[Federal Register Volume 79, Number 83 (Wednesday, April 30, 2014)]
[Notices]
[Pages 24465-24473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09807]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72014; File No. SR-NASDAQ-2014-038]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Proposed Rule Change Relating to the Listing and Trading of
the Shares of the Reality Shares NASDAQ-100 Isolated Dividend Growth
Index ETF of the Reality Shares ETF Trust Under Rule 5705
April 24, 2014.
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 April 10, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the
``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 NASDAQ. 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
NASDAQ proposes to list and trade the shares of the Reality Shares
NASDAQ-100 Isolated Dividend Growth Index ETF (the ``Fund'') of the
Reality Shares ETF Trust (the ``Trust'') under Rule 5705 (Exchange
Traded Funds: Portfolio Depository Receipts and Index Fund Shares).\3\
The shares of the Fund are collectively referred to herein as the
``Shares.''
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\3\ The Commission approved NASDAQ's Rule 5705, as well as Rule
5735 regarding managed fund shares, in Securities Exchange Act
Release No. 57962 (June 13, 2008), 73 FR 35175 (June 20, 2008) (SR-
NASDAQ-2008-039).
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The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, 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, NASDAQ included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below, and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Fund
under NASDAQ Rule 5705(b), which governs the listing and trading of
Index Fund Shares \4\ on the Exchange. The Fund is an exchange-traded
fund (``ETF'') which seeks to track the performance of an underlying
index, as discussed herein.\5\
[[Page 24466]]
The Shares will be offered by the Trust, which was established as a
Delaware statutory trust on March 26, 2013. The Trust will be
registered with the Commission as an open-end management investment
company.\6\ The Fund is a series of the Trust.
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\4\ Index Fund Shares that are issued by an open-end investment
company and listed and traded on the Exchange under NASDAQ Rule 5705
seek to provide investment results that correspond generally to the
price and yield performance of a specific foreigh or domestic stock
index, fixed income securities index or combination thereof. See
Rule 5705(b)(1)(A).
\5\ The Exchange notes that its proposal to list shares of the
Fund which tracks the performance of an index of U.S. exchange
listed options is similar to the proposal and resultant order issued
to the NYSE ARCA to list and trade under NYSE Arca Equities Rule
5.2(j)(3) (which is similar to NASDAQ Rule 5705(b)) Investment
Company Units based on indexes of U.S. exchange listed options. See
Securities Exchange Act Release Nos. 68667 (January 16, 2013), 78 FR
4955 (January 23, 2013) (SR-NASDAQ-2012-109) (order approving
listing and trading of U.S. Equity High Volatility Put Write Index
Fund); and 69373 (April 15, 2013), 78 FR 23601 (April 19, 2913) (SR-
NYSEArca-2012-108) (order approving listing and trading of NYSE Arca
U.S. Equity Synthetic Reverse Convertible Index Fund). The Exchange
believes the proposed rule change does not raise any significant
issues not previously addressed in those prior Commission orders.
\6\ The Trust will be registered under the Investment Company
Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act''). On November 12,
2013, the Trust filed a registration statement on Form N-1A under
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and
under the 1940 Act relating to the Fund (File Nos. 333-192288 and
811-22911), as amended by Pre-Effective Amendment Number 1, filed
with the Commission on February 6, 2014 (the ``Registration
Statement''). The descriptions of the Fund and the Shares contained
herein are based, in part, on information in the Registration
Statement. In addition, the Commission has issued an order, upon
which the Trust may rely, granting certain exemptive relief under
the 1940 Act. See Investment Company Act Release No. 30678 August
27, 2013 (the ``Exemptive Order''). Investments made by the Fund
will comply with the conditions set forth in the Exemptive Order.
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Reality Shares Advisors, LLC will be the investment adviser
(``Adviser'') to the Fund. ALPS Distributors, Inc. (the
``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon (``BNY'') will act as
the administrator, accounting agent, custodian and transfer agent to
the Fund.
As described in more detail below, the Fund will seek long-term
capital appreciation by tracking the Reality Shares NASDAQ-100 Isolated
Dividend Growth Index (the ``Index''). The Index measures market
expectations for dividend growth of the companies included in the
NASDAQ-100 Index.\7\ The Index consists of options on the NASDAQ-100
Index and options on ETFs designed to track the NASDAQ-100 Index. All
options included in the Index will be listed and traded on a U.S.
national securities exchange. The Index will consist of a minimum of 20
components.
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\7\ The NASDAQ-100 Index is an index of 100 of the largest
domestic and international securities (based on market
capitalization) listed on The NASDAQ Stock Market. The NASDAQ-100
Index includes companies across major industry groups, including
computer hardware and software, telecommunications, retail/wholesale
trade and biotechnology, and excludes securities of financial
companies.
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Paragraph (b)(5)(A)(i) of Rule 5705 states that if an index is
maintained by a broker-dealer or fund advisor, the broker-dealer or
fund advisor shall erect a ``fire wall'' around the personnel who have
access to information concerning changes and adjustments to the index.
If the investment adviser to the investment company issuing Index Fund
Shares is affiliated with a broker-dealer, such investment adviser
shall erect a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such investment company portfolio.\8\ In
addition, paragraph (b)(5)(A)(iii) requires that any advisory
committee, supervisory board, or similar entity that advises a
Reporting Authority \9\ or that makes decisions on 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.
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\8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
\9\ Rule 5705(b)(1)(C).
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The Adviser is not a broker-dealer and is not affiliated with any
broker-dealers. The Index was developed by Reality Shares, Inc., the
parent company of the Adviser, in conjunction with The NASDAQ OMX
Group, Inc., and is maintained by Reality Shares, Inc. (the ``Index
Provider'').\10\ The Index Provider is not a broker-dealer and is not
affiliated with any broker-dealers.\11\ In the event (a) the Adviser,
any sub-adviser or the Index Provider becomes registered as a broker-
dealer or is newly affiliated with a broker dealer, or (b) any new
adviser, sub-adviser or Index Provider is a registered broker-dealer or
becomes affiliated with a broker dealer, the Adviser, sub-adviser or
Index Provider will implement a fire wall with respect to its relevant
personnel and/or such broker dealer affiliate, as applicable, regarding
access to information concerning the composition and/or changes to the
portfolio and will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding such
portfolio. The Fund does not currently intend to use a sub-adviser.
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\10\ The Index will be calculated by International Data
Corporation (``IDC''), which is not affiliated with the Adviser,
Index Provider or The NASDAQ OMX Group, and which is not a broker-
dealer or fund advisor.
\11\ The Adviser and the Index Provider have represented that a
fire wall exists around the respective personnel who have access to
information concerning changes and adjustments to the Index.
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The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of paragraph (b)(3)(A)(i) of Rule 5705 applicable to the
listing of Index Fund Shares based upon an index of ``US Component
Stocks.'' \12\ Specifically, Rule 5705(b)(3)(A)(i) sets forth the
requirements to be met by components of an index or portfolio of US
Component Stocks. As described in more detail herein, the Index will
consist primarily of U.S. exchange-listed and traded options on the
NASDAQ-100 Index and U.S. exchange-listed and traded options on ETFs
that track the NASDAQ-100 Index.\13\ The Fund may also invest up to 20%
of its total assets in other securities such as over-the-counter
(``OTC'') options, futures, and forward contracts on the NASDAQ-100
Index and OTC options, futures and forward contracts on ETFs that track
the
[[Page 24467]]
NASDAQ-100 Index. The Exchange has represented that the Shares will
conform to the initial and continued requirements of listing criteria
under Rule 5705(b), except to the extent that the Index is comprised of
options based on U.S. Component Stocks (i.e., ETFs based on the NASDAQ
100 Index) and options on an index of U.S. Component Stocks (i.e., the
NASDAQ-100 Index).
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\12\ Paragraph (b)(1)(D) of Rule 5705 states that the term ``US
Component Stock'' shall mean an equity security that is registered
under Sections 12(b) or 12(g) of the Exchange Act, or an American
Depositary Receipt, the underlying equity security of which is
registered under Sections 12(b) or 12(g) of the Act. Rule
5705(b)(1)(D).
\13\ Paragraph (b)(3)(A)(i) of Rule 5705 states, in relevant
part, that upon the initial listing of a series of Index Fund Shares
pursuant to 19b-4(e) under the Act, all securities in the index or
portfolio shall be U.S. Component Stocks listed on NASDAQ (including
The NASDAQ Capital Market) or another national securities exchange
and shall be NMS Stocks as defined in Rule 600 of Regulation NMS
under the Act. Each component stock of the NASDAQ-100 Index is a
U.S. Component Stock that is listed on a national securities
exchange and is an NMS Stock. Options are excluded from the
definition of NMS Stock. The Fund and the Index meet all of the
requirements of the listing standards for Index Fund Shares in Rule
5705 except the requirements in 5705(b)(3)(A)(i)(a)-(e), as the
Index consists of options on U.S. Component Stocks. The NASDAQ-100
Index consists of Component Stocks and satisfies the requirements of
Commentary [sic] 5705(b)(3)(A)(i)(a)-(e).
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Reality Shares NASDAQ-100 Isolated Dividend Growth Index ETF
Principal Investments
According to the Registration Statement, the Fund will seek long-
term capital appreciation and will seek investment results that, before
fees and expenses, generally correspond to the performance of the
Index. At least 80% of the Fund's total assets (exclusive of collateral
held from securities lending, if any) will be invested in the component
securities of the Index. The Fund will seek a correlation of 0.95 or
better between its performance and the performance of its Index. A
figure of 1.00 would represent perfect correlation. The Fund generally
will use a representative sampling investment strategy.
The Fund will buy (i.e., hold a ``long'' position in) and sell
(i.e., hold a ``short'' position in) put and call options. The Fund has
a strategy of taking both a long position in a security through its ex-
dividend date (the last date an investor can own the security and
receive dividends paid on the security) and a corresponding short
position in the same security immediately thereafter. This is designed
to allow the Fund to isolate its exposure to the growth of the level of
dividends expected to be paid on such security while minimizing its
exposure to changes in the trading price of such security.
The Fund will buy and sell U.S. exchange-listed options on the
NASDAQ-100 Index and U.S. exchange-listed options on ETFs designed to
track the NASDAQ-100 Index. A put option gives the purchaser of the
option the right to sell, and the issuer of the option the obligation
to buy, the underlying security or instrument on a specified date or
during a specified period of time. A call option on a security gives
the purchaser of the option the right to buy, and the writer of the
option the obligation to sell, the underlying security or instrument on
a specified date or during a specified period of time. The Fund will
invest in a combination of put and call options designed to allow the
Fund to isolate its exposure to the growth of the level of expected
dividends reflected in options on the NASDAQ-100 Index and options on
ETFs tracking the NASDAQ-100 Index, while minimizing the Fund's
exposure to changes in the trading price of such securities.
Index Methodology
The Index will be calculated using a proprietary, rules-based
methodology designed to track market expectations for dividend growth
conveyed in real-time using the mid-point of the bid-ask spread on
NASDAQ-100 Index options and options on ETFs designed to track the
NASDAQ-100 Index.\14\ All options included in the Index will be listed
and traded on a U.S. national securities exchange. The Index will
consist of a minimum of 20 components.\15\
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\14\ There is no guarantee that either the level of overall
dividends paid by such companies will grow over time, or that the
Index or Fund's investment strategies will capture such growth. The
Fund will include appropriate risk disclosure in its offering
documents disclosing these risks, which will be available for free
on the SEC's Web site and on the Fund's Web site,
www.realityshares.com.
\15\ Rule 5705(b)(3).
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The prices of index and ETF options reflect the market trading
prices of the securities included in the applicable underlying index or
ETF, as well as market expectations regarding the level of dividends to
be paid on such indexes or ETFs during the term of the option. The
Index constituents, and therefore most of the Fund's portfolio
holdings, will consist of multiple corresponding near-term and long-
term put and call option combinations on the same reference assets
(i.e., options on the NASDAQ-100 Index or the NASDAQ-100 ETF) with the
same strike price. Because option prices reflect both stock price and
dividend expectations, they can be used in combination to isolate
either price exposure or dividend expectations. The use of near-term
and long-term put and call option combinations on the same reference
asset with the same strike price, but with different maturities, is
designed to gain exposure to the expected dividends of the securities
in the NASDAQ-100 Index while neutralizing the impact of the stock
price.
Once established, this portfolio construction of option
combinations will accomplish two goals. First, the use of corresponding
buy or sell positions on near and long-term options at the same strike
price is designed to neutralize underlying stock price movements. In
other words, the corresponding ``buy'' and ``sell'' positions on the
same reference asset are designed to net against each other and
eliminate the impact that changes to the stock price of the reference
asset would otherwise have on the value of the Index (and Fund).
Second, by minimizing the impact of price fluctuations through the
construct of the near- and long-term contract combinations, the
strategy is designed to isolate market expectations for dividends
implied between the expiration dates of the near-term and long-term
option contracts. Over time, the Index will increase or decrease in
value as the dividend spread between the near-term and long-term option
combinations increases or decreases as a result of changing market
expectations for dividend growth.
Other Fund Investments
While, as described above, at least 80% of the Fund's total assets
(exclusive of collateral held from securities lending, if any) will be
invested in the component securities of the Index, the Fund may invest
up to 20% of the Fund's total assets in other securities and financial
instruments, as described below.
The Fund may invest in U.S. exchange-listed futures contracts on
the NASDAQ-100 Index and ETFs designed to track the NASDAQ-100 Index
and may invest in forward contracts on the NASDAQ-100 Index and ETFs
designed to track the NASDAQ-100 Index. The Fund's use of exchange-
listed futures contracts and forward contracts is designed to allow the
Fund to isolate its exposure to the growth of the level of expected
dividends reflected in options on the NASDAQ-100 Index and options on
ETFs tracking the NASDAQ-100 Index, while minimizing the Fund's
exposure to changes in the trading price of such securities. The Fund
may also buy and sell OTC options on the NASDAQ-100 Index and on ETFs
designed to track the NASDAQ-100 Index.
The Fund may enter into dividend and total return swap transactions
(including equity swap transactions) based on the NASDAQ-100 Index and
ETFs designed to track the NASDAQ-100 Index.\16\ In a typical swap
transaction, one party agrees to make periodic payments to another
party (``counterparty'') based on the change in market value or level
of a specified rate, index, or asset. In return, the counterparty
agrees to make periodic payments to the first party based on the return
of a different specified rate, index, or asset. Swap transactions are
usually done on a net basis, the Fund receiving or paying only the net
amount of the two payments. In a typical
[[Page 24468]]
dividend swap transaction, the Fund would pay the swap counterparty a
premium and would be entitled to receive the value of the actual
dividends paid on the subject index during the term of the swap
contract. In a typical total return swap transaction, the Fund might
exchange long or short exposures to the return of the underlying
securities or index to isolate the value of the dividends paid on the
underlying securities or index constituents. The Fund also may engage
in interest rate swap transactions. In a typical interest rate swap
transaction one stream of future interest payments is exchanged for
another. Such transactions often take the form of an exchange of a
fixed payment for a variable payment based on a future interest rate.
The Fund intends to use interest rate swap transactions to manage or
hedge exposure to interest rate fluctuations.
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\16\ The Fund will transact only with swap dealers that have in
place an ISDA agreement with the Fund.
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The Fund may invest up to 20% of its assets (exclusive of
collateral held from securities lending, if any) in exchange-listed
equity securities and derivative instruments (specifically, futures
contracts, forward contracts and swap transactions) \17\ relating to
the Index and its component securities that the Adviser believes will
help the Fund track the Index. For example, the Fund may buy and sell
ETFs and, to a limited extent, individual large-capitalization equity
securities listed and traded on a U.S. national securities exchange.
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\17\ Where practicable, the Fund intends to invest in swaps
cleared through a central clearing house (``Cleared Swaps'').
Currently, only certain of the interest rate swaps in which the Fund
intends to invest are Cleared Swaps, while the dividend and total
return swaps (including equity swaps) in which the Fund may invest
are currently not Cleared Swaps.
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The Fund may invest in the securities of other investment companies
(including money market funds) to the extent permitted under the 1940
Act.
The Fund's short positions and its investments in swaps, futures
contracts, forward contracts and options based on the NASDAQ-100 Index
and ETFs designed to track the NASDAQ-100 Index will be backed by
investments in cash, high-quality, short-term debt securities and
money-market instruments in an amount equal to the Fund's maximum
liability under the applicable position or contract or will otherwise
be offset in accordance with Section 18 of the 1940 Act. Short-term
debt securities and money market instruments include shares of fixed
income or money market mutual funds, commercial paper, certificates of
deposit, bankers' acceptances, U.S. Government Securities (including
securities issued or guaranteed by the U.S. government or its
authorities, agencies, or instrumentalities), repurchase agreements
\18\ and bonds that are rated BBB or higher.
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\18\ The Fund may enter into repurchase agreements with banks
and broker-dealers. A repurchase agreement is an agreement under
which securities are acquired by a fund from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The
acquiring fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the
fund is delayed or prevented from exercising its rights to dispose
of the collateral securities.
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In addition to the investments described above, and in a manner
consistent with its investment objective, the Fund may invest a limited
portion of its net assets in high-quality, short-term debt securities
and money market instruments for cash management purposes.\19\
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\19\ The Fund may invest in shares of money market mutual funds
to the extent permitted by the 1940 Act.
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The Fund will attempt to limit counterparty risk in non-cleared
swap, forward and OTC option contracts by entering into such contracts
only with counterparties the Adviser believes are creditworthy and by
limiting the Fund's exposure to each counterparty. The Adviser will
monitor the creditworthiness of each counterparty and the Fund's
exposure to each counterparty on an ongoing basis.\20\
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\20\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced; however, the risk of losses resulting from
default is still possible. The Adviser will evaluate the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, the Adviser will
evaluate each approved counterparty using various methods of
analysis, such as, for example, the counterparty's liquidity in the
event of default, the counterparty's reputation, the Adviser's past
experience with the counterparty, and the counterparty's share of
market participation.
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The Fund's investments in swaps, futures contracts, forward
contracts and options will be consistent with the Fund's investment
objective and with the requirements of the 1940 Act.\21\
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\21\ To limit the potential risk associated with such
transactions, the Fund will segregate or ``earmark'' assets
determined to be liquid by the Adviser in accordance with procedures
established by the Trust's Board of Trustees and in accordance with
the 1940 Act (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations arising from
such transactions. These procedures have been adopted consistent
with Section 18 of the 1940 Act and related Commission guidance. In
addition, the Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of the Fund, including the Fund's
use of derivatives, may give rise to leverage, causing the Fund to
be more volatile than if it had not been leveraged. To mitigate
leveraging risk, the Adviser will segregate or ``earmark'' liquid
assets or otherwise cover the transactions that may give rise to
such risk.
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Investment Restrictions
To the extent the Index concentrates (i.e., holds 25% or more of
its total assets) in the securities of a particular industry or group
of industries, the Fund will concentrate its investments to
approximately the same extent as the Index.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment) deemed
illiquid by the Adviser, consistent with Commission guidance.\22\ The
Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an adequate level
of liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\23\
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\22\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
\23\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release Nos. [sic] 28193 (March 11,
2008), 73 FR 14618 (March 18, 2008), footnote 34. See also
Investment Company Act Release Nos. 5847 (October 21, 1969), 35 FR
19989 (December 31, 1970) (Statement Regarding ``Restricted
Securities''); and 18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release Nos.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); and 17452 (April 23,
1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the
1933 Act).
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The Fund may make secured loans of its portfolio securities;
however, securities loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans by the Fund
exceeds 33\1/3\% of its total assets (including the market value of
collateral received). To the extent the Fund engages in securities
lending, securities loans will be made to broker-dealers that the
Adviser believes to be of relatively high credit standing pursuant to
agreements requiring that the loans
[[Page 24469]]
continuously be collateralized by cash, liquid securities, or shares of
other investment companies with a value at least equal to the market
value of the loaned securities. The Fund will be classified as a ``non-
diversified'' investment company under the 1940 Act.\24\
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\24\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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The Fund intends to qualify for and to elect treatment as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\25\
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\25\ 26 U.S.C. 851 et seq.
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The Fund's investments will be consistent with its investment
objective and will not be used to provide multiple returns of a
benchmark or to produce leveraged returns.
The Shares
According to the Registration Statement, the Fund will issue and
redeem Shares only in Creation Units at the net asset value (``NAV'')
\26\ next determined after receipt of an order on a continuous basis
every business day. The NAV of the Fund will be determined once each
business day, normally as of the close of trading of the Exchange,
generally, 4:00 p.m. Eastern Time. Creation Unit sizes will be 25,000
Shares per Creation Unit. The Trust will issue and sell Shares of the
Fund only in Creation Units on a continuous basis through the
Distributor, without a sales load (but subject to transaction fees), at
their NAV per Share next determined after receipt of an order, on any
business day, in proper form pursuant to the terms of the Authorized
Participant agreement (as referred to below).
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\26\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of the Regular
Market Session on the Exchange, generally 4:00 or 4:15 p.m. Eastern
time (the ``NAV Calculation Time''). NAV per Share will be
calculated by dividing the Fund's net assets by the number of Fund
Shares outstanding. For more information regarding the valuation of
Fund investments in calculating the Fund's NAV, see Registration
Statement.
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The consideration for purchase of a Creation Unit generally will
consist of either (i) the in-kind deposit of a designated portfolio of
securities (the ``Deposit Securities'') per each Creation Unit and the
Cash Component (defined below), computed as described below or (ii) the
cash value of all or a portion of the Deposit Securities (``Deposit
Cash'') and the ``Cash Component,'' computed as described below.
Because non-exchange traded derivatives and certain listed derivatives
are not currently eligible for in-kind transfer, they will be
substituted with an amount of cash of equal value (i.e., Deposit Cash)
when the Fund processes purchases of Creation Units in-kind.
Specifically, the Fund will not accept exchange-traded options, OTC
options, exchange-traded futures, forward contracts, dividend swap
transactions, total return swap transactions and interest rate swap
transactions as Deposit Securities.
When accepting purchases of Creation Units for cash, the Fund may
incur additional costs associated with the acquisition of Deposit
Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and
the Cash Component will constitute the ``Fund Deposit,'' which
represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund. The ``Cash Component'' will be an amount
equal to the difference between the NAV of the Shares (per Creation
Unit) and the market value of the Deposit Securities or Deposit Cash,
as applicable. The Cash Component will serve the function of
compensating for any difference between the NAV per Creation Unit and
the market value of the Deposit Securities or Deposit Cash, as
applicable.
A portfolio composition file, to be sent via the National
Securities Clearing Corporation (``NSCC''), will be made available on
each business day, prior to the opening of business on the Exchange
(currently 9:30 a.m., Eastern time) \27\ containing a list of the names
and the required amount of each security in the Deposit Securities to
be included in the current Fund Deposit for the Fund (based on
information about the Fund's portfolio at the end of the previous
business day). In addition, on each business day, the estimated Cash
Component, effective through and including the previous business day,
will be made available through NSCC.
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\27\ See NASDAQ Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
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The Fund Deposit will be applicable for purchases of Creation Units
of the Fund until such time as the next-announced Fund Deposit is made
available. In accordance with the Exemptive Order, the Fund will
reserve the right to accept a non-conforming Fund Deposit. In addition,
the composition of the Deposit Securities may change as, among other
things, corporate actions and investment decisions by the Adviser are
implemented for the Fund's portfolio.
All purchase orders must be placed by or through an Authorized
Participant. An Authorized Participant must be either a broker-dealer
or other participant in the Continuous Net Settlement System
(``Clearing Process'') of the NSCC or a participant in The Depository
Trust Company (``DTC'') with access to the DTC system, and must execute
an agreement with the Distributor that governs transactions in the
Fund's Creation Units. In-kind portions of purchase orders will be
processed through the Clearing Process when it is available.
Fund Shares may be redeemed only in Creation Units at their NAV
next determined after receipt of a redemption request in proper form by
the Fund through the Distributor and only on a business day. The Fund,
through the NSCC, will make available immediately prior to the opening
of business on the Exchange on each business day, the list of the names
and quantities of the Fund's portfolio securities that will be
applicable (subject to possible amendment or correction) to redemption
requests received in proper form on that day (``Fund Securities'').
Redemption proceeds for a Creation Unit will be paid either in-kind or
in cash or a combination thereof, as determined by the Trust. With
respect to in-kind redemptions of the Fund, redemption proceeds for a
Creation Unit will consist of Fund Securities plus cash in an amount
equal to the difference between the NAV of the Shares being redeemed,
as next determined after a receipt of a request in proper form, and the
value of the Fund Securities (the ``Cash Redemption Amount''). In the
event that the Fund Securities have a value greater than the NAV of the
Shares, a compensating cash payment equal to the differential will be
required to be made by or through an Authorized Participant by the
redeeming shareholder. Notwithstanding the foregoing, at the Trust's
discretion, an Authorized Participant may receive the corresponding
cash value of the securities in lieu of the in-kind securities
representing one or more Fund Securities.\28\ Because non-exchange
traded derivatives and certain listed derivatives are not eligible for
in-kind transfer, they will be substituted with an amount of cash of
equal value when the Fund processes redemptions of Creation Units in-
kind. Specifically, the Fund will transfer the corresponding cash value
of exchange-traded options,
[[Page 24470]]
OTC options, exchange-traded futures, forward contracts, dividend swap
transactions, total return swap transactions and interest rate swap
transactions in lieu of in-kind securities. In accordance with the
Exemptive Order, the Fund also reserves the right to distribute to the
Authorized Participant non-conforming Fund Securities.
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\28\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, such transactions will be
effected in the same manner for all Authorized Participants.
---------------------------------------------------------------------------
The right of redemption may be suspended or the date of payment
postponed: (i) For any period during which the Exchange is closed
(other than customary weekend and holiday closings); (ii) for any
period during which trading on the Exchange is suspended or restricted;
(iii) for any period during which an emergency exists as a result of
which disposal of the Shares or determination of the Fund's NAV is not
reasonably practicable; or (iv) in such other circumstances as
permitted by the Commission.
For an order involving a Creation Unit to be effectuated at the
Fund's NAV on a particular day, it must be received by the Distributor
by or before the deadline for such order (``Order Cut-Off Time''). The
Order Cut-Off Time for creation and redemption orders for the Fund will
be 4:00 p.m. Eastern time. Orders for creation or redemption of
Creation Units for cash generally must be submitted by 4:00 p.m.
Eastern time. A standard creation or redemption transaction fee (as
applicable) will be imposed to offset transfer and other transaction
costs that may be incurred by the Fund.
Net Asset Value
The Fund will calculate its NAV by: (i) Taking the current market
value of its total assets; (ii) subtracting any liabilities; and (iii)
dividing that amount by the total number of Shares outstanding. The
Fund will calculate NAV once each business day as of the regularly
scheduled close of trading on the Exchange (normally, 4:00 p.m.,
Eastern Time) as described in its Registration Statement.
In calculating the Fund's NAV per Share, the Fund's investments
will be valued in accordance with procedures approved by the Trust's
Board of Trustees. These procedures, which may be changed by the
Trust's Board of Trustees from time to time, generally require
investments to be valued using market valuations. A market valuation
generally means a valuation (i) obtained from an exchange, a third-
party pricing service, or a major market maker (or dealer), (ii) based
on a price quotation or other equivalent indication of value supplied
by an exchange, a third-party pricing service, or a major market maker
(or dealer) or (iii) based on amortized cost. The Trust may use various
third-party pricing services, or discontinue the use of any third-party
pricing service, as determined by the Trust's Board of Trustees from
time to time.
The Trust will generally value exchange-listed securities (which
include common stocks and ETFs), exchange-listed options, and options
on the NASDAQ-100 Index or NASDAQ-100 ETFs at market closing prices;
or, if market closing prices are not available, then the midpoint
between the last reported bid and ask. Market closing price is
generally determined on the basis of last reported sales prices on the
applicable exchange, or if no sales are reported, based on the last
reported quotes. The Trust will generally value exchange-listed futures
at the settlement price determined by the applicable exchange. Non-
exchange-traded derivatives, including OTC options, swap transactions
and forward transactions, will normally be valued on the basis of
quotations or equivalent indication of value supplied by a third-party
pricing service or major market makers or dealers. Debt securities and
money market instruments generally will be valued based on prices
provided by third-party pricing services, which may use valuation
models or matrix pricing to determine current value. Investment company
securities (other than ETFs) will be valued at NAV. The Trust generally
will use amortized cost to value fixed income or money market
securities that have a remaining maturity of 60 days or less. In the
event that current market valuations are not readily available or such
valuations do not reflect current market value, the Trust's procedures
require the Adviser's Pricing Committee to determine a security's fair
value in accordance with the 1940 Act.\29\ In determining such value
the Adviser's Pricing Committee may consider, among other things, (i)
price comparisons among multiple sources, (ii) a review of corporate
actions and news events, and (iii) a review of relevant financial
indicators. In these cases, the Fund's NAV may reflect certain
portfolio securities' fair values rather than their market prices. Fair
value pricing involves subjective judgments and it is possible that the
fair value determination for a security is materially different than
the value that could be realized upon the sale of the security.
---------------------------------------------------------------------------
\29\ The Valuation Committee of the Trust Board will be
responsible for the oversight of the pricing procedures of the Fund
and the valuation of the Fund's portfolio. The Valuation Committee
has delegated day-to-day pricing responsibilities to the Adviser's
Pricing Committee, which will be composed of officers of the
Adviser. The Pricing Committee will be responsible for the valuation
and revaluation of any portfolio investments for which market
quotations or prices are not readily available. The Fund has
implemented procedures designed to prevent the use and dissemination
of material, non-public information regarding valuation and
revaluation of any portfolio investments.
---------------------------------------------------------------------------
Availability of Information
The Fund's Web site (www.realityshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded, as well as a
description of the rules and methodology applicable to the Fund. The
Fund's Web site will include additional quantitative information
updated on a daily basis, including, for the Fund: (1) The prior
business day's reported NAV, mid-point of the bid/ask spread at the
time of calculation of such NAV (the ``Bid/Ask Price''),\30\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters.
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\30\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
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On each business day, before commencement of trading in Shares in
the Regular Market Session on the Exchange, the Fund will disclose on
its Web site the identities and quantities of the portfolio of
securities and other assets (the ``Disclosed Portfolio'') held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the business day.\31\
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\31\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on such business day. Accordingly, the
Fund will be able to disclose at the beginning of the business day
the portfolio that will form the basis for the NAV calculation at
the end of the business day.
---------------------------------------------------------------------------
On a daily basis, the Adviser, on behalf of the Fund, will disclose
on the Fund's Web site the following information regarding each
portfolio holding, as applicable to the type of holding: ticker symbol,
CUSIP number or other identifier, if any; a description of the holding
(including the type of holding, such as the type of swap); the identity
of the security, commodity, index, or other asset or instrument
underlying the holding, if any; for
[[Page 24471]]
options, the option strike price; quantity held (as measured by, for
example, par value, notional value or number of shares, contracts or
units); maturity date, if any; coupon rate, if any; effective date, if
any; market value of the holding; and the percentage weighting of the
holdings in the Fund's portfolio. The Web site information will be
publicly available at no charge.
In addition, for the Fund, an estimated value, defined in Rule
5705(b)(3)(C) as the ``Intraday Indicative Value,'' will be
disseminated. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service,\32\ will be
based upon the current value for the components of the Disclosed
Portfolio and will be updated and widely disseminated and broadly
displayed at least every 15 seconds during the Regular Market Session
(currently 9:30 a.m. Eastern time). The Intraday Indicative Value will
be based on quotes and closing prices from the assets' local market and
may not reflect events that occur subsequent to the local market's
close. Premiums and discounts between the Intraday Indicative Value and
the market price may occur. This should not be viewed as a ``real
time'' update of the NAV per Share of the Fund, which is calculated
only once a day.
---------------------------------------------------------------------------
\32\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
---------------------------------------------------------------------------
The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
Intra-day, executable price quotations on the securities and other
assets held by the Fund will be available from major broker-dealer
firms or on the exchange on which they are traded, as applicable.
Intra-day price information will also be available through subscription
services, such as Bloomberg, Markit and Thomson Reuters, which can be
accessed by Authorized Participants and other investors. Specifically,
the intra-day, closing and settlement prices of the portfolio
securities and other Fund investments, including exchange-listed equity
securities (which include common stocks and ETFs), exchange-listed
futures, and exchange-listed options, will be readily available from
the national securities exchanges trading such securities, automated
quotation systems, published or other public sources, and, with respect
to OTC options, swaps and forwards, from third party pricing sources,
or on-line information services such as Bloomberg or Reuters. Price
information regarding investment company securities and ETFs will be
available from on-line information services and from the Web site for
the applicable investment company security. The intra-day, closing and
settlement prices of debt securities and money market instruments will
be readily available from published and other public sources or on-line
information services.
In addition, a basket composition file, which includes the security
names and quantities, as applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
NASDAQ via NSCC. The basket will represent one Creation Unit of the
Fund.
Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's annual and semi-annual
reports (together, ``Shareholder Reports''), and its Form N-CSR and
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports
will be available free upon request from the Fund, and those documents
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded
from the Commission's Web site at www.sec.gov. Information regarding
market price and 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 NASDAQ
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares and any underlying exchange-traded products. The value
of the Index will be published by one or more major market data vendors
every 15 seconds during the Regular Market Session. Information about
the Index constituents, the weighting of the constituents, the Index's
methodology and the Index's rules will be available at no charge on the
Index Provider's Web site at www.realityshares.com.
In addition, for the Fund, an estimated value, defined in Rule
5705(b)(3)(C) as the ``Intraday Indicative Value,'', [sic] will be
disseminated. Additional information regarding the Fund and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, Fund holdings disclosure policies, distributions and
taxes is included in the Registration Statement. All terms relating to
the Fund that are referred to, but not defined in, this proposed rule
change are defined in the Registration Statement.
Initial and Continued Listing
The Shares will be subject to Rule 5705, which sets forth the
initial and continued listing criteria applicable to Index Fund Shares.
The Exchange represents that, for initial and/or continued listing, the
Fund must be in compliance with Rule 10A-3 \33\ under the Act. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
---------------------------------------------------------------------------
\33\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Trading Halts and Trading Pauses
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. NASDAQ will halt or pause trading in
the Shares under the conditions specified in NASDAQ Rules 4120 and
4121, including the trading pauses under NASDAQ Rules 4120(a)(11) and
(12). Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
constituting the Disclosed Portfolio of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Trading in the Shares also will be
subject to Rules 5705(b)(1)(B) and 5705(b)(9)(B), which sets forth
circumstances under which Shares of the Fund may be halted.
If the IIV, the Index Value or the value of the Index Components is
not being disseminated as required, the Exchange may halt trading
during the day in which the disruption occurs; if the interruption
persists past the day in which it occurred, the Exchange will
[[Page 24472]]
halt trading no later than the beginning of the trading day following
the interruption. The Exchange will obtain a representation from the
Fund that the NAV for the Fund will be calculated daily and will be
made available to all market participants at the same time.
Trading Rules
NASDAQ deems the Shares to be equity securities, thus rendering
trading in the Shares subject to NASDAQ's existing rules governing the
trading of equity securities. NASDAQ will allow trading in the Shares
from 4:00 a.m. until 8:00 p.m. Eastern time. The Exchange has
appropriate rules to facilitate transactions in the Shares during all
trading sessions. As provided in Rule 4613(a)(2)(I), the minimum
quotation increment for quotations of $1.00 and above in Shares on the
Exchange is $0.01.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both NASDAQ and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\34\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
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\34\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and in the U.S. exchange-traded
options, exchange-traded futures, exchange-traded equities, and
exchange-traded investment company securities which the Fund will buy
or write with other markets. FINRA may obtain trading information
regarding trading in the Shares and in such U.S. exchange-traded
options from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares, and in
exchange-traded securities from markets and other entities that are
members of the Intermarket Surveillance Group (``ISG'') or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\35\ The Exchange may also obtain information from the Trade
Reporting and Compliance Engine (``TRACE''), which is the FINRA
developed vehicle that facilitates mandatory reporting of OTC secondary
market transactions in eligible fixed income securities.\36\
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\35\ A list of ISG members, which includes all U.S. national
securities exchanges and certain foreign exchanges, and which
enables ISG members to share surveillance data regarding trades on
the respective member exchanges, is available at www.isgportal.org.
\36\ All broker/dealers who are FINRA member firms have an
obligation to report transactions in corporate bonds to TRACE.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) NASDAQ Rule 2111A, which imposes
suitability obligations on NASDAQ members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the Index Value and Intraday Indicative Value will be disseminated; (4)
the risks involved in trading the Shares during the Pre-Market and
Post-Market Sessions when an updated Index Value and Intraday
Indicative Value will not be calculated or publicly disseminated; (5)
the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV Calculation Time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the
Distributor's Web site.
2. Statutory Basis
NASDAQ believes that the proposal is consistent with Section 6(b)
of the Act \37\ in general and Section 6(b)(5) of the Act \38\ in
particular in that it is 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 facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\37\ 15 U.S.C. 78f.
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NASDAQ Rule 5705, except that
the Index will consist of options based on U.S. Component Stocks (i.e.,
ETFs based on the NASDAQ-100 Index) and options on an index of U.S.
Component Stocks (i.e., the NASDAQ-100 Index), rather than U.S.
Component Stocks themselves. The Exchange believes that its
surveillance procedures are adequate to properly monitor the trading of
the Shares on NASDAQ during all trading sessions and to deter and
detect violations of Exchange rules and the applicable federal
securities laws.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. The Intraday Indicative
Value, available on the NASDAQ OMX Information LLC
[[Page 24473]]
proprietary index data service, will be widely disseminated by one or
more major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session. On each business day, before
commencement of trading in Shares in the Regular Market Session on the
Exchange, the Fund will disclose on the Distributor's Web site the
Disclosed Portfolio that will form the basis for the Fund's calculation
of NAV at the end of the business day. 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, and quotation and last sale information for
the Shares will also be available via NASDAQ proprietary quote and
trade services, as well as in accordance with the Unlisted Trading
Privileges and the Consolidated Tape Association plans for the Shares
and any underlying exchange-traded products. Intra-day, executable
price quotations of the securities and other assets held by the Fund
will be available from major broker-dealer firms or on the exchange on
which they are traded, if applicable. Intra-day price information will
also be available through subscription services, such as Bloomberg,
Markit and Thomson Reuters, which can be accessed by Authorized
Participants and other investors.
The Distributor's Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. Trading in Shares of the Fund will
be halted or paused under the conditions specified in NASDAQ Rules 4120
and 4121, including the trading pauses under NASDAQ Rules 4120(a)(11)
and (12). Trading may be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to NASDAQ Rule
5705(b)(1)(B), which sets forth circumstances under which Shares of the
Fund may be halted. In addition, as noted above, investors will have
ready access to information regarding the Fund's holdings, the Intraday
Indicative Value, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
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 in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. In addition, as noted above, investors will have ready
access to information regarding the Fund's holdings, the Intraday
Indicative Value, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
For the above reasons, NASDAQ believes 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 purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded fund that will enhance competition
among market participants, 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2014-038 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-2014-038. 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 Web site (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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2014-038 and should
be submitted on or before May 21, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09807 Filed 4-29-14; 8:45 am]
BILLING CODE 8011-01-P