[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32082-32085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11473]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88932; File No. SR-NASDAQ-2020-019]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Certain Amendments To Eliminate the Requirement That the Intraday 
Indicative Value Be Disseminated for Certain Series of Index Fund 
Shares and All Series of Managed Fund Shares

May 22, 2020.
    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 May 14, 2020, 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 eliminate the requirement that the 
Intraday Indicative Value be disseminated as set forth under Nasdaq 
Rule 5705(b) (``Index Fund Shares'') for certain series of Index Fund 
Shares and under Nasdaq Rule 5735 (``Managed Fund Shares'') for all 
series of Managed Fund Shares. Additionally, the Exchange proposes to 
define the term ``Portfolio Holdings'' as it pertains to Index Fund 
Shares. Finally, the Exchange proposes to amend Nasdaq Rule 4120 (Limit 
Up-Limit Down Plan and Trading Halts) as it pertains to dissemination 
of the Intraday Indicative Value.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq Rules 5705(b) and 5735 relate to the listing and trading of 
Index Fund Shares and Managed Fund Shares, respectively, on the 
Exchange. Among a number of other requirements, numerous subparagraphs 
of each of these rules require that an intraday estimate of the value 
of a share of each series (the ``Intraday Indicative Value'' or 
``IIV'') of Index Fund Shares and Managed Fund Shares be disseminated 
and updated at least every 15 seconds.\3\ The Exchange is proposing to 
eliminate the requirement to disseminate an IIV for all series of 
Managed Fund Shares \4\ listed on the Exchange and for those series of 
Index Fund Shares that also publish their Portfolio Holdings (as 
defined below) on a daily basis.
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    \3\ See subparagraphs (3)(C), (6)(A), and (9)(B)(i)e. of Nasdaq 
Rule 5705(b). See also subparagraphs (c)(3), (c)(4), (d)(2)(A), 
(d)(2)(C)(ii), and (d)(2)(D) of Nasdaq Rule 5735.
    \4\ The Exchange notes that Nasdaq Rule 5735(d)(2)(B)(i) 
requires that the Disclosed Portfolio for a series of Managed Fund 
Shares be disseminated at least once daily and be made available to 
all market participants at the same time. Further, Nasdaq 
5735(d)(2)(C)(ii) requires that the Exchange consider suspension of 
trading in and commence delisting proceedings for a series of 
Managed Fund Shares where the Disclosed Portfolio is not made 
available to all market participants at the same time. As such, the 
Exchange is proposing to eliminate the IIV dissemination 
requirements entirely from Nasdaq Rule 5735.
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    As part of this proposal, the Exchange is also proposing to adopt 
proposed Nasdaq Rule 5705(b)(1)(F) to define the term ``Portfolio 
Holdings'' to mean the holdings of a particular series of Index Fund 
Shares that will form the basis for the calculation of its net asset 
value (``NAV'') at the end of the business day.\5\ Existing Nasdaq 
Rules require issuers of Managed Fund Shares to provide IIV and daily 
disclosure of the Disclosed Portfolio.\6\ Similarly, existing Exchange 
Rules require issuers of Index Fund Shares to disseminate an IIV for 
each fund, but do not universally require daily disclosure of a fund's 
underlying holdings.
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    \5\ For purposes of Nasdaq Rule 5705(b), Portfolio Holdings 
would include various information, to the extent applicable, as 
listed in proposed subparagraphs (1)(F)(i) through (1)(F)(xi). The 
proposed definition of Portfolio Holdings is substantively identical 
to the definition of ``Disclosed Portfolio'' as set forth in Nasdaq 
Rule 5735(c)(2).
    \6\ See subparagraphs (c)(2), (d)(1)(B), and (d)(2)(B)(i) of 
Nasdaq Rule 5735. The term ``Disclosed Portfolio'' (as defined in 
Nasdaq Rule 5735(c)(2)) means the identities and quantities of the 
securities and other assets held by the Investment Company that will 
form the basis for the Investment Company's calculation of net asset 
value at the end of the business day.
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    The dissemination of an IIV, together with disclosure of the fund's 
underlying holdings, was designed to allow investors to determine the 
value of the underlying portfolio of such funds on a daily basis and 
provide a close estimate of that value throughout the trading day. 
However, as consistently highlighted in the adopting release of Rule 17 
CFR 270.6c-11 (``Rule 6c-11'') \7\ under the Investment Company Act of 
1940 \8\ (the ``1940 Act''), the Commission has expressed concerns 
regarding the

[[Page 32083]]

accuracy of IIV estimates for certain Exchange-Traded Funds 
(``ETFs'').\9\
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    \7\ See Investment Company Act Release No. 10695 (September 25, 
2019), 84 FR 57162 (October 24, 2019) (the ``Adopting Release'').
    \8\ 15 U.S.C. 80a-1.
    \9\ An Exchange-Traded Fund means a registered open-end 
investment 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. 
See supra note 7.
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    Specifically, the Commission noted that an IIV may not accurately 
reflect the value of an ETF that holds securities that trade less 
frequently as such IIV can be stale or inaccurate.\10\ Similarly, the 
Commission also expressed concerns with the IIV of ETFs with frequently 
traded component securities because ``in today's fast moving markets, 
given the dissemination lags, an IIV may not accurately reflect the 
value of an ETF that holds frequently traded component securities.'' 
\11\ Additionally, the Commission indicated that even in circumstances 
when an IIV may be reliable, retail investors do not have easy access 
to free, publicly available IIV information.\12\ Further, in instances 
when IIV may be free and publicly available, it can be delayed by up to 
45 minutes.\13\
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    \10\ Id. at 62.
    \11\ Id.
    \12\ Id. at 66.
    \13\ Id.
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    Aside from the fact that the disseminated IIV may provide investors 
with stale or misleading data, the Commission also stated that market 
makers and authorized participants typically calculate their own 
intraday value of an ETF's portfolio with proprietary algorithms that 
use an ETF's daily portfolio disclosure and available pricing 
information.\14\ Such information allows those market participants to 
support the arbitrage mechanism for ETFs.
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    \14\ Id. at 63.
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    The arbitrage mechanism is designed to help keep the market price 
of ETF shares at or close to the NAV per share of an ETF, and is 
important because it helps to ensure ETF investors are treated 
equitably when buying and selling fund shares.\15\ Therefore, as market 
participants who engage in arbitrage typically calculate their own 
intraday value of an ETF's portfolio based on the ETF's daily portfolio 
disclosure and pricing information and use an IIV only as a secondary 
check to their own calculation,\16\ the Commission noted that IIV was 
not necessary to support the arbitrage mechanism.\17\
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    \15\ Id. at 12.
    \16\ Id. at 63.
    \17\ Id. at 65.
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    Given this, combined with shortcomings of the IIV noted above, the 
Commission concluded that ETFs will not be required to disseminate an 
IIV under Rule 6c-11.\18\ As such, Exchange listing rules are the only 
reason that a series of Managed Fund Shares is required to disseminate 
an IIV. Similarly, Exchange listing rules are the only reason that a 
series of Index Fund Shares that also publishes its Portfolio Holdings 
on a daily basis is required to disseminate an IIV.
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    \18\ Id. at 61.
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    The Exchange believes that the limitations and shortcomings of IIV 
as it pertains to ETFs relying on Rule 6c-11 and highlighted in the 
Adopting Release are equally applicable to all Managed Fund Shares 
listed on the Exchange and Index Fund Shares for which the Portfolio 
Holdings are disclosed on a daily basis. The Exchange further agrees 
with the conclusion of the Adopting Release that the ``IIV is not 
necessary to support the arbitrage mechanism for ETFs that provide 
daily portfolio holdings disclosure.''
    The transparency that comes from daily portfolio holdings 
disclosure provides market participants with sufficient information to 
facilitate the intraday valuation of the shares of an ETF, including 
Managed Fund Shares and Index Fund Shares for which Portfolio Holdings 
are disclosed daily, which, ignoring the many criticisms of IIV in the 
Adopting Order, renders IIV at the very least duplicative and 
unnecessary. The Commission has previously approved a proposed rule 
change by Cboe BZX Exchange, Inc. (``Cboe BZX'') that is substantively 
identical to the proposed amendments to Nasdaq Rules 5705(b) and 
5735.\19\
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    \19\ See Securities Exchange Act Release No. 88558 (April 3, 
2020), 85 FR 20012 (April 9, 2020) (SR-CboeBZX-2020-007) (Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
Eliminate the Requirement That an Intraday Indicative Value Be 
Disseminated as Set Forth Under Rule 14.11(c) for Certain Series of 
Index Fund Shares and Under Rule 14.11(i) for All Series of Managed 
Fund Shares).
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    Therefore, the Exchange is proposing to eliminate the requirement 
for the dissemination of the IIV for all series of Managed Fund Shares 
and for Index Fund Shares for which Portfolio Holdings are disclosed on 
a daily basis.
    In addition, the Exchange is proposing to amend Nasdaq Rule 
4120(a)(9) to remove certain references to Managed Fund Shares as it 
relates to halting a series of Managed Fund Shares for not 
disseminating an IIV. Managed Fund Shares are not required to 
disseminate and [sic] underlying index value and, as a result of this 
rule proposal, would not be required to disseminate an IIV. Nasdaq 
believes that including Managed Fund Shares as a security that can be 
halted for not disseminating an underlying index value or an IIV is no 
longer necessary. The Exchange notes that this proposal does not seek 
to remove certain references to Index Fund Shares because Nasdaq Rule 
4120(a)(9) only applies to Index Fund Shares if dissemination of an 
underlying index value or IIV is required.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\21\ in particular, in that it is consistent with 
the Section 6(b)(5) requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    The proposed amendment seeks to eliminate the requirement that 
Managed Fund Shares and Index Fund Shares for which the Portfolio 
Holdings are disclosed daily disseminate an IIV for the same reasons 
articulated in the Adopting Order for Rule 6c-11, which does not 
require the dissemination of IIV. The Exchange believes that the 
proposed amendment will eliminate the dissemination of potentially 
stale and misleading IIV information to market participants, as was 
also noted in the Adopting Order. Further, as the proposed rule text 
would only eliminate the requirement for series of Index Fund Shares 
\22\ and Managed Fund Shares \23\ that provide full daily portfolio 
transparency, such full daily portfolio transparency would provide 
market participants with a tool to calculate the IIV of a series of 
Managed Fund Shares or Index Fund Shares, which the Exchange believes 
generally mitigates the need for the dissemination of an IIV. 
Nonetheless, nothing in this proposal limits the ability of such Index 
Fund Shares or Managed Fund Shares from disseminating the IIV should 
they

[[Page 32084]]

choose to do so. Further, the Exchange notes that its rules still 
include certain circumstances in which an issuer would be required to 
disseminate an IIV.\24\
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    \22\ As provided in proposed Rules 5705(b)(3)(C) and 
5705(b)(6)(A), a series of Index Fund Shares would only be exempt 
from IIV dissemination requirements where there is daily public 
website disclosure of Portfolio Holdings.
    \23\ See supra note 4.
    \24\ For example, a series of Index Fund Shares that does not 
provide daily portfolio transparency would still be required to 
disseminate an IIV. Additionally, IIV dissemination will continue to 
be required for certain products that are not subject to the 1940 
Act. Moreover, the Exchange notes that Nasdaq Rules related to the 
listing and trading of other product types (that is, products that 
are not listed pursuant to Nasdaq Rule 5705(b) or 5735) require the 
dissemination of an IIV, which the Exchange is not proposing to 
eliminate at this time. Specifically, the Exchange is only proposing 
to remove the requirement of IIV dissemination as it pertains to 
certain Index Fund Shares and all Managed Fund Shares because such 
product types represent the vast majority of products listed on the 
Exchange and may consider proposing to eliminate the IIV 
dissemination requirement for other product types in a future 
proposal.
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    As a result of the proposed rule change, the Exchange believes 
issuers may benefit from cost savings because of the eliminated 
requirement to disseminate an IIV. The reduced cost could also result 
in lower barriers to entry for new issuers and new series of Managed 
Fund Shares and Index Fund Shares for which the Portfolio Holdings are 
disclosed daily, which will result in enhanced competition among 
products and issuers of such funds, which can lead to lower fees for 
investors, encourage financial innovation, and increase investor choice 
in the ETF market.
    Finally, with respect to the proposed change to Nasdaq Rule 
4120(a)(9) to remove Managed Fund Shares, the Exchange believes that 
this strengthens the consistency among Nasdaq's rules and benefits 
investors and the marketplace by making clear rules that lessen 
potential confusion for market participants.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that issuers may benefit from cost savings and lower 
barriers to entry because of the eliminated requirement to disseminate 
an IIV. In turn, the proposed rule change will enable increased product 
competition among issuers of such funds, which can lead to lower fees 
for investors, encourage financial innovation, and increase investor 
choice in the ETF market.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\28\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately upon filing. The Exchange 
states that the proposed rule change will lead to listing standards 
that are substantially similar to the rules of Cboe BZX that the 
Commission has recently approved.\29\ The Commission notes that the 
proposed rule change raises no novel or unique issues not already 
considered by the Commission. Therefore, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Accordingly, the Commission 
hereby waives the 30-day operative delay and designates the proposal 
operative upon filing.\30\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ See supra note 19.
    \30\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \31\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \31\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2020-019 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-2020-019. 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

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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-2020-019 and should be submitted 
on or before June 18, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11473 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P


