Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 2295 

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

2 17 CFR 240.19b–4. 

NUCLEAR REGULATORY 

COMMISSION 

[Docket Nos. 50–445 and 50–446; NRC– 

2012–0310] 

Consideration of Approval of 

Application Containing Sensitive 

Unclassified Non-Safeguards 

Information Regarding Proposed 

Energy Future Holdings Corporation 

Internal Restructuring 

AGENCY: Nuclear Regulatory 

Commission. 

ACTION: Request for indirect license 

transfer; opportunity for hearing, to 

petition for leave to intervene, and to 

comment; order; correction. 

SUMMARY: This document corrects a 

notice appearing in the Federal Register 

on January 2, 2013 (78 FR 119). This 

action is necessary to correct an 

incorrect Docket ID. 

FOR FURTHER INFORMATION CONTACT: 

Cindy Bladey, Chief, Rules, 

Announcements, and Directives Branch, 

Office of Administration, Nuclear 

Regulatory Commission, Washington, 

DC 20555–0001, telephone: 301–492– 

3667; email: Cindy.Bladey@nrc.gov. 

SUPPLEMENTARY INFORMATION: On page 

119 of Federal Register document 2012– 

31527, published January 2, 2013 (78 FR 

119–123), the heading is corrected to 

read ‘‘NRC–2012–0310.’’ Also on the 

same page, second column, in the first 

paragraph under the ADDRESSES section 

and in the first bullet under the 

ADDRESSES section, ‘‘NRC–2012–0301’’ 

is corrected to read ‘‘NRC–2012–0310.’’ 

Also on the same page, third column, in 

the first paragraph under the ‘‘Accessing 

Information’’ section and in the first 

bullet under the ‘‘Accessing 

Information’’ section, ‘‘NRC–2012– 

0301’’ is corrected to read ‘‘NRC–2012– 

0310.’’ On the same page, third column, 

in the first paragraph under the 

‘‘Submitting Comments’’ section, 

‘‘NRC–2012–0301’’ is corrected to read 

‘‘NRC–2012–0310.’’ 

Dated at Rockville, Maryland, this 4th day 

of January 2013. 

For the Nuclear Regulatory Commission. 

Helen Chang, 

Acting Chief, Rules, Announcements, and 

Directives Branch, Division of Administrative 

Services, Office of Administration. 

[FR Doc. 2013–00326 Filed 1–9–13; 8:45 am] 

BILLING CODE 7590–01–P 

NUCLEAR REGULATORY 

COMMISSION 

[Docket No. 55–23694–SP; ASLBP No. 13– 

925–01–SP–BD01] 

Charlissa C. Smith; Establishment of 

Atomic Safety and Licensing Board 

Pursuant to delegation by the 

Commission, see 37 FR 28,710 (Dec. 29, 

1972), and the Commission’s 

regulations, see 10 CFR §§ 2.103(b), 

2.300, 2.309, 2.313(a), 2.318, and 2.321, 

notice is hereby given that an Atomic 

Safety and Licensing Board (Board) is 

being established to preside over the 

following proceeding: 

Charlissa C. Smith, (Denial of Senior 

Reactor Operator License). 

This proceeding concerns a hearing 

request from Charlissa C. Smith, dated 

December 5, 2012, challenging a denial 

letter from the Office of Nuclear Reactor 

Regulation, Nuclear Regulatory 

Commission (NRC) dated November 15, 

2012 notifying her that, following an 

administrative review, the NRC is in 

agreement with Region II’s decision of 

May 11, 2012 not to issue her a Senior 

Reactor Operator License for the Vogtle 

Power Station. 

The Board is comprised of the 

following administrative judges: 

Alan S. Rosenthal, Chair, Atomic Safety 

and Licensing Board Panel, U.S. 

Nuclear Regulatory Commission, 

Washington, DC 20555–0001. 

Ronald M. Spritzer, Atomic Safety and 

Licensing Board Panel, U.S. Nuclear 

Regulatory Commission, Washington, 

DC 20555–0001. 

Brian K. Hajek, Atomic Safety and 

Licensing Board Panel, U.S. Nuclear 

Regulatory Commission, Washington, 

DC 20555–0001. 

As provided in 10 CFR 2.302, all 

correspondence, documents, and other 

materials shall be filed in accordance 

with the NRC E-Filing rule, which the 

NRC promulgated in August 2007 (72 

FR 49,139). 

Issued at Rockville, Maryland, this 4th day 

of January 2013. 

E. Roy Hawkens, 

Chief Administrative Judge, Atomic Safety 

and Licensing Board Panel. 

[FR Doc. 2013–00328 Filed 1–9–13; 8:45 am] 

BILLING CODE 7590–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68581; File No. SR– 

NASDAQ–2012–147] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Proposed Rule Change 

Relating to the Listing and Trading of 

the Shares of the First Trust High Yield 

Long/Short ETF of First Trust 

Exchange-Traded Fund IV 

January 4, 2013. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

21, 2012, The NASDAQ Stock Market 

LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II and III below, which Items 

have been prepared by Nasdaq. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Nasdaq proposes to list and trade the 

shares of the First Trust High Yield 

Long/Short ETF (the ‘‘Fund’’) of First 

Trust Exchange-Traded Fund IV (the 

‘‘Trust’’) under Nasdaq Rule 5735 

(‘‘Managed Fund Shares’’). The shares of 

the Fund are collectively referred to 

herein as the ‘‘Shares.’’ 

The text of the proposed rule change 

is available at http:// 

nasdaq.cchwallstreet.com/, at Nasdaq’s 

principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Nasdaq included statements concerning 

the purpose of, and basis for, the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. 

Nasdaq has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant aspects of such 

statements. 


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3The Commission approved Nasdaq Rule 5735 in 

Securities Exchange Act Release No. 57962 (June 

13, 2008) 73 FR 35175 (June 20, 2008) (SR– 

NASDAQ–2008–039). The Fund would not be the 

first actively-managed fund listed on the Exchange; 

see Securities Exchange Act Release No. 66175 

(February 29, 2012), 77 FR 13379 (March 6, 2012) 

(SR–NASDAQ–2012–004) (order approving listing 

and trading of WisdomTree Emerging Markets 

Corporate Bond Fund). Additionally, the 

Commission has previously approved the listing 

and trading of a number of actively managed 

WisdomTree funds on NYSE Arca, Inc. pursuant to 

Rule 8.600 of that exchange. See, e.g., Securities 

Exchange Act Release Nos. 64643 (June 10, 2011), 

76 FR 35062 (June 15, 2011) (SR–NYSEArca–2011– 

21) (order approving listing and trading of 

WisdomTree Global Real Return Fund); 65458 

(September 30, 2011), 76 FR 62112 (October 6, 

2011) (SR–NYSE–Arca–2011–54) (order approving 

listing and trading of WisdomTree Dreyfus 

Australia and New Zealand Debt Fund); 66342 

(February 7, 2012), 77 FR 7623 (February 13, 2012) 

(SR–NYSEArca–2011–82) (order approving listing 

and trading of WisdomTree Emerging Markets 

Inflation Protection Bond Fund); and 67054 (May 

24, 2012), 77 FR 32161 (May 31, 2012) (SR– 

NYSEArca–2012–25) (order approving listing and 

trading of WisdomTree Brazil Bond Fund). The 

Exchange believes the proposed rule change raises 

no significant issues not previously addressed in 

those prior Commission orders. 

4See Post-Effective Amendment No. 6 to 

Registration Statement on Form N–1A for the Trust, 

dated October 11, 2012 (File Nos. 333–174332 and 

811–22559). The descriptions of the Fund and the 

Shares contained herein are based, in part, on 

information in the Registration Statement. 

5The Commission has issued an order granting 

certain exemptive relief to the Trust under the 

Investment Company Act of 1940 (15 U.S.C. 80a– 

1) (‘‘1940 Act’’). See Investment Company Act 

Release No. 30029 (April 10, 2012) (File No. 812– 

13795). In compliance with Nasdaq Rule 5735(b)(5), 

which applies to Managed Fund Shares based on 

a fixed income portfolio (including without 

limitation exchange-traded notes and senior loans) 

or a portfolio invested in a combination of equity 

securities and fixed income securities, the Trust’s 

application for exemptive relief under the 1940 Act 

states that the Fund will comply with the federal 

securities laws in accepting securities for deposits 

and satisfying redemptions with redemption 

securities, including that the securities accepted for 

deposits and the securities used to satisfy 

redemption requests are sold in transactions that 

would be exempt from registration under the 

Securities Act of 1933 (15 U.S.C. 77a). 

6An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940 (the ‘‘Advisers Act’’). As a 

result, the Adviser and its related personnel are 

subject to the provisions of Rule 204A–1 under the 

Advisers Act relating to codes of ethics. This Rule 

requires investment advisers to adopt a code of 

ethics that reflects the fiduciary nature of the 

relationship to clients as well as compliance with 

other applicable securities laws. Accordingly, 

procedures designed to prevent the communication 

and misuse of non-public information by an 

investment adviser must be consistent with Rule 

204A–1 under the Advisers Act. In addition, Rule 

206(4)–7 under the Advisers Act makes it unlawful 

for an investment adviser to provide investment 

advice to clients unless such investment adviser has 

(i) Adopted and implemented written policies and 

procedures reasonably designed to prevent 

violation, by the investment adviser and its 

supervised persons, of the Advisers Act and the 

Commission rules adopted thereunder; (ii) 

implemented, at a minimum, an annual review 

regarding the adequacy of the policies and 

procedures established pursuant to subparagraph (i) 

above and the effectiveness of their 

implementation; and (iii) designated an individual 

(who is a supervised person) responsible for 

administering the policies and procedures adopted 

under subparagraph (i) above. 

7The term ‘‘under normal conditions’’ as used 

herein includes, but is not limited to, the absence 

of adverse market, economic, political or other 

conditions, including extreme volatility or trading 

halts in the fixed income markets or the financial 

markets generally; operational issues causing 

dissemination of inaccurate market information; or 

force majeure type events such as systems failure, 

natural or man-made disaster, act of God, armed 

conflict, act of terrorism, riot or labor disruption or 

any similar intervening circumstance. 

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 on the Exchange.3 The Fund will 

be an actively managed exchange traded 

fund (‘‘ETF’’). The Shares will be 

offered by the Trust, which was 

established as a Massachusetts business 

trust on September 15, 2010. The Fund 

is registered with the Commission as an 

investment company and has filed a 

registration statement on Form N–1A 

(‘‘Registration Statement’’) with the 

Commission.4

Description of the Shares and the Fund 

First Trust Advisors L.P. is the 

investment adviser (‘‘Adviser’’) to the 

Fund. First Trust Portfolios L.P. (the 

‘‘Distributor’’) is the principal 

underwriter and distributor of the 

Fund’s Shares. The Bank of New York 

Mellon Corporation (‘‘BNY’’) will act as 

the administrator, accounting agent, 

custodian and transfer agent to the 

Fund.5

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 a ‘‘fire wall’’ between the 

investment adviser and the brokerdealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.6 In addition, 

paragraph (g) further requires that 

personnel who make decisions on the 

open-end fund’s portfolio composition 

must be subject to procedures designed 

to prevent the use and dissemination of 

material, non-public information 

regarding the open-end fund’s portfolio. 

Rule 5735(g) is similar to Nasdaq Rule 

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

in connection with the establishment of 

a ‘‘fire wall’’ between the investment 

adviser and the broker-dealer reflects 

the applicable open-end fund’s 

portfolio, not an underlying benchmark 

index, as is the case with index-based 

funds. The Adviser is affiliated with the 

Distributor, a broker-dealer. The Adviser 

has implemented a fire wall with 

respect to its broker-dealer affiliate 

regarding access to information 

concerning the composition and/or 

changes to the portfolio. In the event (a) 

the Adviser becomes newly affiliated 

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

adviser or sub-adviser becomes 

affiliated with a broker-dealer, it will 

implement a fire wall with respect to 

such broker-dealer regarding access to 

information concerning the composition 

and/or changes to the portfolio, and will 

be subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. The Fund does 

not currently intend to use a subadvisor. 

First Trust High Yield Long/Short ETF 

According to the Registration 

Statement, the Fund’s primary 

investment objective is to provide 

current income. The Fund has a 

secondary objective of capital 

appreciation. The Fund will pursue its 

objective by seeking to invest in a 

broadly diversified portfolio comprised 

principally of high yield debt securities. 

The Adviser will combine a 

fundamental credit selection process 

with top down relative value analysis 

when selecting investment 

opportunities. The Adviser believes that 

an evolving investment environment 

offers varying degrees of investment risk 

opportunities in the high yield, bank 

loan, and fixed income instrument 

markets. In order to capitalize on 

investments and effectively manage 

potential risk, the Adviser believes that 

the combination of thorough and 

continuous credit risk analysis, market 

evaluation, diversification and the 

ability to reallocate investments is 

critical to achieving higher risk-adjusted 

returns. 

Investments 

According to the Registration 

Statement, the Fund, under normal 

market conditions,7 will invest at least 

80% of its net assets (plus the amount 

of any borrowing for investment 

purposes) in high yield debt securities 

that are rated below investment grade at 

the time of purchase or unrated 

securities deemed by the Fund’s 

Adviser to be of comparable quality, 

commonly referred to as ‘‘junk’’ bonds. 

Such securities may include U.S. and 


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8 If a downgrade occurs, the Adviser will consider 

what action, including the sale of such security, is 

in the best interest of the Fund and its shareholders. 

9The equity securities in which the Fund may 

invest (including any that have converted from 

convertible debt) will be limited to securities that 

trade in markets that are members of the 

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

includes all U.S. national securities exchanges and 

certain foreign exchanges, or are parties to a 

comprehensive surveillance sharing agreement with 

the Exchange. 

10According to the Adviser, ‘‘investment grade’’ 

means securities rated in the Baa/BBB categories or 

above by one or more nationally recognized 

securities rating organizations (‘‘NRSROs’’). If a 

security is rated by multiple NRSROs and receives 

different ratings, the Fund will treat the security as 

being rated in the highest rating category received 

from an NRSRO. Rating categories may include subcategories or gradations indicating relative standing. 

non-U.S. corporate debt obligations, 

bank loans and convertible bonds. For 

purposes of determining whether a 

security is below investment-grade, the 

lowest available rating will be 

considered. At least 75% of the Fund’s 

net assets invested in high yield debt 

securities will be invested in issuers 

that have a minimum principal amount 

outstanding of $100 million or more 

with respect to U.S. corporate issuers 

and $200 million or more with respect 

to non-U.S. corporate issuers, and the 

portfolio, once fully invested, will 

include a minimum of 13 non-affiliated 

issuers.8

High yield debt may be issued by 

companies without long track records of 

sales and earnings, or by issuers that 

have questionable credit strength. High 

yield debt and comparable unrated debt 

securities: (a) Will likely have some 

quality and protective characteristics 

that, in the judgment of the rating 

agency evaluating the instrument, are 

outweighed by large uncertainties or 

major risk exposures to adverse 

conditions; and (b) are predominantly 

speculative with respect to the issuer’s 

capacity to pay dividends or interest 

and repay principal in accordance with 

the terms of the obligation. Many belowinvestment grade debt securities are 

subject to legal or contractual 

restrictions limiting the Fund’s ability to 

resell the securities to the general 

public. 

According to the Registration 

Statement, the Fund may invest in 

corporate debt securities issued by U.S. 

and non-U.S. companies of all kinds, 

including those with small, mid and 

large capitalizations. Notes, bonds, 

debentures and commercial paper are 

the most common types of corporate 

debt securities, with the primary 

difference being their maturities and 

secured or unsecured status. Corporate 

debt may carry fixed or floating rates of 

interest. 

The Fund may invest up to 15% of its 

net assets in bank loans, which may also 

include loan interests that are not 

secured by any specific collateral of the 

borrower, loan interests that have a 

lower than first lien priority on 

collateral of the borrower, loans to 

foreign borrowers, loans in foreign 

currencies and other loans with 

characteristics that the Adviser believes 

qualify as bank loans. The Fund may 

invest in such loans by purchasing 

assignments or all or a portion of loans 

or loan participations from third parties. 

These loans are made by or issued to 

corporations primarily to finance 

acquisitions, refinance existing debt, 

support organic growth, or pay out 

dividends, and are typically originated 

by large banks and are then syndicated 

out to institutional investors as well as 

to other banks. Bank loans typically bear 

interest at a floating rate although some 

loans pay a fixed rate. Due to their 

subordination in the borrower’s capital 

structure, unsecured and/or 

subordinated loans involve a higher 

degree of overall risk than senior bank 

loans of the same borrower. Unfunded 

contracts are commitments by lenders 

(such as the funds) to loan an amount 

in the future or that is due to be 

contractually funded in the future. The 

Fund will invest 85% or more of the 

portfolio in securities that the Adviser 

deems to be sufficiently liquid at the 

time of investment. 

The Fund may invest in non-income 

producing securities including 

defaulted securities and common 

stocks; 9 companies whose financial 

condition is troubled or uncertain and 

that may be involved in bankruptcy 

proceedings, reorganizations or 

financial restructurings. The Fund may 

also invest in investment grade 10 debt 

securities. The Fund does not have any 

portfolio maturity limitation and may 

invest its assets in securities with shortterm, medium-term or long-term 

maturities. The Fund will not invest 

more than 15% of the portfolio in such 

distressed securities, as determined at 

the time of the investment. 

Non-U.S. debt securities in which the 

Fund may invest include debt securities 

issued or guaranteed by companies 

organized under the laws of countries 

other than the United States (including 

emerging markets), debt securities 

issued or guaranteed by foreign, 

national, provincial, state, municipal or 

other governments with taxing authority 

or by their agencies or instrumentalities 

and debt obligations of supranational 

governmental entities such as the World 

Bank or European Union. These debt 

securities may be U.S. dollardenominated or non-U.S. dollardenominated. Non-U.S. debt securities 

also include U.S. dollar-denominated 

debt obligations, such as ‘‘Yankee 

Dollar’’ obligations, of foreign issuers 

and of supra-national government 

entities. Yankee Dollar obligations are 

U.S. dollar-denominated obligations 

issued in the U.S. capital markets by 

foreign corporations, banks and 

governments. Foreign debt securities 

also may be traded on foreign securities 

exchanges or in over-the-counter capital 

markets. Under normal market 

conditions, up to 10% of the net assets 

of the Fund’s investment in foreign 

securities may be denominated in 

currencies other than the U.S. dollar. To 

the extent the Fund invests in such 

instruments, the value of the assets of 

the Fund as measured in U.S. dollars 

will be affected by changes in exchange 

rates. 

The Fund may invest in preferred 

securities and convertible securities. 

Preferred securities, which generally 

pay fixed or adjustable-rate dividends or 

interest to investors and have preference 

over common stock in the payment of 

dividends or interest and the liquidation 

of a company’s assets, which means that 

a company typically must pay 

dividends or interest on its preferred 

securities before paying any dividends 

on its common stock. Preferred 

securities are generally junior to all 

forms of the company’s debt, including 

both senior and subordinated debt. 

As part of its investment strategy, the 

Fund intends to maintain both long and 

short positions in securities under 

normal market conditions. The Fund 

will take long positions in securities 

that the Adviser believes in the 

aggregate to have the potential to 

outperform the Fund’s benchmark, the 

Bank of America Merrill Lynch U.S. 

High Yield Master II Constrained Index 

(the ‘‘Index’’). The Fund’s long positions 

may total up to 130% of the Fund’s 

Managed Assets. ‘‘Managed Assets’’ 

means the average daily gross asset 

value of the Fund (which includes the 

principal amount of any borrowings), 

minus the sum of the Fund’s liabilities. 

The Fund will take short positions in 

securities that the Adviser believes in 

the aggregate will underperform the 

Index. These securities may consist of 

securities included in the Index or other 

securities, including U.S. Treasury 

securities and/or corporate debt 

obligations that may be rated investment 

grade or non-investment grade, which 

the Adviser believes in the aggregate 

will underperform the Index. The 

Fund’s short positions may total up to 

30% of the Fund’s Managed Assets. A 

‘‘short sale’’ is a transaction in which 


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11According to the Registration Statement, the 

Fund intends to enter into repurchase agreements 

only with financial institutions and dealers 

believed by the Adviser to present minimal credit 

risks in accordance with criteria approved by the 

Board. The Adviser will review and monitor the 

creditworthiness of such institutions. The Adviser 

monitors the value of the collateral at the time the 

action is entered into and at all times during the 

term of the repurchase agreement. 

12As described in the Registration Statement, an 

ETF is an investment company registered under the 

1940 Act that holds a portfolio of securities 

generally designed to track the performance of a 

securities index, including industry, sector, country 

and region indexes. Such ETFs all will be listed and 

traded in the U.S. on registered exchanges. The 

Fund may invest in the securities of ETFs in excess 

of the limits imposed under the 1940 Act pursuant 

to exemptive orders obtained by such ETFs and 

their sponsors from the Commission. The ETFs in 

which the Fund may invest include Index Fund 

Shares and Portfolio Depositary Receipts (as 

described in NASDAQ Rule 5705); Managed Fund 

Shares (as described in Nasdaq Rule 5735), and 

closed-end funds. While the Fund may invest in 

inverse ETFs, the Fund will not invest in leveraged 

(e.g., 2X or 3X) ETFs. 

the Fund sells a security that it does not 

own (and borrows the security to deliver 

it to the buyer) in anticipation that the 

market price of the security will decline. 

The proceeds received from the Fund’s 

short sales of securities will generally be 

used to purchase all or a portion of the 

Fund’s additional long positions in 

securities. 

The Fund will use short sales for 

investment and risk management 

purposes, including when the Adviser 

anticipates that the market price of 

securities will decline or in the 

aggregate will underperform the Index. 

Short sales are transactions in which the 

Fund sells a security or other 

instrument (such as an option, forward, 

futures or other derivative contract) that 

it does not own. Short selling allows the 

Fund to profit from a decline in market 

price to the extent such decline exceeds 

the transaction costs and the costs of 

borrowing the securities. In times of 

unusual or adverse market, economic, 

regulatory or political conditions, the 

Fund may not be able, fully or partially, 

to implement its short selling strategy. 

If a security sold short increases in 

price, the Fund may have to cover its 

short position at a higher price than the 

short sale price, resulting in a loss. The 

Fund will have substantial short 

positions and must borrow those 

securities to make delivery to the buyer. 

Other Investments 

The Fund may invest in U.S. 

government securities. U.S. government 

securities include U.S. Treasury 

obligations and securities issued or 

guaranteed by various agencies of the 

U.S. government, or by various 

instrumentalities which have been 

established or sponsored by the U.S. 

government. U.S. Treasury obligations 

are backed by the ‘‘full faith and credit’’ 

of the U.S. government. Securities 

issued or guaranteed by federal agencies 

and U.S. government sponsored 

instrumentalities may or may not be 

backed by the full faith and credit of the 

U.S. government. 

The Fund may invest in U.S. agency 

mortgage-backed securities and 

collateralized mortgage securities issued 

by the Government National Mortgage 

Association (‘‘GNMA’’), the Federal 

National Mortgage Association 

(‘‘FNMA’’), and the Federal Home Loan 

Mortgage Corporation (‘‘FHLMC’’). 

Under normal market conditions, the 

Fund may invest up to 10% of its net 

assets in short-term debt securities and 

other cash equivalents, or it may hold 

cash. The percentage of the Fund 

invested in such holdings varies and 

depends on several factors, including 

market conditions. For temporary 

defensive purposes and during periods 

of high cash inflows or outflows, the 

Fund may depart from its principal 

investment strategies and invest part or 

all of its assets in short-term debt 

securities or cash equivalents or it may 

hold cash. During such periods, the 

Fund may not be able to achieve its 

investment objective. The Fund may 

adopt a defensive strategy when the 

portfolio managers believe securities in 

which the Fund normally invests have 

elevated risks due to political or 

economic factors and in other 

extraordinary circumstances. 

Short-term debt securities are 

securities from issuers having a longterm debt rating of at least A by 

Standard & Poor’s Ratings Group (‘‘S&P 

Ratings’’), Moody’s Investors Service, 

Inc. (‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’) 

and having a maturity of one year or 

less. The use of temporary investments 

is not a part of a principal investment 

strategy of the Fund. 

Short-term debt securities are defined 

to include, without limitation, the 

following: (1) U.S. Government 

securities, including bills, notes and 

bonds differing as to maturity and rates 

of interest, which are either issued or 

guaranteed by the U.S. Treasury or by 

U.S. Government agencies or 

instrumentalities; (2) certificates of 

deposit issued against funds deposited 

in a bank or savings and loan 

association; (3) bankers’ acceptances, 

which are short-term credit instruments 

used to finance commercial 

transactions; (4) repurchase 

agreements,11 which involve purchases 

of debt securities; (5) 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; and (6) 

commercial paper, which is short-term 

unsecured promissory notes, including 

variable rate master demand notes 

issued by corporations to finance their 

current operations. The Fund may only 

invest in commercial paper rated A–2 or 

higher by S&P Ratings, Prime-2 or 

higher by Moody’s or F2 or higher by 

Fitch. 

The Fund intends to hedge its nonU.S. dollar holdings. Generally, the 

Fund’s currency exchange transactions 

will be conducted on a spot (i.e., cash) 

basis at the spot rate prevailing in the 

currency exchange market. The cost of 

the Fund’s currency exchange 

transactions will generally be the 

difference between the bid and offer 

spot rate of the currency being 

purchased or sold. In order to protect 

against uncertainty in the level of future 

currency exchange rates, the Fund is 

authorized to enter into various 

currency exchange transactions. 

The Fund may invest up to 10% of its 

net assets in securities of other openend or closed-end investment 

companies, including ETFs 12 that 

invest primarily in securities of the 

types in which the Fund may invest 

directly. In addition, the Fund may 

invest a portion of its assets in pooled 

investment vehicles (other than 

investment companies) that invest 

primarily in securities of the types in 

which the Fund may invest directly. 

According to the Registration Statement, 

the Fund may invest in other 

investment companies to the extent 

permitted by the 1940 Act. 

The Fund may receive equity, 

warrants, corporate bonds and other 

such securities as a result of the 

restructuring of the debt of an issuer, or 

a reorganization of a bank loan or bond, 

or as part of a package of securities 

acquired together with a high yield 

bond or senior loan(s) of an issuer. Such 

investments will be subject to the 

Fund’s investment objectives and 

strategies as described above. 

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. 

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid securities (calculated at the time 

of investment), including variable rate 

master demand notes and 144A 

securities from issues with less than 

$100 million original principal amount 

outstanding. The Fund will monitor its 

portfolio liquidity on an ongoing basis 

to determine whether, in light of current 

circumstances, an adequate level of 


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Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 2299 

13See 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). 

14The diversification standard is set forth in 

Section 5(b)(1) of the 1940 Act. 

15The NAV of the Fund’s Shares generally is 

calculated once daily Monday through Friday as of 

the close of regular trading on the New York Stock 

Exchange, generally 4:00 p.m. Eastern time (the 

‘‘NAV Calculation Time’’). NAV per Share is 

calculated by dividing the Fund’s net assets by the 

number of Fund Shares outstanding. For more 

information regarding the valuation of Fund 

investments in calculating the Fund’s NAV, see 

Registration Statement. 

16The Bid/Ask Price of the Fund will be 

determined using the midpoint of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of such Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

17See Nasdaq Rule 4120(b)(4) (describing the 

three trading sessions on the Exchange: (1) PreMarket Session from 7 a.m. to 9:30 a.m. Eastern 

time; (2) Regular Market Session from 9:30 a.m. to 

4 p.m. or 4:15 p.m. Eastern time; and (3) PostMarket Session from 4 p.m. or 4:15 p.m. to 8 p.m. 

Eastern time). 

18Under accounting procedures to be followed by 

the Fund, trades made on the prior business day 

(‘‘T’’) will be booked and reflected in NAV on the 

current business day (‘‘T+1’’). Notwithstanding the 

foregoing, portfolio trades that are executed prior to 

the opening of the Exchange on any business day 

may be booked and reflected in NAV on such 

business day. Accordingly, the Fund will be able to 

disclose at the beginning of the business day the 

portfolio that will form the basis for the NAV 

calculation at the end of the business day. 

19Currently, the NASDAQ OMX Global Index 

Data Service (‘‘GIDS’’) is the NASDAQ OMX global 

index data feed service, offering real-time updates, 

daily summary messages, and access to widely 

followed indexes and Intraday Indicative Values for 

ETFs. GIDS provides investment professionals with 

the daily information needed to track or trade 

NASDAQ OMX indexes, listed ETFs, or third-party 

partner indexes and ETFs. 

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. Illiquid securities 

include securities subject to contractual 

or other restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance. The 

Fund may not invest 25% or more of the 

value of its total assets in securities of 

issuers in any one industry or group of 

industries. This restriction does not 

apply to obligations issued or 

guaranteed by the U.S. Government, its 

agencies or instrumentalities, or 

securities of other investment 

companies.13

The Fund may not, as to 75% of its 

total assets, (a) invest more than 5% of 

the value of its total assets in the 

securities of any one issuer or (b) hold 

more than 10% of the outstanding 

voting securities of that issuer (other 

than securities of other investment 

companies and obligations issued or 

guaranteed by the U.S. government or 

any agency or instrumentality 

thereof).14

Consistent with the exemptive order 

referenced in footnote 5, the Fund will 

not invest in options contracts, futures 

contracts or swap agreements. The 

Fund’s investments will be consistent 

with the investment objective and 

strategies described in the Registration 

Statement. The Fund will not invest to 

enhance leverage. 

The Shares 

The Fund will issue and redeem 

Shares on a continuous basis at net asset 

value (‘‘NAV’’) 15 only in large blocks of 

Shares (‘‘Creation Units’’) in 

transactions with Authorized 

Participants. Creation Units generally 

will consist of 50,000 Shares, though 

this may change from time to time. 

Creation Units are not expected to 

consist of less than 50,000 Shares. The 

Fund will issue and redeem Creation 

Units in exchange for a portfolio of high 

yield debt securities and other 

instruments closely approximating the 

holdings of the Fund or a designated 

basket of non-U.S. currency and/or an 

amount of U.S. cash. Once created, 

Shares of the Fund trade on the 

secondary market in amounts less than 

a Creation Unit. 

Creations and redemptions must be 

made by an Authorized Participant or 

through a firm that is either a member 

of the National Securities Clearing 

Corporation or a Depository Trust 

Company participant, and in each case, 

must have executed an agreement with 

the Distributor with respect to creations 

and redemptions of Creation Unit 

aggregations. 

Additional information regarding the 

Shares and the Fund, including 

investment strategies, risks, creation and 

redemption procedures, fees, portfolio 

holdings disclosure policies, 

distributions and taxes is included in 

the Registration Statement. 

Availability of Information 

The Fund’s Web site 

(www.ftportfolios.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 Web site will 

include additional quantitative 

information updated on a daily basis, 

including, for the Fund: (1) The prior 

business day’s reported NAV, mid-point 

of the bid/ask spread at the time of 

calculation of such NAV (the ‘‘Bid/Ask 

Price’’),16 and a calculation of the 

premium and discount of the Bid/Ask 

Price against the NAV; and (2) data in 

chart format displaying the frequency 

distribution of discounts and premiums 

of the daily Bid/Ask Price against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters. On each business day, before 

commencement of trading in Shares in 

the Regular Market Session 17 on the 

Exchange, the Trust will disclose on its 

Web site the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘Disclosed Portfolio’’) held 

by the Fund that will form the basis for 

the Fund’s calculation of NAV at the 

end of the business day.18 The Disclosed 

Portfolio will include, as applicable, the 

names, quantity, percentage weighting 

and market value of fixed income 

securities, and other assets held by the 

Fund and the characteristics of such 

assets. The Web site and information 

will be publicly available at no charge. 

In addition, for the Fund, an 

estimated value, defined in Rule 5735 as 

the ‘‘Intraday Indicative Value,’’ that 

reflects an estimated intraday value of 

the Fund’s portfolio, will be 

disseminated. Moreover, the Intraday 

Indicative Value, available on the 

NASDAQ OMX Information LLC 

proprietary index data service,19 will be 

based upon the current value for the 

components of the Disclosed Portfolio 

and will be updated and widely 

disseminated and broadly displayed at 

least every 15 seconds during the 

Regular Market Session. In addition, 

during hours when the markets for local 

debt in the Fund’s portfolio are closed, 

the Intraday Indicative Value will be 

updated at least every 15 seconds 

during the Regular Market Session to 

reflect currency exchange fluctuations. 

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 to provide a close estimate of that 

value throughout the trading day. 

Intra-day, executable price quotations 

of the fixed income securities and other 

assets held by the Fund are available 

from major broker-dealer firms or on the 

exchange on which they are traded, if 

applicable. Intra-day price information 

is available through subscription 

services, such as Bloomberg and 

Thomson Reuters, which can be 

accessed by authorized participants and 

other investors. 

Information regarding market price 

and volume of the Shares is and will be 

continually available on a real-time 


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2300 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

20See 17 CFR 240.10A–3. 

21FINRA surveils trading on Nasdaq pursuant to 

a regulatory services agreement. Nasdaq is 

responsible for FINRA’s performance under this 

regulatory services agreement. 

22For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. The 

Exchange notes that not all components of the 

Disclosed Portfolio for the Fund may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

23 15 U.S.C. 78f. 

24 15 U.S.C. 78f(b)(5). 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. The previous day’s closing 

price and trading volume information 

for the Shares will be published daily in 

the financial section of newspapers. 

Quotation and last sale information for 

the Shares will be available via UTP 

Level 1, as well as Nasdaq proprietary 

quote and trade services. 

Initial and Continued Listing 

The Shares will be subject to Rule 

5735, which sets forth the initial and 

continued listing criteria applicable to 

Managed Fund Shares. The Exchange 

represents that, for initial and/or 

continued listing, the Fund must be in 

compliance with Rule 10A–3 20 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; for example, the Shares of the 

Fund will be halted if the ‘‘circuit 

breaker’’ parameters in Nasdaq Rule 

4120(a)(11) are reached. Trading may be 

halted because of market conditions or 

for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) The 

extent to which trading is not occurring 

in the securities and/or the financial 

instruments comprising 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 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 7:00 a.m. until 8:00 

p.m. Eastern time. The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in 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 

Nasdaq believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on 

Nasdaq during all trading sessions and 

to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. Trading of the 

Shares through Nasdaq will be subject 

to FINRA’s surveillance procedures for 

derivative products, including Managed 

Fund Shares.21 The Exchange may 

obtain information via the Intermarket 

Surveillance Group (‘‘ISG’’) from other 

exchanges who are members or affiliates 

of the ISG.22 The Exchange prohibits 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 2310, 

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 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. 

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 Web site. 

2. Statutory Basis 

Nasdaq believes that the proposal is 

consistent with Section 6(b) of the Act 23

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

Act 24 in particular in that it is designed 

to prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, and to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system. 

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 believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on 

Nasdaq during all trading sessions and 

to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. The Adviser is 

affiliated with a broker-dealer and has 

implemented a ‘‘fire wall’’ with respect 

to such broker-dealer regarding access to 

information concerning the composition 

and/or changes to the Fund’s portfolio. 

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 

Exchange may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 


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Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 2301 

agreement. Under normal 

circumstances, the Fund will invest at 

least 80% of its assets in high yield debt 

securities. The Fund’s exposure to any 

single issuer generally will be limited to 

5% of the Fund’s assets. The Fund’s 

exposure to any single country (other 

than the United States) generally will be 

limited to 20% of the Fund’s assets. The 

Fund does not current intend to invest 

in emerging market countries. The 

Fund’s long positions may total up to 

130% of the Fund’s Managed Assets. 

The Fund will take short positions in 

securities that the Adviser believes in 

the aggregate will underperform the 

Index. These securities may consist of 

securities included in the Index or other 

securities, including U.S. Treasury 

securities, which the Adviser believes in 

the aggregate will underperform the 

Index. The Fund’s short positions may 

total up to 30% of the Fund’s Managed 

Assets. 

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that the Exchange will 

obtain a representation from the issuer 

of the Shares that the NAV per share 

will be calculated daily and that the 

NAV and the Disclosed Portfolio will be 

made available to all market 

participants at the same time. In 

addition, a large amount of information 

is publicly available regarding the Fund 

and the Shares, thereby promoting 

market transparency. The Fund’s 

portfolio holdings will be disclosed on 

its Web site daily after the close of 

trading on the Exchange and prior to the 

opening of trading on the Exchange the 

following day. Moreover, the Intraday 

Indicative Value, available on the 

NASDAQ OMX Information LLC 

proprietary index data service will be 

widely disseminated and broadly 

displayed at least every 15 seconds 

during the Regular Market Session. On 

each business day, before 

commencement of trading in Shares in 

the Regular Market Session on the 

Exchange, the Fund will disclose on its 

Web site the Disclosed Portfolio that 

will form the basis for the Fund’s 

calculation of NAV at the end of the 

business day. Information regarding 

market price and trading volume of the 

Shares is and will be continually 

available on a real-time basis throughout 

the day on brokers’ computer screens 

and other electronic services, and 

quotation and last sale information for 

the Shares will be available via UTP 

Level 1, as well as Nasdaq proprietary 

quote and trade services. Intra-day, 

executable price quotations on high 

yield debt securities, as well as 

derivative instruments are available 

from major broker-dealer firms. Intraday price information is available 

through subscription services, such as 

Bloomberg and Thomson Reuters, 

which can be accessed by authorized 

participants and other investors. 

The Web site for the Fund will 

include a form of the prospectus for the 

Fund and additional data relating to 

NAV and other applicable quantitative 

information. Trading in Shares of the 

Fund will be halted if the circuit breaker 

parameters in Nasdaq Rule 4120(a)(11) 

have been reached 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 exchange-traded product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures relating to trading in the 

Shares and may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. In addition, as noted above, 

investors will have ready access to 

information regarding the Fund’s 

holdings, the Intraday Indicative Value, 

the Disclosed Portfolio, and quotation 

and last sale information for the Shares. 

For the above reasons, Nasdaq 

believes the proposed rule change is 

consistent with the requirements of 

Section 6(b)(5) of the Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq 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. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) By order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2012–147 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2012–147. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 


wreier-aviles on DSK5TPTVN1PROD with 
2302 Federal Register / Vol. 78, No. 7 / Thursday, January 10, 2013 / Notices 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 68260 

(November 19, 2012), 77 FR 70496 (November 26, 

2012) (SR–C2–2012–038) (‘‘Notice’’). 

4See Notice, 77 FR at 70496. 

5See Notice, 77 FR at 70496–97 n.5, n.9, and 

accompanying text. 

6See Notice, 77 FR at 70497. For examples of 

some of the circumstances in which the Exchange 

may decide to cancel orders, see Notice, 77 FR at 

70497–98. 

7See Notice, 77 FR at 70497. Specifically, new C2 

Rule 6.37 defines ‘‘error positions’’ as ‘‘unmatched 

trade positions that may occur in connection with 

the routing service provided under Rule 6.36’’. 

For examples of some of the circumstances that 

may lead to error positions, see Notice, 77 FR at 

70499. 

8See C2 Rule 6.47(a). 

9See Notice, 77 FR at 70498. 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Section, 100 F Street NE., 

Washington, DC 20549, on official 

business days between 10:00 a.m. and 

3:00 p.m. Copies of the filing also will 

be available for inspection and copying 

at the principal office of the Exchange. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2012–147 and 

should be submitted on or before 

January 31, 2013. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2013–00304 Filed 1–9–13; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68583; File No. SR–C2– 

2012–038] 

Self-Regulatory Organizations; C2 

Options Exchange, Incorporated; 

Order Approving a Proposed Rule 

Change To Address the Authority To 

Cancel Orders When a Technical or 

Systems Issue Occurs and To 

Describe the Operation of Routing 

Service Error Accounts 

January 4, 2013. 

I. Introduction 

On November 8, 2012, the C2 Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘C2’’) 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 (i) address the 

authority of the Exchange to cancel 

orders (or release routing-related orders) 

when a technical or systems issue 

occurs; and (ii) describe the operation of 

an Exchange error account(s) and 

routing broker error account(s), which 

may be used to liquidate unmatched 

executions that may occur in the 

provision of the Exchange’s routing 

service. The proposed rule change was 

published for comment in the Federal 

Register on November 26, 2012.3 The 

Commission received no comment 

letters regarding the proposed rule 

change. This order approves the 

proposed rule change. 

II. Description of the Proposal 

In its proposal, the Exchange states 

that it operates a system of trading that 

allows automatic executions to occur 

electronically.4 As part of this 

infrastructure, the Exchange states that 

it automatically routes orders to other 

exchanges under certain circumstances. 

These routing services are provided in 

conjunction with one or more routing 

brokers that are not affiliated with the 

Exchange.5 Mechanically, when the 

Exchange receives an order from a 

Trading Permit Holder that is held in 

the Exchange system and determines to 

route an order to another exchange, the 

Exchange provides the routing broker 

with a corresponding order and 

instructions to route the order to 

another exchange. The routing broker 

then sends the corresponding order to 

the other exchange. 

In its proposal, C2 states that the 

Exchange may encounter situations that 

make it necessary to cancel orders (or 

release routing-related orders),6 and to 

resolve error positions that result from 

errors of the Exchange, routing brokers, 

or another exchange.7

Proposed Rule 6.47 (Order Cancellation/ 

Release) 

New C2 Rule 6.47 provides C2 with 

general authority to cancel orders as it 

deems to be necessary to maintain fair 

and orderly markets if a technical or 

systems issue occurs at the Exchange, a 

routing broker in connection with the 

routing service provided under C2 Rule 

6.36, or another exchange to which an 

Exchange order has been routed. It also 

provides that a routing broker may only 

cancel orders being routed to another 

exchange based on the Exchange’s 

standing or specific instructions or as 

otherwise provided in the Exchange 

Rules. C2 will be required to provide 

notice of the cancellation to affected 

Trading Permit Holders as soon as 

practicable.8

Paragraph (b) of the rule provides that 

the Exchange may also determine to 

release orders being held on the 

Exchange awaiting an away exchange 

execution as it deems to be necessary to 

maintain fair and orderly markets if a 

technical or systems issues occurs at the 

Exchange, a routing broker, or another 

exchange to which an order has been 

routed. Paragraph (c) of the rule 

provides that, for purposes of Rule 6.47, 

technical or system issues would 

include, without limitation, instances 

where the Exchange has not received 

confirmation of an execution (or 

cancellation) on another exchange from 

a routing broker within a response time 

interval designated by the Exchange, 

which interval may not be less than 

three (3) seconds. 

Proposed Rule 6.37 (Routing Service 

Error Accounts) 

New C2 Rule 6.37 provides that each 

routing broker shall maintain, in the 

name of the routing broker, one or more 

accounts for the purpose of liquidating 

error positions. In addition the 

Exchange may also maintain, in the 

name of the Exchange, one or more 

Exchange error accounts (‘‘Exchange 

Error Account’’) for the purposes of 

liquidating error positions, subject to 

the procedures prescribed in new C2 

Rule 6.37. 

Paragraph (a) of the rule provides that 

errors to which the rule applies include 

any action or omission by the Exchange, 

a routing broker, or another exchange to 

which an Exchange order has been 

routed, that result in an unmatched 

trade position due to the execution of an 

order that is subject to the away market 

routing service and for which there is no 

corresponding order to pair with the 

execution (each a ‘‘routing error’’); and 

that such routing errors would include, 

without limitation, positions resulting 

from determinations by the Exchange to 

cancel or release an order pursuant to 

C2 Rule 6.47. 

Paragraph (b) of the rule provides 

that, generally, each routing broker will 

use its own error account to liquidate 

error positions. In certain 

circumstances, however, the Exchange 

may use an Exchange Error Account. In 

particular, in instances where the 

routing broker is unable to use its own 

error account (e.g., due to a technical, 

systems or other issue that prevents the 

routing broker from doing so) 9 or where 

the error is due to a technical or systems 

issue at the Exchange, the Exchange 


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