively identical to 
those included in Nasdaq Rule 5705(b)(11) (Index Fund Shares) and in 
Nasdaq Rule 5735(e) (Managed Fund Shares).
---------------------------------------------------------------------------

    Proposed Nasdaq Rule 5704(f) states that a security that has 
previously been approved for listing on the Exchange pursuant to the 
generic listing requirements specified in Nasdaq Rule 5705(b) or Nasdaq 
Rule 5735(b)(1), or pursuant to an approval of a proposed rule change 
or subject to a notice of effectiveness by the Commission, may be 
considered for listing solely under this Rule 5704 if such security is 
eligible to operate in reliance on Rule 6c-11

[[Page 19988]]

under the 1940 Act. At the time of listing of such security under this 
Rule 5704, the continued listing requirements applicable to such 
previously-listed securities will be those specified in paragraph (b) 
of this Rule 5704. Any requirements for listing as specified in Nasdaq 
Rule 5705(b) or Nasdaq 5735(b)(1), or an approval order or notice of 
effectiveness of a separate proposed rule change, that differ from the 
requirements of this Rule 5704 will no longer be applicable to such 
security.\29\
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    \29\ To the extent that a series of Exchange Traded Fund Shares 
does not satisfy one or more of the criteria in proposed Nasdaq Rule 
5704, the Exchange may file a separate proposal under Section 19(b) 
of the Act in order to list such series on the Exchange. Further, in 
the event that a series of Exchange Traded Fund Shares becomes 
listed under proposed Nasdaq Rule 5704 and subsequently can no 
longer rely on Rule 6c-11, so long as the series of Exchange Traded 
Fund Shares may otherwise rely on exemptive relief issued by the 
Commission, such series of Exchange Traded Fund Shares may be listed 
as a series of Index Fund Shares under Nasdaq Rule 5705 or Managed 
Fund Shares under Nasdaq Rule 5735, as applicable, as long as the 
series of Exchange Traded Fund Shares meets all listing requirements 
under the applicable rule.
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Amendments to Nasdaq Rule 4120. Limit Up-Limit Down Plan and Trading 
Halts
    The Exchange proposes to amend Nasdaq Rule 4120 to include Exchange 
Traded Fund Shares in Nasdaq Rule 4120(a)(9) and Nasdaq Rule 
4120(a)(10) \30\ as these rules apply to trading halts. This will 
ensure the applicability of trading halts to the trading of Exchange 
Traded Fund Shares listed on Nasdaq and traded on Nasdaq pursuant to 
unlisted trading privileges.
---------------------------------------------------------------------------

    \30\ The definition of ``Derivative Securities'' found in Nasdaq 
Rule 4102(b)(4)(A) is referenced in Nasdaq Rule 4120(a)(10) as the 
applicable definition for that rule.
---------------------------------------------------------------------------

Amendments to Nasdaq Rule 5615. Exemptions From Certain Corporate 
Governance Requirements
    The Exchange also proposes to amend the definition of ``Derivative 
Securities'' in Nasdaq Rule 5615 to incorporate Exchange Traded Fund 
Shares so Rule 5615 and its exemptions from certain corporate 
governance requirements are applicable to Exchange Traded Fund Shares. 
The proposed addition of Exchange Traded Fund Shares to Nasdaq Rules 
4120 and 5615 would subject Exchange Traded Fund Shares to the same 
requirements currently applicable to other 1940 Act-registered 
investment company securities (i.e., Index Fund Shares, Managed Fund 
Shares and Portfolio Depositary Receipts).
Amendments to Nasdaq Rule 5705(b). Index Fund Shares
    The Exchange also proposes to amend the definition of ``Derivative 
Securities Products'' in Nasdaq Rule 5705(b)(3)(A)(i)a. to incorporate 
Exchange Traded Fund Shares so the exclusions applicable to Derivative 
Securities Products in Nasdaq Rule 5705(b)(3)(A) will also apply to 
Exchange Traded Fund Shares, as well as minor changes to improve 
clarity. Nasdaq believes that this is appropriate because ETFs that are 
currently listed pursuant to Nasdaq Rule 5705(b) and are permitted to 
operate in reliance on Rule 6c-11 and list pursuant to proposed Nasdaq 
Rule 5704 should be included in the existing exclusions.
Amendments to Nasdaq Rule 5735. Managed Fund Shares
    The Exchange also proposes to amend the definition of ``Exchange 
Traded Derivative Securities'' in Nasdaq Rule 5735(c)(6) to incorporate 
Exchange Traded Fund Shares so the exclusions applicable to Exchange 
Traded Derivative Securities in Nasdaq Rule 5735(b)(1)(A) will also 
apply to Exchange Traded Fund Shares, as well as a minor change to 
improve clarity. Nasdaq believes this is appropriate because ETFs that 
are currently listed pursuant to Nasdaq Rule 5735(b) and are permitted 
to operate in reliance on Rule 6c-11 and list pursuant to proposed 
Nasdaq Rule 5704 should be included in the existing exclusions.
Proposed Discontinuance of Quarterly Reporting Obligation for Managed 
Fund Shares
    On September 23, 2016, the SEC approved Nasdaq Rule 5735(b)(1), 
adopting generic listing standards for Managed Fund Shares.\31\ In 
proposing that rule, Nasdaq represented that it would provide the 
Commission staff with a report each calendar quarter about issues of 
Managed Fund Shares listed under that rule.\32\
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    \31\ See Exchange Act Release No. 78918 (September 23, 2016), 81 
FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
    \32\ See Exchange Act Release No. 78616 (August 18, 2016), 81 FR 
57968 at 57973 (August 24, 2016) (``the Exchange will provide the 
Commission staff with a report each calendar quarter that includes 
the following information for issues of Managed Fund Shares listed 
during such calendar quarter under Rule 5735(b)(1): (1) Trading 
symbol and date of listing on the Exchange; (2) the number of active 
authorized participants and a description of any failure of an issue 
of Managed Fund Shares or of an authorized participant to deliver 
shares, cash, or cash and financial instruments in connection with 
creation or redemption orders; and (3) a description of any failure 
of an issue of Managed Fund Shares to comply with Nasdaq Rule 
5735'').
---------------------------------------------------------------------------

    The quarterly reports were initially intended to provide SEC Staff 
insight into the number and type of funds listed pursuant to Nasdaq 
Rule 5735(b)(1), as well as highlight any issues regarding the trading 
of such funds or a funds' compliance with the continued listing 
standards. Nasdaq believes that since the implementation of this 
requirement, SEC Staff has received an ample number of reports as to 
gain sufficient understanding of the products listed pursuant to Nasdaq 
Rule 5735(b)(1). SEC Staff has now had several years of experience 
monitoring through these reports and has not detected any significant 
issues involving Managed Fund Shares listed under Nasdaq Rule 
5735(b)(1).
    Nasdaq also believes such quarterly reports will no longer be 
necessary because Rule 6c-11 collapses the distinction between Index 
Fund Shares and Managed Fund Shares, which illustrates that the SEC has 
reached a sufficient level of comfort with Managed Fund Shares. As a 
result, the Exchange believes that the quarterly reports no longer 
serve an ongoing purpose and, therefore, proposes to discontinue such 
reporting going forward. Rule 6c-11(d) includes specific ongoing 
reporting requirements for ETFs, such as written agreements between an 
authorized participant and a fund allowing purchase or redemption of 
creation units, information regarding the baskets exchanged with 
authorized participants, and the identity of authorized participants 
transacting with a fund.\33\ This information will be sufficient for 
the SEC's examination staff to determine compliance with Rule 6c-11 and 
the applicable federal securities laws.\34\
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    \33\ Rule 6c-11(d), which sets forth recordkeeping requirements 
applicable to exchange-traded funds, provides that that the 
exchange-traded fund must maintain and preserve for a period of not 
less than five years, the first two years in an easily accessible 
place: (1) All written agreements (or copies thereof) between an 
authorized participant and the exchange-traded fund or one of its 
service providers that allows the authorized participant to place 
orders for the purchase or redemption of creation units; (2) For 
each basket exchanged with an authorized participant, records 
setting forth: (i) The ticker symbol, CUSIP or other identifier, 
description of holding, quantity of each holding, and percentage 
weight of each holding composing the basket exchanged for creation 
units; (ii) If applicable, identification of the basket as a custom 
basket and a record stating that the custom basket complies with 
policies and procedures that the exchange-traded fund adopted 
pursuant to paragraph (c)(3) of Rule 6c-11; (iii) Cash balancing 
amount (if any); and (iv) Identity of authorized participant 
transacting with the exchange traded fund.
    \34\ In the Adopting Release, the SEC stated, ``requiring ETFs 
to maintain records regarding each basket exchanged with authorized 
participants will provide our examination staff with a basis to 
understand how baskets are being used by ETFs, particularly with 
respect to custom baskets. In order to provide our examination staff 
with detailed information regarding basket composition, however, we 
have modified rule 6c-11 to require the ticker symbol, CUSIP or 
other identifier, description of holding, quantity of each holding, 
and percentage weight of each holding composing the basket exchanged 
for creation units as part of the basket records, instead of the 
name and quantities of each position as proposed. We believe that 
this additional information will better enable our examination staff 
to evaluate compliance with the rule and other applicable provisions 
of the federal securities laws.'' See Adopting Release at 57195.

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[[Page 19989]]

    Nasdaq also believes that for the reasons stated above, as well as 
that the quarterly reports as currently required are duplicative of the 
new Rule 6c-11(d) requirements, there is no longer a reason to keep 
this reporting requirement. To avoid unnecessary overlap and potential 
inconsistency, as well as to avoid unnecessary, duplicative burdens on 
authorized participants and their firms in providing and maintaining 
information regarding creation and redemption activity, the Exchange 
proposes to discontinue the filing of quarterly reports with respect to 
Managed Fund Shares under Nasdaq Rule 5735(b).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\35\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\36\ 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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 because it would facilitate the listing and trading of 
additional Exchange Traded Fund Shares, which would enhance competition 
among market participants, to the benefit of investors and the 
marketplace. The generic listing rules in proposed Nasdaq Rule 5704, as 
described above, will facilitate efficient procedures for listing ETFs 
that are permitted to operate in reliance on Rule 6c-11 and are 
consistent with and will further the SEC's goals in adopting Rule 6c-
11. Nasdaq will notify the Commission through the filing of a Form 19b-
4(e) when an ETF lists on Nasdaq pursuant to proposed Nasdaq Rule 5704. 
The Form 19b-4(e) will identify the Nasdaq rule under which the ETF is 
being generically listed. The Exchange will retain its right to file a 
Form 19b-4 under Nasdaq Rule 5705(b) and Nasdaq Rule 5735, 
respectively, for the listing and trading of Index Fund Shares or 
Managed Fund Shares. Nasdaq will also file a Form 19b-4(e) for ETFs 
that decide to switch from operating under Nasdaq rules other than 
proposed Nasdaq Rule 5704 to operating in compliance with Rule 6c-11 
and in conformity with proposed Nasdaq Rule 5704.
    Additionally, by allowing Exchange Traded Fund Shares to be listed 
and traded on the Exchange without a prior SEC approval order or notice 
of effectiveness pursuant to Section 19(b) of the Act, proposed Nasdaq 
Rule 5704 will significantly reduce the time frame and costs associated 
with bringing Exchange Traded Fund Shares to market, thereby promoting 
market competition among issuers of these securities, to the benefit of 
the investors. Also, the proposed change would fulfill the intended 
objective of Rule 19b-4(e) under the Act by permitting Exchange Traded 
Fund Shares that satisfy the proposed listing standards to be listed 
and traded without separate SEC approval.
    With respect to both proposed Nasdaq Rule 5704(a)(1)(A), which 
defines the term ``Exchange Traded Fund'', and proposed Nasdaq Rule 
5704(a)(1)(B), which defines the term ``Exchange Traded Fund Share'', 
the Exchange believes these definitions will increase the clarity to 
the benefit of investors and the marketplace. Additionally, these terms 
mirror the definitions as set forth in Rule 6c-11.\37\
---------------------------------------------------------------------------

    \37\ See Adopting Release at 57178 and at 57234, respectively.
---------------------------------------------------------------------------

    With respect to proposed Nasdaq Rule 5704(a)(1)(C), which defines 
the term ``Reporting Authority'', the Exchange believes that defining 
the term generally consistent with how it is defined in Nasdaq Rule 
5705 \38\ and Nasdaq Rule 5735 \39\ will increase the clarity to the 
benefit of investors and the marketplace.
---------------------------------------------------------------------------

    \38\ See Nasdaq Rule 5705(b)(1)(C).
    \39\ See Nasdaq Rule 5735(c)(4).
---------------------------------------------------------------------------

    With respect to proposed Nasdaq Rule 5704(b), Exchange Traded Fund 
Shares will be listed and traded on the Exchange subject to the 
requirement that each series of Exchange Traded Fund Shares is eligible 
to operate in reliance on Rule 6c-11 \40\ and must satisfy the 
requirements of this proposed Nasdaq Rule 5704 on an initial and 
continued listing basis. This requirement will ensure that Exchange-
listed Exchange Traded Fund Shares continue to operate in a manner that 
fully complies with the portfolio transparency requirements of Rule 6c-
11(c). This will also ensure that Exchange Traded Fund Shares listed 
and traded on the Exchange in accordance with Nasdaq Rule 5704 on an 
initial and continued listing basis will serve to perfect the 
mechanisms of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \40\ Rule 6c-11(c) sets forth certain conditions applicable to 
ETFs, including information required to be disclosed on the ETF's 
website.
---------------------------------------------------------------------------

    With respect to proposed Nasdaq Rule 5704(b)(1) and subparagraphs 
(A)-(D) thereunder (with the exception that subparagraph (A) only 
applies on an initial listing basis),\41\ the Exchange believes it is 
to the benefit of investors and the marketplace that Nasdaq may approve 
an ETF for listing and trading pursuant to Rule 19b-4(e) under the Act. 
The approval is also contingent on that each series of Exchange Traded 
Fund Shares is eligible to operate in reliance on Rule 6c-11 and 
satisfies the requirements of Rule 5704 on an initial and continued 
listing basis.
---------------------------------------------------------------------------

    \41\ Proposed Nasdaq Rule 5704(b)(1)(A)-(D) covers: (i) 
Establishing a minimum number of Exchange Traded Fund Shares 
required to be outstanding at the time of commencement of trading on 
Nasdaq (only applicable on an initial listing basis); (ii) index and 
portfolio calculation and dissemination, as well as ``fire walls'' 
and procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of 
the index or portfolio; (iii) regular market session trading; and 
(iv) the minimum price variation for quoting and entry of orders in 
Exchange Traded Fund Shares is $0.01.
---------------------------------------------------------------------------

    Nasdaq will monitor for compliance with the continued listing 
requirements as discussed above. If the ETF is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under proposed Nasdaq Rule 5704(b)(2).\42\ The 
Exchange believes that this will help to prevent fraudulent and 
manipulative acts and practices.
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    \42\ See supra note 25.
---------------------------------------------------------------------------

    The Exchange believes this also fulfills the intended objective of 
Rule 19b-4(e) under the Act by allowing Exchange Traded Fund Shares to 
be listed and traded without requiring separate Commission approval. 
This will provide investors with additional investment choices in which 
they may choose to invest.
    With respect to proposed Nasdaq Rule 5704(c), the Exchange will 
implement and maintain written surveillance procedures for Exchange 
Traded Fund Shares and represents that its surveillance procedures are 
adequate to properly monitor such trading in all trading sessions and 
to deter and detect violations of Nasdaq rules. Specifically,

[[Page 19990]]

the Exchange intends to utilize its existing surveillance procedures 
applicable to securities, which will include Exchange Traded Fund 
Shares, to monitor trading in the Exchange Traded Fund Shares 
(additional surveillance processes and procedures are described 
herein). These surveillance procedures 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. The Exchange 
believes that the proposal is designed to prevent fraudulent and 
manipulative acts and practices because the Exchange will perform 
ongoing surveillance of Exchange Traded Fund Shares listed on the 
Exchange in order to ensure compliance with Rule 6c-11 on an ongoing 
basis.
    The Exchange also believes that such concerns are further mitigated 
by enhancements to the arbitrage mechanism that will come from Rule 6c-
11, specifically the additional flexibility provided to issuers of 
Exchange Traded Fund Shares through the use of custom baskets for 
creations and redemptions and the additional information made available 
to the public through the additional disclosure obligations.\43\ The 
Exchange believes that the combination of these factors will act to 
keep Exchange Traded Fund Shares trading near the value of their 
underlying holdings and further mitigate concerns around manipulation 
of Exchange Traded Fund Shares on Nasdaq.
---------------------------------------------------------------------------

    \43\ The Exchange notes that the Commission came to a similar 
conclusion in several places in the Rule 6c-11 Release. See Adopting 
Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
---------------------------------------------------------------------------

    The Exchange will monitor for compliance with Rule 6c-11 to ensure 
that the continued listing standards are being met. The Exchange will 
also periodically review the website of series of Exchange Traded Fund 
Shares to ensure that the requirements of Rule 6c-11 are being met. 
Nasdaq also will employ intraday alerts that will notify Exchange 
personnel of unusual trading activity throughout the day that could be 
indicative of unusual conditions or circumstances that could be 
detrimental to the maintenance of a fair and orderly market. The 
Exchange also notes that Nasdaq Rule 5701(d) would require an issuer of 
Exchange Traded Fund Shares to notify Nasdaq with prompt notification 
after the issuer becomes aware of any non-compliance with the 
requirements of the Nasdaq Rule 5700 Series, which would encompass any 
failure of the issuer to comply with Rule 6c-11.
    Nasdaq also believes that its surveillance procedures are adequate 
to properly monitor the trading of the Exchange Traded Fund Shares in 
all trading sessions and to deter and detect violations of Exchange 
rules and applicable federal securities laws. Specifically, the 
Exchange intends to utilize its existing surveillance procedures 
applicable to Nasdaq-listed securities, which are currently applicable 
to Index Fund Shares and Managed Fund Shares, among other product 
types, to monitor trading in Exchange Traded Fund Shares. The Exchange 
or FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in Exchange Traded Fund Shares and certain of their 
applicable underlying components with other markets that are members of 
the ISG or with which Nasdaq has in place a CSSA.
    Additionally, FINRA, on behalf of the Exchange, is able to access, 
as needed, trade information for certain fixed income securities that 
may be held by a series of Exchange Traded Fund Shares reported to 
FINRA's TRACE. FINRA also can access data obtained from the MSRB EMMA 
system relating to municipal bond trading activity for surveillance 
purposes in connection with trading in a series of Exchange Traded Fund 
Shares, to the extent that a series of Exchange Traded Fund Shares 
holds municipal securities. Finally, as noted above, the issuer of a 
series of Exchange Traded Fund Shares will be required to comply with 
Rule 10A-3 under the Act for the initial and continued listing of 
Exchange-Traded Fund Shares, as provided under Nasdaq Rule 
5615(a)(6)(A) and the changes to Nasdaq Rule 5615(a)(6)(B) as proposed 
herein.
    With respect to proposed Nasdaq Rule 5704(d), which states that 
upon termination of an ETF that Nasdaq will remove from listing the 
Exchange Traded Fund Shares issued in connection with such entity. The 
Exchange believes that adopting language similar to language already 
included in Nasdaq Rule 5705(b)(9)(B)(i) and in Nasdaq Rule 
5735(d)(2)(E) makes for consistency among Nasdaq's rules and benefits 
investors and the marketplace by making clear rules that lessen 
potential confusion.
    With respect to proposed Nasdaq Rule 5704(e), which sets forth the 
limitation of liability applicable to Nasdaq, the Reporting Authority, 
or any agent of Nasdaq, the Exchange believes that requiring similar 
written disclosure to that already required under Nasdaq Rule 
5705(b)(11) and Nasdaq Rule 5735(e) makes for consistency among 
Nasdaq's rules and benefits investors and the marketplace by reducing 
potential confusion.
    With respect to proposed Nasdaq Rule 5704(f), which states that a 
security that has previously been approved for listing on the Exchange 
pursuant to the generic listing requirements specified in Nasdaq Rule 
5705(b) or Nasdaq Rule 5735(b)(1), or pursuant to an approval of a 
proposed rule change filed or subject to a notice of effectiveness by 
the Commission, may be considered for listing solely under this 
proposed Nasdaq Rule 5704 if the security is permitted to operate in 
reliance on Rule 6c-11 under the 1940 Act and at the time of listing of 
such security under this proposed Nasdaq Rule 5704, the continued 
listing requirements applicable to such security will be those 
specified in paragraph (b) of this proposed Nasdaq Rule 5704, the 
Exchange believes [sic] makes for consistency among Nasdaq's rules and 
benefits investors and the marketplace by making clear rules that 
lessen potential confusion.
    The Exchange believes the rest of proposed Nasdaq Rule 5704(f), 
which states any requirements for listing as specified in Rule 5705(b) 
or 5735(b)(1), or an approval order or notice of effectiveness of a 
separate proposed rule change that differ from the requirements of this 
Rule 5704 will no longer be applicable to such securities will 
streamline the listing process for such security, consistent with the 
regulatory framework adopted in Rule 6c-11 under the 1940 Act.
    The Exchange believes that proposed Nasdaq Rule 5704, as well as 
amendments to Nasdaq Rules 4120, 5615, 5705(b), and 5735 will 
facilitate the listing and trading of additional types of exchange-
traded products that will enhance competition among market 
participants, to the benefit of investors and the marketplace.
    Proposed Nasdaq Rule 5704 and related amendments to other Nasdaq 
rules are also designed to protect investors and the public interest 
because the Exchange deems Exchange Traded Fund Shares to be equity 
securities and therefore they would be subject to the full panoply of 
Exchange rules and procedures that currently govern the trading of 
equity securities on the Exchange.\44\
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    \44\ See note 4 above, Adopting Release at 57171.
---------------------------------------------------------------------------

    Nasdaq believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices. The Exchange 
has in place

[[Page 19991]]

written surveillance procedures that are adequate to properly monitor 
trading in the Exchange Traded Fund Shares in all trading sessions and 
to deter and detect violations of Exchange rules and applicable federal 
securities laws. The surveillance procedures for monitoring compliance 
with Rule 6c-11 will be consistent with the manner in which the 
Exchange conducts its trading surveillance for ETFs. The Exchange will 
also require that issuers of Exchange Traded Fund Shares listed under 
proposed Nasdaq Rule 5704 must notify the Exchange regarding instances 
of non-compliance. Additionally, the Exchange will require periodic 
certifications from the issuer that it has maintained compliance with 
Rule 6c-11. Nasdaq will also check the ETF's website on a periodic 
basis for the inclusion of proper disclosure in compliance with Rule 
6c-11. As stated previously, Nasdaq will continue to monitor for 
compliance with the continued listing standards.
    The Exchange believes that the proposed rule change seeks to 
incorporate Rule 6c-11 into Nasdaq's rules will 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. As the 
SEC noted in its Adopting Release, Rule 6c-11 may allow ETFs to operate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act,\45\ as well as lead to increased capital formation particularly in 
the form of an increased demand for ETFs.\46\
---------------------------------------------------------------------------

    \45\ Id. at 57166.
    \46\ Id. at 57220.
---------------------------------------------------------------------------

    The Exchange believes that the amendments to Nasdaq Rules 5705(b) 
and 5735 to include Exchange Traded Fund Shares into the existing 
exclusions of these rules promotes just and equitable principles of 
trade, removes impediments to, and perfects the mechanisms of, a free 
and open market and a national market system by ensuring that Exchange 
Traded Fund Shares are treated consistently with Index Fund Shares and 
Managed Funds Shares. The Exchange believes that the minor changes to 
these rules improve clarity and serve to better protect investors and 
the public interest.
    The Exchange believes that the discontinuance of quarterly reports 
currently required for Managed Fund Shares under Nasdaq Rule 5735(b) 
will no longer be necessary in light of the requirements of Rule 6c-
11(d) \47\ and the breadth of information that has been submitted to 
date under this requirement promotes just and equitable principles of 
trade, removes impediments to, and perfects the mechanisms of, a free 
and open market and a national market system by eliminating a 
requirement no longer necessary or of benefit to the Commission.
---------------------------------------------------------------------------

    \47\ See supra note 33.
---------------------------------------------------------------------------

    As discussed above, Rule 6c-11(d) includes specific ongoing 
reporting requirements for exchange-traded funds, including written 
agreements between an authorized participant and a fund allowing 
purchase or redemption of creation units, information regarding the 
baskets exchanged with authorized participants, and the identity of 
authorized participants transacting with a fund. The SEC has stated 
that the information required by Rule 6c-11(d) will provide the SEC's 
examination staff with information to determine compliance with Rule 
6c-11 and applicable federal securities laws.
    In addition, and as discussed above, Rule 6c-11 collapses the 
distinction between Index Fund Shares and Managed Fund Shares. Nasdaq 
believes that the SEC has reached a level of comfort with Managed Fund 
Shares that makes the ongoing receipt of the information included in 
the quarterly reports unnecessary.
    In addition and as also discussed above, Nasdaq believes that since 
the implementation of this requirement, SEC Staff has received an ample 
number of reports as to gain sufficient understanding Managed Fund 
Shares and has not detected any significant issues involving Managed 
Fund Shares listed under Nasdaq Rule 5735(b)(1). The quarterly reports 
were initially intended to provide SEC Staff insight into the number 
and type of funds listed pursuant to Nasdaq Rule 5735(b)(1), as well as 
highlight any issues regarding the trading of such funds or a funds' 
compliance with the continued listing standards.
    As a result, Nasdaq believes it should discontinue the filing of 
quarterly reports with respect to Managed Fund Shares under Nasdaq Rule 
5735(b). This will avoid unnecessary overlap and potential 
inconsistency between the quarterly reports and the reporting 
requirements of Rule 6c-11(d). It will also avoid unnecessary, 
duplicative burdens on authorized participants and their firms in 
providing and maintaining information regarding creation and redemption 
activity.
    For the above reasons, the Exchange believes that the proposal 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 not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Rather, the 
Exchange believes that the proposed rule change would facilitate the 
listing and trading of Exchange Traded Fund Shares and result in a 
significantly more efficient process surrounding the listing and 
trading of ETFs, which will enhance competition among market 
participants, to the benefit of investors and the marketplace.
    The Exchange believes that this would reduce the time frame for 
bringing ETFs to market, thereby reducing the burdens on issuers and 
other market participants and promoting competition. In turn, the 
Exchange believes that the proposed change would make the process for 
listing Exchange Traded Fund Shares more competitive by applying 
uniform listing standards with respect to Exchange Traded Fund Shares.

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 proposed rule 
change, as modified by Amendment No. 4, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\48\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 4, is consistent with Section 
6(b)(5) of the Act,\49\ 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.
---------------------------------------------------------------------------

    \48\ 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).
    \49\ 15 U.S.C. 78f(b)(5).

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[[Page 19992]]

A. Proposed Nasdaq Rule 5704

    As an initial matter, the Commission notes that the Exchange 
currently has generic listing standards for Index Fund Shares, Managed 
Fund Shares, and Portfolio Depositary Receipts,\50\ and therefore 
proposed Rule 5704 would not permit the Exchange to generically list 
any novel product types. The Commission also notes that a number of the 
provisions of proposed Rule 5704 are substantively identical to 
provisions of other Nasdaq listing rules.\51\
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    \50\ See Nasdaq Rules.
    \51\ See supra notes 15, 19, 20, and 28 and accompanying text, 
respectively.
---------------------------------------------------------------------------

    The Commission believes that proposed Nasdaq Rule 5704 is 
reasonably designed to help prevent fraudulent and manipulative acts 
and practices. A central qualification for listing under the proposed 
rule is ongoing compliance with Rule 6c-11 under the 1940 Act, which 
requires, among other things, ETFs to prominently disclose the 
portfolio holdings that will form the basis for each calculation of net 
asset value per share.\52\ Because initial and ongoing compliance with 
Rule 6c-11 of the 1940 Act is a condition for listing and trading on 
the Exchange, the proposed rule would permit Nasdaq to list and trade 
shares of an investment company with a fully transparent portfolio,\53\ 
and the Commission believes that portfolio transparency should help 
prevent manipulation of the price of Exchange Traded Fund Shares.\54\ 
Additionally, proposed Nasdaq Rule 5704 includes requirements relating 
to fire walls and procedures to prevent the use and dissemination of 
material, non-public information regarding the applicable ETF index and 
portfolio,\55\ all such requirements of which are designed to prevent 
fraudulent and manipulative acts and practices.\56\ The Commission 
specifically notes that certain of these requirements relating to such 
fire walls and procedures, which are substantively identical to 
Nasdaq's rules governing the listing and trading of index-based and 
actively managed ETFs, apply in addition to what is already required 
under the Act and the 1940 Act and respective rules and regulations 
thereunder, and the Commission believes that such requirements 
collectively provide additional protections against the potential 
misuse of material, non-public information. Therefore, the Commission 
concludes that the proposed requirements relating to such fire walls 
and procedures, combined with ETF portfolio transparency and the 
existing requirements under the Act and 1940 Act, should help to 
protect against fraudulent and manipulative acts and practices under 
Section 6(b)(5) of the Act.
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    \52\ See Adopting Release, supra note 10, at 57180-81.
    \53\ See supra note 9. The Commission also noted that, with 
respect to ETF portfolio transparency, the disclosures are designed 
to promote an effective arbitrage mechanism and inform investors 
about the risks of deviation between market price and net asset 
value when deciding whether to invest in ETFs generally or in a 
particular ETF. See Adopting Release, supra note 10, at 57166.
    \54\ See Adopting Release, supra note 10, at 57169 (concluding 
that portfolio transparency combined with existing requirements 
should be sufficient to protect against certain abuses).
    \55\ For example, proposed Nasdaq Rule 5704(b)(1)(B)(i) states 
that if the investment adviser to an ETF is affiliated with a 
broker-dealer, such investment adviser will erect and maintain a 
``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition 
and/or changes to the underlying portfolio. In addition, personnel 
who make decisions on the ETF's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination 
of material nonpublic information regarding the applicable ETF 
portfolio. Proposed Nasdaq Rule 5704(b)(1)(B)(ii) states that the 
Reporting Authority that provides the ETF's portfolio must implement 
and maintain, or be subject to, procedures designed to prevent the 
use and dissemination of material non-public information regarding 
the actual components of the portfolio. Proposed Nasdaq Rule 
5704(b)(1)(B)(iii) states that if the index underlying a series of 
Exchange Traded Fund Shares is maintained by a broker-dealer or fund 
adviser, the broker-dealer or fund adviser shall erect and maintain 
a ``fire wall'' around the personnel who have access to information 
concerning changes and adjustments to the index and the index will 
be calculated by a third party who is not a broker-dealer or fund 
adviser. Additionally, proposed Nasdaq Rule 5704(b)(1)(B)(iv) states 
that any advisory committee, supervisory board, or similar entity 
that advises a Reporting Authority or that makes decisions on the 
index composition, methodology and related matters, must implement 
and maintain, or be subject to, procedures designed to prevent the 
use and dissemination of material non-public information regarding 
the applicable index. See generally proposed Nasdaq Rule 
5704(b)(1)(B).
    \56\ In adopting Rule 6c-11, the Commission determined that the 
safeguards in the existing regulatory regime adequately address 
``special concerns that self-indexed ETFs present, including the 
potential ability of an affiliated index provider to manipulate an 
underlying index to the benefit or detriment of a self-indexed 
ETF.'' Adopting Release, supra note 10, 84 FR at 57168.
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    Proposed Nasdaq Rule 5704(c) requires that the Exchange implement 
and maintain written surveillance procedures for Exchange Traded Fund 
Shares. The Exchange will employ its existing surveillance procedures 
to trading in Exchange Traded Fund Shares, and represents that its 
surveillance procedures are adequate to (a) properly monitor the 
trading of such securities during all trading sessions and (b) deter 
and detect violations of Exchange rules and the applicable federal 
securities laws.\57\ Further, the Exchange represents that it, or FINRA 
on behalf of the Exchange, will communicate as needed regarding trading 
in Exchange Traded Fund Shares and certain of their applicable 
underlying components with other markets that are members of the ISG or 
with which Nasdaq has a CSSA in place. The Exchange represents that its 
surveillance procedures for monitoring compliance with Rule 6c-11 under 
the 1940 Act will be consistent with the manner in which the Exchange 
conducts its trading surveillance for ETFs. The Exchange will require 
issuers of Exchange Traded Fund Shares listed under proposed Nasdaq 
Rule 5704 to notify the Exchange of instances of non-compliance. 
Additionally, the Exchange will require periodic certifications from 
the issuer that it has maintained compliance with Rule 6c-11, and 
Nasdaq will also check the ETF's website on a periodic basis for the 
inclusion of proper disclosure in compliance with Rule 6c-11. Finally, 
proposed Nasdaq Rule 5704(b)(2)(b) requires that the Exchange delist a 
series of Exchange Traded Fund Shares if, following the initial 12-
month period after commencement of trading, there are fewer than 50 
beneficial holders of such series.
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    \57\ The Commission also finds that the proposed rule change, as 
modified by Amendment No. 4, is consistent with Section 6(b)(1) of 
the Act, which requires (among other things) that a national 
securities exchange be organized and have the capacity to comply 
with its own rules. The Exchange represents that it will: (1) 
Monitor for compliance with Rule 6c-11 to ensure that the continued 
listing standards are being met; (2) periodically review the website 
of series of Exchange Traded Fund Shares to ensure that the 
requirements of Rule 6c-11 are being met; (c) obtain a 
representation from each issuers of a series of Exchange Traded Fund 
Shares that the requirements of proposed Nasdaq Rule 5704 will be 
satisfied.
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    Consistent with the requirement of Section 6(b)(5) of the Act \58\ 
that the Exchange's rules be designed to remove impediments to and 
perfect the mechanism of a free and open market, the Exchange's rules 
regarding trading halts will help to ensure the maintenance of fair and 
orderly markets for Exchange Traded Fund Shares. Specifically, as 
discussed above, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in a series of 
Exchange Traded Fund Shares. Nasdaq states that trading in Exchange 
Traded Fund Shares will be halted if the circuit breaker parameters in 
Nasdaq Rule 4120 have been reached or when the Exchange becomes aware 
that the net asset value for a series of Exchange Traded Fund Shares is 
not being disseminated to all market participants

[[Page 19993]]

at the same time.\59\ Additionally, trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in Exchange Traded Fund Shares inadvisable. As Nasdaq 
represents in the proposal, examples of such market conditions or 
reasons may be: (1) If the value of the index or portfolio of 
securities on which the series of Exchange Traded Fund Shares is based 
is no longer calculated or available or an interruption to the 
dissemination persists past the trading day in which it occurred; (2) 
when certain information about the Exchange Traded Fund Shares that is 
required to be disclosed under Rule 6c-11 of the 1940 Act is not being 
made available; (3) if trading in the underlying securities comprising 
the index or portfolio applicable to such series of Exchange Traded 
Fund Shares has been halted; (4) if Nasdaq becomes aware that the net 
asset value for a series of Exchange Traded Fund Shares is not being 
disseminated to all market participants at the same time; or (5) in the 
presence of other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market. Further, Nasdaq will 
employ intraday alerts, which will notify Exchange personnel of unusual 
trading activity throughout the day that could be indicative of unusual 
conditions or circumstances that could be detrimental to the 
maintenance of a fair and orderly market.\60\
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    \58\ 15 U.S.C. 78f(b)(5).
    \59\ See supra note 22 and accompanying text.
    \60\ See Amendment No. 4, supra note 8, at 26.
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B. Discontinuance of Quarterly Reports of Generically Listed Managed 
Fund Shares

    In support of its proposal to adopt generic listing standards for 
Managed Fund Shares, the Exchange proposed to submit quarterly reports 
to the Commission disclosing certain information.\61\ These reports 
were designed to identify problems associated with generically listed 
Managed Fund Shares. In adopting Rule 6c-11 under the 1940 Act, the 
Commission largely eliminated prior distinctions between actively 
managed and index-based ETFs, and Nasdaq does not submit quarterly 
reports regarding the shares of index-based ETFs that it generically 
lists. In addition, the Commission recognizes that, since the adoption 
of the Managed Fund Shares generic listing standards, the marketplace 
for ETFs has matured and developed, an increased number of actively 
managed ETFs have been listed and are trading on national securities 
exchanges, and market participants have become more familiar with such 
securities. Moreover, proposed Nasdaq Rule 5704(c) requires Nasdaq to 
implement and maintain written surveillance procedures for Exchange 
Traded Fund Shares.\62\ The Exchange represents that it intends to 
utilize its existing surveillance procedures applicable to equity 
securities, which will include Exchange Traded Fund Shares, to monitor 
trading in the Exchange Traded Fund Shares, and will perform ongoing 
surveillance of Exchange Traded Fund Shares listed on the Exchange in 
order to ensure compliance with Rule 6c-11 and the 1940 Act on an 
ongoing basis. The Commission notes that manipulation concerns are 
mitigated by a combination of the Exchange's surveillance procedures, 
Nasdaq's ability to halt trading under proposed Nasdaq Rule 5704, 
Nasdaq Rules 4120(a)(9) and 4120(a)(10), and the Exchange's ability to 
commence delisting proceedings under proposed Nasdaq Rule 
5704(b)(2)(B). In light of these reasons, as well as the Commission's 
experience with the quarterly reports, the Commission believes that 
this proposal is consistent with Section 6(b)(5) of the Act, and it 
therefore finds that it is no longer necessary for Nasdaq to continue 
to submit such quarterly reports.
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    \61\ The information included in these reports is summarized 
above. See supra note 32.
    \62\ Moreover, Nasdaq Rule 5735(b)(4) requires that the Exchange 
implement and maintain written surveillance procedures for Managed 
Fund Shares.
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C. Other Related Rule Changes

    The Exchange proposes to incorporate Exchange Traded Fund Shares 
into the definitions of ``Exchange Traded Derivative Securities'' in 
Nasdaq Rule 5735(c)(6) and ``Derivative Securities Products'' in Nasdaq 
Rule 5705(b)(3)(A)(i) so that the exclusions applicable to those 
defined terms also will apply to Exchange Traded Fund Shares. The 
Exchange also proposes to amend Nasdaq Rule 4120 to incorporate 
Exchange Traded Fund Shares into Nasdaq Rules 4120(a)(9) and 
4120(a)(10) so that these trading halt rules will apply to Exchange 
Traded Fund Shares listed on Nasdaq and traded on Nasdaq pursuant to 
unlisted trading privileges. Lastly, the Exchange proposes to 
incorporate Exchange Traded Fund Shares into the definition of 
``Derivative Securities'' in Nasdaq Rule 5615 so that exemptions from 
certain corporate governance requirements will be applicable to 
Exchange Traded Fund Shares. The Exchange states that these changes 
will subject Exchange Traded Fund Shares to the same requirements 
currently applicable to other 1940 Act-registered investment company 
securities (i.e., Index Fund Shares, Managed Fund Shares, and Portfolio 
Depositary Receipts).
    The Commission believes that these proposed changes simply 
incorporate proposed Rule 5704 into the existing framework of Nasdaq's 
rules, and therefore finds that such changes are consistent with 
Section 6(b)(5) of the Act.

D. Exchange Representations

    In support of this proposal, the Exchange has made the following 
representations:
    (1) Nasdaq deems Exchange Traded Fund Shares to be equity 
securities, thus rendering trading in Exchange Traded Fund Shares 
subject to the Exchange's existing rules governing the trading of 
equity securities.\63\ The Exchange notes that Exchange Traded Fund 
Shares will be subject to rules governing Exchange member disclosure 
obligations in connection with equities trading, and that Rule 6c-11 
does not change the applicability of these Exchange rules with respect 
to these securities.\64\
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    \63\ See Amendment No. 4, supra note 8, at 29.
    \64\ With respect to trading in Exchange Traded Fund Shares, the 
Exchange represents that all of the Nasdaq member obligations 
relating to product description and prospectus delivery requirements 
will continue to apply in accordance with the Exchange rules and 
federal securities laws, and Nasdaq will continue to monitor its 
members for compliance with such requirements, which are not 
changing as a result of Rule 6c-11 under the 1940 Act.
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    (2) Nasdaq will (a) monitor for compliance with Rule 6c-11 to 
ensure that the continued listing standards are being met; (b) 
periodically review the website of series of Exchange Traded Fund 
Shares to ensure that the requirements of Rule 6c-11 are being met; and 
(c) employ intraday alerts that will notify Exchange personnel of 
unusual trading activity throughout the day that could be indicative of 
unusual conditions or circumstances that could be detrimental to the 
maintenance of a fair and orderly market.\65\
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    \65\ See Amendment No. 4, supra note 8, at 14. The Exchange also 
notes that Nasdaq Rule 5701(d) would require an issuer of Exchange 
Traded Fund Shares to notify Nasdaq promptly after the issuer 
becomes aware of any non-compliance with the requirements of the 
Nasdaq Rule 5700 Series, which would encompass any failure of the 
issuer to comply with Rule 6c-11 or the 1940 Act. Failure by an 
issuer to notify the Exchange of non-compliance pursuant to Nasdaq 
Rule 5701(d) would itself be considered non-compliance with the 
requirements of the Nasdaq Rule 5700 Series and subject to potential 
trading halts and the delisting process in the Nasdaq Rule 5800 
Series.
---------------------------------------------------------------------------

    (3) Nasdaq will obtain a representation from the ETF that the net 
asset value per share for each series of

[[Page 19994]]

Exchange Traded Fund Shares will be calculated daily and will be made 
available to all market participants at the same time. Nasdaq will also 
obtain a representation from the issuers of each series of Exchange 
Traded Fund Shares that the requirements of proposed Nasdaq Rule 5704 
will be satisfied.\66\
---------------------------------------------------------------------------

    \66\ See id. at 15, n.20.
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    (4) Nasdaq's surveillance procedures are adequate to properly 
monitor the trading of the Exchange Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws.\67\
---------------------------------------------------------------------------

    \67\ See id. at 14-15.
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    (5) The Exchange, or FINRA on behalf of the Exchange, will 
communicate as needed regarding trading in Exchange Traded Fund Shares 
and certain of their applicable underlying components with other 
markets that are members of the ISG or with which Nasdaq has in place a 
CSSA. Additionally, FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed income 
securities that may be held by a series of Exchange Traded Fund Shares 
reported to TRACE. FINRA also can access data obtained from the EMMA 
system relating to municipal bond trading activity for surveillance 
purposes in connection with trading in a series of Exchange Traded Fund 
Shares, to the extent that a series of Exchange Traded Fund Shares 
holds municipal securities.\68\
---------------------------------------------------------------------------

    \68\ See id. at 15.
---------------------------------------------------------------------------

    (6) Each issuer of a series of Exchange Traded Fund Shares will be 
required to comply with Rule 10A-3 under the Act (17 CFR 240.10A-3) for 
the initial and continued listing of Exchange-Traded Fund Shares.\69\
---------------------------------------------------------------------------

    \69\ See id.
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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. 
4. For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 4, is consistent with 
Sections 6(b)(1) and 6(b)(5) of the Act \70\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \70\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively.
---------------------------------------------------------------------------

IV. Solicitation of Comments to the Proposed Rule Change, as Modified 
by Amendment No. 4

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 4 to the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-090 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-090. 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/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 SR-NASDAQ-2019-090, and should be submitted 
on or before April 30, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 4

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 4, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
4 in the Federal Register. In Amendment No. 4, the Exchange (among 
other things): (1) Modified the circumstances in which it will commence 
delisting of, and consider suspending trading in, a series of Exchange 
Traded Fund Shares; (2) broadened its undertakings with respect to 
ensuring compliance with the proposed generic listing standard; and (3) 
clarified that Exchange Traded Fund Shares would be subject to all 
Exchange rules applicable to equities trading, including rules 
governing Exchange member disclosure obligations. Amendment No. 4 also 
provides other clarifications and additional information in support of 
the proposed rule change.\71\ These changes, as well as additional 
information in Amendment No. 4, assisted the Commission in finding that 
the proposal is consistent with the Act. Accordingly, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Act,\72\ to 
approve the proposed rule change, as modified by Amendment No. 4, on an 
accelerated basis.
---------------------------------------------------------------------------

    \71\ See Amendment No. 4, supra note 8.
    \72\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\73\ that the proposed rule change (SR-NASDAQ-2019-090), as modified by 
Amendment No. 4, be, and it hereby is, approved on an accelerated 
basis.
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    \73\ Id.
    \74\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07440 Filed 4-8-20; 8:45 am]
 BILLING CODE 8011-01-P


