[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Notices]
[Pages 38461-38467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13764]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89110; File No. SR-NASDAQ-2020-032]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Nasdaq Rule 5750 To List and Trade Proxy Portfolio Shares

June 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 June 11, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 adopt Nasdaq Rule 5750 to permit the 
listing and trading of Proxy Portfolio Shares, which are securities 
issued by an actively managed open-end management investment company.
    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
    The Exchange proposes to add new Nasdaq Rule 5750 for the purpose 
of permitting the listing and trading, or trading pursuant to unlisted 
trading privileges, of Proxy Portfolio Shares, which are securities 
issued by an actively managed open-end management investment 
company.\3\ This proposed rule change to add new Nasdaq Rule 5750 is 
substantially similar to the recently approved rule change by Cboe BZX 
Exchange, Inc. (``Cboe BZX'') to adopt rule 14.11(m).\4\
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    \3\ The basis of this proposal are several applications for 
exemptive relief that were filed with the Commission and for which 
public notice was issued on November 14, 2019 and subsequent order 
granting certain exemptive relief to, among others, Fidelity 
Management & Research Company and FMR Co., Inc., Fidelity Beach 
Street Trust, and Fidelity Distributors Corporation (File No. 812-
14364), issued on December 10, 2019 (the ``Application,'' 
``Notice,'' and ``Order,'' respectively, and, collectively, the 
``Exemptive Order''). See Investment Company Act Release Nos. 33683 
and 33712. The Order specifically notes that ``granting the 
requested exemptions is appropriate in and consistent with the 
public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the 
Act. It is further found that the terms of the proposed 
transactions, including the consideration to be paid or received, 
are reasonable and fair and do not involve overreaching on the part 
of any person concerned, and that the proposed transactions are 
consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act.'' The Exchange 
notes that it also referred to the application for exemptive relief 
orders (collectively, with the Application, the ``Proxy 
Applications'') and notices thereof (collectively, with the Notice, 
the ``Proxy Notices'') for T. Rowe Price Associates, Inc. and T. 
Rowe Price Equity Series, Inc. (File No. 812-14214 and Investment 
Company Act Release Nos. 33685 and 33713), Natixis ETF Trust II, et 
al. (File No. 812-14870 and Investment Company Act Release Nos. 
33684 and 33711), Blue Tractor ETF Trust and Blue Tractor Group, LLC 
(File No. 812-14625 and Investment Company Act Release Nos. 33682 
and 33710), and Gabelli ETFs Trust, et al. (File No. 812-15036 and 
Investment Company Act Release Nos. 33681 and 33708). While there 
are certain differences between the applications, the Exchange 
believes that each would qualify as Proxy Portfolio Shares under 
proposed Nasdaq Rule 5750.
    \4\ See Securities Exchange Act Release No. 88887 (May 15, 
2020), 85 FR 30990 (May 21, 2020) (SR-CboeBZX-2019-107) (Notice of 
Filing of Amendment No. 5 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 5, to Adopt 
Rule 14.11(m), Tracking Fund Shares, and to List and Trade Shares of 
the Fidelity Blue Chip Value ETF, Fidelity Blue Chip Growth ETF, and 
Fidelity New Millennium ETF).
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Proposed Rule 5750
    Proposed Nasdaq Rule 5750(c)(1) provides that the term ``Proxy 
Portfolio Share'' means a security that: (i) Represents an interest in 
an investment company registered under the Investment Company Act of 
1940 (``Investment Company'') organized as an open-end management 
investment company, that invests in a portfolio of securities selected 
by the Investment Company's investment adviser consistent with the 
Investment Company's investment objectives and policies; (ii) is issued 
in a specified aggregate minimum number in return for a deposit of 
specified Proxy Basket securities and/or a cash amount with a value 
equal to the next determined net asset value; (iii) when aggregated in 
the same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid specified Proxy Basket securities 
and/or a cash amount with a value equal to the next determined net 
asset value; and (iv) the portfolio holdings for which are disclosed 
within at least 60 days following the end of every fiscal quarter.
    Proposed Nasdaq Rule 5750(a) provides that the Exchange will 
consider for trading, whether by listing or pursuant to unlisted 
trading privileges, Proxy Portfolio Shares that meet the criteria of 
Nasdaq Rule 5750.
    Proposed Nasdaq Rule 5750(b) provides that Nasdaq Rule 5750 is 
applicable only to Proxy Portfolio Shares and that, except to the 
extent inconsistent with this Rule, or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board shall be 
applicable to the trading on the Exchange of such securities. Proposed 
Nasdaq Rule 5750(b) provides further that Proxy Portfolio Shares are 
included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Exchange.
    Proposed Nasdaq Rule 5750(b)(1)-(3) provides that the Exchange will 
file

[[Page 38462]]

separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Proxy Portfolio Shares; that transactions in 
Proxy Portfolio Shares will occur throughout the Exchange's trading 
hours.; and the minimum price variation for quoting and entry of orders 
in Proxy Portfolio Shares is $0.01.
    Proposed Nasdaq Rule 5750(b)(4) provides that the Exchange will 
implement and maintain written surveillance procedures for Proxy 
Portfolio Shares. As part of these surveillance procedures, the 
Investment Company's investment adviser will upon request by the 
Exchange or FINRA, on behalf of the Exchange, make available to the 
Exchange or FINRA, the daily Fund Portfolio of each series of Proxy 
Portfolio Shares.
    Proposed Nasdaq Rule 5750(b)(5) provides that if the investment 
adviser to the Investment Company issuing Proxy Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition of and/or changes to the Fund Portfolio and/
or the Proxy Basket. Any person related to the investment adviser or 
Investment Company who makes decisions pertaining to the Investment 
Company's Fund Portfolio and/or the Proxy Basket or has access to 
nonpublic information regarding the Fund Portfolio and/or the Proxy 
Basket or changes thereto must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Fund Portfolio and/or the Proxy Basket or changes 
thereto.
    Proposed Nasdaq Rule 5750(b)(6) provides that any person or entity, 
including a custodian, Reporting Authority, distributor, or 
administrator, who has access to nonpublic information regarding the 
Fund Portfolio or the Proxy Basket or changes thereto, must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Fund Portfolio or the 
Proxy Basket or changes thereto. Moreover, if any such person or entity 
is registered as a broker-dealer or affiliated with a broker-dealer, 
such person or entity will erect and maintain a ``fire wall'' between 
the person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such Fund 
Portfolio or Proxy Basket.
    Proposed Nasdaq Rule 5750(c)(2) provides that the term ``Fund 
Portfolio'' 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.
    Proposed Nasdaq Rule 5750(c)(3) provides that the term ``Reporting 
Authority'' in respect of a particular series of Proxy Portfolio Shares 
means the Exchange, an institution, or a reporting service designated 
by the Exchange or by the exchange that lists a particular series of 
Proxy Portfolio Shares (if the Exchange is trading such series pursuant 
to unlisted trading privileges) as the official source for calculating 
and reporting information relating to such series, including, but not 
limited to, the Proxy Basket; the Fund Portfolio; the amount of any 
cash distribution to holders of Proxy Portfolio Shares, net asset 
value, or other information relating to the issuance, redemption or 
trading of Proxy Portfolio Shares. A series of Proxy Portfolio Shares 
may have more than one Reporting Authority, each having different 
functions.
    Proposed Nasdaq Rule 5750(c)(4) provides that the term ``Normal 
Market Conditions'' includes, but is not limited to, the absence of 
trading halts in the applicable financial markets generally; 
operational issues (e.g., systems failure) causing dissemination of 
inaccurate market information; or force majeure type events such as 
natural or manmade disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    Proposed Nasdaq Rule 5750(c)(5) provides that the term ``Proxy 
Basket'' means the identities and quantities of the securities and 
other assets included in a basket that is designed to closely track the 
daily performance of the Fund Portfolio, as provided in the exemptive 
relief under the Investment Company Act of 1940 (the ``1940 Act'') 
applicable to a series of Proxy Portfolio Shares. The website for each 
series of Proxy Portfolio Shares shall disclose the following 
information regarding the Proxy Basket as required under this Rule 
5750, to the extent applicable: (i) Ticker symbol; (ii) CUSIP or other 
identifier; (iii) Description of holding; (iv) Quantity of each 
security or other asset held; and (v) Percentage weight of the holding 
in the portfolio.
    Proposed Nasdaq Rule 5750(d)(1) provides the initial listing 
criteria for a series of Proxy Portfolio Shares, which include the 
following: (A) Each series of Proxy Portfolio Shares will be listed and 
traded on the Exchange subject to application of the following initial 
listing criteria: (i) For each series, the Exchange will establish a 
minimum number of Proxy Portfolio Shares required to be outstanding at 
the time of commencement of trading on the Exchange; (ii) the Exchange 
will obtain a representation from the issuer of each series of Proxy 
Portfolio Shares that the net asset value per share for the series will 
be calculated daily and that each of the following will be made 
available to all market participants at the same time when disclosed: 
The net asset value, the Proxy Basket, and the Fund Portfolio; and 
(iii) all Proxy Portfolio Shares shall have a stated investment 
objective, which shall be adhered to under Normal Market Conditions.
    Proposed Nasdaq Rule 5750(d)(2) provides that each series of Proxy 
Portfolio Shares will be listed and traded on the Exchange subject to 
application of the following continued listing criteria: (i) The Proxy 
Basket will be publicly disseminated at least once daily and will be 
made available to all market participants at the same time; (ii) the 
Fund Portfolio will at a minimum be publicly disclosed within at least 
60 days following the end of every fiscal quarter and will be made 
available to all market participants at the same time; (iii) upon 
termination of an Investment Company, the Exchange requires that Proxy 
Portfolio Shares issued in connection with such entity be removed from 
listing on the Exchange; and (iv) voting rights shall be as set forth 
in the applicable Investment Company prospectus or Statement of 
Additional Information (``SAI'').
    Additionally, proposed Nasdaq Rule 5750(d)(2)(C) provides that the 
Exchange will consider the suspension of trading in and will commence 
delisting proceedings for a series of Proxy Portfolio Shares pursuant 
to Nasdaq Rule 5800 under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Proxy Portfolio Shares, there are fewer 
than 50 beneficial holders of the series of Proxy Portfolio Shares; (b) 
if either the Proxy Basket or Fund Portfolio is not made available to 
all market participants at the same time; (c) if the Investment Company 
issuing the Proxy Portfolio Shares has failed to file any filings 
required by the Commission or if the Exchange is aware that the 
Investment Company is not in compliance with the conditions of any 
exemptive order or no-action relief granted by the Commission or the 
Commission Staff under the 1940 Act to the Investment Company with 
respect to the series of

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Proxy Portfolio Shares; (d) if any of the requirements set forth in 
this rule are not continuously maintained; (e) if any of the applicable 
Continued Listing Representations for the issue of Proxy Portfolio 
Shares are not continuously met; or (f) if such other event shall occur 
or condition exists which, in the opinion of the Exchange, makes 
further dealings on the Exchange inadvisable.
    Proposed Nasdaq Rule 5750(d)(2)(D) provides that (a) the Exchange 
may consider all relevant factors in exercising its discretion to halt 
trading in a series of Proxy Portfolio Shares. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the series of Proxy Portfolio Shares 
inadvisable. These may include: (i) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the Proxy Basket or Fund Portfolio; or (ii) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present; and (b) if the Exchange becomes aware 
that one of the following is not being made available to all market 
participants at the same time: The net asset value, the Proxy Basket, 
or the Fund Portfolio with respect to a series of Proxy Portfolio 
Shares, then the Exchange will halt trading in such series until such 
time as the net asset value, the Proxy Basket, or the Fund Portfolio is 
available to all market participants, as applicable; and (c) if the 
Exchange becomes aware that one of the following is not being made 
available to all market participants at the same time: The net asset 
value, the Proxy Basket, or the Fund Portfolio with respect to a series 
of Proxy Portfolio Shares, then the Exchange will halt trading in such 
series until such time as the net asset value, the Proxy Basket, or the 
Fund Portfolio is available to all market participants, as applicable.
    Proposed Nasdaq Rule 5750(e) provides that neither the Exchange, 
the Reporting Authority, when the Exchange is acting in the capacity of 
a Reporting Authority, nor any agent of the Exchange shall have any 
liability for damages, claims, losses or expenses caused by any errors, 
omissions, or delays in calculating or disseminating any current 
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 Proxy Portfolio Shares; the amount of 
any dividend equivalent payment or cash distribution to holders of 
Proxy Portfolio Shares; net asset value; or other information relating 
to the purchase, redemption, or trading of Proxy Portfolio Shares, 
resulting from any negligent act or omission by the Exchange, the 
Reporting Authority when the Exchange is acting in the capacity of a 
Reporting Authority, or any agent of the Exchange, or any act, 
condition, or cause beyond the reasonable control of the Exchange, its 
agent, or the Reporting Authority, when the Exchange is acting in the 
capacity of a 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.
Policy Discussion--Proposed Nasdaq Rule 5750
    The purpose of the structure of Proxy Portfolio Shares is to 
provide investors with the traditional benefits of ETFs \5\ while 
protecting funds from the potential for front running or free riding of 
portfolio transactions, which could adversely impact the performance of 
a fund. While each series of Proxy Portfolio Shares will be actively 
managed and, to that extent, similar to Managed Fund Shares (as defined 
in Nasdaq Rule 5735), Proxy Portfolio Shares differ from Managed Fund 
Shares in one key way.\6\ A series of Proxy Portfolio Shares will 
disclose the Proxy Basket on a daily basis, which, as described above, 
is designed to closely track the performance of the holdings of the 
Investment Company, instead of the actual holdings of the Investment 
Company, as provided by a series of Managed Fund Shares.\7\
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    \5\ For purposes of this filing, the term ETF will include only 
Exchange Traded Fund Shares as defined in Nasdaq Rule 5704, 
Portfolio Depositary Receipts as defined in Nasdaq Rule 5705(a), 
Index Fund Shares as defined in Nasdaq Rule 5705(b), and Managed 
Fund Shares as defined in Nasdaq Rule 5735, along with the 
equivalent products defined in the rules of other national 
securities exchanges.
    \6\ The Exchange notes that there is an additional difference 
between proposed Nasdaq Rule 5750 and Nasdaq Rule 5735: Proposed 
Nasdaq Rule 5750 would require a rule filing under Section 19(b) 
prior to listing any product on the Exchange, meaning that no series 
of Proxy Portfolio Shares could be listed on the Exchange pursuant 
to Rule 19b-4(e) and there are no proposed rules comparable to the 
quantitative portfolio holdings standards from Nasdaq Rule 5735.
    \7\ Proposed Nasdaq Rule 5750(d)(2)(C) will, however, require 
each series of Proxy Portfolio Shares to at a minimum disclose the 
entirety of its portfolio holdings within at least 60 days following 
the end of every fiscal quarter in accordance with normal disclosure 
requirements otherwise applicable to open-end investment companies 
registered under the 1940 Act.
    Form N-PORT requires reporting of a fund's complete portfolio 
holdings on a position-by-position basis on a quarterly basis within 
60 days after fiscal quarter end. Investors can obtain a fund's SAI, 
its Shareholder Reports, its Form N-CSR, filed twice a year, and its 
Form N-CEN, filed annually. A fund's SAI and Shareholder Reports are 
available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be 
viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
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    For the arbitrage mechanism for any ETF to function effectively, 
authorized participants, arbitrageurs, and other market participants 
(collectively, ``Market Makers'') need sufficient information to 
accurately value shares of a fund to transact in both the primary and 
secondary market. The Proxy Basket is to be designed to closely track 
the daily performance of the Fund Portfolio.
    Given the correlation between the Proxy Basket and the Fund 
Portfolio,\8\ the Exchange believes that the Proxy Basket would serve 
as a pricing signal to identify arbitrage opportunities when its value 
and the secondary market price of the shares of a series of Proxy 
Portfolio Shares diverge. If shares began trading at a discount to the 
Proxy Basket, an authorized participant could purchase the shares in 
secondary market transactions and, after accumulating enough shares to 
comprise a creation unit,\9\ redeem them in exchange for a redemption 
basket reflecting the Net Asset Value (``NAV'') per share of the Fund 
Portfolio. The purchases of shares would reduce the supply of shares in 
the market, and thus tend to drive up the shares' market price closer 
to the fund's NAV. Alternatively, if shares are trading at a premium, 
the transactions in the arbitrage process are reversed. Market Makers 
also can engage in arbitrage without using the creation or redemption 
processes. For example, if a

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fund is trading at a premium to the Proxy Basket, Market Makers may 
sell shares short and take a long position in the Proxy Basket 
securities, wait for the trading prices to move toward parity, and then 
close out the positions in both the shares and the securities, to 
realize a profit from the relative movement of their trading prices. 
Similarly, a Market Maker could buy shares and take a short position in 
the Proxy Basket securities in an attempt to profit when shares are 
trading at a discount to the Proxy Basket.
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    \8\ As provided in the Proxy Notices, funds and their respective 
advisers will take remedial actions as necessary if the funds do not 
function as anticipated. For the first three years after a launch, a 
fund will establish certain thresholds for its level of tracking 
error, premiums/discounts, and spreads, so that, upon the fund's 
crossing a threshold, the adviser will promptly call a meeting of 
the fund's board of directors and will present the board or 
committee with recommendations for appropriate remedial measures. 
The board would then consider the continuing viability of the fund, 
whether shareholders are being harmed, and what, if any, action 
would be appropriate. Specifically, the Proxy Applications and Proxy 
Notices provide that such a meeting would occur: (1) If the tracking 
error exceeds 1%; or (2) if, for 30 or more days in any quarter or 
15 days in a row (a) the absolute difference between either the 
market closing price or bid/ask price, on one hand, and NAV, on the 
other, exceeds 2%, or (b) the bid/ask spread exceeds 2%.
    \9\ Proxy Portfolio Shares will be purchased or redeemed only in 
large aggregations, or ``creation units,'' and the Proxy Basket will 
constitute the names and quantities of instruments for both 
purchases and redemptions of Creation Units.
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    Overall, the Exchange believes that the arbitrage process would 
operate similarly to the arbitrage process in place today for existing 
ETFs that use in-kind baskets for creations and redemptions that do not 
reflect the ETF's complete holdings but nonetheless produce performance 
that is highly correlated to the performance of the ETF's actual 
portfolio. The Exchange has observed highly efficient trading of ETFs 
that invest in markets where security values are not fully known at the 
time of ETF trading, and where a perfect hedge is not possible, such as 
international equity and fixed-income ETFs. While the ability to value 
and hedge many of these existing ETFs in the market may be limited, 
such ETFs have generally maintained an effective arbitrage mechanism 
and traded efficiently.
    As provided in the Notice, the Commission believes that an 
arbitrage mechanism based largely on the combination of a daily 
disclosed Proxy Basket and at a minimum quarterly disclosure of the 
Fund Portfolio can work in an efficient manner to maintain a fund's 
secondary market prices close to its NAV.\10\ Consistent with the 
Commission's view, the Exchange believes that because the arbitrage 
mechanism for Proxy Portfolio Shares will be sufficient to keep 
secondary market prices in line with NAV.
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    \10\ See Investment Company Act Release No. 33683 (November 14, 
2019), 84 FR 64140 (November 20, 2019) at 64144. The Commission also 
notes that as long as arbitrage continues to keep the Fund's 
secondary market price and NAV close, and does so efficiently so 
that spreads remain narrow, that investors would benefit from the 
opportunity to invest in active strategies through a vehicle that 
offers the traditional benefits of ETFs. See Id., at 64145.
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    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio will be publicly available at all 
times. Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Proxy Portfolio Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per share basis 
for each fund, the prior business day's NAV and the closing price or 
bid/ask price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the closing price or bid/ask price 
against such NAV. The website will also disclose the percentage weight 
overlap between the holdings of the Proxy Basket compared to the fund 
holdings for the prior business day and any information regarding the 
bid/ask spread for each fund as may be required for other ETFs under 
Rule 6c-11 under the 1940 Act, as amended. The website and information 
will be publicly available at no charge.
    While not providing daily disclosure of the Fund Portfolio could 
open the door to potential information leakage and misuse of material 
nonpublic information, the Exchange believes that proposed Nasdaq Rule 
5750(b)(5) and (6) provide sufficient safeguards to prevent such 
leakage and misuse of information. The Exchange believes that these 
proposed rules are designed to prevent fraudulent and manipulative acts 
and practices related to the listing and trading of Proxy Portfolio 
Shares because they provide meaningful requirements about both the data 
that will be made publicly available about the Shares as well as the 
information that will only be available to certain parties and the 
controls on such information. Specifically, the Exchange believes that 
the requirements related to information protection enumerated under 
Nasdaq Rule 5750(b)(6) will act as a strong safeguard against any 
misuse and improper dissemination of information related to a Fund 
Portfolio, the Proxy Basket, or changes thereto. The requirement that 
any person or entity, including a custodian, Reporting Authority, 
distributor, or administrator, who has access to nonpublic information 
regarding the Fund Portfolio or the Proxy Basket or changes thereto, 
must be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the 
applicable Fund Portfolio or the Proxy Basket or changes thereto will 
act to prevent any individual or entity from sharing such information 
externally. Additionally, the requirement that any such person or 
entity that is registered as a broker-dealer or affiliated with a 
broker-dealer will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such Fund 
Portfolio or Proxy Basket will act to make sure that no entity will be 
able to misuse the data for their own purposes. As such, the Exchange 
believes that this proposal is designed to prevent fraudulent and 
manipulative acts and practices.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Proxy Portfolio Shares on the 
Exchange during all trading sessions and to deter and detect violations 
of Exchange rules and the applicable federal securities laws. Trading 
of Proxy Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Proxy Portfolio 
Shares listed on the Exchange to represent to the Exchange that it will 
advise the Exchange of any failure by a Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Nasdaq Rule 5800. In addition, the Exchange 
also has a general policy prohibiting the distribution of material, 
nonpublic information by its employees.
    As noted in proposed Nasdaq Rule 5750(b)(4), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily Fund 
Portfolio of each series of Proxy Portfolio Shares. The Exchange 
believes that this is appropriate because it will provide the Exchange 
or FINRA, on behalf of the Exchange, with access to the daily Fund 
Portfolio of any series of Proxy Portfolio Shares upon request on an as 
needed basis. The Exchange believes that the ability to access the 
information on an as needed basis will provide it with sufficient 
information to perform the necessary regulatory functions associated 
with listing and trading series of Proxy Portfolio Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well

[[Page 38465]]

as the ability to surveil for manipulation of the shares.
Trading Halts
    As described above, proposed Nasdaq Rule 5750(d)(2)(D) provides 
that (a) the Exchange may consider all relevant factors in exercising 
its discretion to halt trading in a series of Proxy Portfolio Shares. 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the series of Proxy 
Portfolio Shares inadvisable. These may include: (i) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the Proxy Basket or Fund Portfolio; or (ii) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present; and (b) if the 
Exchange becomes aware that one of the following is not being made 
available to all market participants at the same time: The net asset 
value, the Proxy Basket, or the Fund Portfolio with respect to a series 
of Proxy Portfolio Shares, then the Exchange will halt trading in such 
series until such time as the net asset value, the Proxy Basket, or the 
Fund Portfolio is available to all market participants, as applicable.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
SAI, its Shareholder Reports, its Form N-CSR, filed twice a year, and 
its Form N-CEN, filed annually. A fund's SAI and Shareholder Reports 
are available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov. 
The Exchange also notes that the Proxy Applications provide that an 
issuer will comply with Regulation Fair Disclosure, which prohibits 
selective disclosure of any material nonpublic information, which 
otherwise do not apply to issuers of Proxy Portfolio Shares.
    Information regarding market price and trading volume of the shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line.
Trading Rules
    The Exchange deems Proxy Portfolio Shares to be equity securities, 
thus rendering trading in the shares subject to the Exchange's existing 
rules governing the trading of equity securities.\11\ As provided in 
proposed Nasdaq Rule 5750(b)(3), the minimum price variation for 
quoting and entry of orders in securities traded on the Exchange is 
$0.01. The Exchange has appropriate rules to facilitate trading in 
Proxy Portfolio Shares during all trading sessions.
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    \11\ With respect to trading in Proxy Portfolio Shares, all of 
the Exchange member obligations relating to product description and 
prospectus delivery requirements will continue to apply in 
accordance with Exchange rules and federal securities laws, and the 
Exchange will continue to monitor its members for compliance with 
such requirements.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \12\ in general and Section 6(b)(5) of the Act \13\ in 
particular in that 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 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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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that proposed Nasdaq Rule 5750 is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Proxy Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Nasdaq Rule 5750(d)(1) provides 
the initial listing criteria for a series of Proxy Portfolio Shares, 
which include the following: (A) Each series of Proxy Portfolio Shares 
will be listed and traded on the Exchange subject to application of the 
following initial listing criteria: (i) For each series, the Exchange 
will establish a minimum number of Proxy Portfolio Shares required to 
be outstanding at the time of commencement of trading on the Exchange; 
(ii) the Exchange will obtain a representation from the issuer of each 
series of Proxy Portfolio Shares that the net asset value per share for 
the series will be calculated daily and that each of the following will 
be made available to all market participants at the same time when 
disclosed: The net asset value, the Proxy Basket, and the Fund 
Portfolio.
    Proposed Nasdaq Rule 5750(d)(2) provides that each series of Proxy 
Portfolio Shares will be listed and traded on the Exchange subject to 
application of the following continued listing criteria: (i) The Proxy 
Basket will be disseminated at least once daily and will be made 
available to all market participants at the same time; (ii) the Fund 
Portfolio will at a minimum be publicly disclosed within at least 60 
days following the end of every fiscal quarter and will be made 
available to all market participants at the same time; (iii) upon 
termination of an Investment Company, the Exchange requires that Proxy 
Portfolio Shares issued in connection with such entity be removed from 
listing on the Exchange; and (iv) voting rights shall be as set forth 
in the applicable Investment Company prospectus or SAI.
    Additionally, proposed Nasdaq Rule 5750(d)(2)(C) provides that the 
Exchange will consider the suspension of trading in and will commence 
delisting proceedings for a series of Proxy Portfolio Shares pursuant 
to Nasdaq Rule 5800 under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Proxy Portfolio Shares, there are fewer 
than 50 beneficial holders of the series of Proxy Portfolio Shares; (b) 
if either the Proxy Basket or Fund Portfolio is not made available to 
all market participants at the same time; (c) if the Investment Company 
issuing the Proxy Portfolio Shares has failed to file any filings 
required by the Commission or if the Exchange is aware that the 
Investment Company is not in compliance with the conditions of any 
exemptive order or no-action relief granted by the Commission to the 
Investment Company with respect to the series of Proxy Portfolio 
Shares; (d) if any of the requirements set forth in this rule are not 
continuously maintained; (e) if any of the applicable Continued Listing 
Representations for the issue of Proxy Portfolio Shares are not 
continuously met; or (f) if such other event shall occur or condition 
exists which, in the opinion of the Exchange, makes further dealings on 
the Exchange inadvisable.
    Proposed Nasdaq Rule 5750(d)(2)(D) provides that (a) the Exchange 
may consider all relevant factors in exercising its discretion to halt 
trading in a series of Proxy Portfolio Shares. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the series of Proxy Portfolio Shares 
inadvisable. These may include: (i) The extent to which trading is not 
occurring

[[Page 38466]]

in the securities and/or the financial instruments composing the Proxy 
Basket or Fund Portfolio; or (ii) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present; and (b) if the Exchange becomes aware that one of 
the following is not being made available to all market participants at 
the same time: The net asset value, the Proxy Basket, or the Fund 
Portfolio with respect to a series of Proxy Portfolio Shares, then the 
Exchange will halt trading in such series until such time as the net 
asset value, the Proxy Basket, or the Fund Portfolio is available to 
all market participants, as applicable
    While not providing daily disclosure of the Fund Portfolio could 
open the door to potential information leakage and misuse of material 
non-public information, the Exchange believes that proposed Nasdaq Rule 
5750(b)(5) and (6) provide sufficient safeguards to prevent such 
leakage and misuse of information. The Exchange believes that these 
proposed rules are designed to prevent fraudulent and manipulative acts 
and practices related to the listing and trading of Proxy Portfolio 
Shares because they provide meaningful requirements about both the data 
that will be made publicly available about the shares as well as the 
information that will only be available to certain parties and the 
controls on such information. Specifically, the Exchange believes that 
the requirements related to information protection enumerated under 
proposed Nasdaq Rule 5750(b)(6) will act as a strong safeguard against 
any misuse and improper dissemination of information related to a Fund 
Portfolio, the Proxy Basket, or changes thereto. The requirement that 
any person or entity, including a custodian, Reporting Authority, 
distributor, or administrator, who has access to nonpublic information 
regarding the Fund Portfolio or the Proxy Basket or changes thereto, 
must be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the 
applicable Fund Portfolio or the Proxy Basket or changes thereto will 
act to prevent any individual or entity from sharing such information 
externally. Additionally, the requirement that any such person or 
entity that is registered as a broker-dealer or affiliated with a 
broker-dealer will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such Fund 
Portfolio or Proxy Basket will act to make sure that no entity will be 
able to misuse the data for their own purposes. As such, the Exchange 
believes that this proposal is designed to prevent fraudulent and 
manipulative acts and practices.
    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Proxy Portfolio Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the shares (the Proxy Basket) as well as the 
information that will only be available to certain parties and the 
controls on such information. Specifically, the Exchange believes that 
the requirements related to firewalls and information protection will 
act as a strong safeguard against any misuse and improper dissemination 
of information related to the securities included in or changes made to 
the Fund Portfolio and/or the Proxy Basket. As such, the Exchange 
believes that this proposal is designed to prevent fraudulent and 
manipulative acts and practices.
    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio will be publicly available at all 
times. Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Proxy Portfolio Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per share basis 
for each fund, the prior business day's NAV and the closing price or 
bid/ask price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the closing price or bid/ask price 
against such NAV. The website will also disclose the percentage weight 
overlap between the holdings of the Proxy Basket compared to the fund 
holdings for the prior business day and any information regarding the 
bid/ask spread for each fund as may be required for other ETFs under 
Rule 6c-11 under the 1940 Act, as amended. The website and information 
will be publicly available at no charge.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Proxy Portfolio Shares on the 
Exchange during all trading sessions and to deter and detect violations 
of Exchange rules and the applicable federal securities laws. Trading 
of Proxy Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. Pursuant to 
its obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If a 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under Nasdaq Rule 5800. In 
addition, the Exchange also has a general policy prohibiting the 
distribution of material, nonpublic information by its employees.
    As noted in proposed Nasdaq Rule 5750(b)(4), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of each series of Proxy Portfolio Shares. The Exchange 
believes that this is appropriate because it will provide the Exchange 
or FINRA, on behalf of the Exchange, with access to the daily Fund 
Portfolio of any series of Proxy Portfolio Shares upon request on an as 
needed basis. The Exchange believes that the ability to access the 
information on an as needed basis will provide it with sufficient 
information to perform the necessary regulatory functions associated 
with listing and trading series of Proxy Portfolio Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well as the ability to surveil 
for manipulation of the shares.
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
SAI, its Shareholder Reports, its Form N-CSR, filed twice a year, and 
its Form N-CEN, filed annually. A fund's SAI and Shareholder Reports 
are available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov. 
The Exchange also notes that the Proxy Applications provide that an 
issuer will comply with Regulation Fair Disclosure, which prohibits 
selective disclosure of any material nonpublic information, which 
otherwise do not apply to issuers of Proxy Portfolio Shares.
    Information regarding market price and trading volume of the shares 
will be

[[Page 38467]]

continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
shares will be available via the CTA high-speed line. The Exchange 
deems Proxy Portfolio Shares to be equity securities, thus rendering 
trading in the shares subject to the Exchange's existing rules 
governing the trading of equity securities. As provided in proposed 
Nasdaq Rule 5750(b)(3), the minimum price variation for quoting and 
entry of orders in securities traded on the Exchange is $0.01.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
new types of actively-managed exchange-traded products that will 
enhance competition among both market participants and listing venues, 
to the benefit of investors and the marketplace.

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

    No written comments were either solicited or received.

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

    Because the 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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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.

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-2020-032 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-2020-032. 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-2020-032 and should be submitted 
on or before July 17, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13764 Filed 6-25-20; 8:45 am]
BILLING CODE 8011-01-P


