9778 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 

6 15 U.S.C. 78s(b)(3)(A)(iii). 

7 17 CFR 240.19b–4(f)(6). 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires the Exchange to give the 

Commission written notice of the Exchange’s intent 

to file the proposed rule change, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Exchange 

has satisfied this requirement. 

10 15 U.S.C. 78s(b)(2)(B). 11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 72412 

(June 17, 2014), 79 FR 35610 (‘‘Notice’’). 

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

5See Securities Exchange Act Release No. 72779, 

79 FR 47162 (Aug. 12, 2014). The Commission 

designated a longer period within which to take 

action on the proposed rule change and designated 

September 19, 2014 as the date by which it should 

approve, disapprove, or institute proceedings to 

determine whether to disapprove the proposed rule 

change. 

rule change does not significantly affect 

competition, but rather simply seeks to 

align the Exchange rule with SEC Rule 

14a–13 with respect to requirements 

related to inquiry of brokers in advance 

of a shareholder meeting. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has filed the proposed 

rule change pursuant to Section 

19(b)(3)(A)(iii) of the Act 6 and Rule 

19b–4(f)(6) thereunder.7 Because the 

proposed rule change does not (i) 

significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

prior to 30 days from the date on which 

it was filed, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, it has become effective 

pursuant to Section 19(b)(3)(A) of the 

Act 8 and Rule 19b–4(f)(6) thereunder.9

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) of the Act 10 to 

determine whether the proposed rule 

change should be approved or 

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 rule-comments@

sec.gov. Please include File Number SR– 

NYSE–2015–07 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2015–07. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–NYSE– 

2015–07 and should be submitted on or 

before March 17, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–03658 Filed 2–23–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74299; File No. SR– 

NASDAQ–2014–065] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Order 

Approving a Proposed Rule Change, 

as Modified by Amendment No. 1 

Thereto, To Adopt New Rule 5713 and 

List Paired Class Shares Issued by 

AccuShares® Commodities Trust I 

February 18, 2015. 

I. Introduction 

On June 11, 2014, The NASDAQ 

Stock Market LLC (‘‘NASDAQ’’ or 

‘‘Exchange’’) 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: 

(1) Adopt listing standards for Paired 

Class Shares in new Rule 5713; and (2) 

list and trade Paired Class Shares 

(‘‘Shares’’) issued by AccuShares®

Commodities Trust I (‘‘Trust’’) relating 

to the following funds pursuant to new 

Rule 5713: (a) AccuShares S&P GSCI®

Spot Fund; (b) AccuShares S&P GSCI®

Agriculture and Livestock Spot Fund; 

(c) AccuShares S&P GSCI® Industrial 

Metals Spot Fund; (d) AccuShares S&P 

GSCI® Crude Oil Spot Fund; (e) 

AccuShares S&P GSCI® Brent Oil Spot 

Fund; (f) AccuShares S&P GSCI®

Natural Gas Spot Fund; and (g) 

AccuShares Spot CBOE® VIX® Fund 

(each individually, ‘‘Fund,’’ and, 

collectively, ‘‘Funds’’). 

The proposed rule change was 

published for comment in the Federal 

Register on June 23, 2014.3 On August 

6, 2014, 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 

approve or disapprove the proposed 

rule change.5 On September 18, 2014, 

the Commission instituted proceedings 

to determine whether to approve or 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 9779 

6See Securities Exchange Act Release No. 73142, 

79 FR 57150 (Sept. 24, 2014) (‘‘OIP’’). 

7See Securities Exchange Act Release No. 73843, 

79 FR 76428 (Dec. 22, 2014). 

8See Letter from Jack Fonss, CEO and CoFounder of the Sponsor, to Kevin O’Neill, Deputy 

Secretary, Commission (Sept. 25, 2014) (‘‘Sponsor 

Letter’’); Letter from Robert E. Whaley, Valere Blair 

Potter Professor of Finance, Director, Financial 

Markets Research Center, Vanderbilt Owen 

Graduate School of Management, to Kevin O’Neill, 

Deputy Secretary, Commission (Oct. 8, 2014) 

(‘‘Whaley Letter’’); Letter from David B. Allen to 

Commission (Oct. 11, 2014) (‘‘Allen Letter’’); Letter 

from Mark Kassner to Commission (Oct. 13, 2014) 

(‘‘Kassner Letter’’); Email from Ned Cataldo, Chief 

Operating Officer and Co-Founder of the Sponsor, 

to Heather Seidel, Associate Director, Commission 

(Oct. 24, 2014) (‘‘Sponsor Email’’); Letter from Jurij 

Trypupenko, Associate General Counsel, Exchange, 

to Brent J. Fields, Secretary, Commission (Oct. 28, 

2014) (‘‘Exchange Letter’’). All comment letters are 

available at: http://www.sec.gov/comments/srnasdaq-2014-065/nasdaq2014065.shtml. 

9 In Amendment No. 1, the Exchange (a) corrected 

references to the entity that will be calculating and 

publishing the CBOE Volatility Index®, (b) deleted 

Commentary .05 to Rule 5713 due to its 

inapplicability to Paired Class Shares, and (c) made 

technical re-numbering changes to Rule 5713 as a 

result of the deletion of Commentary .05. 

Amendment No. 1 provided clarification to the 

proposed rule change, and because it does not 

materially affect the substance of the proposed rule 

change, Amendment No. 1 is not subject to notice 

and comment. 

10A complete description of Rule 5713 and 

Paired Class Shares can be found in the Notice, 

supra note 3. 

11See NASDAQ Rule 5713(c). 

12See id. The Exchange states that other 

economic interests would include, for example, 

currencies, interest rates, non-investable economic 

indices, and other measures of financial instrument 

value. See Notice, supra note 3, 79 FR at 35611, 

n.11. The Exchange will file separate proposals 

under Section 19(b) of the Act before listing and 

trading each series of Paired Class Shares. See 

Commentary .02 to NASDAQ Rule 5713. 

13See NASDAQ Rule 5713(c). 

14See Notice, supra note 3, 79 FR at 35611. 

15See id. The Exchange represents that the 

mathematical formula is based on the following 

factors: (1) The value of the fund’s assets; (2) the 

allocation of that value based on changes in the 

level of the fund’s Underlying Benchmark, which 

may be limited, reduced, capped, or otherwise 

modified according to formula or pre-set 

parameters; and (3) the daily accrual of gain and 

income or loss on the assets of the fund, less the 

liabilities of the fund, as such gains, income losses, 

and liabilities are allocated to each class of the 

fund. See id. at n.12. 

16On a scheduled basis, funds would make 

regular distributions, paying a dividend to the class 

of shares that had increased in value since the last 

distribution. According to the Exchange, regular 

and special distributions will be made in the form 

of cash during the first six months of trading in 

Paired Class Shares. Thereafter, each fund will pay 

all or any part of any regular or special distribution 

in Paired Class Shares instead of cash, where 

further cash distributions would adversely affect 

the liquidity of the market for the fund’s shares or 

impact the fund’s ability to meet minimum 

Exchange distribution requirements. See id. at 

35619 (further stating that all payments made in 

Paired Class Shares will be made in equal numbers 

of Up and Down Shares, and that, to the extent a 

share distribution would result in the distribution 

of fractional Paired Class Shares, cash in an amount 

equal to the value of the fractional Paired Class 

Shares will be distributed rather than fractional 

Paired Class Shares). 

17Funds would make special distributions when 

movement in the Underlying Benchmark exceeded 

a specified rate of change since the previous 

distribution. Special Distributions are designed to 

prevent rapid movements in the Underlying 

Benchmark from transferring all value in the fund 

either to the Up Shares or to the Down Shares. See 

id. (describing regular and special distributions to 

be made in the form of cash during the first six 

months of trading in Paired Class Shares, and 

thereafter, in Paired Class Shares instead of cash). 

18Funds would make corrective distributions 

when the trading price of a class of shares deviates 

from its class value by a specified amount for a 

specified period. Corrective distributions are 

designed to prevent the Up Shares and Down 

Shares from becoming locked in a persistent state 

of equal and opposite deviations from class value. 

In a corrective distribution, a fund will issue each 

holder of Up Shares an equal number of Down 

Shares, and each holder of Down Shares an equal 

number of Up Shares. 

19A Creation Unit for each Fund will comprise 

25,000 Up Shares and 25,000 Down Shares. See id. 

at 35612, n.14. 

20See id. at 35612. 

21The Commission notes that additional 

information regarding the Trust, the Funds, and the 

Shares, including risks, information relating to the 

Underlying Benchmarks and Reference Assets, 

Class Value and Class Value per Share calculations, 

creation and redemption procedures, trading halts 

and pauses, applicable Exchange trading rules, 

surveillance, information circulars, fees, disclosure 

policies, distributions, and taxes, among other 

information, is included in the Notice and the 

Registration Statement, as applicable. See Notice, 

supra note 3, and Registration Statement, infra note 

22, respectively. 

22The Exchange states that the offer and sale of 

Paired Class Shares of each Fund will be registered 

with the Commission by means of the Trust’s 

registration statement on Form S–1 under the 

Securities Act of 1933 (‘‘Securities Act’’). According 

Continued 

disapprove the proposed rule change,6

and on December 16, 2014, the 

Commission extended the deadline for 

Commission action until February 18, 

2015.7 The Commission received six 

comment letters regarding the proposal, 

including one from the Exchange and 

two from AccuShares Investment 

Management LLC (‘‘Sponsor’’), the 

sponsor of the Funds.8 On February 10, 

2015, the Exchange submitted 

Amendment No. 1 to the proposed rule 

change.9

This order approves the proposed rule 

change, as modified by Amendment No. 

1 thereto. 

II. Description of the Proposal 

The Exchange proposes to adopt new 

Rule 5713, which permits the listing of 

Paired Class Shares, and to list and 

trade Shares of the Funds. 

A. General Description of Paired Class 

Shares 10

Paired Class Shares will be structured 

with the objective of providing investors 

with exposure to changes in an index or 

other numerical variable (‘‘Underlying 

Benchmark’’). Paired Class Shares will 

be issued by a trust on behalf of a fund, 

and each fund will be a segregated 

series of that trust.11 Paired Class Shares 

will have values that are based on an 

Underlying Benchmark where the value 

of the underlying benchmark reflects the 

value of assets, prices, price volatility, 

or other economic interests (‘‘Reference 

Asset’’).12

The trust for each fund of Paired Class 

Shares will always issue and redeem 

Paired Class Shares in pairs of shares of 

opposing classes of each fund: Up 

Shares and Down Shares. The values of 

the opposing classes will move in 

opposite directions as the value of the 

fund’s Underlying Benchmark varies 

from its starting level. Up Shares will be 

positively linked to the fund’s 

Underlying Benchmark, and Down 

Shares will be negatively linked to the 

fund’s Underlying Benchmark.13 The 

rate of linkage or leverage of a fund’s Up 

Shares and Down Shares performance to 

the performance of the fund’s referenced 

Underlying Benchmark will be one-toone.14 Each fund will use a 

mathematical formula to calculate the 

liquidation value attributable to each of 

its classes of Paired Class Shares (‘‘Class 

Value’’) and to each share of each class 

(‘‘Class Value per Share’’).15

Each fund will engage in regular 

distributions 16 and may also engage in 

special distributions 17 or corrective 

distributions.18 Immediately after each 

distribution, the fund’s Underlying 

Benchmark participation or exposure 

will be reset, and the fund’s Class Value 

per Share for each of its classes will be 

set to equal the lowest Class Value per 

Share of the two classes of Paired Class 

Shares. 

Paired Class Shares of a fund will be 

created and redeemed in specified 

aggregations of equal quantities of Up 

Shares and Down Shares 19 at their 

respective Class Values per Share. 

Paired Class Shares can only be created 

or redeemed by authorized participants 

(‘‘Authorized Participants’’).20 Paired 

Class Shares creation and redemption 

transactions will only occur (a) for cash 

consideration, and (b) in equal predetermined quantities of Up Shares and 

Down Shares. 

B. The Exchange’s Description of the 

Funds 

The Exchange has made the following 

representations and statements in 

describing, among other things, the 

Funds, the corresponding Underlying 

Benchmarks, arbitrage, and 

distributions.21

The Shares will be offered by the 

Trust, which is a Delaware statutory 

trust.22 Wilmington Trust, N.A., a 


tkelley on DSK3SPTVN1PROD with NOTICES
9780 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 

to the Exchange, the Registration Statement was 

filed on March 18, 2014 and will be effective as of 

the date of such offer and sale. See Notice, supra 

note 3, 79 FR at 35615. The Commission notes that 

a pre-effective amendment No. 1 to the registration 

statement (‘‘Registration Statement’’) was filed on 

July 17, 2014 (File No. 333–194666). 

23The Custodian will hold each Fund’s securities 

and cash and will perform each Fund’s Class Value 

and Class Value per Share calculations. As 

Administrator, State Street will, among other 

things, perform or supervise the performance of 

services necessary for the operation and 

administration of the Funds (other than making 

investment decisions or providing services 

provided by other service providers), including 

accounting and other fund administrative services. 

As Transfer Agent, State Street will, among other 

things, provide transfer agent services with respect 

to the creation and redemption of Creation Units. 

The Transfer Agent will receive from Authorized 

Participants creation and redemption orders and 

deliver acceptances and rejections of such orders to 

Authorized Participants as well as coordinate the 

transmission of such orders and instructions among 

the Sponsor and the Authorized Participants. 

24The Underlying Benchmarks for all of the 

Funds other than the VIX Fund are: (1) The S&P 

GSCI Spot index; (2) the S&P GSCI Agricultural and 

Livestock Spot index; (3) the S&P GSCI Industrial 

Metals Spot index; (4) the S&P GSCI Crude Oil Spot 

index; (5) the S&P GSCI Brent Crude Oil Spot index; 

and (6) the S&P GSCI Natural Gas Spot index, 

(collectively, ‘‘S&P GSCI Commodity Indices’’). 

25See Notice, supra note 3, 79 FR at 35615. 

26See id. 

27See supra note 16. 

28See supra note 17. 

29See supra note 18. 

30 In a net income distribution, cash is distributed 

to investors based on income (after expenses) from 

the financial instruments held by the Fund. 

31The Exchange states that it may determine that 

a longer notice is advisable in certain circumstances 

(e.g., an extended, or unexpected, market break). 

32Reverse share splits will be declared to 

maintain a positive Class Value per Share for either 

the Up Shares or the Down Shares of an AccuShares 

Fund should the Class Value per Share of either 

class approach zero. Reverse share splits are 

expected to occur in the context of special 

distributions and are expected to be triggered after 

Class Value per Share declines below a specified 

dollar threshold as set forth in the applicable Fund 

prospectus. 

33See OIP, supra note 6, 79 FR at 57157. 

34See Sponsor Letter, supra note 8, at 4. 

Similarly, the Exchange states that the corrective 

distribution feature is designed to prevent losses 

that have occurred in other ETPs in the past. See 

Exchange Letter, supra note 8, at 22–23. See also 

Notice, supra note 3, 79 FR at 35611 (‘‘Immediately 

after each regular, special and corrective 

distribution, the Fund’s Underlying Benchmark 

participation or exposure will be reset and the 

Fund’s Class Value per Share for each of its classes 

will be set to equal the lowest Class Value per Share 

of the two classes of Paired Class Shares.’’). 

35See Sponsor Letter, supra note 8, at 4. 

national banking association, will serve 

as the trustee (‘‘Trustee’’) and the 

investment advisor (‘‘Investment 

Advisor’’) for each Fund. The 

Investment Advisor, which is chosen by 

the Sponsor, is responsible for investing 

each Fund’s available cash in bills, 

bonds, and notes issued and guaranteed 

by the United States Treasury (‘‘United 

States Treasury Securities’’) with 

remaining maturities of 90 days or less 

(‘‘Eligible Treasuries’’) and over-night 

repurchase agreements collateralized by 

United States Treasury Securities 

(‘‘Eligible Repos,’’ and together with 

cash and Eligible Treasuries, 

collectively, ‘‘Eligible Assets’’). State 

Street Bank and Trust Company (‘‘State 

Street’’), a Massachusetts trust company, 

will serve as the custodian, 

administrator, and transfer agent 

(‘‘Custodian,’’ ‘‘Administrator,’’ or 

‘‘Transfer Agent’’) for each Fund.23

The Underlying Benchmark of each 

Fund, other than the AccuShares Spot 

CBOE VIX Fund (‘‘VIX Fund’’), is 

constructed, calculated, and published 

by S&P® Dow Jones Indices LLC (‘‘Index 

Provider’’).24 The CBOE Volatility 

Index® (‘‘VIX’’), which is the 

Underlying Benchmark of the VIX Fund, 

is calculated and published by CBOE. 

According to the Exchange, both the 

Index Provider and CBOE are 

unaffiliated with the Trust and the 

Sponsor.25 To the extent that an 

Underlying Benchmark is maintained by 

a broker-dealer or investment advisor, 

such broker-dealer or investment 

advisor will erect a ‘‘firewall’’ around 

personnel who have access to 

information concerning changes and 

adjustments to the Underlying 

Benchmark.26

As described above, the Trust will 

issue Shares on behalf of each Fund in 

offsetting pairs, where one constituent 

of the pair, the Up Shares, is positively 

linked to the Fund’s Underlying 

Benchmark, and the other constituent, 

the Down Shares, is negatively linked to 

the Fund’s Underlying Benchmark. 

Once created, a Fund’s Paired Class 

Shares will trade independently of each 

other on the Exchange. The cash 

proceeds from the creation of Paired 

Class Shares may be held by a Fund 

only in Eligible Assets designed to 

preserve capital while earning an 

investment return that is consistent with 

the preservation of capital. Upon any 

redemption of a Fund’s Creation Units 

by an Authorized Participant, the cash 

of the Fund will be used to pay the 

proceeds of the redemption to the 

redeeming Authorized Participant. 

Each Fund engaging in a regular 

distribution,27 a special distribution,28 a 

corrective distribution,29 or a net 

income distribution 30 will provide at 

least three business days’ advance 

notice (or longer advance notice as may 

be required by the Exchange) 31 of such 

an event. Each Fund engaging in a share 

split 32 will provide at least ten calendar 

days’ advance notice (or longer advance 

notice as may be required by the 

Exchange) of such an event. In each 

instance, the Sponsor will notify the 

Exchange, and post a notice of such 

event and its details on the Sponsor’s 

Web site (www.AccuShares.com). For 

regular distributions that occur on 

schedule, the Sponsor will cause a press 

release to be issued identifying the 

receiving class, the amount of cash, the 

amount of Paired Class Shares (if any), 

and any other information the Sponsor 

deems relevant regarding the 

distribution and will post this 

information on the Sponsor’s Web site. 

With respect to special distributions, 

corrective distributions, and share 

splits, the information provided will 

include the relevant ex-, record, and 

payment dates for each such event and 

relevant data concerning each such 

event. These events will also be 

reported in press releases, on the 

Sponsor’s Web site, and in current 

reports on Form 8–K as material events, 

as well as in the Fund’s periodic 

reports. 

C. Summary of the Comments 

In the OIP, the Commission posed 

questions regarding the proposed rule 

change. Commenters responded to those 

questions and offered other comments 

as well. The comments are summarized 

below. 

1. The Effect of the Distributions on the 

Premiums and Discounts Between the 

Trading Price and Class Value per Share 

In response to Commission questions 

about the effect of the Funds’ 

distributions on premiums and 

discounts,33 the Sponsor asserts that the 

presence of regular, special, and 

corrective distributions will aid in the 

reduction of premiums and discounts.34

With regard to both regular and special 

distributions, the Sponsor asserts that a 

Fund will make these types of 

distributions based on the movement of 

the Underlying Benchmark since the 

last distribution date, and will then 

reset the index to the current market 

level.35 According to the Sponsor, two 

positive effects relating to potential 

discounts or premiums from regular and 

special distributions are: (1) An investor 

will enjoy an actual distribution relating 

to the index move rather than having to 

rely on trading out of an intrinsic gain 

that could be subject to market lags, 

frictions, or a lack of realizable trading 

price responsiveness; and (2) the index 

reset will re-equate the intrinsic share 

prices, having the effect of further 

highlighting any deviations between 

trading prices and Class Values, and 

consequently all investors (not just 

market professionals) will more clearly 

observe any premium or discount, and 


tkelley on DSK3SPTVN1PROD with NOTICES
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36See id. 

37See id. 

38A corrective distribution will result in: (1) The 

investors holding the share class associated with 

the favorable index move to realize a gain equal to 

the realized move in the index; and (2) all investors 

receiving an equal quantity of each share class of 

a Fund. See id. at 5. 

39See id. at 4. 

40See id. 

41See id. at 5. 

42See id. 

43See id. 

44See Whaley Letter, supra note 8, at 1–2. 

45See Kassner Letter, supra note 8, at 1. 

46See id. This commenter further states that, 

while his assertions regarding the possibility of 

persistent premiums and discounts and the 

potential failure of an effective arbitrage mechanism 

for Paired Class Shares focus on the proposed VIX 

Fund and VIX futures, the commenter points out 

that the same economic principles apply to any 

futures. See id. 

47See id. at 1–3. 

48See id. at 2. 

49See id. 

50See Exchange Letter, supra note 8, at 17. 

51See id. at 18. The Exchange asserts that the 

willingness of market participants to trade options 

overlying both the spot VIX and VIX futures 

demonstrates that the market understands the 

differences between spot VIX and the range of VIX 

futures prices. See id. at 19. 

52See id. at 18. 

53See id. at 16, n.28, 18. 

54See id. at 17. 

55See id. 

56See id. 

57See Sponsor Letter, supra note 8, at 6. 

58See id. at 2. 

any investor can execute a trade in 

response to these deviations.36

The Sponsor states its view that 

almost all premium and discount 

combinations of the Up Shares and 

Down Shares of a Fund will be readily 

cured by conventional arbitrage. 

According to the Sponsor, the corrective 

distribution is an investor safety feature, 

above and beyond conventional 

arbitrage, designed to remedy those 

unique scenarios where the material 

discount amount of one Fund share is 

exactly equal to the material premium 

amount of the opposing share.37

The Sponsor states that the corrective 

distribution 38 is expected to have both 

a preventative effect and a curative 

effect relating to premiums and 

discounts between trading prices and 

Class Values per Share.39 The Sponsor 

asserts that the possibility of a 

corrective distribution will 

disincentivize market participants from 

buying or selling shares at material 

premiums or discounts to the Class 

Values per Share.40 Relating to the 

curative impact, the Sponsor states that 

following the corrective distribution: (1) 

The discount class holder, potentially 

stranded by low available bid prices, 

would have the correct aggregate value 

(inclusive of index movements) in a 50/ 

50 position in the discount shares and 

premium shares; and (2) a premium 

class holder would also have the correct 

aggregate value (inclusive of index 

movements) in a 50/50 position in 

discount shares and premium shares.41

The Sponsor asserts that these positions 

would be unaffected by a single share 

class premium or discount, and would 

be readily saleable at a stable and 

readily identifiable price (especially 

because the Fund is limited to holding 

cash equivalents).42 Authorized 

Participants, the Sponsor notes, may 

redeem these positions in sufficient 

aggregate amount.43

One commenter, who recommends 

that the Commission approve the 

proposed rule change, asserts that the 

regular, special, and corrective 

distributions will help prevent the 

significant premiums and discounts that 

have occurred in other ETPs in recent 

years.44

Another commenter expressed 

concern that the structure of Paired 

Class Shares will result in persistent 

premiums and discounts that will 

fundamentally invalidate the premise of 

the products in the market, making 

them misleading to investors.45 This 

commenter asserts that the arbitrage 

mechanism will not work to keep each 

of the products trading closely to its 

intrinsic value; instead, the commenter 

argues that the arbitrage mechanisms 

will, in theory, keep the sum of the 

discount on one class and the premium 

on the other at zero. The commenter 

states its view that it is not 

economically possible to maintain 

intrinsic value in the secondary market, 

and predicts that any attempt to do so 

will lead to massive speculation in the 

products until they are pushed to a 

breaking point, at which point lesssophisticated investors will suffer 

significant losses.46 To support these 

conclusions, the opposing commenter 

provides a number of hypothetical 

situations involving the trading 

relationship between the VIX index, VIX 

futures, and the proposed VIX Fund.47

According to the commenter, the core of 

the issue is that the products are simply 

not hedgeable.48 The commenter 

predicts that there will be very 

significant arbitrage pressures 

attempting to exploit the ‘‘economic 

perversity of the products’’ and 

significant activity around prices that 

reflect a corrective distribution.49

The Exchange asserted that 

underlying the opposing commenter’s 

arguments regarding ineffective 

arbitrage is the misunderstanding that 

spot levels and futures levels are 

equivalent and interchangeable.50 The 

Exchange agrees that global markets will 

be broadly inter-related, including spot 

markets, futures markets, stock markets, 

and bond markets, but argues that, in 

the case of volatility, and VIX in 

particular, the spot market is not ‘‘in 

line’’ and directly comparable with VIX 

futures prices.51 To support this 

assertion, the Exchange cites guidance 

from the CBOE VIX Primer Basics on the 

educational section of CBOE’s Web 

site.52 Additionally, the Exchange states 

that, contrary to the assumptions 

implicit in the opposing commenter’s 

numerical examples, the Fund’s 

creations, redemptions, and other 

operations are not limited by VIX 

futures expiration dates.53 The 

Exchange asserts that, uniquely, the 

intrinsic Class Values of the Funds are 

not dependent upon successful trading, 

rolling, or otherwise rebalancing of 

securities or futures contracts.54

The Exchange also asserts that one 

part of the arbitrage process for Paired 

Class Shares will operate the same way 

as it does for all exchange-traded funds 

(‘‘ETFs’’); namely, a share trading above 

or below an intrinsic Class Value can be 

transacted, hedged, and traded. Paired 

Class Shares have an additional 

arbitrage mechanism, according to the 

Exchange: Intra-fund arbitrage—through 

the valuation and trading of both Up 

and Down Shares—limits the discounts, 

premiums, or any combination thereof 

of the share classes to a value indicated 

by the readily determinable net asset 

value of the Fund’s cash equivalent 

assets.55 The Exchange argues that 

arbitrage opportunities are uniquely 

easy to identify because of the direct 

observability of the Underlying 

Benchmark, the direct linkage of the 

intrinsic Class Values to the Underlying 

Benchmark, and the simplicity and very 

limited number of the moving parts in 

a creation or redemption—i.e., the two 

Fund Share prices versus the readily 

determinable value of the Fund’s cash 

equivalent assets.56

2. The Ability of Investors To 

Understand the Operation of the Funds 

The Sponsor asserts that retail 

investors and other market participants 

will be able to understand the Fund’s 

redemption mechanics and the types 

and timing of distributions.57 Generally, 

the Sponsor states that the Funds’ 

distributions are limited to scheduled 

dates or the occurrence of large and rare 

underlying index moves.58 The Sponsor 

asserts that movements of the 

underlying indexes will be easy to track 

using public sources and therefore 


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59See id. 

60See id. The Sponsor states that its opinions and 

views expressed in the Sponsor Letter were 

informed by conversations with the Exchange, 

prospective authorized participants, other market 

makers, traders, and qualified investors. See id. 

61See id. at 6. 

62See id. 

63See id. 

64See id. 

65See id. at 6–7. 

66Specifically, the Sponsor states that, while 

prospective participants with expertise in retail 

investing believed the corrective distribution 

feature to be engineered solely for the benefit of the 

retail investor and questioned whether institutional 

traders would lose profitable trading opportunities, 

market makers (including Authorized Participants) 

applauded the addition of a corrective distribution. 

See id. at 7. See supra note 60 (regarding with 

whom the Sponsor consulted). 

67See id. 

68See Kassner Letter, supra note 8, at 3. 

69See id. 

70See id. 

71See id. 

72See id. 

73See id. at 4. 

74See id. 

75See id. at 7. 

76See id. 

77See id. at 7–8. 

78See id. at 8. 

concludes that investors will have the 

information necessary to transact in the 

Shares and respond to distributions.59

In addition, the Sponsor represents that 

the consensus of qualified investors and 

market makers is that the frequency of 

the Funds’ distributions is consistent 

with customary review (e.g., monitoring 

prices and returns) and customary 

reevaluation of share positions.60

The Sponsor states that the 

prospectus contains detailed examples, 

and the Funds’ Web site will contain 

infographics describing each 

distribution as well as the courses of 

action available to investors.61 The 

Sponsor also states that, except in 

limited and unanticipated conditions 

(listed in the prospectus), regular and 

special distributions will be made to 

shareholders in cash, and therefore 

investors will generally be making a 

straightforward decision with respect to 

deploying or maintaining received 

cash.62 With respect to corrective 

distributions, the Sponsor states that 

they are a direct response to retail 

investor experiences in ETPs where 

obscure technical forces or market 

illiquidity have caused both large 

premiums and large discounts to 

persist.63 The Sponsor asserts that these 

distributions, as a self-policing and selfcorrections measure, are an alternative 

to real-time estimates of indicative 

portfolio values, which investors may 

not necessarily consider before 

transacting in ETP shares.64

The Sponsor also states that: (1) 

Corrective distributions are expected to 

be rare; (2) without them, retail 

investors otherwise may be exposed to 

either paying a material premium 

relating to a purchase or suffering a 

material discount relating to a sale of 

Shares; (3) before receipt of a 

distribution, investors will see a Form 

8–K, a notice from the Exchange, and a 

notice on the Fund’s Web site; and (4) 

upon receipt of a corrective distribution, 

investors may take any of the following 

actions, all of which the Sponsor asserts 

are not materially different from the 

options available to investors upon the 

receipt of cash or shares from any 

distribution or traditional corporate 

action: (a) Sell their entire positions for 

cash, (b) sell a portion of their positions 

for cash for a modulated exposure to the 

Fund index, or (c) sell part of a position 

and reinvest proceeds to maximize a 

particular market exposure.65 According 

to the Sponsor, prospective investors 

view the corrective distribution feature 

as an effective balance of ‘‘newness’’ 

and ‘‘benefit’’ for the entire range of 

Fund shareholders.66 The Sponsor 

states that the corrective distribution is 

expected to encourage more active and 

accurate market making and more 

liquidity-enhancing position-taking by 

Authorized Participants, all of which 

are more likely to actually reduce the 

likelihood and occurrences of a 

corrective distribution declaration.67

The opposing commenter asserts that, 

because of the persistent premiums and 

discounts he predicts, investors would 

have to be extremely diligent in tracking 

their positions because the Up Shares 

might frequently turn into both Up 

Shares and Down Shares, which would 

result in inattentive investors paying 

fees to the issuer but not receiving any 

notional exposure whatsoever.68

According to the commenter, an 

investor in the Shares would require 

extensive knowledge of the financial 

markets to understand why, when being 

required to re-enter the market after a 

distribution to reestablish a position, the 

product could be trading already at a 

significant premium or discount.69 The 

commenter also states its view that the 

investor would have to have intimate 

knowledge of the VIX futures market to 

understand from where the premium or 

discount was actually derived.70 The 

opposing commenter states that 

investors would likely receive Shares 

with the opposite economics for some 

distributions, and predicts that this 

would confuse them.71 The commenter 

distinguishes regular share 

distributions, with which the 

commenter concedes investors are 

familiar, by stating that Share 

distributions would include Shares with 

the opposite economics and different 

tickers.72 Further, the opposing 

commenter asserts that, unlike products 

that trade at or close to their intrinsic 

value, an investor in Shares needs to 

know a considerable amount of 

information at every point in time when 

investing in the product, including for 

example the coefficient of variation and 

the number of days there has been a 

premium or discount (in light of the 

corrective distribution threshold).73 The 

opposing commenter also asserts that 

the investor also must check his or her 

account every day, to see if there has 

been a Special Distribution, and on 

every Distribution Date, to see what is 

in his or her account (i.e., whether there 

is cash or a neutral basket, which may 

be subject to fees).74

3. The Ability of Investors To 

Understand the Funds’ ‘‘Resets’’ to the 

Then-Current Reference Index Value 

The Sponsor states its view that the 

Funds are similar to comparable ETPs in 

the market and that, accordingly, it 

expects that both retail investors and 

other market participants will 

understand the effect of resets (which 

will occur when regular, special, or 

corrective distributions are made) on 

their investments in a Fund.75 The 

Sponsor states that in other comparable 

ETFs and exchange-traded notes 

(‘‘ETNs’’) the impact of resetting comes 

through the re-trading of futures, 

options, or other contracts either daily, 

monthly, or on another cycle, and that 

this conventional resetting has 

transaction costs that are often difficult 

to isolate within the context of overall 

fund performance.76 Additionally, 

according to the Sponsor, because the 

traditional method of resetting is 

accomplished through the trading of 

underlying positions at telegraphed 

times under prescribed fund rules, ETFs 

and ETNs can be disadvantaged from 

having to be a ‘‘price taker’’ in possibly 

adverse or challenging markets.77 The 

Sponsor states that the Funds’ resets 

allow the Funds to reduce their 

transaction expenses and eliminate the 

need to transact in underlying positions. 

The Sponsor also asserts that individual 

investors will be able to more easily 

track and monitor the resets of the 

Funds than the resetting impact in 

conventional funds.78

A supporting commenter asserts that 

the Funds would deliver exact holding 

period returns, which he contrasts to the 

returns of levered and inverse funds that 

implicitly rebalance daily and which he 


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79See Whaley Letter, supra note 8, at 2. 

80See Sponsor Letter, supra note 8, at 8, 9. 

81See id. at 8. 

82See id. 

83See id. 

84See id. at 8–9. In its comment letter, the 

Exchange repeated the Sponsor’s statements 

regarding the Exchange’s rules and information 

circular. See id. at 13–14. 

85See id. at 9. 

86See id. The Sponsor, however, distinguishes 

the Shares from ETNs in that, with ETNs, an 

investor is subject to the performance risk of the 

obligor and a market maker is subject to ETN 

creation and redemptions processes which are 

sometimes less standardized than ETF processes. 

See id. at 10. 

87See id. at 9–10. 

88See Whaley Letter, supra note 8, at 2. 

89See id. at 1–2. 

90See Allen Letter, supra note 8. 

91See id. 

92See id. 

93 Id. 

asserts can be a source of confusion for 

retail customers.79

4. The Adequacy of the Exchange’s 

Suitability Rules 

The Sponsor states its view that the 

Exchange’s rules governing sales 

practices adequately ensure the 

suitability of recommendations 

regarding the Shares and that 

enhancement is unnecessary.80 The 

Sponsor states that NASDAQ Rule 

2111A requires that an exchange 

member have a reasonable basis to 

believe that a recommended transaction 

or investment strategy involving a 

security or securities is suitable for the 

customer, based on the information 

obtained through the reasonable 

diligence of the exchange member to 

ascertain the customer’s investment 

profile.81 According to the Sponsor, a 

customer’s investment profile would, in 

general, include the customer’s age, 

other investments, financial situation 

and needs, tax status, investment 

objectives, investment experience, 

investment time horizon, liquidity 

needs, and risk tolerance.82 The Sponsor 

also states that the rule explicitly covers 

recommended investment strategies 

involving securities, including 

recommendations to ‘‘hold’’ 

securities.83

The Sponsor also discusses the 

Exchange’s information circular. Prior to 

the commencement of trading of Fund 

shares, the Exchange will inform its 

members through an information 

circular of the suitability requirements 

of NASDAQ Rule 2111A. Specifically 

the information circular will remind 

members that, in recommending 

transactions in Shares, they must: (1) 

Have a reasonable basis to believe that 

(a) the recommendation is suitable for a 

customer given reasonable inquiry 

concerning the customer’s investment 

objectives, financial situation, needs, 

and any other information known by 

such member, and (b) the customer can 

evaluate the special characteristics and 

is able to bear the financial risks of an 

investment in the shares; and (2) make 

reasonable efforts to obtain the 

following information: (a) The 

customer’s age; (b) the customer’s other 

investments; (c) the customer’s financial 

situation and needs; (d) the customer’s 

tax status; (e) the customer’s investment 

objectives, experience, time horizon, 

liquidity needs and risk tolerance; and 

(f) such other information used or 

considered to be reasonable by such 

members or registered representatives in 

making recommendations to the 

customer.84

5. The Relationship Between the Funds’ 

Holdings and Their Investment 

Objective 

The Sponsor states its view that 

investors will understand that the 

Funds hold cash and cash equivalent 

securities, and the Cash Values per 

Share will be directly responsive to 

changes in the underlying index.85 The 

Sponsor asserts that ETNs are similar to 

the Shares in that an ETN does not have 

identified ‘‘portfolio assets’’ and that 

this aspect of ETNs has been well 

understood.86

The Sponsor asserts that the Funds’ 

structure is appropriate, and will result 

in certain advantages: (1) Lower fund 

operating costs, because the Class Value 

per Share amounts are directly related 

to an independent and readily 

observable index and there is no need 

for a Fund to incur trading costs over 

assets in an effort to track the index; (2) 

improved fund performance 

transparency, because the return of 

Shareholders will not be impacted by 

transactions costs that are difficult to 

observe and underlying assets whose 

pricing is opaque; (3) a higher certainty 

of redemption values because the Shares 

will be readily created and redeemed at 

a certain and readily determinable 

value, thereby eliminating the frictions 

often caused where (a) a potentially 

large number of in-kind securities are 

challenging to value or (b) a cash 

creation or redemption is based on 

trading illiquid securities or trading 

securities in a fast-moving market; and 

(4) direct indexing, which the Sponsor 

states prospective investors believe to be 

more easily followed through readily 

observable and free data services.87

6. Other Comments 

One commenter recommends that the 

Commission approve the proposed rule 

change because, in its view, the 

AccuShares’ products are simple and 

transparent, and will provide investors, 

institutions and retail customers alike 

with the returns that they want.88 He 

also recommends approval of the 

proposed rule change because: (1) The 

Shares would provide exposure to spot 

market benchmarks that are popular to 

large segments of the asset management 

community; (2) the Up Shares and 

Down Shares are direct investments that 

track readily-observable spot market 

benchmarks, unlike the futures indexes, 

which he characterizes as complicated 

dynamic futures trading strategies; (3) 

changes in the values of the Up Shares 

and Down Shares would be purely 

mechanical and would correspond 

directly to the price changes in the 

underlying index, which is distinctly 

different from many current products; 

(4) unlike ETNs, investors in the Funds 

would have no credit risk; and (5) 

actively-managed products add market 

complexity, and the Paired Class Shares 

would not be actively-managed.89

Similarly, another commenter asserts 

that the Funds would be both highly 

relevant to a wide range of investors and 

highly approachable to all of them.90 He 

asserts that indexes underlying the 

Funds are arguably better for individual 

investors because they are easier to 

follow than the indexes that underlie 

some existing products.91 This 

commenter also asserts that the market 

has been clamoring for better spot 

market proxies since the beginning of 

the ETF market.92 Further, the 

commenter recommends approval of the 

proposed rule change because the ‘‘best 

ETFs also help solve existing structural 

problems for traders and investors 

regarding term structure of price and/or 

volatility, beta to cash prices and 

tracking errors, and rebalancing 

inefficiencies . . .’’ 93

The opposing commenter asserts that 

the premiums and discounts, which he 

predicts will result in corrective 

distributions that are more frequent than 

the Exchange has suggested, will result 

in high implicit fees and large tracking 


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94See Kassner Letter, supra note 8, at 3. For 

example, the commenter characterizes the ‘‘Daily 

Amount’’ as a fee. During any single distribution 

measurement period that starts with the prior 

distribution date and to create a balanced market for 

the Up Shares and Down Shares of the VIX Fund, 

the Class Value per Share of each Up Share of the 

VIX Fund will be reduced and the Class Value per 

Share of each Down Share of the VIX Fund will be 

increased by an additional daily amount, the ‘‘Daily 

Amount.’’ See Notice, supra note 3, 79 FR at 35617. 

The opposing commenter asserts that the investors 

in the Up Shares of the VIX Fund will be charged 

will be charged 4.5% in Daily Amount charges. 

95See Kassner Letter, supra note 8, at 3. 

96See Exchange Letter, supra note 8, at 19. 

97 Id. at 22. 

98 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

99 15 U.S.C. 78f(b)(5). 

100 15 U.S.C. 78k–1(a)(1)(C)(iii). 

101See NASDAQ Rule 5713(c). The operation of 

Paired Class Shares is described above. See supra 

section II.A. 102 In accordance with NASDAQ Rule 5713(h), 

market makers in Paired Class Shares must file with 

the Exchange and keep current a list identifying all 

accounts for trading in the applicable securities or 

physical commodities included in, or options, 

futures or options on futures on, the Reference 

Asset of the Underlying Benchmark of any Paired 

Class Shares or any other derivatives based on such 

Reference Asset or based on any security or 

Reference Asset included in the Underlying 

Benchmark, which the registered market maker may 

have or over which it may exercise investment 

discretion. In addition, market makers are 

prohibited from trading in the applicable securities 

or physical commodities included in, or options, 

futures or options on futures on, the Reference 

Asset of the Underlying Benchmark of any Paired 

Class Shares or any other derivatives based on such 

Reference Asset or based on any security or 

Reference Asset included in the Underlying 

Benchmark, in an account in which a market maker, 

directly or indirectly, controls trading activities, or 

has a direct interest in the profits or losses thereof. 

See NASDAQ Rule 5713(h)(i). In addition, market 

makers in Paired Class Shares are required to make 

available to the Exchange any and all books, 

records, or other information pertaining to 

transactions by such entity or registered or nonregistered employee affiliated with such entity for 

its or their own accounts for trading the applicable 

securities or physical commodities included in, or 

options, futures or options on futures on, the 

Reference Asset of the Underlying Benchmark of 

any Paired Class Shares or any other derivatives 

based on such Reference Asset or based on any 

security or Reference Asset included in the 

Underlying Benchmark, as may be requested by the 

Exchange. See NASDAQ Rule 5713(h)(ii). 

103The Commission notes that any securities 

listed in the future under NASDAQ Rule 5713 must 

be the subject of a rule filing by the Exchange under 

Section 19(b) of the Exchange Act—providing the 

Commission with the opportunity to review and to 

approve or disapprove that rule filing—and that all 

securities listed under NASDAQ Rule 5713 will be 

subject to the full set of bylaws and other rules and 

procedures of the Exchange. While Nasdaq Rule 

5713(e) provides that Paired Class Shares may have 

values based on assets, prices, price volatility, or 

other economic interests, such as currencies, 

interest rates, non-investable economic indices, and 

other measures of financial instrument value, the 

specific products approved for listing pursuant to 

this order will have values based on price volatility 

and commodity indices. The Commission staff will 

consider any future proposals to list products under 

Nasdaq Rule 5713 with values based on these and 

other types of benchmarks and reference assets, 

evaluating the specific facts and circumstances 

associated with each proposal under Section 19(b) 

of the Exchange Act. Further, the Commission staff 

will continue to analyze the development of 

exchange-traded products and their impact on 

market structure and will monitor the development 

of the market for Paired Class Shares. 

104The Exchange stated that trading in Paired 

Class 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 detect violations of Exchange rules and 

applicable federal securities laws. See Notice, supra 

note 3, 79 FR at 35621. FINRA surveils trading on 

the Exchange pursuant to a regulatory services 

agreement, and the Exchange is responsible for 

FINRA’s performance under this regulatory services 

agreement. See Notice, supra note 3, 79 FR at 

35621, n.51. The Exchange represented that FINRA, 

on behalf of the Exchange, will communicate as 

needed regarding trading in the Paired Class Shares 

and in the securities in which the Fund will invest 

with other markets and other entities that are 

members of the Intermarket Surveillance Group 

(‘‘ISG’’) or with which the Exchange has in place 

a comprehensive surveillance sharing agreement. 

See Notice, supra note 3, 79 FR at 35621. 

Additionally, the Exchange represented that FINRA 

may obtain trading information regarding trading in 

the Shares from markets and other entities that are 

members of the ISG or with which the Exchange has 

in place a comprehensive surveillance sharing 

agreement. See Notice, supra note 3, 79 FR at 

35621. For a list of the current members of ISG, see 

http://www.isgportal.org/. 

105The Commission notes that these requirements 

are substantively identical to provisions applicable 

to other exchange-traded derivative securities 

products, including Managed Fund Shares under 

NASDAQ Rule 5735(d)(1)(B). See Securities 

Exchange Act Release No. 57962 (June 13, 2008), 73 

FR 35175 (June 20, 2008) (SR–NASDAQ–2008–039) 

(approving NASDAQ listing standards applicable to 

Managed Fund Shares). For a specific product 

approved for listing under NASDAQ Rule 5735, see 

Securities Exchange Act Release No. 73480 (October 

31, 2014), 79 FR 66022 (November 6, 2014) (SR– 

NASDAQ–2014–090) (approving the listing and 

trading of Shares of the Validea Market Legends 

ETF under NASDAQ Rule 5735). 

106Commentary .04 to Rule 5713 states that, prior 

to a substitute or replacement Underlying 

Benchmark being selected for the Fund, NASDAQ 

must file a related proposed rule change pursuant 

to Rule 19b–4 under the Exchange Act to continue 

trading the Paired Class Shares. 

errors.94 He argues that the products are 

not suitable for any investor.95

In response, the Exchange asserts that 

the Daily Amount is not a charge, fee, 

or amount that leaves the Fund, but 

rather is an amount applied to both 

share classes.96 The Exchange 

characterizes the Daily Amount as ‘‘one 

of the unique structural features of the 

Funds which leads to complete 

transparency of intrinsic Class Value 

entitlements.’’ 97

III. Discussion and Commission’s 

Findings 

After careful consideration, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.98 In 

particular, and as discussed further 

below, the Commission finds that the 

proposed rule change is consistent with: 

(1) The requirements of Section 6(b)(5) 

of the Act,99 which requires, among 

other things, that the Exchange’s rules 

be designed to promote just and 

equitable principles of trade; to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities; to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest; and (2) 

Section 11A(a)(1)(C)(iii) of the Act,100

which sets forth Congress’ 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. 

A. NASDAQ Rule 5713 

NASDAQ Rule 5713 sets forth 

provisions regarding the listing and 

trading of Paired Class Shares on the 

Exchange. The rule defines Paired Class 

Shares,101 establishes specific 

recordkeeping and reporting 

requirements for registered market 

makers in Paired Class Shares,102 and 

sets forth initial and continued listing 

criteria, some of which are more fully 

discussed below.103 In addition, 

Commentary .05 to Nasdaq Rule 5713 

states that the Exchange will implement 

written surveillance procedures for 

trading Paired Class Shares.104

Pursuant to NASDAQ Rule 

5713(f)(i)(B), the Exchange will obtain a 

representation from the Trust on behalf 

of each Fund that the Class Value per 

Share of each of its Up Shares and 

Down Shares will be calculated daily 

and that these Class Values per Share 

and information about the assets of the 

Fund will be made available to all 

market participants at the same time.105

NASDAQ Rule 5713(f)(ii)(B) permits the 

Exchange to suspend trading in or 

remove from listing Paired Class Shares 

whose Underlying Benchmark, or a 

substitute or replacement Underlying 

Benchmark based on the same Reference 

Asset,106 is no longer calculated or 

available on at least a 15-second delayed 

basis during the Regular Market Session 

from a major market data vendor 

unaffiliated with the sponsor, the 

custodian, the trustee of the Trust, the 

Fund, or NASDAQ. Further, NASDAQ 

Rule 5713(f)(ii)(C) permits the Exchange 

to suspend trading in or remove from 


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107The Commission notes that these provisions 

are substantively identical to the firewall 

requirements in NASDAQ Rule 5705(b)(2)(B)(i), 

which governs the listing and trading of Index Fund 

Shares. 

108See OIP, supra note 6, 79 FR at 57157. 

109 Kassner Letter, supra note 8, at 1. See also 

supra notes 45–48 and accompanying text. 

110 Id. 

111See Kassner Letter, supra note 8. 

112 Id. 

113 Id. at 2–3. 

114See Exchange Letter, supra note 8, at 17. 

115 Id. at 18. 

116 Id. at 21. 

117See id. at 20–21. 

118See id. at 21. 

119See id. at 22–23. 

120See Exchange Letter, supra note 8. 

121See Registration Statement, supra note 22. 

122See Exchange Letter, supra note 8, at 22. 

123See id. 

124 15 U.S.C. 78k–1(a)(1)(C)(iii). 

listing Paired Class Shares whose Class 

Value per Share becomes no longer 

available on a daily basis to all market 

participants at the same time. NASDAQ 

Rule 5713(f)(ii)(D) permits the Exchange 

to suspend trading in or remove from 

listing Paired Class Shares whose 

Intraday Indicative Value is no longer 

made available on at least a 15-second 

delayed basis by a major market vendor 

during the Exchange’s Regular Market 

Session. The Commission also notes 

that NASDAQ Rules 5713(f)(i)(C) and 

5713(f)(ii)(E) require the establishment 

of information barriers concerning 

changes and adjustments to the 

Underlying Benchmark.107

Based on the foregoing, the 

Commission believes that the 

requirements of NASDAQ Rule 5713, 

taken together with other NASDAQ 

Rules regarding the trading of equity 

securities on the Exchange, are 

consistent with the requirement of 

Section 6(b)(5) of the Act that requires 

that the Exchange’s rules be designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market, and to promote just and 

equitable principles of trade and to 

protect investors and the public interest. 

B. Issues Raised by the Opposing 

Commenter 

1. Effectiveness of Arbitrage 

In the OIP, the Commission asked for 

commenters’ views on the effect that 

Paired Class Share distributions would 

have on premiums and discounts 

between the trading price of the Paired 

Class Shares and their respective Class 

Value per Share.108

The opposing commenter asserts that 

the structure of Paired Class Shares will 

result in significant and persistent 

premiums and discounts because ‘‘it is 

not economically possible to construct a 

two sided market for spot exposure that 

does not trade in line with VIX futures 

prices.’’ 109 This commenter argues that 

the arbitrage mechanism of the Funds 

will not work to keep Up Shares and 

Down Shares trading close to their 

intrinsic value, but will instead ‘‘in 

theory keep the sum of the premium on 

one and the discount on the other at 

zero.’’ 110 To support these conclusions, 

the opposing commenter provides a 

number of hypothetical situations 

involving the trading relationship 

between the VIX index, VIX futures, and 

the proposed VIX Fund.111 Further, the 

opposing commenter argues that the 

‘‘daily amount’’ applied to the VIX 

Fund—a 15 basis point amount 

transferred from Up Shares to Down 

Shares when the VIX is at 30 or below— 

means that investors in Up Shares will 

suffer a 4.5% loss over a 30-day period, 

even if the VIX does not move.112 The 

opposing commenter also argues that, 

because the arbitrage mechanism will 

not work as described by the Exchange, 

multiple corrective distributions will be 

required per year, causing investors to 

incur reinvestment expenses to 

maintain their desired position.113

The Exchange argues in response that, 

underlying this commenter’s argument 

is a mistaken assumption that spot 

levels and futures levels are equivalent 

and interchangeable.114 The Exchange 

agrees that markets such as spot 

markets, futures markets, stock markets, 

and bond markets will be broadly interrelated, but argues that, in the case of 

volatility in general and VIX in 

particular, the spot market is not ‘‘in 

line’’ and directly comparable with VIX 

futures prices. The Exchange cites the 

willingness of market participants to 

trade options overlying both the spot 

VIX and VIX futures as evidence that 

the market would understand the 

differences between spot VIX and the 

range of VIX futures prices. The 

Exchange notes that the Web site of 

CBOE, the provider of the VIX, states, 

‘‘The price of a VIX futures contract can 

be lower, equal to or higher in the 30- 

day forward period covered by the VIX 

futures contract than in the 30-day spot 

period covered by VIX.’’ 115 The 

Exchange also notes that, unlike VIX 

futures, ‘‘because the shares of the Fund 

are both available for creation and 

redemption daily, the Fund provides for 

spot VIX positions to be created or 

redeemed daily, and for returns to be 

realized on a daily basis.’’ 116

Additionally, the Exchange argues 

that the existence of the Daily Amount 

applied to the VIX Fund is disclosed 

clearly and referenced more than 90 

times in the prospectus for the VIX 

Fund, and the Exchange argues that the 

amount of the Daily Amount is closely 

aligned with the estimates of several 

market experts as to the roll cost 

incurred by long positions in volatility 

futures (e.g., VIX futures).117 As a result, 

the Exchange argues, the expected 

premiums and discounts encountered 

by the VIX Fund should be substantially 

less that the opposing commenter 

predicts.118 The Exchange also argues 

that the corrective distribution 

mechanism is designed to prevent the 

type of investor losses that occurred 

when an ETN designed to track the VIX 

moved substantially away from the 

value of the VIX.119

The Commission believes that the 

Exchange has met its burden to 

demonstrate that its proposal is 

consistent with the Act. The Exchange 

has reasonably explained in the Notice, 

the Exchange’s response letter,120 and, 

as to the VIX Fund, in the Registration 

Statement for the VIX Fund,121 the 

methodology for the calculation of the 

Underlying Benchmarks and the 

differences between the value of the 

Underlying Benchmark indexes and the 

prices of the relevant near-month 

futures contracts. In particular the 

Exchange explains that, with respect to 

the VIX Fund, the purpose and 

derivation of the 0.15% Daily Amount 

by which the Up Shares will be reduced 

and the Down Shares increased, which, 

as cited by the Exchange, is consistent 

with price patterns historically observed 

when comparing VIX futures and spot 

prices.122 The Exchange further notes 

the extent to which the Registration 

Statement discloses the Daily Amount 

transfer.123 The Exchange has also 

reasonably explained the operation of 

the Funds; the creation and redemption 

process and procedures; the regular, 

special, and corrective distributions to 

be employed by the Funds; and the 

resulting resetting process. 

In addition, with respect to arbitrage 

in Fund Shares, and, consistent with 

Section 11A(a)(1)(C)(iii) of the Act,124

which sets forth Congress’ 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, the Commission notes that 

market information regarding the value 

of the Shares and of the Underlying 

Benchmarks will be continuously 

available to market participants. 


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125See Notice, supra note 3, 79 FR at 35621. 

126See id. 

127See id. 

128See id. 

129See NASDAQ Rule 5713(f)(2)(B). 

130See Notice, supra note 3, 79 FR at 35622. 

131NASDAQ Rule 5713(f)(ii)(C) is designed to 

ensure that the Class Values and Class Values per 

Share of each Fund will be made available to all 

market participants at the same time. 

132The Commission notes that these requirements 

are substantively identical to provisions applicable 

to other exchange-traded derivative securities 

products, including Managed Fund Shares under 

NASDAQ Rule 5735(d)(1)(B). 

133Commentary .04 to Rule 5713 states that, prior 

to a substitute or replacement Underlying 

Benchmark being selected for the Fund, NASDAQ 

must file a related proposed rule change pursuant 

to Rule 19b–4 under the Act to continue trading the 

Paired Class Shares. 

134Because the funds would create and redeem 

their shares only in equal amounts of Up Shares 

and Down Shares, if one class of shares traded at 

a premium, and the other class traded at an 

approximately equal discount, arbitrage using the 

creation or redemption process could not eliminate 

those price deviations. For example, if Up Shares 

traded at a $0.50 premium, and down shares traded 

at a $0.50 discount, the value per share of a creation 

unit, composed of equal amounts of each class, 

would be equal to the NAV of the fund (i.e., the 

premium would cancel out the discount). 

135See supra note 18. 

136See Notice, supra note 3, at 9, 79 FR at 35612. 

137See supra text accompanying notes 125–133. 

138See OIP, supra note 6, 79 FR at 57157. 

Quotation and last-sale information for 

the Shares will be available via 

NASDAQ proprietary quote and trade 

services, as well as in accordance with 

any UTP plans for a Fund’s Shares.125

Additionally, information regarding 

market price and volume of the Shares 

will be continually available on a realtime basis throughout the day on 

brokers’ computer screens and other 

electronic services.126 Further, 

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.127

The value of each Fund’s Underlying 

Benchmark, as well as information 

about each Fund’s Underlying 

Benchmark constituents, the weighting 

of the constituents, the Underlying 

Benchmark’s methodology, and the 

Underlying Benchmark’s rules, will be 

available at no charge on the Index 

Provider’s Web site at us.spindices.com 

or, in the case of the VIX Fund, the 

CBOE’s Web site at www.cboe.com/

VIX.128 The value of each Fund’s 

Underlying Benchmark also will be 

published by one or more major market 

data vendors on at least a 15-second 

delayed basis during the Regular Market 

Session.129 An Intraday Indicative Value 

for each Fund will be disseminated and 

made available by a major market 

vendor, and will be updated and widely 

disseminated and broadly displayed on 

at least a 15-second delayed basis 

during the Regular Market Session.130

Class Values and Class Values per Share 

of each Fund will be calculated by the 

Fund’s Custodian at the end of each 

Regular Market Session.131

Under NASDAQ Rule 5713(f)(i)(B), 

the Exchange will obtain a 

representation from the Trust on behalf 

of each Fund that the Class Value per 

Share of each of its Up Shares and 

Down Shares will be calculated daily 

and that these Class Values per Share 

and information about the assets of the 

Fund will be made available to all 

market participants at the same time.132

In addition, NASDAQ Rule 5713(f)(2)(B) 

permits the Exchange to suspend 

trading in or remove from listing Paired 

Class Shares whose Underlying 

Benchmark, or a substitute or 

replacement Underlying Benchmark 

based on the same Reference Asset,133 is 

no longer calculated or available on at 

least a 15-second delayed basis during 

the Regular Market Session from a major 

market data vendor unaffiliated with the 

sponsor, the custodian, the trustee of the 

Trust, the Fund or NASDAQ. 

The Commission believes that, in 

light of the continuous dissemination of 

information about the Shares’ current 

market prices, the Funds’ Underlying 

Benchmarks, and the Funds’ intraday 

estimated Class Value per Share, 

arbitrage opportunities will be readily 

identifiable to market participants. The 

Commission also believes that the 

creation and redemption process, 

which, under Rule 5713(c), uses a 

neutral basket of Up Shares and Down 

Shares, is reasonably designed to allow 

market participants to arbitrage away 

premiums and discounts that may 

develop, as long as the Up Shares and 

Down Shares do not become locked in 

a persistent state of approximately equal 

and opposite premiums or discounts.134

The Commission acknowledges, 

however, that the normal arbitrage 

mechanism of the Funds will not be 

effective if equal and opposite 

premiums and discounts persist 

between the Up Shares and Down 

Shares of a Fund. Because no existing 

exchange-traded products use a pairedclass structure, the Commission does 

not have a basis for comparison from 

which to predict how frequently such 

conditions are likely to occur. As noted 

above, however, the Funds would 

provide for a corrective distribution 

when the magnitude of the equal and 

opposite premiums and discounts 

exceeds a certain threshold.135 The 

Exchange has represented that, ‘‘[e]ven 

if a corrective distribution is not 

triggered, the existence of a Fund’s 

corrective distribution feature is 

expected to modify investor and 

Authorized Participant behavior to 

prevent persistent and material 

premium and discount conditions for 

Paired Class Shares from becoming 

locked.’’ 136 Based on the Exchange’s 

representation, the Commission believes 

that the corrective distribution 

mechanism is reasonably designed to 

limit the magnitude of such premiums 

and discounts and that, when triggered, 

it will provide investors with a market 

neutral position that should allow them 

to exit the affected Fund at Class Value. 

Further, the underlying value of the 

Funds and the extent of the premiums 

and discounts would not be subject to 

uncertainty, because, as explained 

above,137 the Funds’ market prices, 

Class Values per Share, and reference 

benchmark values and methodologies 

would be publicly available in real time. 

In addition, and significantly, to the 

extent that equal and opposite 

premiums and discounts persist within 

a Fund’s threshold for a corrective 

distribution, all investors in the affected 

Fund would be subject to the same 

pricing conditions, and Authorized 

Participants would not be able to use 

the creation and redemption process to 

trade in the primary market for the 

shares at prices more favorable than 

those available to investors trading at 

market prices on the Exchange. 

Thus, for the reasons described above, 

the Commission believes that the 

Exchange’s rules are reasonably 

designed to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

2. Investor Understanding and 

Suitability 

In the OIP, the Commission solicited 

comments about whether retail 

investors and other market participants 

would be able to understand the types 

and timing of distributions as well as 

the periodic resets of Paired Class 

Shares’ exposure to their Underlying 

Benchmarks.138

The opposing commenter argues that 

the operational complexity of Paired 

Class Shares renders them unsuitable 

for any investor. As discussed above, 

this commenter argues that extreme 

diligence would be required of investors 

in tracking their positions because the 

Up Shares might frequently turn into 

both Up Shares and Down Shares, and 

that investors would need to know a 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 9787 

139See Kassner Letter, supra note 8, at 3–4. 

140Specifically, the Sponsor states that for 

comparable ETPs that seek commodity or volatility 

exposure through trading in derivative products, 

the impact of resetting comes through the ‘‘retrading’’ of futures, options, or other contracts. 

These ETFs effect the resetting either daily, 

monthly, or on another cycle. This conventional 

resetting has transaction costs, which are often 

difficult to isolate within the context of overall fund 

performance. The Sponsor adds that, since the 

traditional method of resetting is accomplished 

through the trading of underlying positions at 

telegraphed times under prescribed fund rules, 

ETFs can be disadvantaged from having to be a 

‘‘price taker’’ in possibly adverse or challenging 

markets. The Sponsor asserts that these resetting 

considerations in these other types of ETPs are well 

known by retail investors. See Sponsor Letter, supra 

note 8, at 7–8. 

141See id. at 8–9. 

142The Exchange has represented that the 

information circular will discuss (a) the procedures 

for purchases and redemptions of Paired Class 

Shares; (b) Rule 2111A, which imposes suitability 

obligations on Exchange members with respect to 

recommending transactions in Paired Class Shares 

to customers; (c) how information regarding the 

Underlying Benchmark and Intraday Indicative 

Value is disseminated; (d) the risks involved in 

trading Paired Class Shares during the Pre-Market 

and Post-Market sessions when an updated 

Underlying Benchmark and Intraday Indicative 

Value will not be calculated or publicly 

disseminated; (e) the requirement that members 

deliver a prospectus to investors purchasing newly 

issued Paired Class Shares; (g) trading information; 

and (h) how information regarding distributions 

and share splits is disseminated and the 

requirements of public notification of these events. 

143With respect to regular distributions, the 

information provided will consist of the schedule 

of distributions and associated distribution dates, 

and a notification, as of the record date for such 

regular distribution, on the Sponsor’s Web site 

(www.AccuShares.com) as to whether or not the 

regular distribution will occur. See Notice, supra 

note 3, 79 FR at 35620. For regular distributions 

that occur on schedule, the Sponsor will cause a 

press release to be issued identifying the receiving 

class, the amount of cash, the amount of Paired 

Class Shares (if any), and any other information the 

Sponsor deems relevant regarding the distribution 

and post such information on the Sponsor’s Web 

site. See id. 

144With respect to special distributions, 

corrective distributions, and share splits, the 

information provided will include the relevant 

ex-, record, and payment dates for each such event 

and relevant data concerning each such event. In 

addition, notice of net income distributions for each 

class of a Fund, if any, will also be included in the 

notifications of regular, special, and corrective 

distributions. See id. 

145The Exchange may determine that longer 

notice is advisable in some circumstances (e.g., an 

extended, or unexpected, market break). See id. at 

35620, n.46. 

considerable amount of information at 

every point in time when holding 

Shares.139

The Sponsor asserts that retail 

investors and other market participants 

will be able to understand the types and 

timing of fund distributions. The 

Sponsor states that the Registration 

Statement contains detailed examples, 

and the Funds’ Web site will contain 

infographics describing each 

distribution, as well as the courses of 

action available to investors. According 

to the Sponsor, distributions will 

generally be limited to scheduled dates 

or the occurrence of large and rare 

underlying index moves, and 

movements of the underlying indexes 

will be easy to track using public 

sources. The Sponsor states that the 

consensus of qualified investors and 

market makers to whom it has spoken 

is that the frequency of the Funds’ 

distributions is consistent with 

customary review (e.g., monitoring 

prices and returns) and customary reevaluation of share positions. 

Additionally, the Sponsor states that, 

except in limited and unanticipated 

conditions which are identified in the 

Registration Statement, regular and 

special distributions will be made to 

shareholders in cash, and therefore 

investors generally will face a 

straightforward decision with respect to 

deploying or maintaining received cash. 

With respect to corrective distributions 

(in which a fund would issue each 

holder of Up Shares an equal number of 

Down Shares, and each holder of Down 

Shares an equal number of Up Shares), 

the Sponsor asserts that such 

distributions are expected to be rare and 

to encourage among Authorized 

Participants both more active and 

accurate market making and more 

liquidity-enhancing position-taking. The 

Sponsor also argues that corrective 

distributions, as a self-policing and selfcorrecting measure, are a better 

alternative to detailed disclosures about 

premiums and discounts in 

prospectuses, which investors may not 

necessarily read and which would 

require affirmative investor action, and 

the dissemination of real-time estimates 

of indicative portfolio values, which 

investors may not necessarily consider 

before transacting in other types of ETP 

shares. Further, the Sponsor states that 

prospective investors to whom it has 

spoken believe that the corrective 

distribution will benefit the entire range 

of shareholders. 

With respect to the resets, the Sponsor 

states that the Funds are similar to 

comparable ETPs in the market and that 

it expects that both retail investors and 

other market participants will 

understand the effect of Paired Class 

Share resets on their investments.140

The Sponsor also asserts that individual 

investors will be able to more easily 

track and monitor Paired Class Share 

resets than the resetting impact in other 

types of ETPs. 

The Sponsor also argues that the 

Exchange’s sales practice rules 

adequately ensure the suitability of sales 

recommendations regarding the Funds’ 

Shares, citing NASDAQ Rule 2111A, 

which requires that an exchange 

member have a reasonable basis to 

believe that a recommended transaction 

or investment strategy is suitable for a 

given customer, based on information 

obtained through reasonable 

diligence.141 Additionally, the Sponsor 

notes that, before trading in the Shares 

begins, the Exchange will inform its 

members in an information circular of 

the special characteristics and risks 

associated with trading Paired Class 

Shares.142

The Commission notes that the 

Exchange’s suitability rule, NASDAQ 

Rule 2111A, requires that Exchange 

members and associated persons of a 

member comply with Financial Industry 

Regulatory Authority (‘‘FINRA’’) Rule 

2111, which requires member firms and 

their associated persons to ‘‘have a 

reasonable basis to believe’’ that a 

transaction or investment strategy 

involving securities that they 

recommend is suitable for the customer. 

Specifically, this reasonable belief must 

be based on the information obtained 

through the reasonable diligence of the 

firm or associated person to ascertain 

the customer’s investment profile. The 

rule requires firms and associated 

persons to seek to obtain information 

about the customer’s age; other 

investments; financial situation and 

needs, which might include questions 

about annual income and liquid net 

worth; tax status, such as marginal tax 

rate; investment objectives, which might 

include generating income, funding 

retirement, buying a home, preserving 

wealth, or market speculation; 

investment experience; investment time 

horizon, such as the expected time 

available to achieve a particular 

financial goal; liquidity needs, which is 

the customer’s need to convert 

investments to cash without incurring 

significant loss in value; and risk 

tolerance, which is a customer’s 

willingness to risk losing some or all of 

the original investment in exchange for 

greater potential returns. 

Additionally, the Commission notes 

that the Funds will issue specific, 

public notifications regarding the 

unique distributions that the Funds 

would provide. Each Fund engaging in 

a regular distribution,143 a special 

distribution, a corrective distribution, or 

a net income distribution 144 will 

provide at least three business days’ 

advance notice (or longer advance 

notice as may be required by the 

Exchange) 145 of such an event. Each 

Fund engaging in a share split will 

provide at least ten calendar days’ 

advance notice (or longer advance 


tkelley on DSK3SPTVN1PROD with NOTICES
9788 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices 

146See id. 

147This approval order is based on all of the 

Exchange’s representations, including those set 

forth above and in the Notice. 

148 15 U.S.C. 78s(b)(2). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73965 

(December 30, 2014), 80 FR 585 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange amended 

the proposed rule change to note that all of the 

exchange listed investment company securities and 

futures in which the Fund will invest will trade on 

markets that are a member of the Intermarket 

Surveillance Group (‘‘ISG’’) or with which the 

Exchange has in a place a comprehensive 

surveillance sharing agreement. Amendment No. 1 

provided clarification to the proposed rule change, 

and because it does not materially affect the 

substance of the proposed rule change or raise 

novel or unique regulatory issues, Amendment No. 

1 is not subject to notice and comment. 

5See Registration Statement on Form N–1A for 

the Trust, dated April 21, 2014 (File Nos. 333– 

179904 and 811–22649) (‘‘Registration Statement’’). 

In addition, the Exchange states that the Trust has 

obtained certain exemptive relief under the 

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

Investment Company Act Release No. 29571 

(January 24, 2011) (File No. 812–13601) 

(‘‘Exemptive Order’’). 

6BlackRock Fund Advisors is an indirect wholly 

owned subsidiary of BlackRock, Inc. 

7BATS Rule 14.11(i)(7) provides that, if the 

investment adviser to the investment company 

issuing Managed Fund Shares is affiliated with a 

broker-dealer, the investment adviser shall erect a 

firewall between the investment adviser and the 

broker-dealer with respect to access to information 

concerning the composition of or changes to the 

investment company portfolio. In addition, Rule 

14.11(i)(7) further requires that personnel who 

make decisions on the investment company’s 

portfolio composition must be subject to procedures 

designed to prevent the misuse and dissemination 

of material nonpublic information regarding the 

applicable investment company portfolio. The 

Exchange states that, in the event that (a) the 

Adviser becomes registered as a broker-dealer or 

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

adviser or sub-adviser is a registered broker-dealer 

or becomes affiliated with a broker-dealer, such 

adviser or sub-adviser will implement a firewall 

with respect to its relevant personnel or such 

broker-dealer affiliate, as applicable, regarding 

access to information concerning the composition 

of or changes to the portfolio, and will be subject 

to procedures designed to prevent the use and 

dissemination of material non-public information 

regarding the portfolio. 

8The Commission notes that additional 

information regarding the Fund, the Trust, and the 

Shares, including investment strategies, risks, 

creation and redemption procedures, fees, portfolio 

holdings disclosure policies, distributions, and 

taxes, among other things, can be found in the 

Notice and the Registration Statement, as 

applicable. See Notice, supra note 3, and 

Registration Statement, supra note 5, respectively. 

notice as may be required by the 

Exchange) 146 of such an event. In each 

instance, the Sponsor will notify the 

Exchange and post a notice of the event 

and its details on the Sponsor’s Web 

site. 

The Commission further notes that 

the prospectus disclosures for the Funds 

state prominently that the Funds are not 

suitable for all investors, and include 

the following disclosures: (1) Stating 

that the funds may not be suitable for 

all investors; (2) describing the effect of 

distributions on an investor’s exposure; 

and (3) stating that ‘‘Investors who do 

not intend to actively manage and 

monitor their Fund investments at least 

as frequently as each distribution date 

should not buy shares of the Fund.’’ 

(Emphasis in original.) 

Based on all of the foregoing, the 

Commission believes that the Exchange 

has adequately responded to the 

opposing commenter’s concerns about 

investor understanding and suitability, 

and that the Exchange’s proposal is 

consistent with the public interest and 

the protection of investors. 

For the foregoing reasons, the 

Commission finds that the Exchange’s 

proposal to adopt NASDAQ Rule 5713 

and to list and trade the Funds pursuant 

to that rule is consistent with the Act 

and the rules and regulations 

thereunder applicable to a national 

securities exchange.147

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,148 that the 

proposed rule change (SR–NASDAQ– 

2014–065), as modified by Amendment 

No. 1 thereto, be, and it hereby is, 

approved. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–03713 Filed 2–23–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74297; File No. SR–BATS– 

2014–056] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Order Granting 

Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1 

Thereto, To List and Trade Shares of 

the iShares U.S. Fixed Income 

Balanced Risk ETF of the iShares U.S. 

ETF Trust Under Rule 14.11(i) 

February 18, 2015. 

I. Introduction 

On December 19, 2014, BATS 

Exchange, Inc. (‘‘BATS’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

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

Rule 19b–4 thereunder,2 a proposed rule 

change to list and trade the shares 

(‘‘Shares’’) of the iShares U.S. Fixed 

Income Balanced Risk ETF (‘‘Fund’’) 

under BATS Rule 14.11(i). The 

proposed rule change was published for 

comment in the Federal Register on 

January 6, 2015.3 On February 12, 2015, 

BATS filed Amendment No. 1 to the 

proposal.4 The Commission received no 

comments on the proposal. This order 

grants approval of the proposed rule 

change, as modified by Amendment No. 

1 thereto. 

II. Description of the Proposed Rule 

Change 

A. The Exchange’s Proposal 

The Exchange proposes to list and 

trade Shares of the Fund under BATS 

Rule 14.11(i), which governs the listing 

and trading of Managed Fund Shares on 

the Exchange. The Shares will be 

offered by the iShares U.S. ETF Trust 

(‘‘Trust’’), a Delaware statutory trust, 

which is registered with the 

Commission as an open-end investment 

company.5

BlackRock Fund Advisors will be the 

investment adviser (‘‘BFA’’ or 

‘‘Adviser’’) to the Fund.6 The Exchange 

represents that the (i) Adviser is not a 

registered broker-dealer, but is affiliated 

with multiple broker-dealers and has 

implemented fire walls with respect to 

such broker dealer affiliates regarding 

access to information concerning the 

composition of or changes to the Fund’s 

portfolio, and (ii) Adviser personnel 

who make decisions regarding the 

Fund’s portfolio are subject to 

procedures designed to prevent the use 

and dissemination of material 

nonpublic information regarding the 

Fund’s portfolio.7 BlackRock 

Investments, LLC serves as the 

distributor of the Fund’s Shares, and 

State Street Bank and Trust Company is 

the administrator, custodian, and 

transfer agent for the Trust. 

B. The Exchange’s Description of the 

Fund 

The Exchange has made the following 

additional representations and 

statements in describing the Fund and 

its investment strategy, including 

portfolio holdings and investment 

restrictions.8


tkelley on DSK3SPTVN1PROD with NOTICES