46200 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 82439 

(Jan. 3, 2018), 83 FR 1062 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 82757, 

83 FR 8532 (Feb. 27, 2018). The Commission 

designated April 9, 2018, as the date by which the 

Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6See Securities Exchange Act Release No. 83007, 

83 FR 15883 (Apr. 12, 2018) (‘‘OIP’’). The 

Commission designated July 8, 2018, as the date by 

which the Commission shall approve or disapprove 

the proposed rule change. 

7See Securities Exchange Act Release No. 83588, 

83 FR 31827 (Jul. 9, 2018). The Commission 

extended the date by which the Commission shall 

approve or disapprove the proposed rule change to 

September 6, 2018. 

problems with ADAMS, please contact 

the NRC’s Public Document Room (PDR) 

reference staff at 1–800–397–4209, 301– 

415–4737, or by email to pdr.resource@

nrc.gov. The supporting statement and 

Application for NRC Export or Import 

License, Amendment, Renewal, or 

Consent Request(s) are available in 

ADAMS under Accession Nos. 

ML18180A163 and ML18179A369. 

• NRC’s PDR: You may examine and 

purchase copies of public documents at 

the NRC’s PDR, Room O1–F21, One 

White Flint North, 11555 Rockville 

Pike, Rockville, Maryland 20852. 

• NRC’s Clearance Officer: A copy of 

the collection of information and related 

instructions may be obtained without 

charge by contacting the NRC’s 

Clearance Officer, David Cullison, 

Office of the Chief Information Officer, 

U.S. Nuclear Regulatory Commission, 

Washington, DC 20555–0001; telephone: 

301–415–2084; email: 

INFOCOLLECTS.Resource@NRC.GOV. 

B. Submitting Comments 

The NRC cautions you not to include 

identifying or contact information in 

comment submissions that you do not 

want to be publicly disclosed in your 

comment submission. All comment 

submissions are posted at http://

www.regulations.gov and entered into 

ADAMS. Comment submissions are not 

routinely edited to remove identifying 

or contact information. 

If you are requesting or aggregating 

comments from other persons for 

submission to the OMB, then you 

should inform those persons not to 

include identifying or contact 

information that they do not want to be 

publicly disclosed in their comment 

submission. Your request should state 

that comment submissions are not 

routinely edited to remove such 

information before making the comment 

submissions available to the public or 

entering the comment into ADAMS. 

II. Background 

Under the provisions of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. chapter 35), the NRC recently 

submitted a request for renewal of an 

existing collection of information to 

OMB for review entitled, NRC Form 7, 

‘‘NRC Form 7, Application for NRC 

Export/Import License, Amendment, 

Renewal or Consent Request(s).’’ The 

NRC hereby informs potential 

respondents that an agency may not 

conduct or sponsor, and that a person is 

not required to respond to, a collection 

of information unless it displays a 

currently valid OMB control number. 

The NRC published a Federal 

Register notice with a 60-day comment 

period on this information collection on 

April 26, 2018, pp. 18356–18357. No 

comments were received. 

1. The title of the information 

collection: NRC Form 7, Application for 

NRC Export/Import License, 

Amendment, Renewal or Consent 

Request(s). 

2. OMB approval number: 3150–0027. 

3. Type of submission: Extension. 

4. The form number if applicable: 

NRC Form 7. 

5. How often the collection is required 

or requested: On occasion. 

6. Who will be required or asked to 

respond: Any person in the U.S. who 

wishes to export or import (a) nuclear 

material and equipment subject to the 

requirements of a specific license; (b) 

amend a license; (c) renew a license; (d) 

obtain consent to export Category 1 

quantities of materials listed in 

Appendix P to 10 CFR part 110; or (5) 

request an exemption from a licensing 

requirement under Part 110. 

7. The estimated number of annual 

responses: 85. 

8. The estimated number of annual 

respondents: 85. 

9. An estimate of the total number of 

hours needed annually to comply with 

the information collection requirement 

or request: 204. 

10. Abstract: Persons in the U.S. 

wishing to export or import nuclear 

material or equipment, who are required 

to obtain a specific license, amendment, 

license renewal, obtain consent to 

export Category 1 quantities of 

byproduct material listed in Appendix P 

to 10 CFR part 110 or request an 

exemption from a licensing requirement 

under Part 110. The NRC Form 7 

application will be reviewed by the NRC 

and by the Executive Branch, and if 

applicable statutory, regulatory, and 

policy considerations are satisfied, the 

NRC will issue an export, import, 

amendment or renewal license. 

Dated at Rockville, Maryland, on 

September 7, 2018. 

For the Nuclear Regulatory Commission. 

David C. Cullison, 

NRC Clearance Officer, Office of the Chief 

Information Officer. 

[FR Doc. 2018–19859 Filed 9–11–18; 8:45 am] 

BILLING CODE 7590–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84047; File No. SR– 

NASDAQ–2017–128] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Amendment No. 3 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment No. 3, To List and Trade 

Shares of the Western Asset Total 

Return ETF 

September 6, 2018. 

I. Introduction 

On December 20, 2017, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the Western Asset Total 

Return ETF (‘‘Fund’’), a series of Legg 

Mason ETF Investment Trust (‘‘Trust’’), 

under Nasdaq Rule 5735 (Managed 

Fund Shares). The proposed rule change 

was published for comment in the 

Federal Register on January 9, 2018.3

On February 21, 2018, pursuant to 

Section 19(b)(2) of the Act,4 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change.5 On April 6, 

2018, the Commission instituted 

proceedings under Section 19(b)(2)(B) of 

the Act to determine whether to approve 

or disapprove the proposed rule 

change.6 On July 3, 2018, the 

Commission designated a longer period 

for Commission action on the 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.7 On July 30, 2018, the 


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8 In Amendment No. 3, the Exchange: (1) 

Provided that the Fund’s investments in ABS/ 

Private MBS (as defined below) (excluding, for the 

purposes of the rule filing, CDOs (as defined 

below)) would be limited to 20% of the weight of 

the fixed income portion of the Fund’s portfolio, 

and that the Fund’s holdings in CDOs would be 

limited to 10% of the Fund’s total assets; (2) 

clarified the types of Debt (as defined below) in 

which the Fund may invest, and that, for purposes 

of the proposed rule change, bank loans would be 

classified as Debt rather than fixed income 

securities and would not meet the generic 

requirements for fixed income securities set forth in 

Nasdaq Rule 5735(b)(1)(B) but would instead 

comply with the alternative limitations proposed 

for Debt holdings of the Fund as further described 

below; (3) stated that the Fund would not invest 

more than 20% of its total assets in Debt that is 

unsecured and subordinated; (4) stated that, for 

purposes of the proposed rule change, in applying 

the generic requirements for fixed income securities 

set forth in Nasdaq Rule 5735(b)(1)(B), the terms 

‘‘fixed income weight of the portfolio’’ and ‘‘weight 

of the fixed income portion of the portfolio’’ would 

be interpreted to include all fixed income securities 

and Debt held by the Fund as well as derivatives 

held by the Fund that provide exposure to fixed 

income securities or Debt; (5) stated that no more 

than 10% of the Fund’s total assets would be 

invested in exchange-listed securities and 

Exchange-Traded Derivatives (as defined below) 

that are listed and traded on an exchange that is not 

an ISG (as defined below) member or does not have 

a comprehensive surveillance sharing agreement 

(‘‘CSSA’’) with the Exchange; (6) clarified that, for 

purposes of the proposed rule change, FixedIncome Related Warrants (as defined below) are 

treated as fixed income securities and would be 

subject to and comply with the generic listing 

requirements for fixed income securities rather than 

the requirements applicable to equity securities; (7) 

clarified the types of derivatives in which the Fund 

may invest and the reference assets for such 

derivatives; (8) stated that the Fund expects that it 

will primarily issue and redeem Creation Units (as 

defined below) for cash, that orders to create or 

redeem Creation Units must be received from 9 

a.m., E.T., to 10 a.m., E.T. on a given business day, 

in order to receive the NAV (as defined below) 

determined on the business day the order was 

placed, and that when the Fund permits Creation 

Units to be issued in-kind, the Fund will cause to 

be published by the National Securities Clearing 

Corporation, on each business day, at or before 9 

a.m., E.T., the identity and the required number of 

each deposit security and the amount of the cash 

component, if any, to be included in the Fund 

Deposit (as defined below); (9) provided additional 

information about sources of price information for 

the Fund’s proposed holdings; (10) provided 

additional justification as to why the listing and 

trading of the Shares is consistent with the Act even 

though certain of the Fund’s proposed holdings 

would not meet the generic listing standards for 

Managed Fund Shares set forth in Nasdaq Rule 

5735(b)(1); and (11) made other clarifications, 

corrections, and technical changes. 

9A Managed Fund Share is a security that 

represents an interest in a company, which is 

registered under the Investment Company Act of 

1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) and 

organized as an open-end investment company or 

similar entity, that invests in a portfolio of 

securities selected by its investment adviser 

consistent with the company’s investment objective 

and policies. In contrast, an open-end investment 

company that issues Index Fund Shares, listed and 

traded on the Exchange under Nasdaq Rule 5705, 

seeks to provide investment results that correspond 

generally to the price and yield performance of a 

specific foreign or domestic stock index, fixed 

income securities index or combination thereof. 

10The 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. 32391 

(December 13, 2016) (File No. 812–14547) (the 

‘‘Exemptive Relief’’). In addition, on December 6, 

2012, the staff of the Commission’s Division of 

Investment Management (‘‘Division’’) issued a noaction letter (‘‘No-Action Letter’’) relating to the use 

of derivatives by actively-managed ETFs. See NoAction Letter dated December 6, 2012 from 

Elizabeth G. Osterman, Associate Director, Office of 

Exemptive Applications, Division of Investment 

Management. The No-Action Letter stated that the 

Division would not recommend enforcement action 

to the Commission under applicable provisions of 

and rules under the 1940 Act if actively-managed 

ETFs operating in reliance on specified orders 

(which include the Exemptive Relief) invest in 

options contracts, futures contracts or swap 

agreements provided that they comply with certain 

representations stated in the No-Action Letter. 

11See, e.g., Securities Exchange Act Release Nos. 

76719 (December 21, 2015), 80 FR 80859 (December 

28, 2015) (SR–NYSEArca–2015–73) (granting 

approval for the listing of shares of the Guggenheim 

Total Return Bond ETF); 66321 (February 3, 2012), 

77 FR 6850 (February 9, 2012) (SR–NYSEArca– 

2011–95) (granting approval for the listing of shares 

of the PIMCO Total Return Exchange Traded Fund 

(now known as the PIMCO Active Bond ExchangeTraded Fund)); and 72666 (July 24, 2014), 79 FR 

44224 (July 30, 2014) (SR–NYSEArca–2013–122) 

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund); see 

also infra notes 84 and 102. 

12See Post-Effective Amendment No. 53 to the 

Registration Statement on Form N–1A for the Trust 

(File Nos. 333–206784 and 811–23096) as filed on 

July 30, 2018. The Trust will file additional 

amendments to the Registration Statement as 

necessary to conform to the representations in this 

filing. The descriptions of the Fund and the Shares 

contained herein are based, in part, on information 

in the Registration Statement. 

13Legg Mason Partners Fund Advisor, LLC 

describes its role as ‘‘investment manager’’ rather 

than as ‘‘investment adviser’’ in applicable Fundrelated documents, including the Registration 

Statement, in its investment management agreement 

with the Fund and in connection with its annual 

approval process by the board of trustees for the 

Trust (the ‘‘Board’’). As a result, the defined term 

‘‘Manager’’ is used in this filing with respect to a 

proposed rule change instead of the term 

‘‘investment adviser,’’ which is the term used by 

certain other investment advisers to ETFs in their 

filings with respect to proposed rule changes under 

Rule 19b–4 of the Act. 

14The Sub-Adviser is responsible for the day-today management of the Fund and, as such, typically 

makes all decisions with respect to portfolio 

holdings regardless of where the instruments are 

traded. The Manager has ongoing oversight 

responsibility. 

15Each of the Sub-Sub-Advisers provides 

advisory services to the Fund relating to the Fund’s 

investments. Sub-Sub-Advisers advise primarily on 

instruments traded in the region in which the SubSub-Adviser is located, but they may advise on 

portfolio instruments held by the Fund that are 

traded in other regions. Western Asset London 

generally advises on the Fund’s portfolio holdings 

in non-U.S. and non-Asian investment instruments 

and currencies (including through ETFs and 

Continued 

Exchange filed Amendment No. 1 to the 

proposed rule change, which replaced 

and superseded the proposed rule 

change in its entirety. On August 27, 

2018, the Exchange filed Amendment 

No. 2 to the proposed rule change, 

which replaced and superseded the 

proposed rule change, as modified by 

Amendment No. 1, in its entirety. On 

September 5, 2018, the Exchange filed 

Amendment No. 3 to the proposed rule 

change, which replaced and superseded 

the proposed rule change, as modified 

by Amendment Nos. 1 and 2, in its 

entirety.8 The Commission has received 

no comments on the proposed rule 

change. The Commission is publishing 

notice of the filing of Amendment No. 

3 to solicit comment from interested 

persons and is approving the proposed 

rule change, as modified by Amendment 

No. 3, on an accelerated basis. 

II. Exchange’s Description of the 

Proposal, as Modified by Amendment 

No. 3 

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 5735, which governs the 

listing and trading of Managed Fund 

Shares 9 on the Exchange. The Fund will 

be an exchange-traded fund (‘‘ETF’’) 

that is actively-managed. The Shares 

will be offered by the Trust, which was 

established as a Maryland statutory trust 

on June 8, 2015.10 The Exchange notes 

that other actively-managed, broad 

market fixed-income ETFs have been 

previously approved by the SEC prior to 

the adoption of ‘‘generic’’ listing 

standards for actively-managed ETFs.11

The Trust is registered with the 

Commission as an investment company 

under the 1940 Act and has filed a 

registration statement on Form N–1A 

(‘‘Registration Statement’’) with the 

Commission with respect to the Fund.12

The Fund will be a series of the Trust. 

The Fund intends to qualify each year 

as a regulated investment company 

(‘‘RIC’’) under Subchapter M of the 

Internal Revenue Code of 1986, as 

amended. 

Legg Mason Partners Fund Advisor, 

LLC will be the investment manager 

(‘‘Manager’’) 13 to the Fund. Western 

Asset Management Company, LLC will 

serve as the sub-adviser to the Fund (the 

‘‘Sub-Adviser’’) 14 and Western Asset 

Management Company Limited in 

London (‘‘Western Asset London’’), 

Western Asset Management Company 

Pte. Ltd. in Singapore (‘‘Western Asset 

Singapore’’) and Western Asset 

Management Company Ltd in Japan 

(‘‘Western Asset Japan’’) will each serve 

as the sub-sub-advisers to the Fund 

(collectively, the ‘‘Sub-Sub-Advisers’’ 

and each, a ‘‘Sub-Sub-Adviser’’).15


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derivative instruments that provide exposure to 

those instruments and currencies); Western Asset 

Japan generally advises on the Fund’s portfolio 

holdings in Japanese investment instruments and 

currencies (including through ETFs and derivative 

instruments that provide exposure to those 

instruments and currencies); and Western Asset 

Singapore generally advises on the Fund’s portfolio 

holdings in non-Japan, Asian investment 

instruments and currencies (including through 

ETFs and derivative instruments that provide 

exposure to those instruments and currencies). 

16An investment adviser to an investment 

company is required to be registered under the 

Investment Advisers Act of 1940 (the ‘‘Advisers 

Act’’). The Manager and the Sub-Advisers, as 

registered investment advisers, and their related 

personnel are subject to the provisions of Rule 

204A–1 under the Advisers Act relating to codes of 

ethics. Rule 204A–1 requires investment advisers 

(such as the Manager and the Sub-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 the Manager and the Sub-Advisers 

must be consistent with the Advisers Act and Rule 

204A–1 thereunder. In addition, Rule 206(4)–7 

under the Advisers Act makes it unlawful for an 

investment adviser (such as the Manager and the 

Sub-Advisers) 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. 

17The effective duration of the Fund may fall 

outside of its expected range due to market 

movements. If this happens, the Sub–Advisers will 

take action to bring the Fund’s effective duration 

back within its expected range within a reasonable 

period of time. 

18The term ‘‘Normal Market Conditions’’ has the 

meaning set forth in Nasdaq Rule 5735(c)(5). The 

Fund may vary from ordinary parameters on a 

temporary basis, including for defensive purposes, 

during the initial invest-up period (i.e., the six-week 

period following the commencement of trading of 

Shares on the Exchange) and during periods of high 

cash inflows or outflows (i.e., rolling periods of 

seven calendar days during which inflows or 

outflows of cash, in the aggregate, exceed 10% of 

the Fund’s assets as of the opening of business on 

the first day of such periods). In those situations, 

the Fund may depart from its principal investment 

strategies and may, for example, hold a higher than 

normal proportion of its assets in cash and cash 

equivalents. During such periods, the Fund may not 

be able to achieve its investment objective. The 

Fund may also adopt a defensive strategy and hold 

a significant portion of its assets in cash and cash 

equivalents when the Manager or any Sub–Adviser 

believes securities, Debt and other instruments in 

which the Fund normally invests have elevated 

risks due to political or economic factors, 

heightened market volatility or in other 

extraordinary circumstances that do not constitute 

‘‘Normal Market Conditions’’. The Fund’s 

investments in cash equivalents are described in 

greater detail in note 28 infra. 

19As noted below, the Fund will not invest more 

than 30% of its total assets in fixed income or 

equity securities or Debt of non-U.S. issuers or more 

than 25% of its total assets directly in non-U.S. 

dollar denominated fixed income or equity 

securities or Debt. As a result, although the Fund 

does intend to invest in foreign instruments as 

described above, the size of such investments will 

be limited. See infra ‘‘Investment Restrictions.’’ 

20The ETFs in which the Fund may invest 

include Index Fund Shares (as described in Nasdaq 

Rule 5705(b)), Portfolio Depositary Receipts (as 

described in Nasdaq Rule 5705(a)), and Managed 

Fund Shares (as described in Nasdaq Rule 5735). 

The Fund will not invest in ETFs that are not 

registered as investment companies under the 1940 

Act. The ETFs held by the Fund will invest in fixed 

income securities, Debt, money-market instruments 

and other Principal Investments to which the Fund 

seeks exposure. All such ETFs will trade in markets 

that are members of the ISG or exchanges that are 

parties to a comprehensive surveillance sharing 

agreement with the Exchange. The Fund will not 

invest in leveraged ETFs, inverse ETFs, or inverse 

leveraged ETFs. Other fixed-income funds have 

been approved to include ETFs in their 80% 

principal investment category. See, e.g., Securities 

Exchange Act Release No. 80946 (June 15, 2017), 82 

FR 28126 (June 20, 2017) (SR–NASDAQ–2017–039) 

(approving fund seeking to meet its investment 

objective of having at least 80% of assets invested 

in a portfolio of debt instruments in part through 

investments in ETFs that invest substantially all of 

their assets in such debt instruments). 

21 Derivatives will include: (i) Swaps and 

security-based swaps, futures, options, options on 

futures, and swaptions that are traded on an 

exchange, trading facility, swap execution facility 

or alternative trading system (‘‘Exchange-Traded 

Derivatives’’) (A) that is a member of the 

Intermarket Surveillance Group (‘‘ISG’’), which 

includes all U.S. national securities exchanges and 

Hereinafter, references to ‘‘Sub-Adviser’’ 

or ‘‘Sub-Advisers’’ include the SubAdviser and each applicable Sub-SubAdviser. Legg Mason Investor Services, 

LLC (the ‘‘Distributor’’) will be the 

distributor of the Fund’s Shares. The 

Manager, each of the Sub-Advisers and 

the Distributor are wholly-owned 

subsidiaries of Legg Mason, Inc. (‘‘Legg 

Mason’’). An entity that is not affiliated 

with Legg Mason, and which is named 

in the Registration Statement, will act as 

the administrator, accounting agent, 

custodian, and transfer agent to the 

Fund. 

Paragraph (g) of Rule 5735 provides 

that if the investment adviser to the 

investment company issuing Managed 

Fund Shares is affiliated with a brokerdealer, such investment adviser shall 

erect and maintain a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company’s portfolio.16 In addition, 

paragraph (g) further requires that 

personnel who make decisions on the 

investment company’s portfolio 

composition must be subject to 

procedures designed to prevent the use 

and dissemination of material, nonpublic information regarding the 

investment company’s portfolio. 

Rule 5735(g) is similar to Nasdaq Rule 

5705(b)(5)(A)(i); however, paragraph (g) 

in connection with the establishment 

and maintenance of a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer reflects the applicable 

investment company’s portfolio, not an 

underlying benchmark index, as is the 

case with index-based funds. None of 

the Manager or any of the Sub–Advisers 

is a broker-dealer, but each is affiliated 

with the Distributor, a broker-dealer, 

and has implemented and will maintain 

a fire wall with respect to its brokerdealer affiliate regarding access to 

information concerning the composition 

and/or changes to the portfolio. 

In addition, personnel who make 

decisions on the Fund’s portfolio 

composition will be subject to 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding the Fund’s 

portfolio. In the event (a) the Manager 

or any of the Sub–Advisers registers as 

a broker-dealer or becomes newly 

affiliated with a broker-dealer, or (b) any 

new investment adviser or any new 

sub–adviser to the Fund is a registered 

broker-dealer or becomes affiliated with 

another broker-dealer, it will implement 

and maintain 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 Fund’s portfolio and will 

be subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

Western Asset Total Return ETF 

Principal Investments 

The investment objective of the Fund 

will be to seek to maximize total return, 

consistent with prudent investment 

management and liquidity needs. 

Although the Fund may invest in 

securities and Debt (as defined below) of 

any maturity, the Fund will normally 

maintain an effective duration as set 

forth in the prospectus.17 Effective 

duration seeks to measure the expected 

sensitivity of market price to changes in 

interest rates, taking into account the 

anticipated effects of structural 

complexities (for example, some bonds 

can be prepaid by the issuer). 

Under Normal Market Conditions,18

the Fund will seek to achieve its 

investment objective by investing at 

least 80% of its assets in a portfolio 

comprised of U.S. or foreign fixed 

income securities; U.S. or foreign Debt 

(as defined below); 19 ETFs 20 that 

provide exposure to such U.S. or foreign 

fixed income securities, Debt or other 

Principal Investments (defined below); 

derivatives 21 that (i) provide exposure 


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most futures exchanges, (B) that is subject to a 

comprehensive surveillance sharing agreement with 

the Exchange, or (C) that is not an ISG member and 

with which the Exchange does not have a 

comprehensive surveillance sharing agreement; and 

(ii) swaps and security-based swaps, options, 

options on futures, swaptions, forwards and similar 

instruments that are traded in the over-the-counter 

market and are either centrally cleared or cleared 

bilaterally (‘‘OTC Derivatives’’), as further described 

below. For the purposes of describing the scope of 

the Fund’s potential investments in derivatives, the 

terms ‘‘swaps’’ and ‘‘security-based swaps’’ shall 

have the meanings set forth in the Commodity 

Exchange Act (‘‘CEA’’), as amended by The DoddFrank Wall Street Reform and Consumer Protection 

Act, Public Law 111–203, 124 Stat. 1376 (2010) 

(‘‘Dodd-Frank’’), and regulations thereunder, and 

references to swaps and forwards on foreign 

exchange or currencies shall include ‘‘foreign 

exchange forwards’’ and ‘‘foreign exchange swaps’’, 

as such terms are defined in Sections 1a(24)–(25) 

of the CEA. The terms ‘‘exchange-traded’’ and 

‘‘exchange-listed’’, when used with respect to 

swaps and security-based swaps, shall include 

swaps and security-based swaps that are executed 

on swap execution facilities and security-based 

swap execution facilities and cleared through 

regulated, central clearing facilities. The types of 

derivatives in which the Fund may invest and the 

reference assets for such derivatives are described 

in greater detail below. Exchange-Traded 

Derivatives and OTC Derivatives may reference 

Principal Investments and other investments. Those 

Exchange-Traded Derivatives and OTC Derivatives 

that reference Principal Investments will be treated 

as Principal Investments and those that do not will 

not be treated as Principal Investments. For 

purposes of the 80% Principal Investments 

measure, the Fund will value Exchange-Traded 

Derivatives and OTC Derivatives based on the markto-market value of such derivatives. This approach 

is consistent with the valuation methodology for 

asset coverage purposes in Rule 18f–4 under the 

1940 Act proposed by the Commission. See 

Investment Company Act Release No. 31933 

(December 11, 2015); 80 FR 80884 (December 28, 

2015) (the ‘‘Derivatives Rule Proposing Release’’); 

see also infra note 103. No more than 10% of the 

assets of the Fund will be invested in ExchangeTraded Derivatives and exchange-listed securities 

whose principal market is not a member of ISG or 

is a market with which the Exchange does not have 

a comprehensive surveillance sharing agreement. 

22See also infra ‘‘The Fund’s Use of Derivatives.’’ 

23Work Out Securities will generally be traded in 

the OTC market but may be listed on an exchange 

that may or may not be an ISG member. To the 

extent that the Work Out Securities are exchangelisted, they will be subject to the 10% limit on the 

Fund’s total assets that can be listed on a market 

that is not a member of ISG or a market with which 

the Exchange does not have a comprehensive 

surveillance sharing agreement. See infra 

‘‘Investment Restrictions.’’ 

24See Nasdaq Rule 5735(b)(1)(B). 

25Non-convertible preferred stock, such as that 

comprising the Non-Convertible Preferred 

Securities, provides holders with a fixed or variable 

distribution and a status upon bankruptcy of the 

issuer that is subordinated to debt holders but 

preferred over common shareholders. NonConvertible Preferred Securities may be listed on 

either an ISG member exchange (or an exchange 

with which the Exchange has a comprehensive 

surveillance sharing agreement) or a non-ISG 

member exchange or be unlisted and trade in the 

over-the-counter market. Non-Convertible Preferred 

Securities that are listed and traded on a non-ISG 

member exchange or on an exchange with which 

the Exchange does not have a comprehensive 

surveillance sharing agreement, together with all 

other exchange-listed securities and ExchangeTraded Derivatives held by the Fund that are listed 

on a non-ISG member exchange or exchange with 

which the Exchange does not have a comprehensive 

surveillance sharing agreement, are limited to 10% 

of the Fund’s total assets. See infra ‘‘Investment 

Restrictions.’’ 

26Warrants are equity securities that provide the 

holder with the right to purchase specified 

securities of the issuer of the warrants at a specified 

exercise price until the expiration date of the 

warrant. The Fund may hold warrants that provide 

the right to purchase fixed income securities or 

equity securities and expects that most of the 

warrants it holds will be attached to related fixed 

income securities. Warrants held by the Fund may 

be traded in the OTC market or may be listed on 

an exchange. Warrants that are listed on a non-ISG 

member exchange or an exchange with which the 

Exchange does not have a comprehensive 

surveillance sharing agreement, together with all 

other exchange-listed securities and ExchangeTraded Derivatives held by the Fund that are listed 

on a non-ISG member exchange or exchange with 

which the Exchange does not have a comprehensive 

surveillance sharing agreement, are limited to 10% 

of the Fund’s total assets. See infra ‘‘Investment 

Restrictions.’’ 

27The Fund’s interests in Equity-Related 

Warrants are similar to the Fund’s interest in Work 

Out Securities in that they reflect interests in equity 

securities that are held solely in connection with 

investments in fixed income securities. 

28Cash equivalents consist of the following, all of 

which have maturities of less than 360 days: U.S. 

government securities; certificates of deposit issued 

against funds deposited in a bank or savings and 

loan association; bankers’ acceptances (which are 

short-term credit instruments used to finance 

commercial transactions); repurchase agreements 

and reverse repurchase agreements; and bank time 

deposits (which are monies kept on deposit with 

banks or savings and loan associations for a stated 

period of time at a fixed rate of interest). Cash 

equivalents also consist of money market funds 

registered under the 1940 Act and money market 

funds that are not registered under the 1940 Act but 

that comply with Rule 2a–7 under the 1940 Act 

(together, ‘‘Money Market Funds’’), money market 

ETFs and commercial paper, which are short-term 

unsecured promissory notes, having maturities of 

360 days or less. The Exchange notes that, while the 

Fund treats commercial paper having maturities of 

360 days or less as cash equivalents for the 

purposes of the 80% Principal Investments 

measure, the Fund will apply the definition of cash 

equivalents in Nasdaq Rule 5735(b)(1)(C) (which is 

limited to instruments with maturities of less than 

three months) for purposes of compliance with 

Nasdaq Rule 5735(b)(1) and will comply with the 

applicable requirements of Nasdaq Rule 5735(b)(1) 

with respect to all commercial paper held by the 

Fund. Investments in cash equivalents that are 

Money Market Funds will be made in accordance 

with Rule 12d1–1 under the 1940 Act. 

29For purposes of this proposed rule change, 

Fixed-Income Related Warrants are treated as fixed 

income securities and not as Principal Investment 

Equities. Fixed-Income Related Warrants will be 

subject to and comply with the generic listing 

requirements for fixed income securities rather than 

the requirements applicable to equity securities. 

30The Manager and Sub–Advisers will manage 

the Fund to ensure that the weight of NonConvertible Preferred Securities, Equity-Related 

Warrants and Work Out Securities (which are 

generally traded solely in the over-the-counter 

market) together does not exceed 30% of the Fund’s 

assets. 

31Brady Bonds are debt securities issued under 

the framework of the Brady Plan as a means for 

debtor nations to restructure their outstanding 

external indebtedness. 

32A supranational entity is a bank, commission 

or company established or financially supported by 

the national government of one or more countries 

to promote reconstruction or development. 

to such U.S. or foreign fixed income 

securities, Debt and other Principal 

Investments, (ii) are used to risk manage 

the Fund’s holdings, and/or (iii) are 

used to enhance returns, such as 

through covered call strategies; 22 U.S. 

or foreign equity securities of any type 

acquired in reorganizations of issuers of 

fixed income securities or Debt held by 

the Fund (‘‘Work Out Securities’’); 23

U.S. or foreign non-convertible 

preferred securities (other than trust 

preferred securities, which the Fund 

may invest in, but which are treated as 

fixed income securities 24) (‘‘NonConvertible Preferred Securities’’); 25

warrants,26 comprised of: Warrants on 

U.S. or foreign fixed income securities 

(‘‘Fixed-Income Related Warrants’’) and 

warrants on U.S. or foreign equity 

securities (‘‘Equity-Related Warrants’’), 

both fixed income and equity securities 

of which are generally issued by the 

issuer of the warrants, and both types of 

warrants of which are generally attached 

to, accompany or are purchased 

alongside of investments in fixed 

income securities; 27 cash and cash 

equivalents; 28 and foreign currencies 

(together, the ‘‘Principal Investments’’ 

and the equity elements of the Principal 

Investments, which consist of Work Out 

Securities, ETFs that provide exposure 

to fixed income securities, Debt or other 

Principal Investments, Equity-Related 

Warrants 29 and Non-Convertible 

Preferred Securities, are referred to as 

the ‘‘Principal Investment Equities’’).30

The Manager or Sub-Advisers (as 

applicable) may select from any of the 

following types of fixed income 

securities: (i) U.S. or foreign corporate 

debt securities, including notes, bonds, 

debentures, trust preferred securities, 

and commercial paper issued by 

corporations, trusts, limited 

partnerships, limited liability 

companies and other types of nongovernmental legal entities; (ii) U.S. 

government securities, including 

obligations of, or guaranteed by, the U.S. 

government, its agencies or governmentsponsored entities (other than MBS 

described below); (iii) sovereign debt 

securities, which include fixed income 

securities issued by governments, 

agencies or instrumentalities and their 

political subdivisions, securities issued 

by government-owned, controlled or 

sponsored entities, interests in entities 

organized and operated for the purpose 

of restructuring the investment 

instruments issued by such entities, 

Brady Bonds,31 and fixed income 

securities issued by supranational 

entities such as the World Bank; 32 (iv) 


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33As defined in Rule 6710(m) of the Financial 

Industry Regulatory Authority, Inc. (‘‘FINRA’’), the 

term Securitized Product means a security 

collateralized by any type of financial asset, such 

as a loan, a lease, a mortgage, or a secured or 

unsecured receivable, and includes but is not 

limited to an asset-backed security as defined in 

Section 3(a)(79)(A) of the Act, a synthetic assetbacked security, any residual tranche or interest of 

any security specified above, which tranche or 

interest is a fixed income security for purposes of 

FINRA Rule 6700 and paragraph (a) of FINRA Rule 

6710. Consistent with the requirements applicable 

to other fixed income securities listed pursuant to 

this proposed rule change, Securitized Products are 

subject to limits set forth in Nasdaq Rule 

5735(b)(1)(B)(i), (ii), (iii), (iv) and (v), except that, 

with respect to the Fund’s investments in ABS/ 

Private MBS (as defined below), the Fund will not 

comply with the 90% requirement in Nasdaq Rule 

5735(b)(1)(B)(iv) and CDOs (as defined below) will 

not be subject to the limits set forth in Nasdaq Rule 

5735(b)(1)(B)(v) but will be required to comply with 

the tests in Nasdaq Rule 5735(b)(1)(B)(i)–(iv), 

including, without limitation, the 90% requirement 

in Nasdaq Rule 5735(b)(1)(B)(iv). Investments in 

CDOs will separately be subject to a limit of 10% 

of total assets of the Fund. In addition, the Fund’s 

total investments in Securitized Products (including 

CDOs) will be subject to the restrictions applicable 

to all fixed income securities and Debt holdings of 

the Fund, including that: No more than 30% of the 

Debt and fixed income securities held by the Fund 

will be below investment grade; no more than 30% 

of the Fund’s total assets will be invested in Debt 

and fixed income or equity securities of non-U.S. 

issuers; no more than 25% of the Fund’s total assets 

will be invested in non-U.S. dollar denominated 

Debt, fixed income securities or equities; and no 

more than 25% of the total assets of the Fund will 

be invested in Debt or fixed income or equity 

securities of issuers in any one industry. See infra 

‘‘Investment Restrictions.’’ 

34A ‘‘GSE’’ is a type of financial services 

corporation created by the United States Congress. 

GSEs include Fannie Mae and Freddie Mac but not 

Sallie Mae, which is no longer a government entity. 

35MBS include collateralized mortgage 

obligations (‘‘CMOs’’), which are debt obligations 

collateralized by mortgage loans or mortgage passthrough securities. Typically, CMOs are 

collateralized by Ginnie Mae, Fannie Mae or 

Freddie Mac certificates, but they may also be 

collateralized by whole loans or pass-through 

securities issued by private issuers (i.e., issuers 

other than U.S. government agencies or GSEs) 

(referred to as ‘‘Private MBS’’). Payments of 

principal and of interest on the mortgage-related 

instruments collateralizing the MBS, and any 

reinvestment income thereon, provide the funds to 

pay debt service on the CMOs. In a CMO, a series 

of bonds or certificates is issued in multiple classes. 

Each class of CMOs, often referred to as a ‘‘tranche’’ 

of securities, is issued at a specified fixed or 

floating coupon rate and has a stated maturity or 

final distribution date. 

36As defined by FINRA Rule 6710(cc), ABS are 

Securitized Products in connection with which the 

securities issued, which may be issued by either a 

U.S. or a foreign entity, are collateralized by any 

type of financial asset, such as a consumer or 

student loan, a lease, or a secured or unsecured 

receivable. ABS exclude (per the FINRA definition, 

which is applicable for purposes of reporting and 

as used herein): (i) A Securitized Product that is 

backed by residential or commercial mortgage 

loans, mortgage-backed securities, or other financial 

assets derivative of mortgage-backed securities; (ii) 

a small business administration backed ABS traded 

‘‘To Be Announced’’ or in a specified pool 

transaction as defined in FINRA Rule 6710(x); and 

(iii) CDOs (as defined in note 37 infra). Consistent 

with the requirements of Nasdaq Rule 

5735(b)(1)(B)(v), the Fund will limit investments in 

ABS and Private MBS (together, ‘‘ABS/Private 

MBS’’) to 20% of the weight of the fixed income 

portion of the Fund’s portfolio. 

37For purposes of this proposed rule change, 

CDOs are excluded from the definition of ABS and, 

for purposes of this proposed rule change only, are 

comprised exclusively of collateralized loan 

obligations (‘‘CLOs’’) and collateralized bond 

obligations (‘‘CBOs’’). CLOs are securities issued by 

a trust or other special purpose entity that are 

collateralized by a pool of loans by U.S. banks and 

participations in loans by U.S. banks that are 

unsecured or secured by collateral other than real 

estate. CBOs are securities issued by a trust or other 

special purpose entity that are backed by a 

diversified pool of fixed income securities issued by 

U.S. or foreign governmental entities or fixed 

income securities issued by U.S. or corporate 

issuers. CDOs are distinguishable from ABS because 

they are collateralized by bank loans or by corporate 

or government fixed income securities and not by 

consumer and other loans made by non-bank 

lenders, including student loans. For purposes of 

this proposed rule change, CDOs will not be subject 

to the 20% limit set forth in Nasdaq Rule 

5735(b)(1)(B)(v). However, the Exchange believes 

that the 10% limit on the Fund’s holdings in CDOs 

will help to ensure that the Fund maintains a 

diversified portfolio and will mitigate the risk of 

manipulation. See infra ‘‘Investment Restrictions.’’ 

38Although bank loans are included as ‘‘fixed 

income securities’’ for purposes of the ‘‘generic’’ 

listing requirements of Nasdaq Rule 5735(b)(1), the 

types of bank loans in which the Fund invests are 

not treated as ‘‘securities’’ under applicable case 

law and, as a result, the Fund intends to treat bank 

loans as Debt and not as fixed income securities. 

See, e.g., Banco Espanol de Credito et al. v. Security 

Pacific National Bank, 973 F.2d 51 (2d Cir. 1992), 

cert. denied, 509 U.S. 903 (1993). Accordingly, the 

Fund will not seek to comply with the parameters 

on investments in fixed income securities under 

Nasdaq Rule 5735(b)(1)(B) with respect to the 

Fund’s holdings in bank loans, but instead will 

comply with the alternative limitations applicable 

to Debt with respect to such holdings, as set forth 

herein. See infra ‘‘Investment Restrictions.’’ 

municipal securities, which include 

general obligation bonds, revenue 

bonds, housing authority bonds, private 

activity bonds, industrial development 

bonds, residual interest bonds, tender 

option bonds, tax and revenue 

anticipation notes, bond anticipation 

notes, tax-exempt commercial paper, 

municipal leases, participation 

certificates and custodial receipts; (v) 

zero coupon securities, which are 

securities that pay no interest during the 

life of the obligation but are issued at 

prices below their stated maturity value; 

(vi) pay-in-kind securities, which have a 

stated coupon, but the interest is 

generally paid in the form of obligations 

of the same type as the underlying payin-kind securities (e.g., bonds) rather 

than in cash; (vii) deferred interest 

securities, which are obligations that 

generally provide for a period of delay 

before the regular payment of interest 

begins and are issued at a significant 

discount from face value; (viii) U.S. or 

foreign structured notes and indexed 

securities, including securities that have 

demand, tender or put features, or 

interest rate reset features; (ix) U.S. or 

foreign inflation-indexed or inflationprotected securities, which are fixed 

income securities that are structured to 

provide protection against inflation and 

whose principal value or coupon is 

periodically adjusted according to the 

rate of inflation and which include, 

among others, treasury inflation 

protected securities; and (x) fixed 

income securities issued by 

securitization vehicles (‘‘Securitized 

Products’’).33 Securitized Products 

include: (A) U.S. or foreign mortgagebacked securities (‘‘MBS’’), which are 

securities that represent direct or 

indirect participations in, or are 

collateralized by and payable from, 

mortgage loans secured by real property 

and which may be issued or guaranteed 

by government-sponsored entities 

(‘‘GSEs’’) 34 such as Fannie Mae 

(formally known as the Federal National 

Mortgage Association) or Freddie Mac 

(formally known as the Federal Home 

Loan Mortgage Corporation) or issued or 

guaranteed by agencies of the U.S. 

government, such as the Government 

National Mortgage Association (‘‘Ginnie 

Mae’’); 35 (B) U.S. or foreign assetbacked securities (‘‘ABS’’) 36 and (C) 

U.S. or foreign collateralized debt 

obligations (‘‘CDOs’’).37

The securities in which the Fund 

invests may pay fixed, variable or 

floating rates of interest or, in the case 

of instruments such as zero coupon 

bonds, do not pay current interest but 

are issued at a discount from their face 

values. Securitized Products in which 

the Fund will invest make periodic 

payments of interest and/or principal on 

underlying pools of mortgages, in the 

case of MBS; loans, leases and 

receivables other than real estate, in the 

case of ABS; and government and 

corporate bonds or non-real estate 

related loans, in the case of CDOs. The 

Fund may also invest in stripped 

Securitized Products, which represent 

the right to receive either payments of 

principal or payments of interest on real 

estate receivables. Interests in CDOs and 

ABS will not be stripped so as to 

provide the right to receive only 

payments of principal or payments of 

interest. 

Investments by the Fund in loans and 

similar debt instruments that are not 

characterized as ‘‘securities’’ under 

applicable case law (‘‘Debt’’) 38 are 

comprised primarily of the following: (i) 

U.S. or foreign loans made by banks and 

participations in such loans, loans made 

by commercial non-bank lenders and 

participations on such loans, loans 

made by governmental entities and 

participations in such loans and/or 

other extensions of credit, such as 


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39As discussed infra in ‘‘Investment 

Restrictions,’’ (i) at least 75% of the Fund’s 

investments in Debt shall be in senior loans with 

an initial deal size of $100 million or greater under 

Normal Market Conditions; (ii) no more than 30% 

of the Debt, together with fixed income securities 

held by the Fund, will be below investment grade 

(as defined infra in ‘‘Investment Restrictions’’); (iii) 

no more than 30% of the Fund’s total assets will 

be invested in Debt and fixed income or equity 

securities of non-U.S. issuers or more than 25% in 

non-U.S. dollar denominated Debt or fixed income 

securities or equities; and (iv) no more than 25% 

of the total assets of the Fund will be invested in 

Debt or fixed income or equity securities of issuers 

in any one industry. 

40The risk management uses of derivatives will 

include managing (i) investment-related risks, (ii) 

risks due to fluctuations in securities prices, 

interest rates, or currency exchanges rates, (iii) risks 

due to the credit-worthiness of an issuer, and (iv) 

the effective duration of the Fund’s portfolio. 

41See also infra ‘‘The Fund’s Use of Derivatives.’’ 

42The term ‘‘Treasury Securities’’ has the 

meaning set forth in Nasdaq Rule 5735(b)(1)(B). 

43A buyback refers to a TBA transaction that 

incorporates a special feature for addressing a 

failure by the seller to deliver the mortgages 

promised under the contract. A buyback feature 

typically provides that, in the event a TBA seller 

fails to deliver the MBS that is the subject of the 

transaction to the TBA buyer on the scheduled 

settlement date, the TBA buyer will be entitled to 

close-out its payment obligations by either (i) 

selling the deliverable MBS back to the seller at a 

price established under the buyback or (ii) 

accepting assignment from the seller of its right to 

receive the specified MBS from the third-party 

entity that failed to deliver the MBS to the TBA 

seller. 

44A dollar roll transaction is a simultaneous sale 

and purchase of an Agency Pass-Through MortgageBacked Security (as defined in FINRA Rule 6710(v), 

which is the only reference security for such 

transaction) for different settlement dates, where 

the initial seller agrees to take delivery, upon 

settlement of the re-purchase transaction, of the 

same or substantially similar securities. See FINRA 

Rule 6710(z). 

45FINRA Rule 4210 is scheduled to begin 

requiring broker-dealers to impose margin 

requirements on investors in TBAs and certain 

other delayed delivery transactions beginning 

March 25, 2019. 

46No more than 10% of the Fund’s total assets 

will be invested in exchange-listed securities or 

Exchange-Traded Derivatives that are listed on an 

exchange that is not an ISG-member or an exchange 

with which the Exchange does not have a 

comprehensive surveillance sharing agreement. See 

infra ‘‘Investment Restrictions.’’ 

47The Fund’s investment in U.S. or foreign fixed 

income securities that are convertible into common 

stock will be limited to 20% of the Fund’s assets 

under Normal Market Conditions, as compared with 

the Fund’s investment in Non-Convertible Preferred 

Securities, which are treated as a Principal 

Investment of the Fund. The Fund does not intend 

to invest in convertible preferred securities. 

48 Investments in OTC Derivatives and ExchangeTraded Derivatives will also be subject to the 

limitations described in the ‘‘The Fund’s Use of 

Derivatives’’ section below. As is the case with 

respect to the Fund’s investments in OTC 

Derivatives and Exchange-Traded Derivatives for 

which the underlying reference asset is a Principal 

Investment, the Fund will invest in OTC 

Derivatives and Exchange-Traded Derivatives 

whose underlying reference asset is not a Principal 

Investment in order to (i) provide exposure to nonPrincipal Investments instruments; (ii) to risk 

manage the Fund’s holdings; and/or (iii) to enhance 

returns. 

49 ‘‘Interest Rate Derivatives’’ are comprised of 

interest rate swaps, swaptions (i.e., options on 

Continued 

guarantees made by any of the foregoing 

lenders; and (ii) U.S. or foreign loans on 

real estate secured by mortgages and 

participations in such loans. Debt may 

be partially or fully secured by collateral 

supporting the payment of interest and 

principal, or unsecured and/or 

subordinated to other instruments.39

Debt may relate to financings for highlyleveraged borrowers. 

With respect to fixed income 

securities, the Fund may invest in 

restricted instruments which are subject 

to resale restrictions that limit 

purchasers to qualified institutional 

buyers, as defined in Rule 144A under 

the Securities Act of 1933, as amended 

(the ‘‘Securities Act’’) or to non-U.S. 

persons, within the meaning of 

Regulation S under the Securities Act. 

The Fund will use derivatives to (i) 

provide exposure to U.S. or foreign 

fixed income securities, Debt and other 

Principal Investments, (ii) risk manage 

the Fund’s holdings,40 and/or (iii) 

enhance returns, such as through 

covered call strategies.41 The Fund will 

not use derivatives for the purpose of 

seeking leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark. 

Derivatives that the Fund may enter into 

include: (i) Over-the-counter deliverable 

and non-deliverable foreign exchange 

forward contracts; (ii) exchange-listed 

futures contracts on securities 

(including Treasury Securities 42 and 

foreign government securities), Debt, 

commodities, securities-, commodities-, 

or combined-asset-class-related indices, 

interest rates, financial rates and 

currencies; (iii) exchange-listed or overthe-counter options or swaptions (i.e., 

options to enter into a swap) on 

securities, Debt, commodities, 

securities-, commodities-, or combinedasset-class-related indices, interest rates, 

financial rates, currencies and futures 

contracts; (iv) exchange-listed or overthe-counter swaps (including total 

return swaps) on securities, Debt, 

commodities, securities-, commodities-, 

or combined-asset-class-related indices, 

interest rates, financial rates, and 

currencies and (v) credit default swaps 

on single names, baskets and indices 

(both as protection seller and as 

protection buyer). As a result of the 

Fund’s use of derivatives and to serve as 

collateral, the Fund may also hold 

significant amounts of Treasury 

Securities, cash and cash equivalents 

and, in the case of derivatives that are 

payable in a foreign currency, the 

foreign currency in which the 

derivatives are payable. 

The Fund may, without limitation, 

enter into repurchase arrangements and 

borrowing and reverse repurchase 

arrangements, purchase and sale 

contracts, buybacks 43 and dollar rolls 44

and spot currency transactions. The 

Fund may also, subject to required 

margin and without limitation, purchase 

securities and other instruments under 

when-issued, delayed delivery, to be 

announced or forward commitment 

transactions, where the securities or 

instruments will not be delivered or 

paid for immediately.45 To the extent 

required under applicable federal 

securities laws (including the 1940 Act), 

rules, and interpretations thereof, the 

Fund will ‘‘set aside’’ liquid assets or 

engage in other measures to ‘‘cover’’ 

open positions held in connection with 

the foregoing types of transactions, as 

well as derivative transactions. 

Other Investments 

Under Normal Market Conditions, the 

Fund will seek its investment objective 

by investing at least 80% of its assets in 

a portfolio of the Principal Investments. 

The Fund may invest its remaining 

assets exclusively in: (i) U.S. or foreign 

exchange-listed 46 or over-the counter 

convertible fixed income securities; 47

and (ii) OTC Derivatives and ExchangeTraded Derivatives for which the 

underlying reference asset is not a 

Principal Investment.48

The Fund’s Use of Derivatives 

The types of derivatives in which the 

Fund may invest and the reference 

assets for such derivatives are described 

in greater detail in ‘‘Principal 

Investments’’ and ‘‘Other Investments’’ 

above. Exchange-Traded Derivatives 

will primarily be traded on exchanges 

that are ISG members or exchanges with 

which the Exchange has a 

comprehensive surveillance sharing 

agreement. The Fund may, however, 

invest up to 10% of the assets of the 

Fund in Exchange-Traded Derivatives 

and exchange-listed securities whose 

principal market is not a member of ISG 

or a market with which the Exchange 

has a comprehensive surveillance 

sharing agreement. For purposes of this 

10% limit, the weight of such ExchangeTraded Derivatives will be calculated 

based on the mark-to-market value of 

such Exchange-Traded Derivatives. 

The Fund will limit the weight of its 

investments in OTC Derivatives to 10% 

of the assets of the Fund, with the 

exception of Interest Rate Derivatives 49


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46206 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

interest rate swaps), rate options and other similar 

derivatives, and may be Exchange-Traded 

Derivatives or OTC Derivatives. As reflected in 

statistics compiled by the Bank for International 

Settlements, as of June 30, 2017 there were 

approximately $416 trillion (notional amount) of 

total interest rate contracts outstanding in the overthe-counter markets alone. As reflected by the 

statistics, the market is wide, deep and liquid. See 

https://www.bis.org/statistics/d7.pdf (accessed 

November 2017). Interest Rate Derivatives may 

trade on trading platforms that are not ISG members 

or that are not subject to a comprehensive 

surveillance sharing agreement with the Exchange. 

Holdings in Exchange-Traded Derivatives (together 

with exchange-listed securities) that are listed on an 

exchange that is not an ISG member or on a market 

with which the Exchange does not have a 

comprehensive surveillance sharing agreement are 

limited to 10% of the Fund’s assets. 

50 ‘‘Currency Derivatives’’ are comprised of 

deliverable forwards, which are agreements 

between the contracting parties to exchange a 

specified amount of currency at a specified future 

time at a specified rate, non-deliverable forwards, 

which are agreements to pay the difference between 

the exchange rates specified for two currencies at 

a future date, swaps and options on currencies, and 

similar currency or foreign exchange derivatives. As 

reflected in statistics compiled by the Bank for 

International Settlements, as of June 30, 2017 there 

were approximately $77 trillion (notional amount) 

of Currency Derivatives outstanding in the over-thecounter markets alone. As reflected by the statistics, 

the market is wide, deep and liquid. See https://

www.bis.org/statistics/d6.pdf (accessed November 

2017). Currency Derivatives may trade on trading 

platforms that are not ISG members or that are not 

subject to a comprehensive surveillance sharing 

agreement with the Exchange. Holdings in 

Exchange-Traded Derivatives (together with 

exchange-listed securities) that are listed on an 

exchange that is not an ISG member or on a market 

with which the Exchange does not have a 

comprehensive surveillance sharing agreement are 

limited to 10% of the Fund’s assets. 

51See Securities Exchange Act Release No. 80657 

(May 11, 2017), 82 FR 22702 (May 17, 2017) (SR– 

NYSEArca–2017–09) (approving up to 50% of the 

fund’s assets (calculated on the basis of aggregate 

gross notional value) to be invested in over-thecounter derivatives that are used to reduce 

currency, interest rate, or credit risk arising from 

the fund’s investments, including forwards, overthe-counter options, and over-the-counter swaps). 

52Trading in foreign exchange markets averaged 

$5.1 trillion per day in April 2016, and 67% of this 

trading activity was in derivatives contracts such as 

currency or foreign exchange forwards, options and 

swaps (with the other 33% consisting of spot 

transactions). See Bank for International 

Settlements, Triennal Central Bank Survey, Foreign 

Exchange Turnover in April 2016, available at 

http://www.bis.org/publ/rpfx16fx.pdf (accessed 

November 2017). Trading in OTC interest rate 

derivatives averaged $2.7 trillion per day in April 

2016. See Bank for International Settlements, 

Triennal Central Bank Survey, OTC Interest Rate 

Derivatives Turnover in April 2016, available at 

http://www.bis.org/publ/rpfx16ir.pdf (accessed 

November 2017). 

53Transactions in Interest Rate and Currency 

Derivatives are required to be reported to a swap 

data repository, and transactions in Interest Rate 

Derivatives and certain Currency Derivatives (i.e., 

Currency Derivatives that are not excluded from the 

definition of a ‘‘swap’’, as described below) are also 

publicly reported pursuant to rules issued by the 

Commodity Futures Trading Commission (‘‘CFTC’’). 

See 17 CFR parts 43, 45 and 46. Pursuant to Section 

1(a)(47)(E) of the CEA and a related determination 

by the Department of the Treasury, physicallysettled Currency Derivatives that meet the 

definition of ‘‘foreign exchange forwards’’ or 

‘‘foreign exchange swaps’’ under Sections 1a(24)– 

(25) of the CEA that are entered into between 

eligible contract participants (as defined in the 

CEA) (‘‘Excluded Currency Derivatives’’) are 

excluded from the definition of a ‘‘swap’’ under the 

CEA. See Determination of Foreign Exchange Swaps 

and Foreign Exchange Forwards Under the 

Commodity Exchange Act, 77 FR 69694 (Nov. 20, 

2012). Transactions in such Excluded Currency 

Derivatives are required to be reported to a swap 

data repository, but they are not subject to the 

public reporting requirements. 

54 Interest Rate Derivatives and Currency 

Derivatives other than Excluded Currency 

Derivatives are comprehensively regulated as swaps 

under the CEA and regulations issued thereunder 

by the CFTC and other federal financial regulators. 

See, e.g., 17 CFR part 23 (capital and margin 

requirements for swap dealers, business conduct 

standards for swap dealers, and swap 

documentation requirements); 17 CFR part 50 

(clearing requirements for swaps). While Excluded 

Currency Derivatives are not subject to all swap 

regulations, they are subject to the ‘‘business 

conduct standards’’ adopted by the CFTC pursuant 

to the CEA. See Section 1(a)(47)(E) of the CEA; 

Determination of Foreign Exchange Swaps and 

Foreign Exchange Forwards Under the Commodity 

Exchange Act, 77 FR 69694 (Nov. 20, 2012). 

55The mark-to-market value reflects the Fund’s 

actual delivery or payment obligation under the 

derivative. This measure differs from that 

referenced in Nasdaq Rule 5735(b)(1)(E), which 

bases its 20% limit of assets in the portfolio 

applicable for funds issuing Managed Fund Shares 

on the aggregate gross notional value of the overthe-counter derivatives rather than on the mark-tomarket value. 

56See Derivatives Rule Proposing Release at 157– 

158; see also infra note 103. 

57See Derivatives Rule Proposing Release at n.58, 

citing Comment Letter on SEC Concept Release 

(November 11, 2011) (File No. S7–33–11), Davis 

Polk & Wardwell LLP, available at http://

www.sec.gov/comments/s7-33-11/s73311-49.pdf 

(‘‘[F]und registration statements indicate that, in 

recent years, the Staff has not objected to the 

adoption by funds of policies that require 

segregation of the mark-to-market value, rather than 

the notional amount . . . [for asset segregation 

purposes].’’) 

58See Derivatives Rule Proposing Release at 157– 

158. 

59The Credit Support Annex to the ISDA Master 

Agreement bases the collateral amount owed by a 

party to a derivatives contract, which is defined as 

a party’s ‘‘exposure,’’ by reference to the 

replacement value of the party’s net positions. 

Replacement value, which has the same meaning as 

‘‘mark-to-market’’ value, is the amount owed by a 

party at a point in time determined based on the 

net termination payment due under the outstanding 

transaction. 

and Currency Derivatives 50 (together, 

‘‘Interest Rate and Currency 

Derivatives’’) entered into with brokerdealers, banks and other financial 

intermediaries. Investments in Interest 

Rate and Currency Derivatives (whether 

the instruments are Exchange-Traded 

Derivatives or OTC Derivatives) will not 

be subject to a limit. The Exchange 

believes that this exception, which is 

generally consistent with the 

requirement in a previous filing for the 

listing of an ETF approved by the 

Commission,51 is appropriate in light of 

the fact that Interest Rate and Currency 

Derivatives are among the most liquid 

investment instruments (including not 

only derivatives but also securities) in 

the market 52 (and are even more liquid 

than most non-government or 

government-guaranteed securities). 

Based on the data compiled by the SubAdviser in respect to its liquidity policy, 

these derivatives are among the most 

liquid investments traded. In addition, 

most Interest Rate Derivatives traded by 

the Fund are centrally cleared by 

regulated clearing firms, and Interest 

Rate and Currency 

Derivatives are subject to trade 

reporting,53 and other robust 

regulation.54 Given the size of the 

trading market and the regulatory 

oversight of the markets, the Exchange 

believes that Interest Rate and Currency 

Derivatives are not readily subject to 

manipulation. The Exchange also 

believes that allowing the Fund to risk 

manage its portfolio through the use of 

Interest Rate and Currency Derivatives 

without limit is necessary to allow the 

Fund to achieve its investment objective 

and protect investors. 

For purposes of the 10% limit 

applicable generally to OTC Derivatives 

(other than Interest Rate and Currency 

Derivatives), the weight of such OTC 

Derivatives will be calculated based on 

the mark-to-market value of such OTC 

Derivatives.55 The mark-to-market 

methodology is consistent with the 

methodology proposed by the SEC in 

proposed Rule 18f–4 for the purposes of 

asset coverage requirements 56 and in 

keeping with disclosures regarding 

compliance with Section 18 of the 1940 

Act made by other registered investment 

companies and reviewed by the SEC 

staff for a number of years.57 In that 

regard, the SEC expressly noted in the 

Derivatives Rule Proposing Release that 

reliance on a mark-to-market valuation 

of a derivatives position for purposes of 

calculating the required coverage 

amount ‘‘would generally correspond to 

the amount of the fund’s liability with 

respect to the derivatives transaction’’ 

and, therefore, be consistent with the 

appropriate valuation of the derivatives 

transaction.58 The mark-to-market value 

is also the measure on which collateral 

posting is based under the Master 

Agreement published by the 

International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’), which is the 

predominant agreement used to trade 

derivatives.59 This value measures gain 

and loss to the Fund of the Fund’s 

derivatives positions on a daily basis, as 

well as on a net basis across all 

transactions covered by a master netting 

agreement and, as a result, accurately 

reflects the actual economic exposure of 


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60The risk management uses of derivatives will 

include managing (i) investment-related risks, (ii) 

risks due to fluctuations in securities prices, 

interest rates, or currency exchanges rates, (iii) risks 

due to the credit-worthiness of an issuer, and (iv) 

the effective duration of the Fund’s portfolio. 

61The Fund will seek, where practicable, to trade 

with counterparties whose financial status is such 

that the risk of default is reduced. The Sub-Advisers 

will monitor the financial standing of 

counterparties on an ongoing basis. This monitoring 

may include reliance on information provided by 

credit agencies or credit analysts employed by the 

Sub-Advisers. The analysis may include earnings 

updates, the counterparty’s reputation, past 

experience with the dealer, market levels for the 

counterparty’s debt and equity, credit default swap 

levels for the counterparty’s debt, the liquidity 

provided by the counterparty and its share of 

market participation. 

62Although convertible fixed income securities 

are deemed to be ‘‘equity securities’’ under Section 

3(a)(11) of the Act, for purposes of this proposed 

rule change, they are treated as fixed income 

securities. The Fund will not invest in convertible 

preferred securities. 

63For the avoidance of doubt, if a security or Debt 

is rated by multiple NRSROs and receives different 

ratings, the Fund will treat the security or Debt as 

being rated in the highest rating category received 

from any one NRSRO. If a security or Debt is not 

rated, the Fund may determine its rating by 

reference to other securities issued by the issuer or 

its affiliates or comparable NRSRO-rated securities. 

the Fund to the counterparty on each 

derivative (as compared to notional 

amount, which may overstate or 

understate economic risk). 

The Fund may choose not to make use 

of derivatives. 

Generally, derivatives are financial 

contracts whose value depends upon, or 

is derived from, the value of an 

underlying asset, reference rate or 

index, and may relate to stocks, bonds, 

interest rates, currencies or currency 

exchange rates, commodities, and 

related indexes. As described above, the 

Fund will use derivatives to (i) provide 

exposure to the Principal Investments, 

(ii) risk manage the Fund’s holdings,60

and/or (iii) enhance returns, such as 

through covered call strategies. The 

Fund will not use derivatives for the 

purpose of seeking leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark. The 

Fund will enter into derivatives only 

with counterparties that the Fund 

reasonably believes are financially and 

operationally able to perform the 

contract or instrument, and the Fund 

will collect collateral from the 

counterparty in accordance with credit 

considerations and margining 

requirements under applicable law.61

Investments in derivative instruments 

will be made in accordance with the 

1940 Act and consistent with the Fund’s 

investment objective and policies. To 

limit the potential risk (including 

leveraging risk) associated with such 

transactions, the Fund will segregate or 

‘‘earmark’’ assets determined to be 

liquid by the Manager and/or the SubAdvisers in accordance with procedures 

established by the Board and in 

accordance with the 1940 Act (or, as 

permitted by applicable regulation, 

enter into offsetting positions) to cover 

its obligations under derivative 

instruments. 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 transactions of the Fund, 

including the Fund’s use of derivatives, 

may give rise to additional leverage, 

causing the Fund to be more volatile 

than it would have if it had not been 

leveraged. Because the markets for 

securities or Debt, or the securities or 

Debt themselves, may be unavailable, 

cost prohibitive or tax-inefficient as 

compared to derivative instruments, 

suitable derivative transactions may be 

an efficient alternative for the Fund to 

obtain the desired asset exposure. 

The Manager and the Sub-Advisers 

believe that derivatives can be an 

economically attractive substitute for an 

underlying physical security or Debt 

that the Fund would otherwise 

purchase. For example, the Fund could 

purchase futures contracts on Treasury 

Securities instead of investing directly 

in Treasury Securities or could sell 

credit default protection on a corporate 

bond instead of buying a physical bond. 

Economic benefits include potentially 

lower transactions costs, attractive 

relative valuation of a derivative versus 

a physical bond (e.g., differences in 

yields) or economic exposure without 

incurring transfer or similar taxes. 

The Manager and the Sub-Advisers 

further believe that derivatives can be 

used as a more liquid means of 

adjusting portfolio duration, as well as 

targeting specific areas of yield curve 

exposure, with potentially lower 

transaction costs than the underlying 

securities or Debt (e.g., interest rate 

swaps may have lower transaction costs 

than the physical bonds). Similarly, 

money market futures can be used to 

gain exposure to short-term interest 

rates in order to express views on 

anticipated changes in central bank 

policy rates. In addition, derivatives can 

be used to protect client assets through 

selectively hedging downside (or ‘‘tail 

risks’’) in the Fund. 

The Fund also can use derivatives to 

increase or decrease credit exposure. 

Index credit default swaps can be used 

to gain exposure to a basket of credit 

risk by ‘‘selling protection’’ against 

default or other credit events, or to 

hedge broad market credit risk by 

‘‘buying protection.’’ Single name credit 

default swaps can be used to allow the 

Fund to increase or decrease exposure 

to specific issuers, saving investor 

capital through lower trading costs. The 

Fund can use total return swap 

contracts to obtain the total return of a 

reference asset or index in exchange for 

paying financing costs. A total return 

swap may be more efficient than buying 

underlying securities or Debt, 

potentially lowering transaction costs. 

The Fund expects to manage foreign 

currency exchange rate risk by entering 

into Currency Derivatives. 

The Sub-Advisers may use options 

strategies to meet the Fund’s investment 

objectives. Option purchases and sales 

can also be used to hedge specific 

exposures in the portfolio and can 

provide access to return streams 

available to long-term investors such as 

the persistent difference between 

implied and realized volatility. Options 

strategies can generate income or 

improve execution prices (e.g., covered 

calls). 

Investment Restrictions 

The Fund may invest up to 30% of its 

assets in Non-Convertible Preferred 

Securities, Equity-Related Warrants and 

Work Out Securities. The Fund will not 

invest in equity securities other than 

Principal Investment Equities.62

Principal Investment Equities consist of 

(i) Non-Convertible Preferred Securities, 

Equity-Related Warrants and Work Out 

Securities, which are subject to the 30% 

limit noted above and (ii) shares of ETFs 

that provide exposure to fixed income 

securities, Debt or other Principal 

Investments, which are subject to no 

limits. 

While the Fund will invest 

principally in fixed income securities 

and Debt that are, at the time of 

purchase, investment grade, the Fund 

may invest up to 30% of its assets in 

below investment grade fixed income 

securities and Debt. For these purposes, 

‘‘investment grade’’ is defined as 

investments with a rating at the time of 

purchase in one of the four highest 

rating categories of at least one 

nationally recognized statistical ratings 

organization (‘‘NRSRO’’) (e.g., BBB—or 

higher by S&P Global Ratings (‘‘S&P’’), 

and/or Fitch Ratings (‘‘Fitch’’), or Baa3 

or higher by Moody’s Investors Service, 

Inc. (‘‘Moody’s’’)).63 Unrated fixed 

income securities or Debt may be 

considered investment grade if, at the 

time of purchase, and under Normal 

Market Conditions, the applicable SubAdviser determines that such securities 


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64The Exchange notes that the terms ‘‘fixed 

income weight of the portfolio’’ and ‘‘weight of the 

fixed income portion of the portfolio’’ are used 

synonymously in Nasdaq Rule 5735. For purposes 

of this proposed rule change, these terms include 

all fixed income securities and Debt held by the 

Fund as well as derivatives held by the Fund that 

provide exposure to fixed income securities or Debt. 

65As discussed above, CDOs would be excluded 

from the 20% limit on ABS/Private MBS but would 

be subject to a separate limit of 10%, measured with 

respect to the total assets of the Fund. See supra 

note 33. The Exchange believes that the 10% limit 

on the Fund’s holdings in CDOs will help to ensure 

that the Fund maintains a diversified portfolio and 

will mitigate the risk of manipulation. 

66See Form N–1A, Item 9. The Commission has 

taken the position that a fund is concentrated if it 

invests more than 25% of the value of its total 

assets in any one industry. See, e.g., Investment 

Company Act Release No. 9011 (October 30, 1975), 

40 FR 54241 (November 21, 1975). For these 

purposes and as described above, Debt is comprised 

of loans that do not constitute securities (consistent 

with applicable case law) whereas fixed income 

securities would include loans and other fixed 

income instruments that are characterized as 

securities under applicable case law. See supra note 

38. 

67See Rule 22e–4(b)(1)(iv). ‘‘No fund or In-Kind 

ETF may acquire any illiquid investment if, 

immediately after the acquisition, the fund or InKind ETF would have invested more than 15% of 

its net assets in illiquid investments that are 

assets.’’ (emphasis added). 

68 In reaching liquidity decisions, the Manager or 

Sub-Advisers (as applicable) 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). 

69Long-standing Commission guidelines have 

required investment companies to hold no more 

than 15% of their net assets in illiquid securities 

and other illiquid assets. See Investment Company 

Act Release No. 28193 (March 11, 2008), 73 FR 

14618 (March 18, 2008), FN 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). The 

Commission also recently adopted Rule 22e–4 

under the 1940 Act, which requires that each 

registered open-end management investment 

company, including ETFs but not including money 

market mutual funds, to establish a liquidity risk 

management program that includes limitations on 

illiquid investments. See Investment Company Act 

Release No. 32315 (October 13, 2016), 81 FR 82142 

(November 18, 2016). Under Rule 22e–4, a fund’s 

portfolio security is illiquid if it cannot be sold or 

disposed of in current market conditions in seven 

calendar days or less without the sale or disposition 

significantly changing the market value of the 

investment. See 17 CFR 270.22e–4(a)(8). 

70These requirements are consistent with the 

‘‘generic’’ listing requirements under Nasdaq Rule 

5735(b)(1)(B)(i)–(iii), which require: (i) For fixed 

income securities, that components that in the 

aggregate account for at least 75% of the fixed 

income weight of the portfolio each have a 

minimum principal amount outstanding of $100 

million or more (see Nasdaq Rule 5735(b)(1)(B)(i)); 

(ii) for component fixed-income securities 

(excluding Treasury Securities and GSE-sponsored 

securities) that no component represent more than 

30% of the fixed income weight of the portfolio (see 

Nasdaq Rule 5735(b)(1)(B)(ii)); (iii) that the five 

most heavily weighted component fixed income 

securities in the portfolio (excluding Treasury 

Securities and GSE-sponsored securities) not in the 

aggregate account for more than 65% of the fixed 

income weight of the portfolio) (see Nasdaq Rule 

5735(b)(1)(B)(ii)); and (iv) that an underlying 

portfolio (excluding exempted securities) that 

includes fixed income securities include a 

minimum of 13 non-affiliated issuers (see Nasdaq 

Rule 5735(b)(1)(B)(iii)). Nasdaq Rule 

5735(b)(1)(B)(iv) includes the following 

requirement: component securities that in aggregate 

account for at least 90% of the fixed income weight 

of the portfolio must be either: (a) From issuers that 

are required to file reports pursuant to Sections 13 

and 15(d) of the Act; (b) from issuers that have a 

worldwide market value of its outstanding common 

equity held by non-affiliates of $700 million or 

more; (c) from issuers that have outstanding 

securities that are notes, bonds, debentures, or 

evidence of indebtedness having a total remaining 

principal amount of at least $1 billion; (d) exempted 

securities as defined in Section 3(a)(12) of the Act; 

or (e) from issuers that are a government of a foreign 

country or a political subdivision of a foreign 

country. Nasdaq Rule 5735(b)(1)(B)(v) requires: 

Non-agency, non-GSE and privately-issued 

mortgage-related and other asset-backed securities 

components of a portfolio shall not account, in the 

aggregate, for more than 20% of the weight of the 

fixed income portion of the portfolio. 

are of comparable quality based on a 

fundamental credit analysis of the 

unrated security or Debt instrument and 

comparable NRSRO-rated securities. 

The Fund may invest in fixed income 

or equity securities and Debt issued by 

both U.S. and non-U.S. issuers 

(including issuers in emerging markets), 

but the Fund will not invest more than 

30% of its total assets directly in fixed 

income or equity securities or Debt of 

non-U.S. issuers or more than 25% of its 

total assets directly in non-U.S. dollar 

denominated fixed income or equity 

securities or Debt. For purposes of these 

30% and 25% concentration limits only, 

derivatives, warrants and ETFs traded 

on U.S. exchanges that provide indirect 

exposure to fixed income or equity 

securities or Debt (as applicable) of nonU.S. issuers or to fixed income or equity 

securities or Debt (as applicable) 

denominated in currencies other than 

U.S. dollars will not be counted by the 

Fund in calculating its holdings in nonU.S. issuers or in non-U.S. dollar 

denominated securities or Debt. 

The Fund will not invest more than 

20% of the fixed income portion of the 

Fund’s portfolio 64 in ABS/Private MBS 

or more than 10% of the Fund’s total 

assets in CDOs.65 The Fund will also not 

invest more than 20% of its total assets 

in Debt that is unsecured and 

subordinated. 

The Fund may not concentrate its 

investments (i.e., invest more than 25% 

of the value of its total assets) in Debt 

of borrowers in any one industry or in 

fixed income or equity securities of 

issuers in any one industry as provided 

in the Registration Statement.66 The 

Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment),67 including Rule 144A 

securities deemed illiquid by the 

Manager or the Sub-Advisers.68 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 those subject to 

contractual or other restrictions on 

resale and other instruments or assets 

that lack readily available markets as 

determined in accordance with 

Commission staff guidance.69

As noted in ‘‘The Fund’s Use of 

Derivatives,’’ the Fund’s investments in 

derivatives will be consistent with the 

Fund’s investment objective and will 

not be used for the purpose of seeking 

leveraged returns or performance that is 

the multiple or inverse multiple of a 

benchmark (although derivatives have 

embedded leverage). Although the Fund 

will be permitted to borrow as permitted 

under the 1940 Act, it will not be 

operated as a ‘‘leveraged ETF,’’ (i.e., it 

will not be operated in a manner 

designed to seek a multiple or inverse 

multiple of the performance of an 

underlying reference index). The Fund 

may engage in frequent and active 

trading of portfolio securities, Debt, and 

derivatives to achieve its investment 

objective. 

Under Normal Market Conditions, the 

Fund will satisfy the following 

requirements, on a continuous basis 

measured at the time of purchase: (i) 

Component fixed income securities and 

Debt that in the aggregate account for at 

least 75% of the fixed income weight of 

the Fund’s portfolio each shall have a 

minimum original principal amount 

outstanding of $100 million or more; (ii) 

no fixed income security held in the 

portfolio (excluding Treasury Securities 

and GSE-sponsored securities) will 

represent more than 30% of the fixed 

income weight of the Fund’s portfolio, 

and the five most heavily weighted 

portfolio securities (excluding Treasury 

Securities and GSE-sponsored 

securities) will not in the aggregate 

account for more than 65% of the fixed 

income weight of the Fund’s portfolio; 

and (iii) the Fund’s portfolio of fixed 

income securities (excluding exempted 

securities) will include a minimum of 

13 non-affiliated issuers.70 Under 


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71The Exchange notes that Nasdaq Rule 

5735(b)(1)(F) provides that, to the extent that 

derivatives are used to gain exposure to individual 

fixed income securities or indexes of fixed income 

securities, the aggregate gross notional value of such 

exposure shall meet the criteria set forth in Nasdaq 

Rule 5735(b)(1)(B). The Exchange proposes, 

however, as further described below, that for the 

purposes of the requirements in this paragraph and 

any requirements under Nasdaq Rule 5735(b)(1), the 

Fund will use the mark-to-market value of its 

derivatives rather than gross notional value. 

72The Exchange notes that, while the Fund treats 

commercial paper having maturities of 360 days or 

less as cash equivalents for the purposes of its 80% 

Principal Investments measure, the Fund will 

comply with the applicable requirements of Nasdaq 

Rule 5735(b)(1) with respect to all commercial 

paper held by the Fund. Further, in accordance 

with Nasdaq Rule 5735(b)(1)(B), to the extent that 

the Fund holds securities that are convertible into 

fixed income securities, the fixed income securities 

into which any such securities are converted shall 

meet the criteria of Nasdaq Rule 5735(b)(1)(B) after 

converting. 

73Nasdaq Rule 5735(b)(1)(D)(i) provides that, at 

least 90% of the weight of a portfolio’s holdings 

invested in futures, exchange-traded options, and 

listed swaps shall, on both an initial and continuing 

basis, consist of futures, options and swaps for 

which the Exchange may obtain information via the 

ISG, from other members or affiliates of the ISG, or 

for which the principal market is a market with 

which the Exchange has a comprehensive 

surveillance sharing agreement; for the purposes of 

calculating this limitation, a portfolio’s investment 

in such listed derivatives will be calculated as the 

aggregate gross notional value of the listed 

derivatives. 

74Nasdaq Rule 5735(b)(1)(D)(ii) provides that, the 

aggregate gross notional value of listed derivatives 

based on any five or fewer underlying reference 

assets shall not exceed 65% of the weight of the 

portfolio (including gross notional exposures), and 

the aggregate gross notional value of listed 

derivatives based on any single underlying 

reference asset shall not exceed 30% of the weight 

of the portfolio (including gross notional 

exposures). 

75Nasdaq Rule 5735(b)(1)(E) provides that, on 

both an initial and continuing basis, no more than 

20% of the assets in the portfolio may be invested 

in over-the-counter derivatives, including forwards, 

options, and swaps on commodities, currencies and 

financial instruments (e.g., stocks, fixed income, 

interest rates, and volatility) or a basket or index of 

any of the foregoing; for purposes of calculating this 

limitation, the Fund’s investment in OTC 

Derivatives will be calculated as the aggregate gross 

notional value of the OTC Derivatives. 

76Nasdaq Rule 5735(b)(1)(F) provides that, to the 

extent that listed or over-the-counter derivatives are 

used to gain exposure to individual equities and/ 

or fixed income securities, or to indexes of equities 

and/or indexes of fixed income securities, the 

aggregate gross notional value of such exposure 

shall meet the criteria set forth in Nasdaq Rules 

5735(b)(1)(A) and 5735(b)(1)(B), respectively. 

77Further, as described further below, the 

Exchange is proposing that the Fund will comply 

with alternative requirements rather than Rules 

5735(b)(1)(D)(i), 5735(b)(1)(D)(ii), and 5735(b)(1)(E). 

78Nasdaq Rule 5735(b)(1)(B)(iv) provides that, 

component securities that in the aggregate account 

for at least 90% of the fixed income weight of the 

portfolio must be either: (a) from issuers that are 

required to file reports pursuant to Sections 13 and 

15(d) of the Act; (b) from issuers that have a 

worldwide market value of its outstanding common 

equity held by non-affiliates of $700 million or 

more; (c) from issuers that have outstanding 

securities that are notes, bonds debentures, or 

evidence of indebtedness having a total remaining 

principal amount of at least $1 billion; (d) exempted 

securities as defined in Section 3(a)(12) of the Act; 

or (e) from issuers that are a government of a foreign 

country or a political subdivision of a foreign 

country. 

79For a listing of such restrictions, see supra 

‘‘Investment Restrictions.’’ 

80Nasdaq Rule 5735(b)(1)(A)(i) provides that, the 

components stocks of the equity portion of a 

portfolio that are U.S. Component Stocks (as such 

term is defined in Nasdaq Rule 5705) shall meet the 

following criteria initially and on a continuing 

basis: (a) Component stocks (excluding Exchange 

Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

5735(c)(6) and 5710, respectively) that in the 

aggregate account for at least 90% of the equity 

weight of the portfolio (excluding such Exchange 

Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

5735(c)(6) and 5710, respectively) each shall have 

a minimum market value of at least $75 million; (b) 

Component stocks (excluding Exchange Traded 

Derivative Securities and Linked Securities, as such 

terms are defined in Nasdaq Rules 5735(c)(6) and 

5710, respectively) that in the aggregate account for 

at least 70% of the equity weight of the portfolio 

(excluding such Exchange Traded Derivative 

Securities and Linked Securities, as such terms are 

defined in Nasdaq Rules 5735(c)(6) and 5710, 

respectively) each shall have a minimum monthly 

trading volume of 250,000 shares, or minimum 

notional volume traded per month of $25,000,000, 

averaged over the last six months; (c) The most 

heavily weighted component stock (excluding 

Exchange Traded Derivative Securities and Linked 

Securities, as such terms are defined in Nasdaq 

Rules 5735(c)(6) and 5710, respectively) shall not 

exceed 30% of the equity weight of the portfolio, 

and, to the extent applicable, the five most heavily 

Continued 

Normal Market Conditions, the Fund 

will also satisfy the following 

requirements, on a continuous basis 

measured at the time of purchase: (x) At 

least 75% of the Fund’s investments in 

fixed income securities issued by 

emerging market issuers shall have a 

minimum original principal amount 

outstanding of $200 million or more; 

and (y) at least 75% of the Fund’s 

investments in Debt shall be in senior 

loans with an initial deal size of $100 

million or greater.71

Those exchange-listed securities and 

Exchange-Traded Derivatives held by 

the Fund that are listed and traded on 

a non-ISG member exchange or an 

exchange with which the Exchange does 

not have a comprehensive surveillance 

sharing agreement are limited to 10% of 

the Fund’s assets. 

In addition, the Fund will impose the 

limits described in the following 

section, which describes differences 

between the ‘‘generic’’ listing 

requirements of Nasdaq Rule 5735(b)(1) 

and those applicable to the Fund. 

Application of Generic Listing 

Requirements 

The Exchange is submitting this 

proposed rule change because the Fund 

will not meet all of the ‘‘generic’’ listing 

requirements of Nasdaq Rule 5735(b)(1). 

The Fund will meet all such 

requirements except the requirements 

described below,72 and the Exchange 

proposes that the Fund will comply 

with the alternative limits described 

below. 

(i) The Fund will not comply with the 

requirements in Nasdaq Rule 5735(b)(1) 

regarding the use of aggregate gross 

notional value of derivatives when 

calculating the weight of such 

derivatives or the exposure that such 

derivatives provide to underlying 

reference assets, including the 

requirements in Rules 5735(b)(1)(D)(i),73

5735(b)(1)(D)(ii),74 5735(b)(1)(E) 75 and 

5735(b)(1)(F).76 Instead, the Exchange 

proposes that for the purposes of any 

applicable requirements under Nasdaq 

Rule 5735(b)(1), and any alternative 

requirements proposed by the Exchange, 

the Fund will use the mark-to-market 

value of its derivatives in calculating the 

weight of such derivatives or the 

exposure that such derivatives provide 

to their reference assets.77

(ii) The Fund will not comply with 

the requirement that securities 

comprising at least 90% of the fixed 

income weight of the Fund’s portfolio 

meet one of the criteria in Nasdaq Rule 

5735(b)(1)(B)(iv) in respect to its 

investments in ABS/Private MBS. 

Instead, ABS/Private MBS will be 

limited to 20% of the weight of the fixed 

income portion of the Fund’s 

portfolio.78 Other than ABS/Private 

MBS, which will not meet the criteria in 

Nasdaq Rule 5735(b)(1)(B)(iv) but will 

be subject to the 20% limit on aggregate 

holdings in ABS/Private MBS, all fixed 

income securities held by the Fund will 

satisfy this 90% requirement. As a 

result, other than ABS/Private MBS, 

which will not satisfy the 90% 

requirement, and CDOs, which will be 

excluded from the requirement in 

Nasdaq Rule 5735(b)(1)(B)(v) and, 

instead, be limited to 10% of the total 

assets of the Fund, all fixed income 

securities held by the Fund will comply 

with all of the requirements of Nasdaq 

Rule 5735(b)(1)(B)(i)–(v). 

(iii) The Exchange has classified bank 

loans as Debt for purposes of this 

proposed rule change and not as ‘‘fixed 

income securities’’ as they are classified 

in Nasdaq Rule 5735(b)(1)(B). As a 

result, the Fund’s investments in bank 

loans will comply with the limitations 

or restrictions applicable to the Fund’s 

investments in Debt as set forth herein 

with respect to such holdings and not 

with the restrictions for fixed income 

securities set forth in Nasdaq Rule 

5735(b)(1)(B)(i)–(v).79

(iv) The Fund will not comply with 

the equity requirements in Nasdaq Rules 

5735(b)(1)(A)(i) 80 and 


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weighted component stocks (excluding Exchange 

Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

5735(c)(6) and 5710, respectively) shall not exceed 

65% of the equity weight of the portfolio; (d) Where 

the equity portion of the portfolio does not include 

Non-U.S. Component Stocks, the equity portion of 

the portfolio shall include a minimum of 13 

component stocks; provided, however, that there 

shall be no minimum number of component stocks 

if (i) one or more series of Exchange Traded 

Derivative Securities or Linked Securities, as such 

terms are defined in Nasdaq Rules 5735(c)(6) and 

5710, respectively, constitute, at least in part, 

components underlying a series of Managed Fund 

Shares (as defined in Nasdaq Rule 5735), or (ii) one 

or more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

defined in Nasdaq Rule 5735(c)(6) and 5710, 

respectively, account for 100% of the equity weight 

of the portfolio of a series of Managed Fund Shares; 

(e) except as otherwise provided, equity securities 

in the portfolio shall be U.S. Component Stocks 

listed on a national securities exchange and shall 

be NMS Stocks as defined in Rule 600 of Regulation 

NMS under the Act; and (f) American Depositary 

Receipts (‘‘ADRs’’) in a portfolio may be exchangetraded or non-exchange-traded; however, no more 

than 10% of the equity weight of a portfolio shall 

consist of non-exchange-traded ADRs. 

81Nasdaq Rule 5735(b)(1)(A)(ii) provides that, the 

component stocks of the equity portion of a 

portfolio that are Non-U.S. Component Stocks (as 

such term is defined in Nasdaq Rule 5705) shall 

meet the following criteria initially and on a 

continuing basis: (a) Non-U.S. Component Stocks 

(as such term is defined in Nasdaq Rule 5705) each 

shall have a minimum market value of at least $100 

million; (b) Non-U.S. Component Stocks (as such 

term is defined in Nasdaq Rule 5705) each shall 

have a minimum global monthly trading volume of 

250,000 shares, or minimum global notional volume 

traded per month of $25,000,000, averaged over the 

last six months; (c) The most heavily weighted NonU.S. Component Stock (as such term is defined in 

Nasdaq Rule 5705) shall not exceed 25% of the 

equity weight of the portfolio, and, to the extent 

applicable, the five most heavily weighted Non-U.S. 

Component Stocks (as such term is defined in 

Nasdaq Rule 5705) shall not exceed 60% of the 

equity weight of the portfolio; (d) Where the equity 

portion of the portfolio includes Non-U.S. 

Component Stocks (as such term is defined in 

Nasdaq Rule 5705), the equity portion of the 

portfolio shall include a minimum of 20 component 

stocks; provided, however, that there shall be no 

minimum number of component stocks if (i) one or 

more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

defined in Nasdaq Rules 5735(c)(6) and 5710, 

respectively, constitute, at least in part, components 

underlying a series of Managed Fund Shares, or (ii) 

one or more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

defined in Nasdaq Rules 5735(c)(6) and 5710, 

respectively, account for 100% of the equity weight 

of the portfolio of a series of Managed Fund Shares; 

and (e) Each Non-U.S. Component Stock (as such 

term is defined in Nasdaq Rule 5705) shall be listed 

and traded on an exchange that has last-sale 

reporting. 

82These other equities will consist of ETFs 

(including money market ETFs) that provide 

exposure to fixed income securities, Debt and other 

Principal Investments. The weight of such ETFs in 

the Fund’s portfolio shall not be limited. As noted 

above, Fixed-Income Related Warrants are treated 

as fixed income securities for purposes of this 

proposed rule change and will be subject to and 

comply with the generic listing requirements for 

fixed-income securities, rather than the generic 

listing requirements for equity securities. See supra 

note 29. 

83The ‘‘Group of Seven’’ or G–7 countries consist 

of the United States, Canada, France, Germany, 

Italy, Japan and the United Kingdom. 

84See, e.g., Securities Exchange Act Release Nos. 

76719 (December 21, 2015), 80 FR 80859 (December 

28, 2015) (SR–NYSEArca–2015–73) (granting 

approval for the listing of shares of the Guggenheim 

Total Return Bond ETF); 66321 (February 3, 2012), 

77 FR 6850 (February 9, 2012) (SR–NYSEArca– 

2011–95) (granting approval for the listing of shares 

of the PIMCO Total Return Exchange Traded Fund 

(now known as the PIMCO Active Bond ExchangeTraded Fund)); and 72666 (July 24, 2014), 79 FR 

44224 (July 30, 2014) (SR–NYSEArca–2013–122) 

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund). The 

investments of the Guggenheim Total Return Bond 

ETF include a wide variety of U.S. and foreign fixed 

income instruments (including Private ABS/MBS), 

preferred securities, cash equivalents, other ETFs 

and listed and over-the-counter derivatives and are 

managed in a manner that appears to be generally 

5735(b)(1)(A)(ii) 81 with respect to the 

Fund’s investment in Non-Convertible 

Preferred Securities, Work Out 

Securities and warrants. Instead, the 

Exchange proposes that (i) the Fund’s 

investments in equity securities other 

than Non-Convertible Preferred 

Securities, Work Out Securities and 

warrants shall comply with the equity 

requirements in Nasdaq Rule 

5735(b)(1)(A) 82 and (ii) the weight of 

Non-Convertible Preferred Securities, 

Work Out Securities and Equity-Related 

Warrants in the Fund’s portfolio shall 

together not exceed 30% of the Fund’s 

assets. 

(v) The Fund will not comply with 

the requirement in Nasdaq Rule 

5735(b)(1)(E) that no more than 20% of 

the assets in the Fund’s portfolio may be 

invested in over-the-counter derivatives. 

Instead, the Exchange proposes that 

there shall be no limit on the Fund’s 

investment in Interest Rate and 

Currency Derivatives, and the weight of 

all OTC Derivatives other than Interest 

Rate and Currency Derivatives shall not 

exceed 10% of the Fund’s assets. For 

purposes of this 10% limit on OTC 

Derivatives, the weight of such OTC 

Derivatives will be calculated based on 

the mark-to-market value of such OTC 

Derivatives. 

(vi) The Fund will not comply with 

the requirement in Nasdaq Rule 

5735(b)(1)(D)(i) that at least 90% of the 

weight of the Fund’s holdings in 

futures, exchange-traded options, and 

listed swaps shall, on both an initial and 

continuing basis, consist of futures, 

options and swaps for which the 

Exchange may obtain information via 

the ISG from other members or affiliates 

of the ISG, or for which the principal 

market is a market with which the 

Exchange has a comprehensive 

surveillance sharing agreement. Instead, 

the Exchange proposes that no more 

than 10% of the assets of the Fund will 

be invested in Exchange-Traded 

Derivatives and exchange-listed 

securities whose principal market is not 

a member of ISG or is a market with 

which the Exchange does not have a 

comprehensive surveillance sharing 

agreement. For purposes of this 10% 

limit, the weight of such ExchangeTraded Derivatives will be calculated 

based on the mark-to-market value of 

such Exchange-Traded Derivatives. 

(vii) The Fund will not comply with 

the requirement in Nasdaq Rule 

5735(b)(1)(D)(ii) that the aggregate gross 

notional value of listed derivatives, 

based on any five or fewer underlying 

reference assets, shall not exceed 65% 

of the weight of the Fund’s portfolio 

(including gross notional exposures), 

and the aggregate gross notional value of 

listed derivatives, based on any single 

underlying reference asset, shall not 

exceed 30% of the weight of the Fund’s 

portfolio (including gross notional 

exposures). Instead, the Exchange 

proposes that the Fund will comply 

with the concentration requirements in 

Nasdaq Rule 5735(b)(1)(D)(ii) except 

with respect to the Fund’s investment in 

futures and options (including options 

on futures) referencing eurodollars and 

sovereign debt issued by the United 

States (i.e., Treasury Securities) and 

other ‘‘Group of Seven’’ countries 83

where such futures and options 

contracts are listed on an exchange that 

is an ISG member or an exchange with 

which the Exchange has a 

comprehensive surveillance sharing 

agreement (‘‘Eurodollar and G–7 

Sovereign Futures and Options’’). The 

Fund may maintain significant positions 

in Eurodollar and G–7 Sovereign 

Futures and Options, and such 

investments will not be subject to the 

concentration limits provided in Nasdaq 

Rule 5735(b)(1)(D)(ii). For purposes of 

this requirement, the weight of the 

applicable Exchange-Traded Derivatives 

will be calculated based on the mark-tomarket value of such Exchange-Traded 

Derivatives. 

The Exchange believes that, 

notwithstanding that the Fund would 

not meet a limited number of ‘‘generic’’ 

listing requirements of Nasdaq Rule 

5735(b)(1) in order to be able to satisfy 

its investment objective, the Exchange 

will be able to appropriately monitor 

and surveil trading in the underlying 

investments, including those that do not 

meet the ‘‘generic’’ listing requirements. 

The Exchange also notes that the 

parameters around the Fund’s portfolio 

holdings are generally consistent with 

the parameters approved by the 

Commission prior to adoption of 

‘‘generic’’ listing requirements for 

actively-managed ETFs.84 In addition, 


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consistent with that proposed for the Fund. 

Consistent with the requests made in this proposed 

rule change, the Commission’s approval of the 

listing of shares of the Guggenheim Total Return 

Bond ETF did not include many of the conditions 

imposed by the generic listing standards under 

Nasdaq Rule 5735; the Commission’s approval did 

not impose limits regarding the total notional size 

of the ETF’s investment in over-the-counter 

derivatives, did not impose concentration limits on 

the ETF’s investment in listed derivatives and did 

not require compliance with the same criteria as the 

fixed income criteria in Nasdaq Rule 5735(b)(1)(B). 

The order approving investments in derivatives by 

the PIMCO Total Return Exchange Traded Fund 

described investments in both over-the-counter and 

listed derivatives, but did not impose limits 

regarding the total notional size of the ETF’s 

investments in over-the-counter derivatives, did not 

impose concentration limits on the ETF’s 

investments in listed derivatives, and did not 

impose limitations on investments in listed 

derivatives whose principal market is not a member 

of ISG or is a market with which its listing exchange 

does not have a comprehensive surveillance sharing 

agreement. 

85See, e.g., Securities Exchange Act Release Nos. 

80657 (May 11, 2017), 82 FR 22702 (May 17, 2017) 

(SR–NYSEArca–2017–09) (approving up to 50% of 

the fund’s assets (calculated on the basis of 

aggregate gross notional value) to be invested in 

over-the-counter derivatives that are used to reduce 

currency, interest rate, or credit risk arising from 

the fund’s investments, including forwards, overthe-counter options, and over-the-counter swaps); 

78592 (August 16, 2016), 81 FR 56729 (August 22, 

2016) (SR–NASDAQ–2016–061) (approving 

investment of up to 20% of the fund’s assets in, 

among other things, non-exchange-traded equity 

securities acquired in conjunction with the fund’s 

event-driven strategy, including securities acquired 

by the fund as a result of certain corporate events 

including reorganizations); 76719 (December 21, 

2015), 80 FR 80859 (December 28, 2015) (SR– 

NYSEArca–2015–73) (permitting (i) investments in 

over-the-counter and listed derivatives without 

imposing limits on the total notional size of the 

ETF’s investments in over-the-counter derivatives 

and without imposing concentration limits on the 

ETF’s investments in listed derivatives and (ii) 

permitting investments in a wide variety of fixed 

income instruments without compliance with the 

same criteria as the fixed income criteria in Nasdaq 

Rule 5735(b)(1)(B)); and 72666 (July 24, 2014), 79 

FR 44224 (July 30, 2014) (SR–NYSEArca–2013–122) 

(permitting investments in both over-the-counter 

and listed derivatives, but without imposing limits 

regarding the total notional size of the ETF’s 

investments in over-the-counter derivatives, 

without imposing concentration limits on the ETF’s 

investments in listed derivatives, and without 

imposing limitations on investments in listed 

derivatives whose principal market is not a member 

of ISG or is a market with which its listing exchange 

does not have a comprehensive surveillance sharing 

agreement); and 69061 (March 7, 2013), 78 FR 

15990 (March 13, 2013) (SR–NYSEArca–2013–01) 

(approving investments in non-agency commercial 

MBS and non-agency residential MBS without a 

fixed limit but consistent with the fund’s objective 

of investing up to 80% of its assets in investment 

grade fixed-income securities). 

the Fund will be well diversified. For 

these reasons, the Exchange believes 

that it is appropriate and in the public 

interest to approve listing and trading of 

Shares of the Fund on the Exchange. 

As further described in ‘‘Statutory 

Basis,’’ deviations from the generic 

requirements are necessary for the Fund 

to achieve its investment objective and 

efficiently manage the risks associated 

with its investments, and any possible 

risks have been fully mitigated and 

addressed through the alternative limits 

proposed by the Exchange. In addition, 

many of the changes requested are 

generally consistent with previous 

filings approved by the Commission.85

Net Asset Value 

The Fund’s administrator will 

calculate the Fund’s net asset value 

(‘‘NAV’’) per Share as of the close of 

regular trading (normally 4:00 p.m., 

Eastern time (‘‘E.T.’’)) on each day the 

New York Stock Exchange is open for 

business. NAV per Share will be 

calculated for the Fund by taking the 

value of the Fund’s total assets, 

including interest or dividends accrued 

but not yet collected, less all liabilities, 

and dividing such amount by the total 

number of Shares outstanding. The 

result, rounded to the nearest cent, will 

be the NAV per Share (although 

creations and redemptions will be 

processed using a price denominated to 

the fifth decimal point, meaning that 

rounding to the nearest cent may result 

in different prices in certain 

circumstances). 

Impact on Arbitrage Mechanism 

The Manager and the Sub-Advisers 

believe there will be minimal, if any, 

impact on the arbitrage mechanism for 

the Fund as a result of its use of 

derivatives. The Manager and the SubAdvisers understand that market makers 

and other market participants should be 

able to value derivatives held by the 

Fund as long as the Fund’s positions are 

disclosed. The Manager and the SubAdvisers believe that the price at which 

Shares trade will continue to be 

disciplined by arbitrage opportunities 

created by the ability for authorized 

participants (‘‘APs’’) to purchase or 

redeem creation Shares at their NAV, 

which should ensure that Shares will 

not trade at a material discount or 

premium in relation to their NAV. 

The Manager and the Sub-Advisers do 

not believe that there will be any 

significant impact on the settlement or 

operational aspects of the Fund’s 

arbitrage mechanism due to the use of 

derivatives. Because derivatives 

generally are not eligible for in-kind 

transfer, they will typically be 

substituted with a ‘‘cash in lieu’’ 

amount when the Fund processes 

purchases or redemptions of creation 

units in-kind. 

Creation and Redemption of Shares 

The Fund will issue Shares of the 

Fund at NAV only to APs and only in 

aggregations of at least 50,000 shares 

(each aggregation is called a ‘‘Creation 

Unit’’) or multiples thereof, on a 

continuous basis through the 

Distributor, without a sales load, at the 

NAV next determined after receipt, on 

any Business Day, of an order in proper 

form. A ‘‘Business Day’’ is defined as 

any day that the Trust is open for 

business, including as required by 

Section 22(e) of the 1940 Act. 

Although the Fund reserves the right 

to issue Creation Units on a partial or 

fully ‘‘in kind’’ basis, the Fund expects 

that it will primarily issue Creation 

Units solely for cash. As a result, APs 

seeking to purchase Creation Units will 

generally be required to transfer to the 

Fund cash in an amount equal to the 

value of the Creation Unit(s) purchased 

and the applicable transaction fee. To 

the extent that the Fund elects to issue 

Creation Units on an ‘‘in-kind’’ basis, 

the applicable AP will be required to 

deposit with the Fund a designated 

portfolio of securities and/or 

instruments (the ‘‘Deposit Securities’’) 

that will conform pro rata to the 

holdings of the Fund (except in the 

circumstances described in the Fund’s 

Statement of Additional Information 

(the ‘‘SAI’’)) and/or an amount of cash. 

If there is a difference between the NAV 

attributable to a Creation Unit and the 

aggregate market value of the Deposit 

Securities or Redemption Securities 

(defined below) exchanged for the 

Creation Unit, the party conveying the 

instruments with the lower value will 

pay to the other an amount in cash 

equal to that difference (the ‘‘Cash 

Component’’). Together, the Deposit 

Securities and the Cash Component will 

constitute the ‘‘Fund Deposit,’’ which 

will represent the minimum initial and 

subsequent investment amount for a 

Creation Unit of the Fund. 

The Fund also expects to effect 

redemptions of Creation Units primarily 

on a cash basis, although it reserves the 

right to effect redemption on a partial or 

wholly ‘‘in-kind’’ basis. In connection 

with a cash redemption, the AP will be 

required to transfer to the Fund Creation 

Units and cash equal to the transaction 

fee. To the extent that the Fund elects 

to utilize an ‘‘in-kind’’ redemption, it 

will deliver to the redeeming AP, in 

exchange for a Creation Unit, securities 

and/or instruments that will conform 

pro rata to the holdings of the Fund 

(‘‘Redemption Securities’’) plus the 

Cash Component. 

To be eligible to place orders with 

respect to creations and redemptions of 

Creation Units, an entity must have 

executed an agreement with the 

Distributor, subject to acceptance by the 

transfer agent, with respect to creations 

and redemptions of Creation Units. Each 


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46212 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

86The 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 the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

87See Nasdaq Rule 4120(b)(4) (describing the 

three trading sessions on the Exchange: (1) PreMarket Session from 4 a.m. to 9:30 a.m., E.T.; (2) 

Regular Market Session from 9:30 a.m. to 4 p.m. or 

4:15 p.m., E.T.; and (3) Post-Market Session from 4 

p.m. or 4:15 p.m. to 8 p.m., E.T.). 

88Under 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’’). 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. 

89See Nasdaq Rule 5735(c)(2). 

90Currently, 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. 

GIDS provides investment professionals with the 

daily information needed to track or trade Nasdaq 

indexes, listed ETFs, or third-party partner indexes 

and ETFs. 

91For the definition of ‘‘TRACE-Eligible 

Security,’’ see FINRA Rule 6710(a). 

such entity (an AP) must be (i) a brokerdealer or other participant in the 

clearing process through the continuous 

net settlement system of the National 

Securities Clearing Corporation 

(‘‘NSCC’’) or (ii) a Depository Trust 

Company participant. 

When the Fund permits Creation 

Units to be issued principally or 

partially in-kind, the Fund will cause to 

be published, through the NSCC, on 

each Business Day, at or before 9:00 a.m. 

E.T., the identity and the required 

principal amount or number of each 

Deposit Security and the amount of the 

Cash Component (if any) to be included 

in the current Fund Deposit (based on 

information at the end of the previous 

Business Day). 

All orders to create Creation Units 

must be received by the Distributor 

within a one-hour window from 9:00 

a.m. E.T. to 10:00 a.m. E.T. on a given 

Business Day in order to receive the 

NAV determined on the Business Day 

on which the order was placed. 

Shares may be redeemed only in 

Creation Units at their NAV next 

determined after receipt of a redemption 

request in proper form on a Business 

Day and only through an AP. The Fund 

will not redeem Shares in amounts less 

than a Creation Unit unless the Fund is 

being liquidated. 

When the Fund permits Creation 

Units to be redeemed principally or 

partially in-kind, the Fund will cause to 

be published, through the NSCC, at or 

before 9:00 a.m. E.T. on each Business 

Day, the identity of the Redemption 

Securities and/or an amount of cash that 

will be applicable to redemption 

requests received in proper form on that 

day. The Redemption Securities will be 

identical to the Deposit Securities. 

In order to redeem Creation Units of 

the Fund, an AP must submit an order 

to redeem one or more Creation Units. 

All such orders must be received by the 

Distributor within a one-hour window 

from 9:00 a.m. E.T. to 10:00 a.m. E.T. on 

a given Business Day in order to receive 

the NAV determined on the Business 

Day on which the order was placed. 

Availability of Information 

The Fund’s website 

(www.leggmason.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. The website will 

include the Shares’ ticker, CUSIP and 

exchange information, along with 

additional quantitative information 

updated on a daily basis, including, for 

the Fund: (1) The prior Business Day’s 

NAV per share and the market closing 

price or mid-point of the bid/ask spread 

at the time of calculation of such NAV 

per share (the ‘‘Bid/Ask Price’’),86 and a 

calculation of the premium or discount 

of the market closing price or Bid/Ask 

Price against such NAV per share; and 

(2) a table showing the number of days 

of such premium or discount for the 

most recently completed calendar year, 

and the most recently completed 

calendar quarters since that year (or the 

life of Fund, if shorter). 

On each Business Day, before 

commencement of trading in Shares in 

the Regular Market Session 87 on the 

Exchange, the Fund will disclose on its 

website the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘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.88 The Fund’s 

disclosure of derivative positions in the 

Disclosed Portfolio will include 

sufficient information for market 

participants to use to value these 

positions intraday. On a daily basis, the 

Fund will disclose on the Fund’s 

website 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), 

the identity of the security or other asset 

or instrument underlying the holding, if 

any; for 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 percentage 

weighting of the holding in the Fund’s 

portfolio.89 The website information 

will be publicly available at no charge. 

In addition, for the Fund, an 

estimated value, defined in Rule 

5735(c)(3) as the ‘‘Intraday Indicative 

Value,’’ that reflects an estimated 

intraday value of the Fund’s Disclosed 

Portfolio, will be disseminated. 

Moreover, the Intraday Indicative Value, 

available on the Nasdaq Information 

LLC proprietary index data service,90

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 vendor and broadly 

displayed at least every 15 seconds 

during the Regular Market Session. The 

Intraday Indicative Value will be based 

on quotes and closing prices provided 

by a dealer who makes a market in those 

instruments. 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. 

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 Business Day. 

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. Information regarding 

market price and trading volume of the 

Shares will be continually available on 

a real-time basis throughout the 

Business Day on brokers’ computer 

screens and other electronic services. 

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 (‘‘CTA’’) plans for the 

Shares and for the following U.S. 

securities, to the extent that they are 

exchange-listed securities: Work Out 

Securities, Non-Convertible Preferred 

Securities, warrants, convertible fixed 

income securities and ETFs. Price 

information for U.S. exchange-listed 

options will be available via the Options 

Price Reporting Authority and for other 

U.S. Exchange-Traded Derivatives will 

be available from the applicable listing 

exchange and from major market data 

vendors. Price information for TRACEEligible Securities 91 sold in transactions 


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92FINRA generally disseminates information on 

all transactions in TRACE-Eligible Securities, 

including those effected pursuant to Rule 144A of 

the Securities Act, immediately upon receipt of the 

transaction reports. Exceptions to this 

dissemination schedule are: (i) In respect to CMOs 

transacted pursuant to Rule 144A under the 

Securities Act, where the transaction value is $1 

million or more and there have been five or more 

transactions of $1 million or more in the period 

reported by at least two different market participant 

identifiers (where FINRA will disseminate 

information weekly and monthly); (ii) certain 

transactions with affiliates, certain transfers in 

connection with mergers and not in furtherance of 

a trading strategy, and certain primary offerings; 

(iii) transactions in CDOs, collateralized mortgage 

backed securities and CMOs, if the transaction 

value is $1 million or more and does not qualify 

for periodic dissemination; and (iv) Treasury 

Securities. See FINRA Rule 6750. 

93Non-TRACE Eligible Securities, which are 

Securitized Products, in which the Fund may 

invest, will primarily consist of fixed income 

securities issued by foreign entities and 

denominated in foreign currencies. For such 

securities that are not TRACE-eligible, pricing 

information will generally be available from major 

market data vendors and broker-dealers. 

94See supra note 92. 

95See 17 CFR 240.10A–3. 

96FINRA surveils trading on the Exchange 

pursuant to a regulatory services agreement. The 

Exchange is responsible for FINRA’s performance 

under this regulatory services agreement. 

under Rule 144A under the Securities 

Act will generally be available through 

FINRA’s Trade Reporting and 

Compliance Engine (‘‘TRACE’’) and 

information regarding transactions in 

non-TRACE-Eligible Securities or 

transactions not otherwise subject to 

TRACE reporting is generally available 

from major market data vendors and 

broker-dealers. For most of the U.S. 

dollar denominated corporate bonds, 

GSE-sponsored securities, Securitized 

Products and other U.S. dollar 

denominated fixed income securities in 

which the Fund invests, price 

information will be available from 

TRACE and EMMA (as defined 

below).92 For those instruments for 

which FINRA does not disseminate 

price information from TRACE, such as 

CDOs and fixed income securities 

denominated in foreign currencies, 

pricing information will generally be 

available from major market data 

vendors and broker-dealers. Money 

Market Funds are typically priced once 

each Business Day and their prices will 

be available through the applicable 

fund’s website or from major market 

data vendors. 

For other exchange-listed securities 

(to be comprised primarily of ETFs, 

warrants and structured notes and 

which may include exchange-listed 

securities of both U.S. and non-U.S. 

issuers), equities traded in the over-thecounter market (including Work Out 

Securities and Non-Convertible 

Preferred Securities), Exchange-Traded 

Derivatives (including U.S. or foreign), 

OTC Derivatives, Debt and fixed income 

securities (including convertible fixed 

income securities), and the small 

number of Securitized Products that are 

not reported to TRACE,93 intraday price 

quotations will generally be available 

from broker-dealers and trading 

platforms (as applicable). Price 

information for such securities and 

instruments will also be available from 

feeds from major market data vendors, 

published or other public sources, or 

online information services. As noted 

above, TRACE will be a source of price 

information for most of the U.S. dollar 

denominated corporate bonds, GSEsponsored securities, Securitized 

Products and other U.S. dollar 

denominated fixed income securities in 

which the Fund invests. Intraday and 

other price information related to 

foreign government securities, Money 

Market Funds, and other cash 

equivalents that are traded over-thecounter and other Non-TRACE Eligible 

Securities as well as prices for Treasury 

Securities, CDOs, commercial mortgagebacked securities, or CMOs purchased 

through transactions that do not qualify 

for periodic dissemination by FINRA 94

will be available through major market 

data vendors, such as Bloomberg, 

Markit, IDC and Thomson Reuters, 

which can be accessed by APs and other 

investors. Electronic Municipal Market 

Access (‘‘EMMA’’) will be a source of 

price information for municipal bonds. 

Pricing for repurchase transactions and 

reverse repurchase agreements entered 

into by the Fund are not publicly 

reported. Prices are determined by 

negotiation at the time of entry with 

counterparty brokers, dealers and banks. 

Additional information regarding the 

Fund and the Shares, including 

investment strategies, risks, creation and 

redemption procedures, fees, Fund 

holdings’ disclosure policies, 

distributions and taxes will be included 

in the Registration Statement. Investors 

will also be able to obtain the 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, except the SAI, which is 

filed at least annually. 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 website at 

www.sec.gov. 

Initial and Continued Listing 

The Shares will be subject to Nasdaq 

Rule 5735, which sets forth the initial 

and continued listing criteria applicable 

to Managed Fund Shares. The Exchange 

represents that, for initial and continued 

listing, the Fund must be in compliance 

with Rule 10A–3 95 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. 

Trading Halts 

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 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 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. Trading in the 

Shares also will be subject to Nasdaq 

Rule 5735(d)(2)(D), which sets forth 

circumstances under which Shares of 

the Fund may be halted. 

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., E.T. The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions. As 

provided in Nasdaq Rule 5735(b)(3), the 

minimum price variation for quoting 

and entry of orders in Managed Fund 

Shares traded 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 

FINRA on behalf of the Exchange, 

which are designed to detect violations 

of Exchange rules and applicable federal 

securities laws.96 The Exchange 


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97Exchange-listed securities and ExchangeTraded Derivatives held by the Fund that are listed 

and traded on a non-ISG member exchange or on 

an exchange with which the Exchange does not 

have a comprehensive surveillance sharing 

agreement together are limited to 10% of the assets 

of the Fund. 

98For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all 

components of the Disclosed Portfolio may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

99As noted above, no more than 10% of the assets 

of the Fund may be invested in Exchange-Traded 

Derivatives and exchange-listed securities whose 

principal market is not a member of ISG or a market 

with which the Exchange has a comprehensive 

surveillance sharing agreement. 

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. 

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 the exchangelisted securities and instruments held 

by the Fund (including exchange-listed 

equities and Exchange-Traded 

Derivatives) with other markets and 

other entities that are members of ISG 97

and with which the Exchange has 

comprehensive surveillance sharing 

agreements,98 and FINRA and the 

Exchange both may obtain information 

regarding trading in the Shares, the 

exchange-listed securities, derivatives 

and other instruments held by the Fund 

from markets and other entities that are 

members of ISG, which include 

securities and futures exchanges and 

swap execution facilities, or with which 

the Exchange has in place a 

comprehensive surveillance sharing 

agreement.99 Moreover, FINRA, on 

behalf of the Exchange, will be able to 

access, as needed, trade information for 

most of the fixed income securities held 

by the Fund through reporting on 

FINRA’s TRACE and, with respect to 

municipal securities, EMMA. 

The majority of the Fund’s 

investments in exchange-listed, equity 

securities (i.e., Non-ConvertiblePreferred Securities, Equity-Related 

Warrants, and ETFs) will constitute 

securities that trade in markets that are 

members of ISG or are parties to a 

comprehensive surveillance sharing 

agreement with the Exchange. Up to 

10% of the Fund’s assets may be held 

in exchange-listed securities and 

Exchange-Traded Derivatives that are 

listed and traded on markets that are not 

members of ISG or a market with which 

the Exchange does not have a 

comprehensive surveillance sharing 

agreement. 

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 Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (4) 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; (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. 

The Information Circular will also 

discuss any exemptive, no-action and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

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 

Fund’s website. 

Continued Listing Representations 

All statements and representations 

made in this filing regarding (a) the 

description of the portfolio or reference 

assets, (b) limitations on portfolio 

holdings or reference assets, (c) 

dissemination and availability of the 

reference asset or intraday indicative 

values, or (d) the applicability of 

Exchange listing rules 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. If the Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

the Nasdaq 5800 Series. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act in general and Section 6(b)(5) 

of the Act, 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, in general, to protect 

investors and the public interest. 

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 5735. The 

Exchange represents that trading in the 

Shares will be subject to the existing 

trading surveillances, administered by 

both the Exchange and FINRA, on 

behalf of the Exchange, which are 

designed to deter and detect violations 

of Exchange rules and applicable federal 

securities laws and are adequate to 

properly monitor trading in the Shares 

in all trading sessions. 

Paragraph (g) of Rule 5735 provides 

that if the investment adviser to the 

investment company issuing Managed 

Fund Shares is affiliated with a brokerdealer, such investment adviser shall 


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100As noted above, the Fund will limit its 

investments in illiquid securities or other illiquid 

assets to an aggregate amount of 15% of its net 

assets (calculated at the time of investment), as 

required by the Commission. 

101As noted above, the Fund will not invest in 

leveraged, inverse or inverse leveraged ETFs. 

102See, e.g., Securities Exchange Act Release Nos. 

66321 (February 3, 2012) 77 FR 6850 (February 9, 

2012) (SR–NYSEArca–2011–95) (granting approval 

for the listing of shares of the PIMCO Total Return 

Exchange Traded Fund); 72666 (July 24, 2014) 

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund); and 

76719 (December 21, 2015) (granting approval for 

the listing of shares of the Guggenheim Total Return 

Bond ETF). 

103As previously noted, the mark-to-market 

approach is consistent with the valuation 

methodology for derivatives for asset coverage 

purposes advocated by the Commission in proposed 

Rule 18f–4 under the 1940 Act. See Derivatives 

Rule Proposing Release. In a white paper published 

by staff of the Division of Economic and Risk 

Analysis of the SEC (‘‘DERA’’) in connection with 

the proposal of Rule 18f–4 under the 1940 Act, the 

staff of DERA noted that a derivative’s notional 

amount does not accurately reflect the risk of the 

derivative. See Daniel Deli, Paul Hanouna, Christof 

Stahel, Yue Tang and William Yost, Use of 

Derivatives by Registered Investment Companies 

(December 2015) at 10 (‘‘On the other hand, there 

are drawbacks to using notional amounts. First, 

because of differences in expected volatilities of the 

underlying assets, notional amounts of derivatives 

across different underlying asset generally do not 

represent the same unit of risk. For example, the 

level of risk associated with a $100 million notional 

of a S&P 500 index futures is not equivalent to the 

level of risk of a $100 million notional of interest 

rate swaps, currency forwards or commodity 

futures.’’). 

104Nasdaq Rule 5735(b)(1)(B)(iv) provides that 

component securities that in the aggregate account 

for at least 90% of the fixed income weight of the 

Fund’s portfolio must be either: (a) From issuers 

that are required to file reports pursuant to Sections 

13 and 15(d) of the Act; (b) from issuers that have 

a worldwide market value of its outstanding 

common equity held by non-affiliates of $700 

million or more; (c) from issuers that have 

outstanding securities that are notes, bonds, 

debentures, or evidence of indebtedness having a 

total remaining principal amount of at least $1 

billion; (d) exempted securities as defined in 

Section 3(a)(12) of the Act; or (e) from issuers that 

are a government of a foreign country or a political 

subdivision of a foreign country. 

105ABS/Private MBS are generally issued by 

special purpose vehicles, so the criteria in Nasdaq 

Rule 5735(b)(1)(B)(iv) regarding an issuer’s market 

capitalization and the remaining principal amount 

of an issuer’s securities are typically unavailable 

with respect to ABS/Private MBS, even though such 

ABS/Private MBS may own significant assets. 

erect and maintain a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company’s portfolio. In addition, 

paragraph (g) further requires that 

personnel who make decisions on the 

investment company’s portfolio 

composition must be subject to 

procedures designed to prevent the use 

and dissemination of material, nonpublic information regarding the 

investment company’s portfolio. 

Rule 5735(g) is similar to Nasdaq Rule 

5705(b)(5)(A)(i); however, paragraph (g) 

in connection with the establishment 

and maintenance of a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer reflects the applicable 

investment company’s portfolio, not an 

underlying benchmark index, as is the 

case with index-based funds. None of 

the Manager or any of the Sub-Advisers 

is a broker-dealer, but each is affiliated 

with the Distributor, a broker-dealer, 

and has implemented and will maintain 

a fire wall with respect to its brokerdealer affiliate regarding access to 

information concerning the composition 

and/or changes to the portfolio. 

In addition, personnel who make 

decisions on the Fund’s portfolio 

composition will be subject to 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding the Fund’s 

portfolio. In the event (a) the Manager 

or any of the Sub-Advisers registers as 

a broker-dealer or becomes newly 

affiliated with a broker-dealer, or (b) any 

new investment adviser or any new subadviser to the Fund is a registered 

broker-dealer or becomes affiliated with 

another broker-dealer, it will implement 

and maintain 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 Fund’s portfolio and will 

be subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

The Fund’s investments, including 

derivatives, will be consistent with the 

Fund’s investment objectives, 

applicable legal requirements 100 and 

will not be used for the purpose of 

seeking leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark 

(although derivatives may have 

embedded leverage). Although the Fund 

will be permitted to borrow as permitted 

under the 1940 Act, it will not be 

operated as a ‘‘leveraged ETF,’’ i.e., it 

will not be operated in a manner 

designed to seek leveraged returns or a 

multiple or inverse multiple of the 

performance of an underlying reference 

index.101 The Fund may engage in 

frequent and active trading of portfolio 

investments to achieve its investment 

objective. 

The Exchange believes that, 

notwithstanding that the Fund would 

not meet all of the ‘‘generic’’ listing 

requirements of Nasdaq Rule 5735(b)(1), 

the Fund will not be subject to 

manipulation, the investments of the 

Fund will be able to be monitored and 

surveilled by the Exchange and risks 

will be mitigated by alternative limits 

imposed by the Exchange and by the 

voluntary limits imposed by the Fund 

(see supra ‘‘Investment Restrictions’’). 

As a result, it is in the public interest 

to approve listing and trading of Shares 

of the Fund on the Exchange pursuant 

to the requirements set forth herein. 

Deviations from the generic 

requirements are necessary for the Fund 

to achieve its investment objective in a 

cost-effective manner that maximizes 

investors’ returns and to manage the 

risks associated with its investments, 

and the Exchange proposes that the 

Fund will be required to comply with 

alternative requirements that are 

customized to address the objectives of 

Section 6(b)(5) of the Act, as described 

herein. Further, the strategy and 

investments of the Fund are 

substantially similar to those of other 

ETFs previously approved by the 

Commission, which have operated 

safely and without disrupting the 

market for several years.102

The Fund will not comply with the 

requirements in Nasdaq Rule 5735(b)(1) 

regarding the use of aggregate gross 

notional value of derivatives when 

calculating the weight of such 

derivatives or the exposure that such 

derivatives provide to underlying 

reference assets, including the 

requirements in Rules 5735(b)(1)(D)(i), 

5735(b)(1)(D)(ii), 5735(b)(1)(E) and 

5735(b)(1)(F). Instead, the Exchange 

proposes that, except as otherwise 

provided herein, for the purposes of any 

applicable requirements under Nasdaq 

Rule 5735(b)(1), and any alternative 

requirements proposed by the Exchange, 

the Fund will use the mark-to-market 

value of its derivatives in calculating the 

weight of such derivatives or the 

exposure that such derivatives provide 

to their reference assets. The Exchange 

believes that this alternative 

requirement is appropriate because the 

mark-to-market value is a more accurate 

measurement of the actual exposure 

incurred by the Fund in connection 

with a derivatives position.103

The Fund will not meet the 

requirement that at least 90% of the 

fixed income weight of the Fund’s 

portfolio meet one of the criteria in 

Nasdaq Rule 5735(b)(1)(B)(iv) 104

because some ABS/Private MBS cannot 

satisfy the criteria in Nasdaq Rule 

5735(b)(1)(B)(iv).105 The Exchange 

proposes, in the alternative, to require 

the Fund to ensure that all of the 

investments in the fixed income portion 

of the Fund’s portfolio, other than ABS/ 

Private MBS, comply with the 90% 

requirement in Nasdaq Rule 


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106For purposes of this requirement, the weight 

of the Fund’s exposure to any fixed income 

securities referenced in derivatives shall be 

calculated based on the mark-to-market value of 

such derivatives. CDOs, in which the Fund invests, 

would comply with the 90% requirement in Nasdaq 

Rule 5735(b)(1)(B)(iv) but would be limited in 

amount to 10% of the Fund’s total assets. The 

Exchange believes that the 10% limit on the Fund’s 

holdings in CDOs will help to ensure that the Fund 

maintains a diversified portfolio and will mitigate 

the risk of manipulation. 

107For a listing of such restrictions, see supra 

‘‘Investment Restrictions.’’ 

108Nasdaq Rule 5735(b)(1)(A)(i)(e) generally 

requires the U.S. equity securities to be listed on a 

national securities exchange. The Exchange notes 

that shares of Money Market Funds are not 

considered equity securities for the purposes of 

Nasdaq Rule 5735(b)(1)(A), and that there is no 

limitation on the percentage of the Fund’s portfolio 

invested in shares of Money Market Funds, in 

accordance with Nasdaq Rule 5735(b)(1)(C)(i). 

109These other equities will consist of ETFs 

(including money market ETFs) that provide 

exposure to fixed income securities, Debt and other 

Principal Investments. The weight of such ETFs in 

the Fund’s portfolio shall not be limited. 

110As noted above, Fixed-Income Related 

Warrants are treated as fixed income securities for 

purposes of this proposed rule change and will be 

subject to and comply with the generic listing 

requirements for fixed-income securities, rather 

than the generic listing requirements for equity 

securities. See supra note 29. 

111See Securities Exchange Act Release No. 

80657 (May 11, 2017), 82 FR 22702 (May 17, 2017) 

(SR–NYSEArca–2017–09) (approving up to 50% of 

the fund’s assets (calculated on the basis of 

aggregate gross notional value) to be invested in 

over-the-counter derivatives that are used to reduce 

currency, interest rate, or credit risk arising from 

the fund’s investments, including forwards, overthe-counter options, and over-the-counter swaps). 

112Trading in foreign exchange markets averaged 

$5.1 trillion per day in April 2016, and 67% of this 

trading activity was in derivatives contracts such as 

currency or foreign exchange forwards, options and 

swaps (with the other 33% consisting of spot 

transactions). See Bank for International 

Settlements, Triennal Central Bank Survey, Foreign 

Exchange Turnover in April 2016, available at 

http://www.bis.org/publ/rpfx16fx.pdf (accessed 

November 2017). Trading in OTC interest rate 

derivatives averaged $2.7 trillion per day in April 

2016. See Bank for International Settlements, 

Triennal Central Bank Survey, OTC Interest Rate 

Derivatives Turnover in April 2016, available at 

http://www.bis.org/publ/rpfx16ir.pdf (accessed 

November 2017). 

113Transactions in Interest Rate and Currency 

Derivatives are required to be reported to a swap 

data repository, and transactions in Interest Rate 

Derivatives and certain Currency Derivatives (i.e., 

Currency Derivatives that are not excluded from the 

definition of a ‘‘swap’’, as described below) are also 

publicly reported pursuant to rules issued by the 

CFTC. See 17 CFR parts 43, 45 and 46. Pursuant to 

Section 1(a)(47)(E) of the CEA and a related 

determination by the Department of the Treasury, 

Excluded Currency Derivatives are excluded from 

the definition of a ‘‘swap’’ under the CEA. See 

Determination of Foreign Exchange Swaps and 

Foreign Exchange Forwards Under the Commodity 

Exchange Act, 77 FR 69694 (Nov. 20, 2012). 

However, as noted above, transactions in such 

Excluded Currency Derivatives are required to be 

reported to a swap data repository, but they are not 

subject to the public reporting requirements. 

114 Interest Rate Derivatives and Currency 

Derivatives other than Excluded Currency 

5735(b)(1)(B)(iv).106 The Exchange 

believes that this alternative limitation 

is appropriate because Nasdaq Rule 

5735(b)(1)(B)(iv) does not appear to be 

designed for structured finance vehicles 

such as ABS/Private MBS, and the 

overall weight of ABS/Private MBS held 

by the Fund will be limited to 20% of 

the fixed income portion of the Fund’s 

portfolio, as described above. As 

discussed above, although ABS/Private 

MBS will be excluded for the purposes 

of compliance with Nasdaq Rule 

5735(b)(1)(B)(iv), the Fund’s portfolio is 

consistent with the statutory standard as 

a result of the diversification provided 

by the investments and the SubAdviser’s selection process, which 

closely monitors investments to ensure 

maintenance of credit and liquidity 

standards and relies on the higher 

investment levels in these instruments 

during periods of U.S. economic 

strength. 

As discussed above, the Exchange has 

determined to make an exception solely 

in respect of the Fund such that CDOs 

will not be deemed to be included in the 

definition of ABS for purposes of the 

limitation in Nasdaq Rule 

5735(b)(1)(B)(v) and, as a result, will not 

be subject to the restriction on aggregate 

holdings of ABS/Private MBS contained 

in such Rule, which limits such 

holdings to no more than 20% of the 

weight of the fixed income portion of 

the Fund’s portfolio. However, the 

Fund’s holdings in CDOs will be limited 

such that they do not account, in the 

aggregate, for more than 10% of the total 

assets of the Fund. The Exchange 

believes that the 10% limit on the 

Fund’s holdings in CDOs will help to 

ensure that the Fund maintains a 

diversified portfolio and will mitigate 

the risk of manipulation. 

The Exchange has classified bank 

loans as Debt for purposes of this 

proposed rule change and not as ‘‘fixed 

income securities’’ as they are classified 

in Nasdaq Rule 5735(b)(1)(B). As a 

result, the Fund’s investments in bank 

loans will comply with the limitations 

or restrictions applicable to the Fund’s 

investments in Debt as set forth herein 

with respect to such holdings and not 

with the restrictions for fixed income 

securities set forth in Nasdaq Rule 

5735(b)(1)(B)(i)–(v).107 The Exchange 

believes that this approach is 

appropriate given that the ‘‘generic’’ 

listing requirements in Nasdaq Rule 

5735(b)(1)(B) generally appear to be 

tailored to fixed income instruments 

that are ‘‘securities,’’ as defined in the 

Act, rather than loans and other debt 

instruments that are not characterized as 

‘‘securities’’ under applicable case law. 

The Fund will not meet the equity 

requirements in Nasdaq Rule 

5735(b)(1)(A) with respect to NonConvertible Preferred Securities, Work 

Out Securities and warrants.108 Instead, 

the Exchange proposes that (i) the 

Fund’s investments in equity securities 

other than Non-Convertible Preferred 

Securities, Work Out Securities and 

Equity Related Warrants shall comply 

with the equity requirements in Nasdaq 

Rule 5735(b)(1)(A) 109 and (ii) the weight 

of Non-Convertible Preferred Securities, 

Work Out Securities and Equity-Related 

Warrants in the Fund’s portfolio shall 

together not exceed 30% of the Fund’s 

assets. The Exchange believes that these 

alternative limitations are appropriate in 

light of the fact that the Non-Convertible 

Preferred Securities, Equity-Related 

Warrants and Work Out Securities are 

providing debt-oriented exposures or 

are received in connection with the 

Fund’s previous investment in Debt or 

fixed income securities, and all of the 

other equity securities held by the Fund 

will comply with the requirements of 

Nasdaq Rule 5735(b)(1)(A).110

The Fund will not meet the 

requirement in Nasdaq Rule 

5735(b)(1)(E) that no more than 20% of 

the assets in the Fund’s portfolio may be 

invested in over-the-counter derivatives. 

The Fund proposes that no limit be 

placed on Interest Rate and Currency 

Derivatives, which are necessary and 

appropriate to allow the Manager and 

Sub-Advisers to risk manage the Fund, 

but that the weight of all other OTC 

Derivatives (e.g., credit default swaps) 

be limited to 10% of the assets in the 

Fund’s portfolio. For purposes of this 

10% limit on OTC Derivatives, the 

weight of such OTC Derivatives will be 

calculated based on the mark-to-market 

value of such OTC Derivatives. The 

Exchange believes that this exception 

for Interest Rate and Currency 

Derivatives, which is generally 

consistent with the requirement in a 

previous filing for the listing of an ETF 

approved by the Commission,111 is 

appropriate in light of the fact that 

Interest Rate and Currency Derivatives 

are among the most liquid investment 

instruments (including not only 

derivatives but also securities) in the 

market 112 (and the instruments are even 

more liquid than most non-government 

or government-guaranteed securities). 

Based on the data compiled by the SubAdviser in respect to its liquidity policy, 

these derivatives are among the most 

liquid investment instruments traded. In 

addition, most Interest Rate Derivatives 

traded by the Fund are centrally cleared 

by regulated clearing firms, and Interest 

Rate and Currency Derivatives are 

subject to trade reporting,113 and other 

robust regulation.114 Given the size of 


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Derivatives are comprehensively regulated as swaps 

under the CEA and regulations issued thereunder 

by the CFTC and other federal financial regulators. 

See, e.g., 17 CFR part 23 (capital and margin 

requirements for swap dealers, business conduct 

standards for swap dealers, and swap 

documentation requirements); 17 CFR part 50 

(clearing requirements for swaps). While Excluded 

Currency Derivatives are not subject to all swap 

regulations, they are subject to the ‘‘business 

conduct standards’’ adopted by the CFTC pursuant 

to the CEA. See Section 1(a)(47)(E) of the CEA; 

Determination of Foreign Exchange Swaps and 

Foreign Exchange Forwards Under the Commodity 

Exchange Act, 77 FR 69694 (Nov. 20, 2012). 

115For purposes of this 10% limit, the weight of 

such Exchange-Traded Derivatives will be 

calculated based on the mark-to-market value of 

such Exchange-Traded Derivatives. 

116See CME Group, Interest Rate Futures 

Liquidity Metrics Reach New Highs (October 6, 

2017), available at http://www.cmegroup.com/ 

education/interest-rates-liquidity-metrics-reachnew-highs.html (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures and options on eurodollars and 

Treasury Securities, including that during the first 

three quarters of 2017, eurodollar futures and 

options traded through CME Group had an average 

daily open interest of approximately 53 million 

contracts and futures and options on Treasury 

Securities had an average daily open interest of 

approximately 15 million contracts); The Montreal 

Exchange, Statistics for Interest Rate Derivatives, 

Index Derivatives and Equity Derivatives 

(September 2017), available at https://www.m-x.ca/ 

f_stat_en/1709_stats_en.pdf (accessed November 

2017) (providing statistics regarding liquidity and 

open interest in futures and options on Canadian 

sovereign debt, including that, as of September 

2017, the open interest in futures and options on 

Canadian sovereign debt traded on The Montreal 

Exchange was approximately 560,000 contracts); 

Eurex Exchange, Benchmark Fixed Income 

Derivatives, available at https://

www.eurexchange.com/blob/115654/ 

4c51e4b8bc77355475b3b6f46afc0ef1/data/ 

factsheet_eurex_benchmark_fixed_income_

derivatives.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures and options on German sovereign 

debt, including that, as of July 2015, the open 

interest in futures on German sovereign debt traded 

on Eurex was approximately 3,000,000 contracts 

and the open interest in options on German 

sovereign debt futures traded on Eurex was 

approximately 3,000,000 contracts); Eurex 

Exchange, Eurex Exchange Euro-BTP Futures, 

Italian Government Bond Futures, available at 

http://www.eurexchange.com/blob/115624/ 

6a1281939d15ddbab960af40da6f11dc/data/ 

factsheet_eurex_euro_btp_futures_on_italian_

government_bonds.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures on Italian sovereign debt, 

including that the open interest peaks in 2017 for 

futures on long-term and short-term Italian 

sovereign debt traded on Eurex was approximately 

450,000 and 270,000 contracts, respectively); Eurex 

Exchange, Euro-OAT Derivatives, French 

Government Bond Futures and Options, available at 

http://www.eurexchange.com/blob/115652/ 

48198ec577f7b3b0ac44d4c5a39ed0de/data/ 

factsheet_eurex_euro_oat_futures_on_french_

government_bonds.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures on French sovereign debt, 

including that, as of July 2017, the open interest in 

futures on long-term French sovereign debt traded 

on Eurex was approximately 600,000 contracts); 

Intercontinental Exchange, Gilt Futures Overview, 

available at https://www.theice.com/publicdocs/ 

futures/Gilt_Futures_Overview.pdf (accessed 

November 2017) (providing statistics regarding 

liquidity and open interest in futures on British 

sovereign debt, including that, as of the third 

quarter of 2014, the open interest in futures on longterm British sovereign debt traded on the 

Intercontinental Exchange was approximately 

400,000 contracts); Osaka Exchange, Japanese 

Government Bond Futures & Options, available at 

http://www.jpx.co.jp/english/derivatives/products/ 

jgb/jgb-futures/tvdivq0000003n94-att/JGB_FUT_

OP_E.pdf (accessed November 2017) (providing 

statistics regarding liquidity and open interest in 

futures and options on Japanese sovereign debt, 

including that as of July 2016, the open interest in 

futures on 10-year Japanese sovereign debt traded 

on the Osaka Exchange was approximately 80,000 

contracts). The Exchange also notes that the 

Commission has previously granted exemptions 

under the Act to facilitate the trading of futures on 

sovereign debt issued by each of the Group of Seven 

countries (among other countries) and that such 

exemptions were based in part on the Commission’s 

assessment of the sufficiency of the credit ratings 

and liquidity of such sovereign debt. See 17 CFR 

240.3a12–8; Securities Exchange Act Release No. 

41453 (May 26, 1999), 64 FR 29550 (June 2, 1999). 

117For purposes of this requirement, the weight 

of the applicable derivatives will be calculated 

based on the mark-to-market value of such 

derivatives. 

the trading market and the regulatory 

oversight of the markets, the Exchange 

believes that Interest Rate and Currency 

Derivatives are not readily subject to 

manipulation. The Exchange also 

believes that allowing the Fund to risk 

manage its portfolio through the use of 

Interest Rate and Currency Derivatives 

without limit is necessary to allow the 

Fund to achieve its investment objective 

and protect investors. 

The Fund will not comply with the 

requirement in Nasdaq Rule 

5735(b)(1)(D)(i) that at least 90% of the 

weight of the Fund’s holdings in 

futures, exchange-traded options, and 

listed swaps shall, on both an initial and 

continuing basis, consist of futures, 

options, and swaps for which the 

Exchange may obtain information via 

the ISG from other members or affiliates 

of the ISG, or for which the principal 

market is a market with which the 

Exchange has a comprehensive 

surveillance sharing agreement. Instead, 

the Exchange proposes that no more 

than 10% of the assets of the Fund will 

be invested in Exchange-Traded 

Derivatives and exchange-listed 

securities whose principal market is not 

a member of ISG or is not a market with 

which the Exchange has a 

comprehensive surveillance sharing 

agreement.115 The Exchange believes 

that this alternative limitation is 

appropriate because the overall limit on 

Exchange-Traded Derivatives and 

exchange-listed securities whose 

principal market is not a member of ISG 

or is a market with which the Exchange 

does not have a comprehensive 

surveillance sharing agreement will still 

be low relative to the overall size of the 

Fund. 

The Fund will not meet the 

requirement in Nasdaq Rule 

5735(b)(1)(D)(ii) that the aggregate gross 

notional value of listed derivatives 

based on any five or fewer underlying 

reference assets shall not exceed 65% of 

the weight of the Fund’s portfolio 

(including gross notional exposures), 

and the aggregate gross notional value of 

listed derivatives based on any single 

underlying reference asset shall not 

exceed 30% of the weight of the Fund’s 

portfolio (including gross notional 

exposures) because the Fund may 

maintain significant positions in 

Eurodollar and G–7 Sovereign Futures 

and Options. The Manager has indicated 

that obtaining exposure to these 

investments through futures contracts is 

often the most cost efficient method to 

achieve such exposure. The Exchange 

notes that Eurodollar and G–7 Sovereign 

Futures and Options are highly liquid 

investments 116 and are not subject to 

the same concentration risks as 

Exchange-Traded Derivatives 

referencing other assets because of such 

liquidity. Further, the Exchange notes 

that the significantly diminished risk of 

Treasury Securities is reflected in their 

exclusion from the concentration 

requirements applicable to fixed income 

securities in Nasdaq Rule 

5735(b)(1)(B)(ii). The Exchange 

proposes that the Fund will comply 

with the concentration requirements in 

Nasdaq Rule 5735(b)(1)(D)(ii) except 

with respect to the Fund’s investment in 

Eurodollar and G–7 Sovereign Futures 

and Options.117 The Exchange believes 

that this alternative limitation is 

appropriate to provide the Fund with 

sufficient flexibility and because of the 

highly liquid and transparent nature of 

Eurodollar and G–7 Sovereign Futures 

and Options. Further, as described 

above, the G–7 Sovereign Futures and 

Options in which the Fund invests will 

be listed on an exchange that is an ISG 

member or an exchange with which the 

Exchange has a comprehensive 

surveillance sharing agreement. 

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 every Business 

Day that the Fund is traded, 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. 


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118Broker-dealers that are FINRA member firms 

have an obligation to report transactions in 

specified debt securities to TRACE to the extent 

required under applicable FINRA rules. Generally, 

such debt securities will have at issuance a maturity 

that exceeds one calendar year. For fixed income 

securities that are not reported to TRACE, (i) 

intraday price quotations will generally be available 

from broker-dealers and trading platforms (as 

applicable) and (ii) price information will be 

available from feeds from market data vendors, 

published or other public sources, or online 

information services, as described above. 

119Broker-dealers that are FINRA member firms 

have an obligation to report transactions in TRACEEligible Securities to TRACE. For the definition of 

‘‘TRACE-Eligible Security,’’ see FINRA Rule 

6710(a). 

120See supra note 92. 

121 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). 

122 15 U.S.C. 78f(b)(5). 

Moreover, the Intraday Indicative 

Value, available on the Nasdaq 

Information LLC proprietary index data 

service, will be widely disseminated by 

one or more major market data vendors 

at least every 15 seconds during the 

Exchange’s Regular Market Session. On 

each Business Day, before 

commencement of trading in the Shares 

in the Regular Market Session on the 

Exchange, the Fund will disclose on its 

website the Disclosed Portfolio of the 

Fund that will form the basis for the 

Fund’s calculation of NAV at the end of 

the Business Day. 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. 

Information regarding market price and 

trading volume of the Shares will be 

continually available on a real-time 

basis throughout the Business Day on 

brokers’ computer screens and other 

electronic services. 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 CTA plans for the 

Shares and for the following U.S. 

securities, to the extent they are 

exchange-listed: Work Out Securities, 

Non-Convertible Preferred Securities, 

warrants, convertible fixed income 

securities and ETFs. Price information 

for U.S. exchange-listed options will be 

available via the Options Price 

Reporting Authority and for other U.S. 

Exchange-Traded Derivatives will be 

available from the applicable listing 

exchange and from major market data 

vendors. Price information for restricted 

securities will be available from major 

market data vendors, broker-dealers and 

trading platforms as well as for most 

fixed income securities sold in 

transactions under Rule 144A under the 

Securities Act, from TRACE and EMMA. 

Money Market Funds are typically 

priced once each Business Day and their 

prices will be available through the 

applicable fund’s website or from major 

market data vendors. 

For other exchange-listed securities 

(to be comprised primarily of ETFs, 

warrants and structured notes and 

which may include exchange-listed 

securities of both U.S. and non-U.S. 

issuers), equities traded in the over-thecounter market (including Work Out 

Securities and Non-Convertible 

Preferred Securities), Exchange-Traded 

Derivatives (including U.S. or foreign), 

OTC Derivatives, Debt and fixed income 

securities (including convertible fixed 

income securities) and the small 

number of Securitized Products that are 

not reported to TRACE, intraday price 

quotations will generally be available 

from broker-dealers and trading 

platforms (as applicable). TRACE will 

be a source of price information for most 

of the U.S. dollar denominated 

corporate bonds,118 GSE-sponsored 

securities, Securitized Products and 

other U.S. dollar denominated fixed 

income securities in which the Fund 

invests.119 Intraday and other price 

information related to foreign 

government securities, Money Market 

Funds, and other cash equivalents that 

are traded over-the-counter and other 

Non-TRACE Eligible Securities as well 

as prices for Treasury Securities, CDOs, 

commercial mortgage-backed securities, 

or CMOs purchased through 

transactions that do not qualify for 

periodic dissemination by FINRA 120

will be available through major market 

data vendors, such as Bloomberg, 

Markit, IDC and Thomson Reuters, 

which can be accessed by APs and other 

investors. EMMA will be a source of 

price information for municipal bonds. 

Pricing for repurchase transactions and 

reverse repurchase agreements entered 

into by the Fund are not publicly 

reported. Prices are determined by 

negotiation at the time of entry with 

counterparty brokers, dealers and banks. 

The Fund’s website will include a 

form of the prospectus for the Fund and 

additional data relating to NAV and 

other applicable quantitative 

information. Moreover, 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. Trading in the 

Shares of the Fund will be halted under 

the conditions specified in Nasdaq 

Rules 4120 and 4121 or 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 5735(d)(2)(D), 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 activelymanaged ETF that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

For the above reasons, the Exchange 

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 activelymanaged ETF 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 

No written comments were either 

solicited or received. 

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

modified by Amendment No. 3, is 

consistent with the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.121 In 

particular, the Commission finds that 

the proposed rule change, as modified 

by Amendment No. 3, is consistent with 

Section 6(b)(5) of the Act,122 which 

requires, among other things, that the 

Exchange’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 


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123See supra ‘‘Application of Generic Listing 

Requirements.’’ 

124See supra ‘‘Statutory Basis.’’ 

125See supra ‘‘Application of Generic Listing 

Requirements.’’ 

126See supra note 103 and accompanying text. 

127See supra notes 56–59 and accompanying text. 

128See supra note 78. 

129See supra ‘‘Application of Generic Listing 

Requirements.’’ As discussed above, the Exchange 

states that for purposes of this requirement, the 

weight of the Fund’s exposure to any fixed income 

securities referenced in derivatives held by the 

Fund would be calculated based on the mark-tomarket value of such derivatives. 

130See supra ‘‘Statutory Basis.’’ 

131 In the OIP, the Commission sought comment 

on whether the Fund’s proposed portfolio 

composition is sufficient to support a determination 

that the proposal is consistent with the Act. The 

Commission specifically noted that the Fund would 

not meet the requirement in Nasdaq Rule 

5735(b)(1)(B)(v) that Private ABS/MBS (as defined 

in the OIP), in the aggregate, account for no more 

than 20% of the weight of the fixed income portion 

of the Fund’s portfolio, and that, instead, the 

Exchange proposes to limit Private ABS/MBS to 

30% of the weight of the fixed income portion of 

its portfolio. The Commission asked for 

commenters’ views on this aspect of the proposal. 

See OIP, supra note 6, at 15888. The Commission 

notes that in Amendment No. 3, the Exchange 

revised this aspect of the proposal, as described 

above. See supra note 8. In addition, the 

Commission notes that it received no comments in 

response to the OIP. 

132See supra ‘‘Statutory Basis.’’ 

133See supra ‘‘Investment Restrictions.’’ 

134See supra note 70. 

135See supra notes 80–81. 

136The Exchange states that these other equity 

investments will consist of ETFs (including money 

market ETFs). See supra note 82. As discussed 

above, the Exchange states that Fixed-Income 

Related Warrants are treated as fixed income 

securities for purposes of the proposed rule change 

and would be subject to and comply with the 

generic listing requirements for fixed income 

securities, rather than the generic listing 

requirements for equity securities. See supra note 

29. 

137 In the OIP, the Commission sought comment 

on whether the Fund’s proposed portfolio 

composition is sufficient to support a determination 

that the proposal is consistent with the Act. The 

Commission specifically noted that the Fund’s 

investments in Non-Convertible Preferred 

Securities, Work Out Securities, and Equity-Related 

Warrants, which may constitute up to 30% of the 

Fund’s net assets, would not comply with the 

generic listing requirements for portfolio 

investments in equity securities set forth in Nasdaq 

Rule 5735(b)(1)(A). The Commission asked for 

commenters’ views on this aspect of the proposal. 

See OIP, supra note 6, at 15888. The Commission 

notes that it received no comments in response to 

the OIP. 

138See supra ‘‘Statutory Basis.’’ 

139As discussed above, for purposes of this 10% 

limit on OTC Derivatives, the weight of such OTC 

Derivatives would be calculated based on the markto-market value of such OTC Derivatives. 

general, to protect investors and the 

public interest. 

As discussed above, the Fund will not 

comply with a number of the generic 

requirements in the initial and 

continued listing standards for Managed 

Fund Shares set forth in Nasdaq Rule 

5735(b)(1). The Exchange states that it 

will be able to appropriately monitor 

and surveil trading in the underlying 

investments, including those that do not 

meet the generic listing requirements.123

The Exchange also states that any risks 

that may arise due to the Fund not 

meeting certain of the generic listing 

requirements are fully mitigated and 

addressed through alternative limits 

proposed by the Exchange.124 In 

addition, the Exchange states that the 

Fund will be well diversified.125

With respect to its investments in 

derivatives, the Fund will not comply 

with the requirements in Nasdaq Rule 

5735(b)(1) regarding the use of aggregate 

gross notional value of derivatives when 

calculating the weight of such 

derivatives or the exposure that such 

derivatives provide to underlying 

reference assets. Instead, the Exchange 

proposes that, for the purposes of any 

applicable requirements under Nasdaq 

Rule 5735(b)(1) and any alternative 

requirements proposed by the Exchange, 

the Fund will use the mark-to-market 

value of derivatives in calculating the 

weight of such derivatives or the 

exposure that such derivatives provide 

to their reference assets. The Exchange 

states its belief that mark-to-market 

value is a more accurate measurement of 

the actual exposure incurred by the 

Fund in connection with a derivatives 

position.126 In addition, the Exchange 

states that the proposed mark-to-market 

methodology for valuing derivatives 

positions is consistent with other 

Commission proposals and policies and 

is the measure on which collateral 

posting is based under the ISDA Master 

Agreement.127

With respect to its investments in 

ABS/Private MBS, the Fund will not 

meet the generic listing requirement that 

securities comprising at least 90% of the 

fixed income weight of the Fund’s 

portfolio meet one of the criteria set 

forth in Nasdaq Rule 

5735(b)(1)(B)(iv).128 The Exchange 

represents that all fixed income 

securities held by the Fund other than 

ABS/Private MBS will comply with the 

90% requirement under Nasdaq Rule 

5735(b)(1)(B)(iv).129 In addition, the 

Exchange notes that the Fund’s 

investment portfolio will be diverse, 

and that the Sub-Adviser closely 

monitors investments to ensure 

maintenance of credit and liquidity 

standards.130

The Exchange states that the Fund’s 

investments in ABS/Private MBS will, 

in accordance with Nasdaq Rule 

5735(b)(1)(B)(v), be limited to 20% of 

the fixed income portion of the Fund’s 

portfolio,131 except with respect to 

CDOs. As discussed above, for purposes 

of this Fund, the Exchange will exclude 

CDOs from the definition of ‘‘ABS’’ and, 

as a result, CDOs will not be subject to 

the 20% limitation on aggregate ABS/ 

Private MBS holdings pursuant to Rule 

5735(b)(1)(B)(v). In the alternative, the 

Exchange represents that the Fund’s 

investments in CDOs will be limited to 

10% of the total assets of the Fund. The 

Exchange states that excluding CDOs 

from the definition of ‘‘ABS’’ and 

limiting CDO investments to 10% of the 

Fund’s total assets will help to diversify 

the Fund’s portfolio and mitigate the 

risk of manipulation.132

For purposes of this Fund, the 

Exchange proposes to classify bank 

loans as Debt rather than ‘‘fixed income 

securities’’ (as they are classified in 

Nasdaq Rule 5735(b)(1)(B)). As a result, 

the Fund’s investments in bank loans 

would comply with the proposed 

limitations applicable to investments in 

Debt set forth above 133 rather than with 

the restrictions for fixed income 

securities set forth in Nasdaq Rule 

5735(b)(1)(B)(i)–(v).134

The Fund will not comply with the 

listing requirements related to 

investments in equities set forth in 

Nasdaq Rule 5735(b)(1)(A) 135 with 

respect to its investments in NonConvertible Preferred Securities, Work 

Out Securities, and warrants. Instead, 

the Exchange represents that (1) the 

Fund’s investments in equity securities 

other than Non-Convertible Preferred 

Securities, Work Out Securities, and 

Equity-Related Warrants will comply 

with the requirements in Nasdaq Rule 

5735(b)(1)(A); 136 and (2) the weight of 

Non-Convertible Preferred Securities, 

Work Out Securities, and Equity-Related 

Warrants in the Fund’s portfolio in the 

aggregate will not exceed 30% of the 

Fund’s assets.137 The Exchange believes 

this alternative limitation is appropriate 

because the Non-Convertible Preferred 

Securities, Equity-Related Warrants, and 

Work Out Securities will provide debtoriented exposures or are received in 

connection with the Fund’s previous 

investments in Debt or fixed income 

securities.138

The Fund will not comply with the 

requirement in Nasdaq Rule 

5735(b)(1)(E) that no more than 20% of 

the assets in the Fund’s portfolio may be 

invested in over-the-counter derivatives. 

Instead, the Exchange proposes that 

there would be no limit on the Fund’s 

investments in Interest Rate and 

Currency Derivatives, and that the 

aggregate weight of all OTC Derivatives 

other than Interest Rate and Currency 

Derivatives will not exceed 10% of the 

Fund’s assets.139 The Exchange states 


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140See supra ‘‘Statutory Basis.’’ 

141See id. 

142As discussed above, for purposes of this 10% 

limit, the weight of such Exchange-Traded 

Derivatives will be calculated based on the markto-market value of such Exchange-Traded 

Derivatives. 

143See supra ‘‘Statutory Basis.’’ 

144See supra note 116 and accompanying text. 

145See supra ‘‘Statutory Basis.’’ 

146See supra note 117 and accompanying text. As 

discussed above, for purposes of this requirement, 

the weight of the applicable Exchange-Traded 

Derivatives will be calculated based on the markto-market value of such Exchange-Traded 

Derivatives. 

147 15 U.S.C. 78k–1(a)(1)(C)(iii). 

148See supra note 90. 149See supra note 92. 

that allowing the Fund to invest an 

unlimited amount of its assets in 

Interest Rate and Currency Derivatives 

is necessary and appropriate to allow 

the Fund to risk manage its portfolio.140

In addition, the Exchange states its 

belief that Interest Rate and Currency 

Derivatives are not readily subject to 

manipulation given the size, liquidity, 

and regulatory oversight of the trading 

market for such instruments.141

The Fund will not comply with the 

requirement in Nasdaq Rule 

5735(b)(1)(D)(i) that at least 90% of the 

weight of the Fund’s holdings in 

futures, exchange-traded options, and 

listed swaps shall, on both an initial and 

continuing basis, consist of futures, 

options, and swaps for which the 

Exchange may obtain information via 

the ISG from other members or affiliates 

of the ISG, or for which the principal 

market is a market with which the 

Exchange has a CSSA. Instead, the 

Exchange proposes that no more than 

10% of the net assets of the Fund will 

be invested in Exchange-Traded 

Derivatives and exchange-listed 

securities whose principal market is not 

a member of ISG or is not a market with 

which the Exchange has a CSSA.142 The 

Exchange believes that this alternative 

limit is appropriate because, relative to 

the overall size of the Fund, the Fund’s 

investment in non-ISG/CSSA 

derivatives and exchange-listed 

securities will be small.143

Finally, the Exchange states that the 

Fund may maintain significant positions 

in Eurodollar and G–7 Sovereign 

Futures and Options, and that as a 

result, the Fund will not comply with 

the requirement in Nasdaq Rule 

5735(b)(1)(D)(ii) that the aggregate gross 

notional value of listed derivatives 

based on any five or fewer underlying 

reference assets not exceed 65% of the 

weight of the Fund’s portfolio 

(including gross notional exposures), 

and the aggregate gross notional value of 

listed derivatives based on any single 

underlying reference asset not exceed 

30% of the weight of the Fund’s 

portfolio (including gross notional 

exposures). The Exchange states that 

Eurodollar and G–7 Sovereign Futures 

and Options are highly liquid 

investments and are not subject to the 

same concentration risks as ExchangeTraded Derivatives referencing other 

assets because of such liquidity.144 In 

addition, the Exchange represents that 

the G–7 Sovereign Futures and Options 

in which the Fund will invest will be 

listed on an exchange that is an ISG 

member or an exchange with which the 

Exchange has a CSSA.145 The Exchange 

represents that, except with respect to 

its investments in Eurodollar and G–7 

Sovereign Futures and Options, the 

Fund’s investments in Exchange-Traded 

Derivatives will comply with the 

concentration requirements in Nasdaq 

Rule 5735(b)(1)(D)(ii).146

Other than as described above, the 

Fund will meet all the requirements of 

Nasdaq Rule 5735. For the reasons 

articulated by the Exchange above, the 

Commission believes that these 

proposed initial and continued listing 

requirements, including the alternative 

limitations on the Fund’s proposed 

holdings described above, are designed 

to mitigate the potential for 

manipulation of the Shares. 

The Commission finds that the 

proposal is consistent with Section 

11A(a)(1)(C)(iii) of the Act,147 which 

sets forth Congress’s finding 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 

will be available via Nasdaq proprietary 

quote and trade services, as well as in 

accordance with the Unlisted Trading 

Privileges (‘‘UTP’’) and the CTA plans. 

Further, as required by Nasdaq Rule 

5735(d)(2)(A), the Intraday Indicative 

Value, available on the Nasdaq 

Information LLC proprietary index data 

service,148 will be widely disseminated 

by one or more major market data 

vendor at least every 15 seconds during 

the Exchange’s Regular Market Session. 

Information regarding market price and 

trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. In addition, the 

Fund’s website will include a form of 

the prospectus for the Fund and 

additional data relating to NAV and 

other applicable quantitative 

information. 

Quotation and last sale information 

for exchange-listed Work Out Securities, 

Non-Convertible Preferred Securities, 

warrants, convertible fixed income 

securities, and ETFs will be available 

via Nasdaq proprietary quote and trade 

services, as well as in accordance with 

the UTP and the CTA Plans. Price 

information for U.S. exchange listed 

options will be available via the Options 

Price Reporting Authority and price 

information for other U.S. ExchangeTraded Derivatives will be available 

from the applicable listing exchange and 

from major market data vendors. Price 

information for TRACE-Eligible 

Securities sold in transactions under 

Rule 144A under the Securities Act will 

generally be available through TRACE 

and information regarding transactions 

in non-TRACE-Eligible Securities or 

transactions not otherwise subject to 

TRACE reporting will be available from 

major market data vendors and brokerdealers. For most of the U.S. dollar 

denominated corporate bonds, GSEsponsored securities, Securitized 

Products, and other U.S. dollar 

denominated fixed income securities in 

which the Fund invests, price 

information will be available from 

TRACE and EMMA.149 For those 

instruments for which FINRA does not 

disseminate price information from 

TRACE, such as CDOs and fixed income 

securities denominated in foreign 

currencies, pricing information will be 

available from major market data 

vendors and broker-dealers. For other 

exchange-listed securities (to be 

comprised primarily of ETFs, warrants, 

and structured notes and which may 

include exchange-listed securities of 

both U.S. and non-U.S. issuers), equities 

traded in the over-the-counter market 

(including Work Out Securities and 

Non-Convertible Preferred Securities), 

Exchange-Traded Derivatives (including 

U.S. or foreign), OTC Derivatives, Debt, 

fixed income securities (including 

convertible fixed income securities), 

and Securitized Products that are not 

reported to TRACE, intraday price 

quotations will generally be available 

from broker-dealers and trading 

platforms (as applicable). Price 

information for such securities and 

instruments will also be available from 

feeds from major market data vendors, 

published or other public sources, or 

online information services. Intraday 

and other price information related to 


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Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 46221 

150See Nasdaq Rule 5735(d)(1)(B). 

151See Nasdaq Rule 5735(d)(2)(B)(ii). The term 

‘‘Reporting Authority’’ is defined in Nasdaq Rule 

5735(c)(4). 

152See OIP, supra note 6, at 15888. As originally 

proposed, all redemption requests and creation 

orders for Creation Units of the Fund would have 

been required to be received by the Distributor 

within one hour after the closing time of the regular 

trading session on the Exchange (ordinarily 

between 4:00 p.m., E.T., and 5:00 p.m., E.T.) in 

order to receive the NAV on the next Business Day 

immediately following the date the order was 

placed. As proposed, the Exchange would cause to 

be published, through the NSCC, on each Business 

Day, prior to the opening of trading on the 

Exchange (currently, 9:30 a.m., E.T.), the identity 

and the required number (as applicable) of deposit/ 

redemption securities and the amount of cash 

applicable to creation orders and redemption 

requests received in proper form. In the OIP, the 

Commission noted that market participants that 

submit redemption requests or creation orders on a 

given Business Day would not know the contents 

of the deposit/redemption securities that would be 

applicable to their request until the following 

Business Day and would receive the following 

Business Day’s NAV. See id. 

153See supra note 8. 

foreign government securities, Money 

Market Funds, and other cash 

equivalents that are traded over-thecounter, and other Non-TRACE Eligible 

Securities, as well as prices for Treasury 

Securities, CDOs, commercial mortgagebacked securities, or CMOs purchased 

through transactions that do not qualify 

for periodic dissemination by FINRA 

will be available through major market 

data vendors, such as Bloomberg, 

Markit, IDC, and Thomson Reuters, 

which can be accessed by APs and other 

investors. Price information for Money 

Market Funds will also be available 

through the applicable fund’s website. 

Pricing information for repurchase 

transactions and reverse repurchase 

agreements entered into by the Fund is 

not publicly reported. 

The Commission also believes that the 

proposal 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.150 In addition, the 

Exchange represents that on each 

Business Day, before commencement of 

trading in the Shares in the Regular 

Market Session on the Exchange, the 

Fund will disclose on its website the 

Disclosed Portfolio of the Fund that will 

form the basis for the Fund’s calculation 

of NAV at the end of the Business Day, 

and that this website information will 

be available free of charge. Further, 

trading in the Shares may be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. Trading in the Shares will 

also be subject to Nasdaq Rule 

5735(d)(2)(D), which sets forth 

circumstances under which Shares of a 

fund may be halted. 

The Exchange states that it has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. The 

Exchange states that the neither the 

Manager nor any of the Sub-Advisers is 

a broker-dealer, but that each is 

affiliated with a broker-dealer and has 

implemented, and will maintain, a fire 

wall with respect to its broker-dealer 

affiliate regarding access to information 

concerning proposed changes to the 

composition and/or changes to the 

Fund’s portfolio prior to 

implementation. Further, the 

Commission notes that the Reporting 

Authority 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.151

In the OIP, the Commission sought 

public comment on how the cutoff time 

for redemption requests and creation 

orders, as originally proposed, would 

affect the opportunity for and effective 

and efficient arbitrage process and 

whether the proposed cutoff time would 

be consistent with the maintenance of 

fair and orderly markets and the 

requirements of Section 6(b)(5) of the 

Act.152 The Commission notes that in 

Amendment No. 3, the Exchange 

revised the proposed cutoff time for 

creation orders and redemption requests 

so that orders to create or redeem 

Creation Units would be required to be 

received between 9 a.m., E.T. and 10 

a.m., E.T. on a given Business Day in 

order to receive the NAV determined on 

the Business Day on which the order is 

placed.153 In addition, Amendment No. 

3 states that when the Fund permits 

Creation Units to be issued in-kind, the 

Fund will cause to be published, 

through the NSCC, on each Business 

Day, at or before 9:00 a.m., E.T., the 

identity and the required principal 

amount or number of each Deposit 

Security and the amount of the Cash 

Component (if any) to be included in 

the current Fund Deposit. The 

Commission notes that, as a result of 

these amendments, a market participant 

that submits an order to create or 

redeem Creation Units between 9 a.m., 

E.T., and 10 a.m., E.T., would know the 

contents of the deposit/redemption 

securities that would be applicable to its 

creation order or redemption request 

before it makes such request. Further, 

such market participant would receive 

the NAV determined on the same 

Business Day on which its order is 

placed. The Commission further notes 

that it received no comments in 

response to the OIP. 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. In support of this 

proposal, the Exchange represents 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. 

Other than as described above, the Fund 

will meet all requirements of Nasdaq 

Rule 5735(b)(1). The Fund’s investments 

will be subject to the limitations 

described in Section II.A above. 

(2) A minimum of 100,000 Shares of 

the Fund will be outstanding at the 

commencement of trading on the 

Exchange. 

(3) Trading in the Shares will be 

subject to the existing trading 

surveillances, administered by both 

Nasdaq and also FINRA on behalf of the 

Exchange, and 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. 

(4) FINRA, on behalf of the Exchange, 

will communicate as needed regarding 

trading in the Shares and the exchangelisted securities and instruments held 

by the Fund with other markets and 

other entities that are members of ISG 

and with which the Exchange has 

CSSAs, and FINRA and the Exchange 

both may obtain information regarding 

trading in the Shares, the exchangelisted securities, derivatives, and other 

instruments held by the Fund from 

markets and other entities that are 

members of ISG, which include 

securities and futures exchanges and 

swap execution facilities, or with which 

the Exchange has in place a CSSA. 

FINRA, on behalf of the Exchange, will 

be able to access, as needed, trade 

information for most of the fixed income 

securities held by the Fund through 

reporting on TRACE and, with respect 

to municipal securities, EMMA. 

(5) 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: (i) The procedures for 


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46222 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

154See 17 CFR 240.10A–3. 

155 15 U.S.C. 78f(b)(5). 

156 15 U.S.C. 78k–1(a)(1)(C)(iii). 

157See supra note 8. 

158 15 U.S.C. 78s(b)(2). 

159 Id. 

160 17 CFR 200.30–3(a)(12). 

purchases and redemptions of Shares in 

Creation Units (and that Shares are not 

individually redeemable); (ii) Nasdaq 

Rule 2111A, which imposes suitability 

obligations on Nasdaq members with 

respect to recommending transactions in 

the Shares to customers; (iii) how 

information regarding the Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (iv) 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; (v) the 

requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (vi) trading 

information. 

(6) The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions. 

(7) For initial and continued listing, 

the Fund must be in compliance with 

Rule 10A–3 under the Act.154

(8) The Fund’s investments, including 

derivatives, will be consistent with the 

Fund’s investment objectives, and will 

not be used to seek leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark 

(although derivatives may have 

embedded leverage). Although the Fund 

will be permitted to borrow as permitted 

under the 1940 Act, it will not be 

operated in a manner designed to seek 

leveraged returns or a multiple or 

inverse multiple of the performance of 

an underlying reference index. 

The Exchange represents that all 

statements and representations made in 

the filing regarding: (1) The description 

of the portfolio or reference assets; (2) 

limitations on portfolio holdings or 

reference assets; (3) dissemination and 

availability of the reference asset or 

Intraday Indicative Values; or (4) the 

applicability of Exchange listing rules 

specified in the rule filing 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. If the Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

the Nasdaq 5800 Series. 

This approval order is based on all of 

the Exchange’s statements and 

representations, including those set 

forth above and in Amendment No. 3. 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 3, is consistent with Section 6(b)(5) 

of the Act 155 and Section 

11A(a)(1)(C)(iii) of the Act 156 and the 

rules and regulations thereunder 

applicable to a national securities 

exchange. 

IV. Solicitation of Comments on 

Amendment No. 3 to the Proposed Rule 

Change 

Interested persons are invited to 

submit written data, views, and 

arguments concerning whether 

Amendment No. 3 to the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2017–128 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–2017–128. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2017–128, and 

should be submitted on or before 

October 3, 2018. 

V. Accelerated Approval of the 

Proposed Rule Change, as Modified by 

Amendment No. 3 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendment No. 3, prior to 

the thirtieth day after the date of 

publication of notice of the filing of 

Amendment No. 3 in the Federal 

Register. The Commission notes that 

Amendment No. 3 clarifies the proposed 

investments of the Fund, including any 

limitations on such investments. 

Amendment No. 3 also provides other 

clarifications and additional 

information to the proposed rule 

change.157 The changes and additional 

information in Amendment No. 3 assists 

the Commission in finding that the 

proposal is consistent with the Act. 

Accordingly, the Commission finds 

good cause, pursuant to Section 19(b)(2) 

of the Act,158 to approve the proposed 

rule change, as modified by Amendment 

No. 3, on an accelerated basis. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,159 that the 

proposed rule change (SR–NASDAQ– 

2017–128), as modified by Amendment 

No. 3, be, and it hereby is, approved on 

an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.160

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19774 Filed 9–11–18; 8:45 am] 

BILLING CODE 8011–01–P 


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