Federal Register, Volume 81 Issue 84 (Monday, May 2, 2016)

[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26281-26285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10153]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77714; File No. SR-NASDAQ-2016-028]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, Relating to the Listing and Trading of the Shares of the
iSectors Post-MPT Growth ETF of ETFis Series Trust I

April 26, 2016.

I. Introduction

On February 23, 2016, The NASDAQ Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''

[[Page 26282]]

or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to list and trade shares (``Shares'') of the iSectors Post-MPT
Growth ETF (``Fund''), a series of ETFis Series Trust I (``Trust''),
under Nasdaq Rule 5735. The proposed rule change was published for
comment in the Federal Register on March 11, 2016.\3\ On April 14,
2016, (a) the Exchange filed Amendment No. 1 to the proposed rule
change,\4\ and (b) pursuant to Section 19(b)(2) of the Act,\5\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\6\ The Commission received no comments on the proposed rule
change. This order grants approval of the proposed rule change, as
modified by Amendment No. 1 thereto.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 77301 (Mar. 7,
2016), 81 FR 978 (``Notice'').
\4\ In Amendment No. 1, the Exchange clarified that: (a) all
statements and representations made in the proposal regarding the
description of the portfolio, limitations on portfolio holdings or
reference assets, or the applicability of Exchange rules and
surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange; (b) the issuer
will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements; (c) pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements; (d) if the Fund
is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series; (e) the Fund will not invest in inverse or inverse leveraged
ETPs (as defined herein); and (f) no more than 25% of the Fund's
holdings will be invested in leveraged ETPs. Because Amendment No. 1
to the proposed rule change does not materially alter the substance
of the proposed rule change or raise novel regulatory issues,
Amendment No. 1 is not subject to notice and comment. Amendment No.
1 to the proposed rule change is available at: http://www.sec.gov/comments/sr-nasdaq-2016-028/nasdaq2016028-1.pdf.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 77623 (Apr. 14,
2016), 81 FR 23333 (Apr. 20, 2016).
---------------------------------------------------------------------------

II. Exchange's Description of the Proposal

The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares on the Exchange. The Fund will be an actively
managed exchange-traded fund (``ETF''). The Shares will be offered by
the Trust,\7\ which is registered with the Commission as an investment
company and has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission.\8\ The Fund will be a
series of the Trust.
---------------------------------------------------------------------------

\7\ According to the Exchange, the Commission has issued an
order, upon which the Trust may rely, granting certain exemptive
relief under the Investment Company Act of 1940 (``1940 Act''). The
Exchange also states that, in compliance with Nasdaq Rule
5735(b)(5), which applies to Managed Fund Shares based on an
international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that the Fund will comply
with the federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the
securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933. See Notice, supra note 3, 81 FR at 12990.
\8\ See Notice, supra note 3, 81 FR at 12990. See Registration
Statement on Form N-1A for the Trust filed on December 2, 2015 (File
Nos. 333-187668 and 811-22819).
---------------------------------------------------------------------------

Virtus ETF Advisers LLC will be the investment adviser
(``Adviser'') to the Fund. iSectors, LLC will be the investment sub-
adviser (``Sub-Adviser'') to the Fund. ETF Distributors LLC will be the
principal underwriter and distributor of the Fund's Shares. The Bank of
New York Mellon will act as the administrator, accounting agent,
custodian, and transfer agent to the Fund. The Exchange states that,
while the Adviser and Sub-Adviser are not registered as broker-
dealers,\9\ the Adviser (but not the Sub-Adviser) is affiliated with a
broker-dealer. The Exchange represents that the Adviser has implemented
a fire wall with respect to that broker-dealer regarding access to
information concerning the composition of, and changes to, the
portfolio, and personnel who make decisions on the Fund's portfolio
composition will be subject to procedures designed to prevent the use
and dissemination of material, non-public information regarding the
portfolio.\10\
---------------------------------------------------------------------------

\9\ See Notice, supra note 3, 81 FR at 12990-12991.
\10\ The Exchange further represents that, in the event (a) the
Adviser or the Sub-Adviser registers as a broker dealer or becomes
newly affiliated with a broker-dealer, or (b) any new adviser or
sub-adviser is a registered broker-dealer or becomes affiliated with
another broker-dealer, it will implement a fire wall with respect to
its relevant personnel or broker-dealer affiliate, as applicable,
regarding access to information concerning the composition of, and
changes to, the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material, non-
public information regarding the portfolio. Id.
---------------------------------------------------------------------------

The Exchange has made the following representations and statements
in describing the Fund and its investment strategy, including the
Fund's portfolio holdings and investment restrictions.\11\
---------------------------------------------------------------------------

\11\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice and Registration Statement, supra notes 3 and
8, respectively.
---------------------------------------------------------------------------

A. Exchange's Description of the Fund's Principal Investments

The Fund's investment objective will be to provide growth of
capital, with a secondary emphasis on capital preservation, independent
of individual market conditions. The Fund will seek to achieve its
investment objective by utilizing a long-only, tactically-managed
exposure to sectors of the U.S. equity market and U.S. fixed income
markets. To obtain this exposure, the Sub-Adviser will invest, under
normal market conditions,\12\ the Fund's assets in: (1) ETFs,\13\
exchange-traded notes (``ETNs''),\14\ and exchange-traded trusts that
hold commodities (``ETTs'') (ETFs, ETNs, and ETTs, collectively,
``ETPs''); \15\ (2) individually selected U.S. exchange-traded common
stocks (when the Sub-Adviser determines that investing in them would be
more efficient or otherwise advantageous to do so); (3) money market
funds; (4) U.S. treasuries; \16\ or (5) money market

[[Page 26283]]

instruments. To the extent that the Fund invests in ETPs or money
market funds to gain domestic exposure, the Fund is considered, in
part, a ``fund of funds.'' \17\
---------------------------------------------------------------------------

\12\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the equity and fixed income markets
or the financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption, or any similar intervening circumstance. See Notice,
supra note 3, 81 FR at 12991.
\13\ According to the Exchange, ETFs included in the Fund will
be listed and traded in the U.S. on registered exchanges. The Fund
may invest in the securities of ETFs in excess of the limits imposed
under the 1940 Act pursuant to exemptive orders obtained by other
ETFs and their sponsors from the Commission. The ETFs in which the
Fund may invest include Index Fund Shares (as described in Nasdaq
Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule
5735). The shares of ETFs in which a Fund may invest will be limited
to securities that trade in markets that are members of the
Intermarket Surveillance Group (``ISG''), which includes all U.S.
national securities exchanges, or are parties to a comprehensive
surveillance sharing agreement with the Exchange. See infra note 15.
\14\ The ETNs are limited to those described in Nasdaq Rule
5710.
\15\ The Fund may invest in the following ETPs: Trust
Certificates, Commodity-Based Trust Shares, Currency Trust Shares,
Commodity Index Trust Shares, Commodity Futures Trust Shares,
Partnership Units, Trust Units, and Managed Trust Securities (each
as described in Nasdaq Rule 5711); Paired Class Shares (as described
in Nasdaq Rule 5713); Trust Issued Receipts (as described in Nasdaq
Rule 5720); and Exchange-Traded Managed Fund Shares (as described in
Nasdaq Rule 5745). See Notice, supra note 3, at 12991. The Fund may
invest in leveraged ETPs (e.g., 2X or 3X), but will not invest in
inverse or inverse leveraged ETPs (e.g., -1X or -2X). In addition,
no more than 25% of the Fund's holdings will be invested in
leveraged ETPs. See Amendment No. 1, supra note 4.
\16\ These securities will include securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S.
government, or by various instrumentalities, which have been
established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the ``full faith and credit'' of the U.S.
government. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed
by the full faith and credit of the U.S. government. See Notice,
supra note 3, 81 FR at 12991.
\17\ See id.
---------------------------------------------------------------------------

B. Exchange's Description of Other Investments for the Fund

In order to seek its investment objective, the Fund will not employ
other strategies outside of the above-described ``Principal
Investments.'' \18\
---------------------------------------------------------------------------

\18\ See id.
---------------------------------------------------------------------------

C. Exchange's Description of the Fund's Investment Restrictions

According to the Exchange, under normal market conditions, the Fund
anticipates investing its total assets in shares of ETPs, individually
selected U.S. exchange-traded common stocks, money market funds, U.S.
treasuries, or money market instruments.\19\ The Fund will not purchase
securities of open-end investment companies except in compliance with
the 1940 Act. The Fund will not use derivative instruments, including
options, swaps, forwards, and futures contracts.
---------------------------------------------------------------------------

\19\ According to the Exchange, for temporary defensive
purposes, during the initial invest-up period, and during periods of
high cash inflows or outflows, the Fund may depart from its
principal investment strategies. For example, it may hold a higher
than normal proportion of its assets in cash. During these periods,
the Fund may not be able to achieve its investment objective. The
Fund may adopt a defensive strategy when the Adviser believes
securities in which the Fund normally invests have elevated risks
due to political or economic factors and in other extraordinary
circumstances.
---------------------------------------------------------------------------

The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities and other illiquid assets (calculated at
the time of investment). 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 securities or other illiquid assets. Illiquid securities and
other 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.
The Exchange states that the Fund intends to qualify for and to
elect to be treated as a separate regulated investment company under
Subchapter M of the Internal Revenue Code. In addition, under the 1940
Act, the Fund's investment in investment companies will be limited to,
subject to certain exceptions: (i) 3% Of the total outstanding voting
stock of any one investment company; (ii) 5% of the Fund's total assets
with respect to any one investment company; and (iii) 10% of the Fund's
total assets with respect to investment companies in the aggregate.\20\
---------------------------------------------------------------------------

\20\ See Notice, supra note 3, 81 FR at 12991.
---------------------------------------------------------------------------

The Fund's investments will be consistent with its investment
objective. The Fund does not presently intend to engage in any form of
borrowing for investment purposes, and it will not be operated as a
``leveraged ETF,'' i.e., it will not be operated in a manner designed
to seek a multiple of the performance of an underlying reference
index.\21\
---------------------------------------------------------------------------

\21\ Id. at 12991-12992.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

After careful review, the Commission finds that the Exchange's
proposal is consistent with the Exchange Act and the rules and
regulations thereunder applicable to a national securities
exchange.\22\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Exchange Act,\23\ which requires, among other
things, that the Exchange's rules be designed 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.
---------------------------------------------------------------------------

\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Commission also finds that the proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Exchange Act,\24\ which sets forth the
finding of Congress that it is in the public interest and appropriate
for the protection of investors and the maintenance of fair and orderly
markets to assure the availability to brokers, dealers, and investors
of information with respect to quotations for, and transactions in,
securities. Quotation and last-sale information for the Shares and any
underlying ETPs 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.\25\ On each business day, before commencement of trading in
Shares in the Regular Market Session \26\ on the Exchange, the Fund
will disclose on its Web site the identities and quantities of the
portfolio of securities and other assets (``Disclosed Portfolio,'' as
defined in Nasdaq Rule 5735(c)(2)) held by the Fund that will form the
basis for the Fund's calculation of NAV at the end of the business
day.\27\ In addition, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service \28\ will be
based upon the current value for the components of the Disclosed
Portfolio and will be updated and widely disseminated by one or more
major market data vendors and broadly displayed at least every 15
seconds during the Regular Market Session.\29\ The Fund's NAV will be
determined as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. E.T.) on each day that the New York Stock
Exchange is

[[Page 26284]]

open.\30\ The 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.\31\ 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. The previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.\32\ Price information regarding the
ETPs, equity securities, U.S. treasuries, money market instruments, and
money market funds held by the Fund will be available through the U.S.
exchanges trading these assets, in the case of exchange-traded
securities, as well as automated quotation systems, or published or
other public sources. Intra-day price information for all assets held
by the Fund will also be available through subscription services, such
as Bloomberg, Markit, and Thomson Reuters, which can be accessed by
authorized participants and other investors.
---------------------------------------------------------------------------

\24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\25\ See Notice, supra note 3, 81 FR at 12993.
\26\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to
9:30 a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00
p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4:00 p.m.
or 4:15 p.m. to 8:00 p.m. E.T.).
\27\ 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 that 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. See Notice, supra note 3, 81 FR at
12993. The daily disclosure will include for each portfolio security
and other asset of the Fund the following information on the Fund's
Web site (if applicable): Ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type
of holding); the identity of the security, commodity, index, or
other asset or instrument underlying the holding, if any; 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. See id.
\28\ Currently, the Nasdaq Global Index Data Service (``GIDS'')
is the Nasdaq global index data feed service, offering real-time
updates, daily summary messages, and access to widely followed
indexes and Intraday Indicative Values for ETFs. The Exchange
represents that 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. See id.
\29\ See id.
\30\ According to the Exchange, the Fund's investments will be
valued at market value (i.e., the price at which a security is
trading and could presumably be purchased or sold) or, in the
absence of market value with respect to any investment, at fair
value in accordance with valuation procedures adopted by the Trust's
Board (``Board'') and in accordance with the 1940 Act. Common stocks
and equity securities (including shares of ETPs) will be valued at
the last sales price on that exchange. Portfolio securities traded
on more than one securities exchange will be valued at the last sale
price or, if so disseminated by an exchange, the official closing
price, as applicable, at the close of the exchange representing the
principal exchange or market for these securities on the business
day as of which the value is being determined. U.S. treasuries are
valued using quoted market prices, and money market funds are valued
at the net asset value reported by the funds. Money market
instruments will typically be valued using information provided by a
third-party pricing service. For all security types in which the
Fund may invest, the Fund's primary pricing source is Interactive
Data Corp.; its secondary source is Reuters; and its tertiary source
is Bloomberg. Certain securities may not be able to be priced by
pre-established pricing methods. These securities may be valued by
the Board or its delegate at fair value. The use of fair value
pricing by the Fund will be governed by valuation procedures adopted
by the Board and in accordance with the provisions of the 1940 Act.
All valuations will be subject to review by the Board or its
delegate. See id. at 12992.
\31\ See id. at 12993.
\32\ See id.
---------------------------------------------------------------------------

The Commission also believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange states that it 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\ Nasdaq will
halt 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). In addition, trading may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable.\34\ Trading in the Shares also
will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth
additional circumstances under which Shares of the Fund may be
halted.\35\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees.\36\ In addition, the Exchange states that, while the Adviser
and Sub-Adviser are not registered as broker-dealers, the Adviser (but
not the Sub-Adviser) is affiliated with a broker-dealer and has
implemented a fire wall with respect to that broker-dealer regarding
access to information concerning the composition of, and changes to,
the portfolio.\37\ Further, the Commission notes that the Reporting
Authority \38\ that provides the Disclosed Portfolio must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material, non-public information regarding the actual
components of the portfolio.\39\ The Exchange represents that trading
in the Shares will be subject to the existing trading surveillances,
administered by both Nasdaq and 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.\40\
---------------------------------------------------------------------------

\33\ See id. at 12994.
\34\ The Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares
of the Fund. These may include: (1) The extent to which trading is
not occurring in the securities and other assets 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. See id.
\35\ See id.
\36\ See id.
\37\ See id. at 12990; see also supra note 10 and accompanying
text. The Exchange further represents that an investment adviser to
an open-end fund is required to be registered under the Investment
Advisers Act of 1940 (``Advisers Act''). As a result, the Adviser,
the Sub-Adviser, and their 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. See Notice, supra note 3, 81 FR at 12990-
12991.
\38\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
\39\ See Nasdaq Rule 5735(d)(2)(B)(ii).
\40\ According to the Exchange, FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement, and the
Exchange is responsible for FINRA's performance under this
regulatory services agreement. See Notice, supra note 3, 81 FR at
12994.
---------------------------------------------------------------------------

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. In support of this proposal, the Exchange
has represented that:
(1) The Shares will be subject to Nasdaq Rule 5735, which sets
forth the initial and continued listing criteria applicable to Managed
Fund Shares.
(2) Nasdaq's surveillance procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
detect and help deter violations of Exchange rules and applicable
federal securities laws.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and other exchange-traded securities
and instruments, including the common stock and shares held by the Fund
with other markets and other entities that are members of the ISG,\41\
and FINRA may obtain trading information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from those markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares and the
exchange-traded securities and instruments held by the Fund from
markets and other entities that are members of ISG,\42\ or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed-income securities held by
the Fund

[[Page 26285]]

reported to FINRA's Trade Reporting and Compliance Engine.
---------------------------------------------------------------------------

\41\ For a list of the current members of ISG, see
www.isgportal.org.
\42\ Id.
---------------------------------------------------------------------------

(4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(5) Prior to 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: (a) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how information regarding
the Intraday Indicative Value and Disclosed Portfolio is disseminated;
(d) the risks involved in trading the Shares during the Pre-Market and
Post-Market Sessions when an updated Intraday Indicative Value will not
be calculated or publicly disseminated; (e) the requirement that
members deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading information.
(6) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\43\
---------------------------------------------------------------------------

\43\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

(7) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets.
(8) The Fund may invest in leveraged ETPs (e.g., 2X or 3X), but
will not invest in inverse or inverse leveraged ETPs (e.g., -1X or -
2X). In addition, no more than 25% of the Fund's holdings will be
invested in leveraged ETPs.
(9) The Fund will not use derivative instruments, including
options, swaps, forwards, and futures contracts.
(10) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the exchange.
The Exchange represents that all statements and representations
made in the filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures shall
constitute continued listing requirements for listing the Shares on the
Exchange. In addition, the issuer has represented to the Exchange that
it will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements, and, pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements.\44\ If the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series.
---------------------------------------------------------------------------

\44\ The Commission notes that certain other proposals for the
listing and trading of Managed Fund Shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (SR-BATS-2016-04)
(approving a proposed rule change to list and trade shares of the
SPDR DoubleLine Short Duration Total Return Tactical ETF), available
at: http://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the
context of this representation, it is the Commission's view that
``monitor'' and ``surveil'' both mean ongoing oversight of the
Fund's compliance with the continued listing requirements.
Therefore, the Commission does not view ``monitor'' as a more or
less stringent obligation than ``surveil'' with respect to the
continued listing requirements.
---------------------------------------------------------------------------

This approval order is based on all of the Exchange's
representations, including those set forth above, in the Notice, and in
Amendment No. 1 to the proposed rule change. The Commission notes that
the Fund and the Shares must comply with the requirements of Nasdaq
Rule 5735, including those set forth in this proposed rule change, as
modified by Amendment No. 1 thereto, to be listed and traded on the
Exchange on an initial and continuing basis.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Act \45\ and the rules and regulations
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

\45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\46\ that the proposed rule change (SR-NASDAQ-2016-028),
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

\46\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

\47\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10153 Filed 4-29-16; 8:45 am]
BILLING CODE 8011-01-P