1062 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 

26 17 CFR 240.19b–4(f)(6)(iii). 

27For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 28 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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). There are already multiple 

actively-managed funds listed on the Exchange. 

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

80946 (June 15, 2017), 82 FR 28126 (June 20, 2017) 

(SR–NASDAQ–2017–039) (order approving listing 

and trading of Guggenheim Limited Duration ETF); 

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

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

listing and trading of First Trust Equity Market 

Neutral ETF); 78443 (July 29, 2016), 81 FR 51517 

(August 4, 2016) (SR–NASDAQ–2016–064) (order 

approving listing and trading of First Trust Strategic 

Mortgage REIT ETF); 71913 (April 9, 2014), 79 FR 

21333 (April 15, 2014) (SR–NASDAQ–2014–019) 

(order approving listing and trading of First Trust 

Managed Municipal ETF); 69464 (April 26, 2013), 

78 FR 25774 (May 2, 2013) (SR–NASDAQ–2013– 

036) (order approving listing and trading of First 

Trust Senior Loan Fund); 66489 (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); see also filings for similar ETFs listed on 

other national securities exchanges: Securities 

Exchange Act Release Nos. 80657 (May 11, 2017) 

82 FR 22702 (May 17, 2017) (SR–NYSE Arca–2017– 

09) (order approving listing and trading of Janus 

Short Duration Income ETF); 79683 (December 23, 

2016), 81 FR 96539 (December 30, 2016) (SR– 

NYSEArca–2016–82) (order approving listing and 

trading of JPMorgan Diversified Event Driven ETF); 

77904 (May 25, 2016), 81 FR 35101 (SR–NYSE 

Arca–2016–17) (order approving listing and trading 

of JPMorgan Diversified Alternative ETF); 68870 

the date of the filing. However, Rule 

19b–4(f)(6)(iii) 26 permits the 

Commission to designate a shorter time 

if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has asked the 

Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Exchange notes that the 

proposal will promote consistency 

between the Exchange and its affiliated 

exchanges, and is part of a larger 

technology integration that will 

ultimately reduce complexity for Users 

of the Exchange that are also 

participants on other Cboe Affiliated 

Exchanges. The Exchange further notes 

that allowing the Exchange to move 

forward with the proposed changes 

without an operative delay will ensure 

that the technology integration can 

continue with periodic but measured 

changes rather than implementing 

several changes at once. Furthermore, 

the Exchange states that the 

implementation of the risk controls will 

help to avoid potentially erroneous 

executions. The Commission believes 

that waiver of the 30-day operative 

delay is consistent with the protection 

of investors and the public interest. 

Accordingly, the Commission hereby 

waives the operative delay and 

designates the proposed rule change as 

operative upon filing.27

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: (1) Necessary or appropriate in 

the public interest; (2) for the protection 

of investors; or (3) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

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– 

CboeEDGX–2017–009 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–CboeEDGX–2017–009. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CboeEDGX–2017–009 and 

should be submitted on or before 

January 30, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00160 Filed 1–8–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82439; File No. SR– 

NASDAQ–2017–128] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change To 

List and Trade the Shares of the 

Western Asset Total Return ETF 

January 3, 2018. 

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 

20, 2017, The Nasdaq Stock Market LLC 

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

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. 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 

The Exchange proposes to list and 

trade the shares of the Western Asset 

Total Return ETF (the ‘‘Fund’’), a series 

of Legg Mason ETF Investment Trust 

(the ‘‘Trust’’) under Nasdaq Rule 5735 

(‘‘Managed Fund Shares’’).3 The shares 


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Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 1063 

(February 8 2013), 78 FR 11245 (February 15, 2013) 

(SR–NYSEArca–2012–139) (order approving listing 

and trading of First Trust Preferred Securities and 

Income ETF). The Exchange believes the proposed 

rule change raises no significant issues not 

previously addressed in those prior Commission 

orders. 

4A Managed Fund Share is a security that 

represents an interest in an investment company 

registered as an investment company under the 

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

1) (the ‘‘1940 Act’’) organized as an open-end 

investment company or similar entity that invests 

in a portfolio of securities selected by its investment 

adviser consistent with its investment objective and 

policies. In contrast, an open-end investment 

company that issues Index Fund Shares, listed and 

traded on the Exchange under Nasdaq Rule 5705, 

seeks to provide investment results that correspond 

generally to the price and yield performance of a 

specific foreign or domestic stock index, fixed 

income securities index or combination thereof. 

5The Commission has issued an order, upon 

which the Trust may rely, granting certain 

exemptive relief under the 1940 Act. See 

Investment Company Act Release No. 32391 

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

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

2012, the staff of the Commission’s Division of 

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

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

Elizabeth G. Osterman, Associate Director, Office of 

Exemptive Applications, Division of Investment 

Management. The No-Action Letter stated that the 

Division would not recommend enforcement action 

to the Commission under applicable provisions of 

and rules under the 1940 Act if actively-managed 

ETFs operating in reliance on specified orders 

(which include the Exemptive Relief) invest in 

options contracts, futures contracts or swap 

agreements provided that they comply with certain 

representations stated in the No-Action Letter. 

6See, e.g., Securities Exchange Act Release Nos. 

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

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

approval for the listing of shares of the Guggenheim 

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

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

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

of the PIMCO Total Return Exchange Traded Fund 

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

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

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund); see 

also infra note 60. 

7See Post-Effective Amendment No. 27 to the 

Registration Statement on Form N–1A for the Trust 

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

August 8, 2017. The Trust will file an amendment 

to the Registration Statement as necessary to 

conform to the representations in this filing. The 

descriptions of the Fund and the Shares contained 

herein are based, in part, on information in the 

Registration Statement. 

8The Sub-Adviser is responsible for the day-today management of the Fund and, as such, typically 

makes all decisions with respect to portfolio 

holdings. The Manager has ongoing oversight 

responsibility. 

9Each of the Sub-Sub-Advisers provides advisory 

services to the Fund relating to the Fund’s 

investments. Sub-Sub-Advisers advise primarily on 

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

portfolio instruments held by the Fund that are 

traded in other regions. Western Asset London 

generally advises on the Fund’s portfolio holdings 

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

and currencies (including through ETFs and 

derivative instruments that provide exposure to 

those instruments and currencies); Western Asset 

Japan generally advises on the Fund’s portfolio 

holdings in Japanese investment instruments and 

currencies (including through ETFs and derivative 

instruments that provide exposure to those 

instruments and currencies); and Western Asset 

Singapore generally advises on the Fund’s portfolio 

holdings in non-Japan, Asian investment 

instruments and currencies (including through 

ETFs and derivative instruments that provide 

exposure to those instruments and currencies). 

10An investment adviser to an investment 

company is required to be registered under the 

Investment Advisers Act of 1940 (the ‘‘Advisers 

Act’’). As a result, the Manager and the SubAdvisers and their related personnel are subject to 

the provisions of Rule 204A–1 under the Advisers 

Act relating to codes of ethics. Rule 204A–1 

requires investment advisers 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. 

of the Fund are collectively referred to 

herein as the ‘‘Shares.’’ 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

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 4 on the Exchange. The Fund will 

be an exchange-traded fund (‘‘ETF’’) 

that is actively managed. The Shares 

will be offered by the Trust, which was 

established as a Maryland statutory trust 

on June 8, 2015.5 The Exchange notes 

that other actively-managed, broad 

market fixed-income ETFs have been 

previously approved by the SEC prior to 

the adoption of ‘‘generic’’ listing 

standards for actively-managed ETFs.6

The Trust is registered with the 

Commission as an investment company 

under the 1940 Act and has filed a 

registration statement on Form N–1A 

(‘‘Registration Statement’’) with the 

Commission with respect to the Fund.7

The Fund will be a series of the Trust. 

The Fund intends to qualify each year 

as a regulated investment company 

(‘‘RIC’’) under Subchapter M of the 

Internal Revenue Code of 1986, as 

amended. 

Legg Mason Partners Fund Advisor, 

LLC will be the investment manager 

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

Management Company will serve as the 

sub-adviser to the Fund (the ‘‘SubAdviser’’) 8 and Western Asset 

Management Company Limited in 

London (‘‘Western Asset London’’), 

Western Asset Management Company 

Pte. Ltd. in Singapore (‘‘Western Asset 

Singapore’’) and Western Asset 

Management Company Ltd in Japan 

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

as the sub-sub-advisers to the Fund 

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

and each, a ‘‘Sub-Sub-Adviser’’).9

Hereinafter, references to ‘‘Sub-Adviser’’ 

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

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

distributor of the Fund’s Shares. The 

Manager, each of the Sub-Advisers and 

the Distributor are wholly-owned 

subsidiaries of Legg Mason, Inc. (‘‘Legg 

Mason’’). An entity that is not affiliated 

with Legg Mason, and which is named 

in the Registration Statement, will act as 

the administrator, accounting agent, 

custodian, and transfer agent to the 

Fund. 

Paragraph (g) of Rule 5735 provides 

that if the investment adviser to the 

investment company issuing Managed 

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

erect and maintain a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.10 In addition, 

paragraph (g) further requires that 

personnel who make decisions on the 

investment company’s portfolio 

composition must be subject to 

procedures designed to prevent the use 

and dissemination of material, nonVerDate Sep<11>2014 15:58 Jan 08, 2018 Jkt 244001 PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 E:\FR\FM\09JAN1.SGM 09JAN1

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11The average effective duration of the Fund may 

fall outside of its expected range due to market 

movements. If this happens, the Sub-Advisers will 

take action to bring the Fund’s average effective 

duration back within its expected range within a 

reasonable period of time. 

12The term ‘‘Normal Market Conditions’’ has the 

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

Fund may vary from ordinary parameters on a 

temporary basis, including for defensive purposes, 

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

period following the commencement of trading of 

Shares on the Exchange) and during periods of high 

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

seven calendar days during which inflows or 

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

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

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

the Fund may depart from its principal investment 

strategies and may, for example, hold a higher than 

normal proportion of its assets in cash and cash 

equivalents. During such periods, the Fund may not 

be able to achieve its investment objective. The 

Fund may also adopt a defensive strategy and hold 

a significant portion of its assets in cash and cash 

equivalents when the Manager or any Sub-Adviser 

believes securities, Debt and other instruments in 

which the Fund normally invests have elevated 

risks due to political or economic factors, 

heightened market volatility or in other 

extraordinary circumstances that do not constitute 

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

investments in cash equivalents are described in 

greater detail in note 22 infra. 

13As noted below, the Fund will not invest more 

than 30% of its total assets in fixed income or 

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

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

dollar denominated fixed income or equity 

securities or Debt. As a result, although the Fund 

does intend to invest in foreign instruments 

described above, the size of such investments will 

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

14The ETFs in which the Fund may invest 

include Index Fund Shares (as described in Nasdaq 

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

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

Fund Shares (as described in Nasdaq Rule 5735). 

The Fund will not invest in ETFs that are not 

registered as investment companies under the 1940 

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

income securities, Debt and money-market 

instruments to which the Fund seeks exposure. All 

such ETFs will trade in markets that are members 

of the ISG or exchanges that are parties to a 

comprehensive surveillance sharing agreement with 

the Exchange. The Fund will not invest in leveraged 

ETFs, inverse ETFs, or inverse leveraged ETFs. 

Other fixed-income funds have been approved to 

include ETFs in their 80% principal investment 

category. See, e.g., Securities Exchange Act Release 

No. 80946 (June 15, 2017), 82 FR 28126 (June 20, 

2017) (SR–NASDAQ–2017–039) (approving fund 

seeking to meet its investment objective of having 

at least 80% of net assets invested in a portfolio of 

debt instruments in part through investments in 

ETFs that invest substantially all of their assets in 

such debt instruments). 

15 Derivatives will include: (i) Swaps and 

security-based swaps, futures, options, options on 

futures, and swaptions that are traded on an 

exchange, trading facility, swap execution facility 

or alternative trading system (A) that is a member 

of the Intermarket Surveillance Group (‘‘ISG’’), 

which includes all U.S. national securities 

exchanges and most futures exchanges, (B) that is 

subject to a comprehensive surveillance sharing 

agreement with the Exchange, or (C) that is not an 

ISG member and with which the Exchange does not 

have a comprehensive surveillance sharing 

agreement (‘‘Exchange-Traded Derivatives’’); and 

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

options on futures, swaptions, forwards and similar 

instruments that are traded in the over-the-counter 

market and are either centrally cleared or cleared 

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

below. For the purposes of describing the scope of 

the Fund’s potential investments in derivatives, the 

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

have the meanings set forth in the Commodity 

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

Act, Public Law No. 111–203, 124 Stat. 1376 (2010) 

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

references to swaps and forwards on foreign 

exchange or currencies shall include ‘‘foreign 

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

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

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

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

swaps or security-based swaps, shall include swaps 

and security-based swaps that are executed on swap 

execution facilities and security-based swap 

execution facilities and cleared through regulated, 

central clearing facilities. For purposes of the 80% 

principal investments measure, the Fund will value 

derivatives based on the mark-to-market value or 

exposure of such derivatives. This approach is 

consistent with the valuation methodology for asset 

coverage purposes in Rule 18f–4 under the 1940 Act 

proposed by the Commission. See Investment 

Company Act Release No. 31933 (December 11, 

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

‘‘Derivatives Rule Proposing Release’’); see also 

infra note 75. Not more than 10% of the net assets 

of the Fund will be invested in Exchange-Traded 

Derivatives whose principal market is not a member 

of ISG or is a market with which the Exchange does 

not have a comprehensive surveillance sharing 

agreement. 

16See also ‘‘The Fund’s Use of Derivatives,’’ 

infra. 

17Work Out Securities will generally be traded in 

the OTC market or may be listed on an exchange 

that may or may not be an ISG member. 

18See Nasdaq Rule 5735(b)(1)(B). 

public information regarding the 

investment company’s portfolio. 

Rule 5735(g) is similar to Nasdaq Rule 

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

in connection with the establishment 

and maintenance of a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer reflects the applicable 

investment company’s portfolio, not an 

underlying benchmark index, as is the 

case with index-based funds. None of 

the Manager or any of the Sub-Advisers 

is a broker-dealer, but each is affiliated 

with the Distributor, a broker-dealer, 

and has implemented and will maintain 

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

information concerning proposed 

changes to the composition and/or 

changes to the portfolio prior to 

implementation. 

In addition, personnel who make 

decisions on the Fund’s portfolio 

composition will be subject to 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding the Fund’s 

portfolio. In the event (a) the Manager 

or any of the Sub-Advisers registers as 

a broker-dealer or becomes newly 

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

new manager or sub-adviser to the Fund 

is a registered broker-dealer or becomes 

affiliated with another broker-dealer, it 

will implement and maintain a fire wall 

with respect to its relevant personnel 

and/or such broker-dealer affiliate, as 

applicable, regarding access to 

information concerning proposed 

changes to the composition and/or 

changes to the Fund’s portfolio prior to 

implementation and will be subject to 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding such 

portfolio. 

Western Asset Total Return ETF 

Principal Investments 

The investment objective of the Fund 

will be to seek to maximize total return, 

consistent with prudent investment 

management and liquidity needs. 

Although the Fund may invest in 

securities and Debt (as defined below) of 

any maturity, the Fund will normally 

maintain an average effective duration 

within 35% of the average duration of 

the U.S. bond market as a whole 

(generally, this bond market range is 2.5 

to 7 years) as estimated by the SubAdviser.11 Effective duration seeks to 

measure the expected sensitivity of 

market price to changes in interest rates, 

taking into account the anticipated 

effects of structural complexities (for 

example, some bonds can be prepaid by 

the issuer). 

Under Normal Market Conditions,12

the Fund will seek to achieve its 

investment objective by investing at 

least 80% of its net assets in a portfolio 

comprised of U.S. or foreign fixed 

income securities; U.S. or foreign Debt 

(as defined below); 13 ETFs 14 that 

provide exposure to such U.S. or foreign 

fixed income securities, Debt or other 

Principal Investments (defined below); 

derivatives 15 that (i) provide exposure 

to such U.S. or foreign fixed income 

securities, Debt and other Principal 

Investments, (ii) are used to risk manage 

the Fund’s holdings, or (iii) are used to 

enhance returns, such as through 

covered call strategies; 16 U.S. or foreign 

equity securities of any type acquired in 

reorganizations of issuers of fixed 

income securities or Debt held by the 

Fund (‘‘Work Out Securities’’); 17 U.S. or 

foreign non-convertible preferred 

securities (other than trust preferred 

securities, which the Fund may invest 

in but which are treated as fixed income 

securities 18) (‘‘Non-Convertible 


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19Non-convertible preferred stock, such as that 

comprising the Non-Convertible Preferred 

Securities, provide holders with a fixed or variable 

distribution and a status upon bankruptcy of the 

issuer that is subordinated to debt holders but 

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

either an ISG member exchange (or an exchange 

with which the Exchange has a comprehensive 

surveillance sharing agreement) or a non-ISG 

member exchange or be unlisted and trade in the 

over-the-counter market. 

20Warrants are securities that provide the holder 

with the right to purchase specified securities of the 

issuer of the warrants at a specified exercise price 

until the expiration date of the warrant. The Fund 

may hold warrants that provide the right to 

purchase fixed income securities or equity 

securities, and such warrants may be traded in the 

OTC market or may be listed on an exchange, 

including an exchange that is not an ISG member. 

The Fund expects that most of the warrants it holds 

will be attached to related fixed income securities. 

21The Fund’s interests in Equity-Related 

Warrants are similar to the Fund’s interest in Work 

Out Securities in that they reflect interests in equity 

securities that are held solely in connection with 

investments in fixed income securities. 

22Cash equivalents consist of the following, all of 

which have maturities of less than three months: 

U.S. government securities; certificates of deposit 

issued against funds deposited in a bank or savings 

and loan association; bankers’ acceptances (which 

are short-term credit instruments used to finance 

commercial transactions); repurchase agreements 

and reverse repurchase agreements; and bank time 

deposits (which are monies kept on deposit with 

banks or savings and loan associations for a stated 

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

equivalents also consist of money market funds 

registered under the 1940 Act and money market 

funds that are not registered under the 1940 Act but 

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

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

ETFs and commercial paper, which are short-term 

unsecured promissory notes, having maturities of 

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

Fund treats commercial paper with maturities of 

three months or greater as cash equivalents for the 

purposes of the 80% principal investments 

measure, the Fund will apply the definition of cash 

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

limited to instruments with maturities of less than 

three months) for purposes of compliance with 

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

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

with respect to all commercial paper held by the 

Fund. Investments in cash equivalents that are 

Money Market Funds will be made in accordance 

with Rule 12d1–1 under the 1940 Act. 

23The Manager and Sub-Advisers will manage 

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

Warrants and Work Out Securities (which are 

generally traded solely in the over-the-counter 

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

net assets. 

24Brady Bonds are debt securities issued under 

the framework of the Brady Plan as a means for 

debtor nations to restructure their outstanding 

external indebtedness. 

25A supranational entity is a bank, commission 

or company established or financially supported by 

the national governments of one or more countries 

to promote reconstruction or development. 

26MBS include collateralized mortgage 

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

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

collateralized by Ginnie Mae, Fannie Mae or 

Freddie Mac Certificates, but may also be 

collateralized by whole loans or pass-through 

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

other than government agencies or governmentsponsored entities) (referred to as ‘‘Mortgage 

Assets’’). Payments of principal and of interest on 

the Mortgage Assets, and any reinvestment income 

thereon, provide the funds to pay debt service on 

the CMOs. In a CMO, a series of bonds or 

certificates is issued in multiple classes. Each class 

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

securities, is issued at a specified fixed or floating 

coupon rate and has a stated maturity or final 

distribution date. 

27ABS include collateralized debt obligations 

(‘‘CDOs’’). CDOs include collateralized bond 

obligations (‘‘CBOs’’), collateralized loan 

obligations (‘‘CLOs’’) and other similarly structured 

securities. A CBO is a trust or other special purpose 

entity that is typically backed by a diversified pool 

of fixed income securities (which may include high 

risk, below investment grade securities). A CLO is 

a trust or other special purpose entity that is 

typically collateralized by a pool of loans, which 

may also include, among others, domestic and nonU.S. senior secured loans, senior unsecured loans, 

and subordinated corporate loans, including loans 

that may be rated below investment grade or 

equivalent unrated loans, as well as loans that rank 

senior to the borrower’s traditional debt obligations. 

Like CMOs, CDOs generally issue separate series or 

‘‘tranches’’ of securities, which vary with respect to 

risk and yield. 

Preferred Securities’’); 19 warrants 20 on 

U.S. or foreign fixed income securities; 

warrants on U.S. or foreign equity 

securities that are attached to, 

accompany or are purchased alongside 

investments in U.S. or foreign fixed 

income securities issued by the issuer of 

the warrants (‘‘Equity-Related 

Warrants’’); 21 cash and cash 

equivalents; 22 and foreign currencies 

(together, the ‘‘Principal Investments’’ 

and the equity elements of the Principal 

Investments, which consist of Work Out 

Securities, ETFs that provide exposure 

to fixed income securities, Debt or other 

Principal Investments, Equity-Related 

Warrants and Non-Convertible Preferred 

Securities, are referred to as the 

‘‘Principal Investment Equities’’).23

The Manager or Sub-Advisers (as 

applicable) may select from any of the 

following types of fixed income 

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

debt securities, including notes, bonds, 

debentures, trust preferred securities, 

and commercial paper issued by 

corporations, trusts, limited 

partnerships, limited liability 

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

government securities, including 

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

government, its agencies or governmentsponsored entities; (iii) sovereign debt 

securities, which include fixed income 

securities issued by governments, 

agencies or instrumentalities and their 

political subdivisions, securities issued 

by government-owned, controlled or 

sponsored entities, interests in entities 

organized and operated for the purpose 

of restructuring the investment 

instruments issued by such entities, 

Brady Bonds,24 and fixed income 

securities issued by supranational 

entities such as the World Bank; 25 (iv) 

U.S. or foreign mortgage-backed 

securities (‘‘MBS’’), which are securities 

that represent direct or indirect 

participations in, or are collateralized by 

and payable from, mortgage loans 

secured by real property and which may 

be issued by private issuers, by 

government-sponsored entities such as 

Fannie Mae (formally known as the 

Federal National Mortgage Association) 

or Freddie Mac (formally known as the 

Federal Home Loan Mortgage 

Corporation) or by agencies of the U.S. 

government, such as the Government 

National Mortgage Association (‘‘Ginnie 

Mae’’); 26 (v) U.S. or foreign asset-backed 

securities (‘‘ABS’’), which represent 

participations in, or are secured by and 

payable from, assets such as installment 

sales or loan contracts, leases, credit 

card receivables and other categories of 

receivables other than real estate; 27 (vi) 

municipal securities, which include 

general obligation bonds, revenue 

bonds, housing authority bonds, private 

activity bonds, industrial development 

bonds, residual interest bonds, tender 

option bonds, tax and revenue 

anticipation notes, bond anticipation 

notes, tax-exempt commercial paper, 

municipal leases, participation 

certificates and custodial receipts; (vii) 

zero coupon securities, which are 

securities that pay no interest during the 

life of the obligation but are issued at 

prices below their stated maturity value; 

(viii) pay-in-kind securities, which have 

a stated coupon, but the interest is 

generally paid in the form of obligations 

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

than in cash; (ix) deferred interest 

securities, which are obligations that 

generally provide for a period of delay 

before the regular payment of interest 

begins and are issued at a significant 

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

foreign structured notes and indexed 

securities, including securities that have 

demand, tender or put features, or 

interest rate reset features; and (xi) U.S. 

or foreign inflation-indexed or inflationprotected securities, which are fixed 

income securities that are structured to 

provide protection against inflation and 

whose principal value or coupon is 

periodically adjusted according to the 

rate of inflation and which include, 

among others, U.S. Treasury Inflation 

Protected Securities. The securities may 

pay fixed, variable or floating rates of 

interest or, in the case of instruments 

such as zero coupon bonds, do not pay 


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28The risk management uses of derivatives will 

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

risks due to fluctuations in securities prices, 

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

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

the effective duration of the Fund’s portfolio. 

29See also ‘‘The Fund’s Use of Derivatives,’’ 

infra. 

30 In a forward roll transaction (also referred to as 

a mortgage dollar roll), the Fund sells a MBS while 

simultaneously agreeing to purchase a similar 

security from the same party (the counterparty) on 

a specified future date at a lower fixed price. During 

the roll period, the Fund forgoes principal and 

interest paid on the securities. The Fund is 

compensated by the difference between the current 

sales price and the forward price for the future 

purchase, as well as by the interest earned on the 

cash proceeds of the initial sale. The Fund may 

enter into a forward roll transaction with the 

intention of entering into an offsetting transaction 

whereby, rather than accepting delivery of the 

security on the specified date, the Fund sells the 

security and agrees to repurchase a similar security 

at a later time. 

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

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

Derivatives’’ section below. 

32 ‘‘Interest Rate Derivatives’’ are comprised of 

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

interest rate swaps), rate options and other similar 

derivatives, and may be Exchange-Traded 

Derivatives or OTC Derivatives. As reflected in 

statistics compiled by the Bank for International 

Settlements, as of June 30, 2017 there were 

approximately $416 trillion (notional amount) of 

total interest rate contracts outstanding in the overthe-counter markets alone. Interest Rate Derivatives 

also trade on trading platforms that are not ISG 

members. As reflected by the statistics, the market 

is wide, deep and liquid. See https://www.bis.org/ 

statistics/d7.pdf (accessed November 2017). 

33 ‘‘Currency Derivatives’’ are comprised of 

deliverable forwards, which are agreements 

between the contracting parties to exchange a 

specified amount of currency at a specified future 

current interest but are issued at a 

discount from their face values. MBS 

and ABS in which the Fund will invest 

make periodic payments of interest and/ 

or principal on underlying pools of 

mortgages, government securities or, in 

the case of ABS, loans, leases and 

receivables other than real estate. The 

Fund may also invest in stripped ABS 

or MBS, which represent the right to 

receive either payments of principal or 

payments of interest on real estate 

receivables, in the case of MBS, or nonreal estate receivables, in the case of 

ABS. 

Investments by the Fund in debt 

instruments (‘‘Debt’’) that may be 

deemed not to be ‘‘securities’’, as 

defined in the Act, are comprised 

primarily of the following: (i) U.S. or 

foreign bank loans and participations in 

bank loans; (ii) U.S. or foreign loans by 

non-bank lenders and participations in 

such loans; (iii) U.S. or foreign loans on 

real estate secured by mortgages and 

participations (without guarantees by a 

government-sponsored entity (‘‘GSE’’)); 

and (iv) participations in U.S. or foreign 

loans and/or other extensions of credit, 

such as guarantees, made by 

governmental entities or financial 

institutions. Debt may be partially or 

fully secured by collateral supporting 

the payment of interest and principal, or 

unsecured and/or subordinated to other 

instruments. Debt may relate to 

financings for highly-leveraged 

borrowers. The Fund may acquire an 

interest in Debt by purchasing 

participations in and/or assignments of 

portions of loans from third parties or 

by investing in pools of loans, such as 

collateralized debt obligations. 

With respect to fixed income 

securities and Debt, the Fund may 

invest in restricted instruments, such as 

Rule 144A and Regulation S securities, 

which are subject to resale restrictions 

that limit purchasers to qualified 

institutional buyers, as defined in Rule 

144A under the Securities Act of 1933, 

as amended (the ‘‘Securities Act’’) or 

non-U.S. persons, within the meaning of 

Regulation S under the Securities Act. 

The Fund will use derivatives to (i) 

provide exposure to U.S. or foreign 

fixed income securities, Debt and other 

Principal Investments, (ii) risk manage 

the Fund’s holdings,28 and (iii) enhance 

returns, such as through covered call 

strategies.29 The Fund will not use 

derivatives for the purpose of seeking 

leveraged returns or performance that is 

the multiple or inverse multiple of a 

benchmark. Derivatives that the Fund 

may enter into include: Over-thecounter deliverable and non-deliverable 

foreign exchange forward contracts; 

exchange-listed futures contracts on 

securities (including Treasury Securities 

and foreign government securities), 

commodities, indices, interest rates, 

financial rates and currencies; 

exchange-listed or over-the-counter 

options or swaptions (i.e., options to 

enter into a swap) on securities, 

commodities, indices, interest rates, 

financial rates, currencies and futures 

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

return swaps) on securities, 

commodities, indices, interest rates, 

financial rates, currencies and debt and 

credit default swaps on single names, 

baskets and indices (both as protection 

seller and as protection buyer). As a 

result of the Fund’s use of derivatives 

and to serve as collateral, the Fund may 

also hold significant amounts of 

Treasury Securities, cash and cash 

equivalents and, in the case of 

derivatives that are payable in a foreign 

currency, the foreign currency in which 

the derivatives are payable. 

The Fund may, without limitation, 

enter into repurchase arrangements and 

borrowing and reverse repurchase 

arrangements, purchase and sale 

contracts, buybacks and dollar rolls 30

and spot currency transactions. The 

Fund may also, subject to required 

margin and without limitation, purchase 

securities and other instruments under 

when-issued, delayed delivery, to be 

announced or forward commitment 

transactions, where the securities or 

instruments will not be delivered or 

paid for immediately. To the extent 

required under applicable federal 

securities laws (including the 1940 Act), 

rules, and interpretations thereof, the 

Fund will ‘‘set aside’’ liquid assets or 

engage in other measures to ‘‘cover’’ 

open positions held in connection with 

the foregoing types of transactions, as 

well as derivative transactions. 

Other Investments 

Under Normal Market Conditions, the 

Fund will seek its investment objective 

by investing at least 80% of its net 

assets in a portfolio of the Principal 

Investments. The Fund may invest its 

remaining assets exclusively in: (i) U.S. 

or foreign exchange-listed or over-the 

counter convertible fixed income 

securities; and (ii) OTC Derivatives (as 

defined below) and Exchange-Traded 

Derivatives (as defined below) that do 

not satisfy the Fund’s primary uses for 

derivatives, which are to (A) provide 

exposure to such U.S. or foreign fixed 

income securities, Debt and other 

Principal Investments, (B) risk manage 

the Fund’s holdings, and (C) enhance 

returns.31

The Fund’s Use of Derivatives 

The Fund proposes to invest in the 

types of derivatives described in the 

‘‘Principal Investments’’ and ‘‘Other 

Investments’’ sections above. ExchangeTraded Derivatives will primarily be 

traded on exchanges that are ISG 

members or exchanges with which the 

Exchange has a comprehensive 

surveillance sharing agreement. The 

Fund may, however, invest up to 10% 

of the net assets of the Fund in 

Exchange-Traded Derivatives whose 

principal market is not a member of ISG 

or a market with which the Exchange 

has a comprehensive surveillance 

sharing agreement. For purposes of this 

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

based on the mark-to-market value or 

exposure of such Exchange-Traded 

Derivatives. 

The Fund will limit the weight of its 

investments in OTC Derivatives to 10% 

of the net assets of the Fund, with the 

exception of Interest Rate Derivatives 32

and Currency Derivatives 33 (together, 


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time at a specified rate, non-deliverable forwards, 

which are agreements to pay the difference between 

the exchange rates specified for two currencies at 

a future date, swaps and options on currencies, and 

similar currency or foreign exchange derivatives. As 

reflected in statistics compiled by the Bank for 

International Settlements, as of June 30, 2017 there 

were approximately $77 trillion (notional amount) 

of Currency Derivatives outstanding in the over-thecounter markets alone. Currency Derivatives also 

trade on trading platforms that are not ISG 

members. As reflected by the statistics, the market 

is wide, deep and liquid. See https://www.bis.org/ 

statistics/d6.pdf (accessed November 2017). 

34See Derivatives Rule Proposing Release at 157– 

158; see also infra note 75. 

35See Derivatives Rule Proposing Release at n.58, 

citing Comment Letter on SEC Concept Release 

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

Polk & Wardwell LLP, available at http://

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

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

recent years, the Staff has not objected to the 

adoption by funds of policies that require 

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

the notional amount . . . [for asset segregation 

purposes].’’). 

36See Derivatives Rule Proposing Release at 157– 

158. 

37The Credit Support Annex to the ISDA Master 

Agreement bases the collateral amount owed by a 

party to a derivatives contract, or that party’s 

‘‘exposure’’, by reference to the replacement value 

of the party’s net positions. Replacement value, 

which has the same meaning as ‘‘mark-to-market’’ 

value, is the amount owed by a party at a point in 

time determined based on the net termination 

payment due under the outstanding transaction. 

38The risk management uses of derivatives will 

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

risks due to fluctuations in securities prices, 

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

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

the effective duration of the Fund’s portfolio. 

39The Fund will seek, where practicable, to trade 

with counterparties whose financial status is such 

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

will monitor the financial standing of 

counterparties on an ongoing basis. This monitoring 

may include reliance on information provided by 

credit agencies or of credit analysts employed by 

the Sub-Advisers. The analysis may include 

earnings updates, the counterparty’s reputation, 

past experience with the dealer, market levels for 

the counterparty’s debt and equity, credit default 

swap levels for the counterparty’s debt, the 

liquidity provided by the counterparty and its share 

of market participation. 

‘‘Interest Rate and Currency 

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

intermediaries. Investments in Interest 

Rate and Currency Derivatives (whether 

the instruments are Exchange-Traded 

Derivatives or OTC Derivatives) will not 

be subject to a limit. For purposes of 

this 10% limit on OTC Derivatives, the 

weight of such OTC Derivatives will be 

calculated based on the mark-to-market 

value or exposure of such OTC 

Derivatives. The mark-to-market 

methodology is consistent with the 

methodology proposed by the SEC in 

proposed Rule 18f–4 for the purposes of 

asset coverage requirements 34 and in 

keeping with disclosures regarding 

compliance with Section 18 of the 1940 

Act made by other registered investment 

companies and reviewed by the SEC 

staff for a number of years.35 In that 

regard, the SEC expressly noted in the 

Derivatives Rule Proposing Release that 

reliance on a mark-to-market valuation 

of a derivatives position for purposes of 

calculating the required coverage 

amount ‘‘would generally correspond to 

the amount of the fund’s liability with 

respect to the derivatives transaction’’ 

and, therefore, be consistent with the 

appropriate valuation of the derivatives 

transaction.36 The mark-to-market value 

is also the measure of ‘‘exposure’’ on 

which collateral posting is based under 

the Master Agreement published by the 

International Swaps and Derivatives 

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

predominant agreement used to trade 

derivatives.37 This value measures gain 

and loss to the Fund of the Fund’s 

derivatives position on a daily basis, as 

well as on a net basis across all 

transactions covered by a master netting 

agreement and, as a result, accurately 

reflects the actual economic exposure of 

the Fund to the counterparty on the 

derivative (as compared to notional 

amount, which may overstate or 

understate economic risk). 

The Fund may choose not to make use 

of derivatives. 

Generally, derivatives are financial 

contracts whose value depends upon, or 

is derived from, the value of an 

underlying asset, reference rate or 

index, and may relate to stocks, bonds, 

interest rates, currencies or currency 

exchange rates, commodities, and 

related indexes. As described above, the 

Fund will use derivatives to (i) provide 

exposure to U.S. or foreign fixed income 

securities, Debt and other Principal 

Investments, (ii) risk manage the Fund’s 

holdings,38 and (iii) enhance returns, 

such as through covered call strategies. 

The Fund will not use derivatives for 

the purpose of seeking leveraged returns 

or performance that is the multiple or 

inverse multiple of a benchmark. The 

Fund will enter into derivatives only 

with counterparties that the Fund 

reasonably believes are financially and 

operationally able to perform the 

contract or instrument, and the Fund 

will collect collateral from the 

counterparty in accordance with credit 

considerations and margining 

requirements under applicable law.39

Investments in derivative instruments 

will be made in accordance with the 

1940 Act and consistent with the Fund’s 

investment objective and policies. To 

limit the potential risk (including 

leveraging risk) associated with such 

transactions, the Fund will segregate or 

‘‘earmark’’ assets determined to be 

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

established by the Trust’s Board of 

Trustees (the ‘‘Board’’) and in 

accordance with the 1940 Act (or, as 

permitted by applicable regulation, 

enter into offsetting positions) to cover 

its obligations under derivative 

instruments. These procedures have 

been adopted consistent with Section 18 

of the 1940 Act and related Commission 

guidance. In addition, the Fund will 

include appropriate risk disclosure in 

its offering documents, including 

leveraging risk. Leveraging risk is the 

risk that transactions of the Fund, 

including the Fund’s use of derivatives, 

may give rise to additional leverage, 

causing the Fund to be more volatile 

than if it had not been leveraged. 

Because the markets for securities or 

Debt, or the securities themselves or 

Debt, may be unavailable, cost 

prohibitive or tax-inefficient as 

compared to derivative instruments, 

suitable derivative transactions may be 

an efficient alternative for the Fund to 

obtain the desired asset exposure. 

The Manager and the Sub-Advisers 

believe that derivatives can be an 

economically attractive substitute for an 

underlying physical security or Debt 

that the Fund would otherwise 

purchase. For example, the Fund could 

purchase futures contracts on Treasury 

Securities instead of investing directly 

in Treasury Securities or could sell 

credit default protection on a corporate 

bond instead of buying a physical bond. 

Economic benefits include potentially 

lower transactions costs, attractive 

relative valuation of a derivative versus 

a physical bond (e.g., differences in 

yields) or economic exposure without 

incurring transfer or similar taxes. 

The Manager and the Sub-Advisers 

further believe that derivatives can be 

used as a more liquid means of 

adjusting portfolio duration, as well as 

targeting specific areas of yield curve 

exposure, with potentially lower 

transaction costs than the underlying 

securities or Debt (e.g., interest rate 

swaps may have lower transaction costs 

than the physical bonds). Similarly, 

money market futures can be used to 

gain exposure to short-term interest 

rates in order to express views on 

anticipated changes in central bank 

policy rates. In addition, derivatives can 

be used to protect client assets through 

selectively hedging downside (or ‘‘tail 

risks’’) in the Fund. 

The Fund also can use derivatives to 

increase or decrease credit exposure. 

Index credit default swaps can be used 

to gain exposure to a basket of credit 

risk by ‘‘selling protection’’ against 

default or other credit events, or to 

hedge broad market credit risk by 


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40For the avoidance of doubt, 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 any one 

NRSRO. 

41The Exchange notes that the terms ‘‘fixed 

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

fixed income portion of the portfolio’’ are used 

synonymously in Nasdaq Rule 5735. 

42For purposes of this requirement, the weight of 

the Fund’s exposure to Private ABS/MBS 

referenced in derivatives held by the Fund shall be 

calculated based on the mark-to-market value or 

exposure of such derivatives. 

43See 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). 

44 In reaching liquidity decisions, the Manager or 

Sub-Advisers (as applicable) may consider the 

following factors: The frequency of trades and 

quotes for the security; the number of dealers 

wishing to purchase or sell the security and the 

number of other potential purchasers; dealer 

undertakings to make a market in the security; and 

the nature of the security and the nature of the 

marketplace in which it trades (e.g., the time 

needed to dispose of the security, the method of 

soliciting offers and the mechanics of transfer). 

45Long-standing Commission guidelines have 

required investment companies to hold no more 

than 15% of their net assets in illiquid securities 

and other illiquid assets. See Investment Company 

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

14618 (March 18, 2008), FN 34; see also Investment 

Company Act Release Nos. 5847 (October 21, 1969), 

35 FR 19989 (December 31, 1970) (Statement 

Regarding ‘‘Restricted Securities’’); and 18612 

(March 12, 1992), 57 FR 9828 (March 20, 1992) 

(Revisions of Guidelines to Form N–1A). The 

Commission also recently adopted Rule 22e–4 

under the 1940 Act, which requires that each 

registered open-end management investment 

company, including ETFs but not including money 

market mutual funds, to establish a liquidity risk 

management program that includes limitations on 

illiquid investments. See Investment Company Act 

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

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

portfolio security is illiquid if it cannot be sold or 

disposed of in current market conditions in seven 

calendar days or less without the sale or disposition 

significantly changing the market value of the 

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

‘‘buying protection.’’ Single name credit 

default swaps can be used to allow the 

Fund to increase or decrease exposure 

to specific issuers, saving investor 

capital through lower trading costs. The 

Fund can use total return swap 

contracts to obtain the total return of a 

reference asset or index in exchange for 

paying financing costs. A total return 

swap may be more efficient than buying 

underlying securities or Debt, 

potentially lowering transaction costs. 

The Fund expects to manage foreign 

currency exchange rate risk by entering 

into Currency Derivatives. 

The Sub-Advisers may use option 

strategies to meet the Fund’s investment 

objectives. Option purchases and sales 

can also be used to hedge specific 

exposures in the portfolio and can 

provide access to return streams 

available to long-term investors such as 

the persistent difference between 

implied and realized volatility. Option 

strategies can generate income or 

improve execution prices (e.g., covered 

calls). 

Investment Restrictions 

The Fund may invest up to 30% of its 

assets in Non-Convertible Preferred 

Securities, Equity-Related Warrants and 

Work Out Securities. The Fund will not 

invest in equity securities other than 

Principal Investment Equities. Principal 

Investment Equities consist of (i) NonConvertible Preferred Securities, EquityRelated Warrants and Work Out 

Securities, which are subject to the 30% 

limit noted above and (ii) shares of ETFs 

that provide exposure to fixed income 

securities, Debt or other Principal 

Investments, which are subject to no 

limits. 

While the Fund will invest 

principally in fixed income securities 

and Debt that are, at the time of 

purchase, investment grade, the Fund 

may invest up to 30% of its net assets 

in below investment grade fixed income 

securities and Debt. For these purposes, 

‘‘investment grade’’ is defined as 

investments with a rating at the time of 

purchase in one of the four highest 

rating categories of at least one 

nationally recognized statistical ratings 

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

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

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

or higher by Moody’s Investors Service, 

Inc. (‘‘Moody’s’’)).40 Unrated fixed 

income securities or Debt may be 

considered investment grade if, at the 

time of purchase, and under Normal 

Market Conditions, the applicable SubAdviser determines that such securities 

are of comparable quality based on a 

fundamental credit analysis of the 

unrated security or Debt instrument and 

comparable NRSRO-rated securities. 

The Fund may invest in fixed income 

or equity securities and Debt issued by 

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

(including issuers in emerging markets), 

but the Fund will not invest more than 

30% of its total assets directly in fixed 

income or equity securities or Debt of 

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

total assets directly in non-U.S. dollar 

denominated fixed income or equity 

securities or Debt. For purposes of these 

30% and 25% concentration limits only, 

derivatives, warrants and ETFs traded 

on U.S. exchanges that provide indirect 

exposure to fixed income or equity 

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

securities or Debt (as applicable) 

denominated in currencies other than 

U.S. dollars will not be counted by the 

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

denominated securities or Debt. 

The Fund may invest a substantial 

portion of its net assets in ABS and 

MBS, but it will not invest more than 

30% of the fixed income portion of the 

Fund’s portfolio 41 in non-agency, nonGSE and privately-issued mortgagerelated and other asset-backed securities 

(‘‘Private ABS/MBS’’).42

The Fund may not concentrate its 

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

of the value of its total assets) in 

securities of issuers in any one industry. 

This restriction will be interpreted to 

permit investment without limit in the 

following: Obligations issued or 

guaranteed by the U.S. government, its 

agencies or instrumentalities; securities 

of state, territory, possession or 

municipal governments and their 

authorities, agencies, instrumentalities 

or political subdivisions; and 

repurchase agreements collateralized by 

any such obligations.43

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Rule 144A 

securities deemed illiquid by the 

Manager or the Sub-Advisers.44 The 

Fund will monitor its portfolio liquidity 

on an ongoing basis to determine 

whether, in light of current 

circumstances, an adequate level of 

liquidity is being maintained and will 

consider taking appropriate steps in 

order to maintain adequate liquidity if, 

through a change in values, net assets, 

or other circumstances, more than 15% 

of the Fund’s net assets are held in 

illiquid securities or other illiquid 

assets. Illiquid securities and other 

illiquid assets include those subject to 

contractual or other restrictions on 

resale and other instruments or assets 

that lack readily available markets as 

determined in accordance with 

Commission staff guidance.45

As noted in the Use of Derivatives 

section above, the Fund’s investments 

in derivatives, will be consistent with 

the Fund’s investment objective and 

will not be used for the purpose of 

seeking leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark 

(although derivatives have embedded 

leverage). Although the Fund will be 

permitted to borrow as permitted under 

the 1940 Act, it will not be operated as 

a ‘‘leveraged ETF,’’ (i.e., it will not be 

operated in a manner designed to seek 

a multiple or inverse multiple of the 

performance of an underlying reference 

index). The Fund may engage in 

frequent and active trading of portfolio 


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46The terms ‘‘Treasury Securities’’ and ‘‘GSE 

Securities’’ have the meanings set forth in Nasdaq 

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

47These include senior loans, syndicated bank 

loans, junior loans, bridge loans, unfunded 

commitments, revolvers and participation interests. 

48The Exchange notes that Nasdaq Rule 

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

derivatives are used to gain exposure to individual 

fixed income securities or indexes of fixed income 

securities, the aggregate gross notional value of such 

exposure shall meet the criteria set forth in Nasdaq 

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

however, as further described below, that for the 

purposes of the requirements in this paragraph and 

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

Fund will use the mark-to-market value or exposure 

of its derivatives rather than gross notional value or 

exposure. 

49The Exchange notes that, while the Fund treats 

commercial paper with maturities of three months 

or greater as cash equivalents for the purposes of 

its 80% principal investments measure, the Fund 

will comply with the applicable requirements of 

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

commercial paper held by the Fund. Further, in 

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

extent that the Fund holds securities that convert 

into fixed income securities, the fixed income 

securities into which any such securities are 

converted shall meet the criteria of Nasdaq Rule 

5735(b)(1)(B) after converting. 

50Nasdaq Rule 5735(b)(1)(D)(i) provides that at 

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

invested in futures, exchange-traded options, and 

listed swaps shall, on both an initial and continuing 

basis, consist of futures, options and swaps for 

which the Exchange may obtain information via the 

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

for which the principal market is a market with 

which the Exchange has a comprehensive 

surveillance sharing agreement; for the purposes of 

calculating this limitation, a portfolio’s investment 

in such listed derivatives will be calculated as the 

aggregate gross notional value of the listed 

derivatives. 

51Nasdaq Rule 5735(b)(1)(D)(ii) provides that the 

aggregate gross notional value of listed derivatives 

based on any five or fewer underlying reference 

assets shall not exceed 65% of the weight of the 

portfolio (including gross notional exposures), and 

the aggregate gross notional value of listed 

derivatives based on any single underlying 

reference asset shall not exceed 30% of the weight 

of the portfolio (including gross notional 

exposures). 

52Nasdaq Rule 5735(b)(1)(E) provides that on 

both an initial and continuing basis, no more than 

20% of the assets in the portfolio may be invested 

in over-the-counter derivatives, including forwards, 

options, and swaps on commodities, currencies and 

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

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

any of the foregoing; for purposes of calculating this 

limitation, the Fund’s investment in OTC 

Derivatives will be calculated as the aggregate gross 

notional value of the OTC Derivatives. 

53Nasdaq Rule 5735(b)(1)(F) provides that to the 

extent that listed or over-the-counter derivatives are 

used to gain exposure to individual equities and/ 

or fixed income securities, or to indexes of equities 

and/or indexes of fixed income securities, the 

aggregate gross notional value of such exposure 

shall meet the criteria set forth in Nasdaq Rules 

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

54Further, as described further below, the 

Exchange is proposing that the Fund will comply 

with alternative requirements rather than Rules 

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

55Nasdaq Rule 5735(b)(1)(B)(iv) provides that 

component securities that in the aggregate account 

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

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

required to file reports pursuant to Sections 13 and 

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

worldwide market value of its outstanding common 

equity held by non-affiliates of $700 million or 

more; (c) from issuers that have outstanding 

securities that are notes, bonds debentures, or 

evidence of indebtedness having a total remaining 

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

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

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

country or a political subdivision of a foreign 

country. 

56Nasdaq Rule 5735(b)(1)(A)(i) provides that the 

components stocks of the equity portion of a 

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

term is defined in Nasdaq Rule 5705) shall meet the 

following criteria initially and on a continuing 

basis: (a) Component stocks (excluding Exchange 

Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

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

aggregate account for at least 90% of the equity 

weight of the portfolio (excluding such Exchange 

Continued 

securities, Debt, and derivatives to 

achieve its investment objective. 

Under normal market conditions, the 

Fund will satisfy the following 

requirements, on a continuous basis 

measured at the time of purchase: (i) 

Component securities that in the 

aggregate account for at least 75% of the 

fixed income weight of the Fund’s 

portfolio each shall have a minimum 

original principal amount outstanding 

of $100 million or more; (ii) no fixed 

income security held in the portfolio 

(excluding U.S. Treasury Securities and 

GSE Securities) 46 will represent more 

than 30% of the fixed income weight of 

the Fund’s portfolio, and the five most 

heavily weighted portfolio securities 

(excluding Treasury Securities and GSE 

Securities) will not in the aggregate 

account for more than 65% of the fixed 

income weight of the Fund’s portfolio; 

(iii) the Fund’s portfolio (excluding 

exempted securities) will include a 

minimum of 13 non-affiliated issuers; 

(iv) at least 75% of the investments in 

securities issued by emerging market 

issuers shall have a minimum original 

principal amount outstanding of $200 

million or more; and (v) at least 75% of 

investments in bank loans or corporate 

loan assets 47 shall be in senior loans 

with an initial deal size of $100 million 

or greater.48

In addition, the Fund will impose the 

limits described in the following 

section, which are alternative limits to 

the ‘‘generic’’ listing requirements of 

Nasdaq Rule 5735(b)(1). 

Application of Generic Listing 

Requirements 

The Exchange is submitting this 

proposed rule change because the Fund 

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

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

The Fund will meet all such 

requirements except the requirements 

described below,49 and the Exchange 

proposes that the Fund will comply 

with the alternative limits described 

below. 

(i) The Fund will not comply with the 

requirements in Nasdaq Rule 5735(b)(1) 

regarding the use of aggregate gross 

notional value or exposure of 

derivatives when calculating the weight 

of such derivatives or the exposure that 

such derivatives provide to underlying 

reference assets, including the 

requirements in Rules 5735(b)(1)(D)(i),50

5735(b)(1)(D)(ii),51 5735(b)(1)(E) 52 and 

5735(b)(1)(F).53 Instead, the Exchange 

proposes that for the purposes of any 

applicable requirements under Nasdaq 

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

requirements proposed by the Exchange, 

the Fund will use the mark-to-market 

value or exposure of its derivatives in 

calculating the weight of such 

derivatives or the exposure that such 

derivatives provide to their reference 

assets.54

(ii) The Fund will not comply with 

the requirement in Nasdaq Rule 

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

in the Fund’s portfolio account, in the 

aggregate, for no more than 20% of the 

weight of the fixed income portion of 

the Fund’s portfolio. Instead, the 

Exchange proposes that the Fund will 

limit its holdings in Private ABS/MBS 

to no more than 30% of the weight of 

the fixed income portion of the Fund’s 

portfolio, in order to enable the portfolio 

to be more diversified and provide the 

Fund with an opportunity to earn higher 

returns. For purposes of this 

requirement, the weight of the Fund’s 

exposure to Private ABS/MBS 

referenced indirectly through 

investments in derivatives held by the 

Fund shall be calculated based on the 

mark-to-market value or exposure of 

such derivatives. 

(iii) The Fund will not comply with 

the requirement that at least 90% of the 

fixed income weight of the Fund’s 

portfolio meet one of the criteria in 

Nasdaq Rule 5735(b)(1)(B)(iv).55 Instead, 

the Exchange proposes that the fixed 

income portion of the portfolio other 

than Private ABS/MBS will comply 

with the 90% requirement in Nasdaq 

Rule 5735(b)(1)(B)(iv), and Private ABS/ 

MBS will not comply with such 

requirement. For purposes of this 

requirement, the weight of the Fund’s 

exposure to any fixed income securities 

referenced in derivatives held by the 

Fund shall be calculated based on the 

mark-to-market value or exposure of 

such derivatives. 

(iv) The Fund will not comply with 

the equity requirements in Nasdaq Rules 

5735(b)(1)(A)(i) 56 and 


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Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

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

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

Component stocks (excluding Exchange Traded 

Derivative Securities and Linked Securities, as such 

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

5710, respectively) that in the aggregate account for 

at least 70% of the equity weight of the portfolio 

(excluding such Exchange Traded Derivative 

Securities and Linked Securities, as such terms are 

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

respectively) each shall have a minimum monthly 

trading volume of 250,000 shares, or minimum 

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

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

heavily weighted component stock (excluding 

Exchange Traded Derivative Securities and Linked 

Securities, as such terms are defined in Nasdaq 

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

exceed 30% of the equity weight of the portfolio, 

and, to the extent applicable, the five most heavily 

weighted component stocks (excluding Exchange 

Traded Derivative Securities and Linked Securities, 

as such terms are defined in Nasdaq Rules 

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

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

the equity portion of the portfolio does not include 

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

the portfolio shall include a minimum of 13 

component stocks; provided, however, that there 

shall be no minimum number of component stocks 

if (i) one or more series of Exchange Traded 

Derivative Securities or Linked Securities, as such 

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

5710, respectively, constitute, at least in part, 

components underlying a series of Managed Fund 

Shares (as defined in NASDAQ Rule 5735), or (ii) 

one or more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

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

respectively, account for 100% of the equity weight 

of the portfolio of a series of Managed Fund Shares; 

(e) except as otherwise provided, equity securities 

in the portfolio shall be U.S. Component Stocks 

listed on a national securities exchange and shall 

be NMS Stocks as defined in Rule 600 of Regulation 

NMS under the Act; and (f) American Depositary 

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

than 10% of the equity weight of a portfolio shall 

consist of non-exchange-traded ADRs. 

57Nasdaq Rule 5735(b)(1)(A)(ii) provides that the 

component stocks of the equity portion of a 

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

such term is defined in Nasdaq Rule 5705) shall 

meet the following criteria initially and on a 

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

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

shall have a minimum market value of at least $100 

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

term is defined in Nasdaq Rule 5705) each shall 

have a minimum global monthly trading volume of 

250,000 shares, or minimum global notional volume 

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

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

Nasdaq Rule 5705) shall not exceed 25% of the 

equity weight of the portfolio, and, to the extent 

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

Component Stocks (as such term is defined in 

Nasdaq Rule 5705) shall not exceed 60% of the 

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

portion of the portfolio includes Non-U.S. 

Component Stocks (as such term is defined in 

Nasdaq Rule 5705), the equity portion of the 

portfolio shall include a minimum of 20 component 

stocks; provided, however, that there shall be no 

minimum number of component stocks if (i) one or 

more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

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

respectively, constitute, at least in part, components 

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

one or more series of Exchange Traded Derivative 

Securities or Linked Securities, as such terms are 

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

respectively, account for 100% of the equity weight 

of the portfolio of a series of Managed Fund Shares; 

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

term is defined in Nasdaq Rule 5705) shall be listed 

and traded on an exchange that has last-sale 

reporting. 

58These other equities will consist of ETFs 

(including money market ETFs) that provide 

exposure to fixed income securities, Debt and other 

Principal Investments. The weight of such ETFs in 

the Fund’s portfolio shall not be limited. 

59The ‘‘Group of Seven’’ or G–7 countries consist 

of the United States, Canada, France, Germany, 

Italy, Japan and the United Kingdom. 

60See, e.g., Securities Exchange Act Release Nos. 

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

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

approval for the listing of shares of the Guggenheim 

5735(b)(1)(A)(ii) 57 with respect to the Fund’s investment in Non-Convertible 

Preferred Securities, Work Out 

Securities and Equity-Related Warrants. 

Instead, the Exchange proposes that (i) 

the Fund’s investments in equity 

securities other than Non-Convertible 

Preferred Securities, Work Out 

Securities and Equity-Related Warrants 

shall comply with the equity 

requirements in Nasdaq Rule 

5735(b)(1)(A) 58 and (ii) the weight of 

Non-Convertible Preferred Securities, 

Work Out Securities and Equity-Related 

Warrants in the Fund’s portfolio shall 

together not exceed 30% of the Fund’s 

net assets. 

(v) The Fund will not comply with 

the requirement in Nasdaq Rule 

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

the assets in the Fund’s portfolio may be 

invested in over-the-counter derivatives. 

Instead, the Exchange proposes that 

there shall be no limit on the Fund’s 

investment in Interest Rate and 

Currency Derivatives, and the weight of 

all OTC Derivatives other than Interest 

Rate and Currency Derivatives shall not 

exceed 10% of the Fund’s net assets. For 

purposes of this 10% limit on OTC 

Derivatives, the weight of such OTC 

Derivatives will be calculated based on 

the mark-to-market value or exposure of 

such OTC Derivatives. 

(vi) The Fund will not comply with 

the requirement in Nasdaq Rule 

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

weight of the Fund’s holdings in 

futures, exchange-traded options, and 

listed swaps shall, on both an initial and 

continuing basis, consist of futures, 

options and swaps for which the 

Exchange may obtain information via 

the ISG from other members or affiliates 

of the ISG, or for which the principal 

market is a market with which the 

Exchange has a comprehensive 

surveillance sharing agreement. Instead, 

the Exchange proposes that no more 

than 10% of the net assets of the Fund 

will be invested in Exchange-Traded 

Derivatives whose principal market is 

not a member of ISG or is a market with 

which the Exchange does not have a 

comprehensive surveillance sharing 

agreement. For purposes of this 10% 

limit, the weight of such ExchangeTraded Derivatives will be calculated 

based on the mark-to-market value or 

exposure of such Exchange-Traded 

Derivatives. 

(vii) The Fund will not comply with 

the requirement in Nasdaq Rule 

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

notional value of listed derivatives 

based on any five or fewer underlying 

reference assets shall not exceed 65% of 

the weight of the Fund’s portfolio 

(including gross notional exposures), 

and the aggregate gross notional value of 

listed derivatives based on any single 

underlying reference asset shall not 

exceed 30% of the weight of the Fund’s 

portfolio (including gross notional 

exposures). Instead, the Exchange 

proposes that the Fund will comply 

with the concentration requirements in 

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

with respect to the Fund’s investment in 

futures and options (including options 

on futures) referencing Eurodollars and 

sovereign debt issued by the United 

States (i.e., Treasury Securities) and 

other ‘‘Group of Seven’’ countries 59

where such futures and options 

contracts are listed on an exchange that 

is an ISG member or an exchange with 

which the Exchange has a 

comprehensive surveillance sharing 

agreement (‘‘Eurodollar and G–7 

Sovereign Futures and Options’’). The 

Fund’s investment in Eurodollar and G– 

7 Sovereign Futures and Options will 

not be subject to the concentration 

limits provided in Nasdaq Rule 

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

requirement, the weight of the 

applicable Exchange-Traded Derivatives 

will be calculated based on the mark-tomarket value or exposure of such 

Exchange-Traded Derivatives. 

The Exchange believes that, 

notwithstanding that the Fund would 

not meet a limited number of ‘‘generic’’ 

listing requirements of Nasdaq Rule 

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

its investment objective, the Exchange 

will be able to appropriately monitor 

and surveil trading in the underlying 

investments, including those that do not 

meet the ‘‘generic’’ listing requirements. 

The Exchange also notes that the 

parameters around the Fund’s portfolio 

holdings are generally consistent with 

the parameters approved by the 

Commission prior to adoption of 

‘‘generic’’ listing requirements for 

actively-managed ETFs.60 In addition, 


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

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

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

of the PIMCO Total Return Exchange Traded Fund 

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

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

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund). The 

investments of the Guggenheim Total Return Bond 

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

income instruments (including Private ABS/MBS), 

preferred securities, cash equivalents, other ETFs 

and listed and over-the-counter derivatives and are 

managed in a manner that appears to be generally 

consistent with that proposed for the Fund. 

Consistent with the requests made in this proposed 

rule change, the Commission’s approval of the 

listing of shares of the Guggenheim Total Return 

Bond ETF did not include many of the conditions 

imposed by the generic listing standards under 

Nasdaq Rule 5735; the Commission’s approval did 

not impose limits regarding the total notional size 

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

derivatives, did not impose concentration limits on 

the ETF’s investment in listed derivatives and did 

not require compliance with the same criteria as the 

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

The order approving investments in derivatives by 

the PIMCO Total Return Exchange Traded Fund 

described investments in both over-the-counter and 

listed derivatives, but did not impose limits 

regarding the total notional size of the ETF’s 

investments in over-the-counter derivatives, did not 

impose concentration limits on the ETF’s 

investments in listed derivatives, and did not 

impose limitations on investments in listed 

derivatives whose principal market is not a member 

of ISG or is a market with which its listing exchange 

does not have a comprehensive surveillance sharing 

agreement. 61See, e.g., Securities Exchange Act Release Nos. 

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

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

the fund’s assets (calculated on the basis of 

aggregate gross notional value) to be invested in 

over-the-counter derivatives that are used to reduce 

currency, interest rate, or credit risk arising from 

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

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

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

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

among other things, non-exchange-traded equity 

securities acquired in conjunction with the fund’s 

event-driven strategy, including securities acquired 

by the fund as a result of certain corporate events 

including reorganizations); 76719 (December 21, 

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

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

over-the-counter and listed derivatives without 

imposing limits on the total notional size of the 

ETF’s investments in over-the-counter derivatives 

and without imposing concentration limits on the 

ETF’s investments in listed derivatives and (ii) 

permitting investments in a wide variety of fixed 

income instruments without compliance with the 

same criteria as the fixed income criteria in Nasdaq 

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

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

(permitting investments in both over-the-counter 

and listed derivatives, but without imposing limits 

regarding the total notional size of the ETF’s 

investments in over-the-counter derivatives, 

without imposing concentration limits on the ETF’s 

investments in listed derivatives, and without 

imposing limitations on investments in listed 

derivatives whose principal market is not a member 

of ISG or is a market with which its listing exchange 

does not have a comprehensive surveillance sharing 

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

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

(approving investments in non-agency commercial 

MBS and non-agency residential MBS without a 

fixed limit but consistent with the fund’s objective 

of investing up to 80% of its assets in investment 

grade fixed-income securities). 

the Fund will be well diversified. For 

these reasons, the Exchange believes 

that it is appropriate and in the public 

interest to approve listing and trading of 

Shares of the Fund on the Exchange. 

As further described in the ‘‘Statutory 

Basis’’ section below, deviations from 

the generic requirements are necessary 

for the Fund to achieve its investment 

objective and efficiently manage the 

risks associated with its investments, 

and any possible risks have been fully 

mitigated and addressed through the 

alternative limits proposed by the 

Exchange. In addition, many of the 

changes requested are generally 

consistent with previous filings 

approved by the Commission.61

Net Asset Value 

The Fund’s administrator will 

calculate the Fund’s net asset value 

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

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

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

New York Stock Exchange is open for 

business. NAV per Share will be 

calculated for the Fund by taking the 

value of the Fund’s total assets, 

including interest or dividends accrued 

but not yet collected, less all liabilities, 

and dividing such amount by the total 

number of Shares outstanding. The 

result, rounded to the nearest cent, will 

be the NAV per Share (although 

creations and redemptions will be 

processed using a price denominated to 

the fifth decimal point, meaning that 

rounding to the nearest cent may result 

in different prices in certain 

circumstances). 

Impact on Arbitrage Mechanism 

The Manager and the Sub-Advisers 

believe there will be minimal, if any, 

impact on the arbitrage mechanism for 

the Fund as a result of its use of 

derivatives. The Manager and the SubAdvisers understand that market makers 

and participants should be able to value 

derivatives as long as the positions are 

disclosed with relevant information. 

The Manager and the Sub-Advisers 

believe that the price at which Shares 

trade will continue to be disciplined by 

arbitrage opportunities created by the 

ability to purchase or redeem creation 

Shares at their NAV, which should 

ensure that Shares will not trade at a 

material discount or premium in 

relation to their NAV. 

The Manager and the Sub-Advisers do 

not believe that there will be any 

significant impact on the settlement or 

operational aspects of the Fund’s 

arbitrage mechanism due to the use of 

derivatives. Because derivatives 

generally are not eligible for in-kind 

transfer, they will typically be 

substituted with a ‘‘cash in lieu’’ 

amount when the Fund processes 

purchases or redemptions of creation 

units in-kind. 

Creation and Redemption of Shares 

The Fund will issue Shares of the 

Fund at NAV only with authorized 

participants (‘‘APs’’) and only in 

aggregations of at least 50,000 shares 

(each aggregation is called a ‘‘Creation 

Unit’’) or multiples thereof, on a 

continuous basis through the 

Distributor, without a sales load, at the 

NAV next determined after receipt, on 

any Business Day, of an order in proper 

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

any day that the Trust is open for 

business, including as required by 

Section 22(e) of the Act. 

The consideration for purchase of 

Creation Units of the Fund consists of 

an ‘‘in-kind’’ deposit of a designated 

portfolio of securities and/or 

instruments that will conform pro rata 

to the holdings of the Fund (except in 

the circumstances described in the 

Fund’s Statement of Additional 

Information (the ‘‘SAI’’)) (the ‘‘Deposit 

Securities’’) and/or an amount of cash. 

If there is a difference between the NAV 

attributable to a Creation Unit and the 

aggregate market value of the Deposit 

Securities or Redemption Securities 

(defined below) exchanged for the 

Creation Unit, the party conveying the 

instruments with the lower value will 

pay to the other an amount in cash 

equal to that difference (the ‘‘Cash 

Component’’). Together, the Deposit 

Securities and the Cash Component will 

constitute the ‘‘Fund Deposit,’’ which 

will represent the minimum initial and 

subsequent investment amount for a 

Creation Unit of the Fund. The Deposit 

Securities and the securities and/or 

instruments that will be delivered in an 

in-kind transfer in a redemption 

(‘‘Redemption Securities’’) will be 

identical. Purchases and redemptions of 

Creation Units may be made in whole or 

in part on a cash basis, rather than inkind, only under the circumstances 

described in the Fund’s SAI. 

To be eligible to place orders with 

respect to creations and redemptions of 

Creation Units, an entity must have 

executed an agreement with the 

Distributor, subject to acceptance by the 

transfer agent, with respect to creations 

and redemptions of Creation Units. Each 

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

clearing process through the continuous 

net settlement system of the National 

Securities Clearing Corporation 


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62The Bid/Ask Price of the Fund will be 

determined using the midpoint of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 63See Nasdaq Rule 4120(b)(4) (describing the 

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

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

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

p.m. or 4:15 p.m. to 8 p.m., E.T.). 64Under accounting procedures to be followed by 

the Fund, trades made on the prior Business Day 

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

current Business Day (‘‘T+1’’). Accordingly, the 

Fund will be able to disclose at the beginning of the 

Business Day the portfolio that will form the basis 

for the NAV calculation at the end of the Business 

Day. 65See Nasdaq Rule 5735(c)(2). 

66Currently, the Nasdaq Global Index Data 

Service (‘‘GIDS’’) is the Nasdaq global index data 

feed service, offering real-time updates, daily 

summary messages, and access to widely followed 

indexes and Intraday Indicative Values for ETFs. 

GIDS provides investment professionals with the 

daily information needed to track or trade Nasdaq 

indexes, listed ETFs, or third-party partner indexes 

and ETFs. 

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

Company participant. 

When the Fund permits Creation 

Units to be issued principally or 

partially in-kind, the Fund will cause to 

be published, through the NSCC, on 

each Business Day, prior to the opening 

of trading on the Exchange (currently, 

9:30 a.m. E.T.), the identity and the 

required number of each Deposit 

Security and the amount of the Cash 

Component (if any) to be included in 

the current Fund Deposit (based on 

information at the end of the previous 

Business Day). 

All orders to create Creation Units 

must be received by the Distributor 

within a one-hour window after the 

closing time of the regular trading 

session on the Exchange (‘‘Closing 

Time’’) (ordinarily between 4:00 p.m. 

E.T. and 5:00 p.m. E.T.) on the date such 

order is placed in order to receive the 

NAV on the next Business Day 

immediately following the date the 

order was placed. 

Shares may be redeemed only in 

Creation Units at their NAV next 

determined after receipt of a redemption 

request in proper form on a Business 

Day and only through an AP. The Fund 

will not redeem Shares in amounts less 

than a Creation Unit (except the Fund 

may redeem shares in amounts less than 

a Creation Unit in the event the Fund is 

being liquidated). 

When the Fund permits Creation 

Units to be redeemed principally or 

partially in-kind, the Fund will cause to 

be published, through the NSCC, 

immediately prior to the opening of 

business on the Exchange (currently, 

9:30 a.m., E.T.) on each Business Day, 

the identity of the Redemption 

Securities and/or an amount of cash that 

will be applicable to redemption 

requests received in proper form on that 

day. The Redemption Securities will be 

identical to the Deposit Securities. 

In order to redeem Creation Units of 

the Fund, an AP must submit an order 

to redeem for one or more Creation 

Units. All such orders must be received 

by the Distributor within a one-hour 

window after the Closing Time 

(ordinarily between 4:00 p.m. E.T. and 

5:00 p.m. E.T.) in order to receive the 

NAV on the next Business Day 

immediately following the date the 

order was placed. 

Availability of Information 

The Fund’s website 

(www.leggmason.com), which will be 

publicly available prior to the public 

offering of Shares, will include a form 

of the prospectus for the Fund that may 

be downloaded. The website will 

include the Shares’ ticker, CUSIP and 

exchange information, along with 

additional quantitative information 

updated on a daily basis, including, for 

the Fund: (1) Daily trading volume, the 

prior Business Day’s reported NAV and 

closing price, mid-point of the bid/ask 

spread at the time of calculation of such 

NAV (the ‘‘Bid/Ask Price’’),62 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 63 on the 

Exchange, the Fund will disclose on its 

website the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘Disclosed Portfolio’’ as 

defined in Nasdaq Rule 5735(c)(2)) held 

by the Fund that will form the basis for 

the Fund’s calculation of NAV at the 

end of the Business Day.64 The Fund’s 

disclosure of derivative positions in the 

Disclosed Portfolio will include 

sufficient information for market 

participants to use to value these 

positions intraday. On a daily basis, the 

Fund will disclose on the Fund’s 

website the following information 

regarding each portfolio holding, as 

applicable to the type of holding: Ticker 

symbol, CUSIP number or other 

identifier, if any; a description of the 

holding (including the type of holding), 

the identity of the security or other asset 

or instrument underlying the holding, if 

any; for options, the option strike price; 

quantity held (as measured by, for 

example, par value, notional value or 

number of shares, contracts or units); 

maturity date, if any; coupon rate, if 

any; effective date, if any; market value 

of the holding; and percentage 

weighting of the holding in the Fund’s 

portfolio.65 The website information 

will be publicly available at no charge. 

In addition, for the Fund, an 

estimated value, defined in Rule 

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

Value,’’ that reflects an estimated 

intraday value of the Fund’s Disclosed 

Portfolio, will be disseminated. 

Moreover, the Intraday Indicative Value, 

available on the Nasdaq Information 

LLC proprietary index data service,66

will be based upon the current value for 

the components of the Disclosed 

Portfolio and will be updated and 

widely disseminated by one or more 

major market data vendors and broadly 

displayed at least every 15 seconds 

during the Regular Market Session. The 

Intraday Indicative Value will be based 

on quotes and closing prices provided 

by a dealer who makes a market in those 

instruments. Premiums and discounts 

between the Intraday Indicative Value 

and the market price may occur. This 

should not be viewed as a ‘‘real time’’ 

update of the NAV per Share of the 

Fund, which is calculated only once a 

day. 

The dissemination of the Intraday 

Indicative Value, together with the 

Disclosed Portfolio, will allow investors 

to determine the value of the underlying 

portfolio of the Fund on a daily basis 

and will provide a close estimate of that 

value throughout the trading day. 

Information regarding the previous 

day’s closing price and trading volume 

information for the Shares will be 

published daily in the financial section 

of newspapers. Information regarding 

market price and trading volume of the 

Shares will be continually available on 

a real-time basis throughout the day on 

brokers’ computer screens and other 

electronic services. Quotation and last 

sale information for the Shares will be 

available via Nasdaq proprietary quote 

and trade services, as well as in 

accordance with the Unlisted Trading 

Privileges and the Consolidated Tape 

Association (‘‘CTA’’) plans for the 

Shares and for the following U.S. 

securities, to the extent that they are 

exchange-listed securities: Work Out 

Securities, Non-Convertible Preferred 

Securities, Equity-Related Warrants, 

convertible fixed income securities and 

ETFs. Price information for U.S. 

exchange-listed options will be 

available via the Options Price 

Reporting Authority and for other U.S. 

exchange-listed derivative instruments 


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67Broker-dealers that are FINRA member firms 

have an obligation to report transactions in 

specified debt securities to TRACE to the extent 

required under applicable FINRA rules. Generally, 

such debt securities will have at issuance a maturity 

that exceeds one calendar year. For fixed income 

securities that are not reported to TRACE, (i) 

intraday price quotations will generally be available 

from broker-dealers and trading platforms (as 

applicable) and (ii) price information will be 

available from feeds from market data vendors, 

published or other public sources, or online 

information services, as described above. 68See 17 CFR 240.10A–3. 

69FINRA surveils trading on the Exchange 

pursuant to a regulatory services agreement. The 

Exchange is responsible for FINRA’s performance 

under this regulatory services agreement. 

70For a list of the current members of ISG, see 

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

components of the Disclosed Portfolio may trade on 

markets that are members of ISG or with which the 

Continued 

will be available from the applicable 

listing exchange and from major market 

data vendors. Price information for 

restricted securities, including 

Regulation S and Rule 144A 

instruments, will be available from 

major market data vendors. Money 

Market Funds are typically priced once 

each Business Day and their prices will 

be available through the applicable 

fund’s website or from major market 

data vendors. 

For exchange-listed securities 

(including foreign exchange-listed 

securities), equities traded in the overthe-counter market (including Work Out 

Securities, Non-Convertible Preferred 

Securities and ETFs), Exchange-Traded 

Derivatives, OTC Derivatives, Debt and 

fixed income securities (including 

convertible fixed income securities), 

warrants on fixed income securities and 

Equity-Related Warrants, intraday price 

quotations will generally be available 

from broker-dealers and trading 

platforms (as applicable). Price 

information will also be available from 

feeds from market data vendors, 

published or other public sources, or 

online information services for 

exchange-listed securities (including 

foreign exchange-listed securities), 

equities traded in the over-the-counter 

market (including Work Out Securities, 

Non-Convertible Preferred Securities 

and ETFs), Exchange-Traded 

Derivatives, Debt and fixed income 

securities, warrants on fixed income 

securities and Equity-Related Warrants. 

Additionally, the Trade Reporting and 

Compliance Engine (‘‘TRACE’’) of the 

Financial Industry Regulatory Authority 

(‘‘FINRA’’) will be a source of price 

information for corporate bonds, 

privately-issued securities, MBS and 

ABS, to the extent transactions in such 

securities are reported to TRACE.67

Intraday and other price information 

related to U.S. government securities, 

Money Market Funds, and other cash 

equivalents that are traded over-thecounter also will be available through 

subscription services, such as 

Bloomberg, Markit and Thomson 

Reuters, which can be accessed by APs 

and other investors. Electronic 

Municipal Market Access (‘‘EMMA’’) 

will be a source of price information for 

municipal bonds. Pricing for repurchase 

transactions and reverse repurchase 

agreements entered into by the Fund are 

not publicly reported. Prices are 

determined by negotiation at the time of 

entry with counterparty brokers, dealers 

and banks. 

Additional information regarding the 

Fund and the Shares, including 

investment strategies, risks, creation and 

redemption procedures, fees, Fund 

holdings’ disclosure policies, 

distributions and taxes will be included 

in the Registration Statement. Investors 

will also be able to obtain the SAI, the 

Fund’s annual and semi-annual reports 

(together, ‘‘Shareholder Reports’’), and 

its Form N–CSR and Form N–SAR, filed 

twice a year, except the SAI, which is 

filed at least annually. The Fund’s SAI 

and Shareholder Reports will be 

available free upon request from the 

Fund, and those documents and the 

Form N–CSR and Form N–SAR may be 

viewed on-screen or downloaded from 

the Commission’s website at 

www.sec.gov. 

Initial and Continued Listing 

The Shares will be subject to Nasdaq 

Rule 5735, which sets forth the initial 

and continued listing criteria applicable 

to Managed Fund Shares. The Exchange 

represents that, for initial and continued 

listing, the Fund must be in compliance 

with Rule 10A–3 68 under the Act. A 

minimum of 100,000 Shares will be 

outstanding at the commencement of 

trading on the Exchange. The Exchange 

will obtain a representation from the 

issuer of the Shares that the NAV per 

Share will be calculated daily and that 

the NAV and the Disclosed Portfolio 

will be made available to all market 

participants at the same time. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund. Nasdaq will halt trading in 

the Shares under the conditions 

specified in Nasdaq Rules 4120 and 

4121, including the trading pauses 

under Nasdaq Rules 4120(a)(11) and 

(12). Trading may be halted because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable. These may 

include: (1) The extent to which trading 

is not occurring in the securities and/or 

the other assets constituting the 

Disclosed Portfolio of the Fund; or (2) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Nasdaq 

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

circumstances under which Shares of 

the Fund may be halted. 

Trading Rules 

Nasdaq deems the Shares to be equity 

securities, thus rendering trading in the 

Shares subject to Nasdaq’s existing rules 

governing the trading of equity 

securities. Nasdaq will allow trading in 

the Shares from 4:00 a.m. until 8:00 

p.m., E.T. The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions. As 

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

minimum price variation for quoting 

and entry of orders in Managed Fund 

Shares traded on the Exchange is $0.01. 

Surveillance 

The Exchange represents that trading 

in the Shares will be subject to the 

existing trading surveillances, 

administered by both Nasdaq and also 

FINRA on behalf of the Exchange, 

which are designed to detect violations 

of Exchange rules and applicable federal 

securities laws.69 The Exchange 

represents that these procedures are 

adequate to properly monitor Exchange 

trading of the Shares in all trading 

sessions and to deter and detect 

violations of Exchange rules and 

applicable federal securities laws. 

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

When such situations are detected, 

surveillance analysis follows and 

investigations are opened, where 

appropriate, to review the behavior of 

all relevant parties for all relevant 

trading violations. 

FINRA, on behalf of the Exchange, 

will communicate as needed regarding 

trading in the Shares and the exchangelisted securities and instruments held 

by the Fund (including ETFs, exchangelisted equities, exchange-listed options, 

futures contracts and exchange-listed 

swaps) with other markets and other 

entities that are members of ISG and 

with which the Exchange has 

comprehensive surveillance sharing 

agreements,70 and FINRA and the 


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1074 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

71As noted above, no more than 10% of the net 

assets of the Fund may be invested in ExchangeTraded Derivatives whose principal market is not 

a member of ISG or a market with which the 

Exchange has a comprehensive surveillance sharing 

agreement. 

72As noted above, the Fund will limit its 

investments in illiquid securities or other illiquid 

assets to an aggregate amount of 15% of its net 

assets (calculated at the time of investment), as 

required by the Commission. 

73As noted above, the Fund will not invest in 

leveraged, inverse or inverse leveraged ETFs. 

Exchange both may obtain information 

regarding trading in the Shares, the 

exchange-listed securities, derivatives 

and other instruments held by the Fund 

from markets and other entities that are 

members of ISG, which include 

securities and futures exchanges and 

swap execution facilities, or with which 

the Exchange has in place a 

comprehensive surveillance sharing 

agreement.71 Moreover, FINRA, on 

behalf of the Exchange, will be able to 

access, as needed, trade information for 

certain fixed income securities held by 

the Fund reported to FINRA’s TRACE 

and, with respect to municipal 

securities, EMMA. 

All of the Fund’s net assets that are 

invested in equity securities other than 

Work Out Securities that are exchangelisted (which consist of NonConvertible-Preferred Securities and 

Equity-Related Warrants that are 

exchange-listed, and ETFs) will be 

invested in securities that trade in 

markets that are members of ISG or are 

parties to a comprehensive surveillance 

sharing agreement with the Exchange. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

Information Circular 

Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (1) The 

procedures for purchases and 

redemptions of Shares in Creation Units 

(and that Shares are not individually 

redeemable); (2) Nasdaq Rule 2111A, 

which imposes suitability obligations on 

Nasdaq members with respect to 

recommending transactions in the 

Shares to customers; (3) how 

information regarding the Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (4) the risks 

involved in trading the Shares during 

the Pre-Market and Post-Market 

Sessions when an updated Intraday 

Indicative Value will not be calculated 

or publicly disseminated; (5) the 

requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (6) trading information. 

The Information Circular will also 

discuss any exemptive, no-action and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Fund. Members 

purchasing Shares from the Fund for 

resale to investors will deliver a 

prospectus to such investors. The 

Information Circular will also discuss 

any exemptive, no-action and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

Additionally, the Information Circular 

will reference that the Fund is subject 

to various fees and expenses described 

in the Registration Statement. The 

Information Circular will also disclose 

the trading hours of the Shares of the 

Fund and the applicable NAV 

Calculation Time for the Shares. The 

Information Circular will disclose that 

information about the Shares of the 

Fund will be publicly available on the 

Fund’s website. 

Continued Listing Representations 

All statements and representations 

made in this filing regarding (a) the 

description of the portfolio or reference 

assets, (b) limitations on portfolio 

holdings or reference assets, (c) 

dissemination and availability of the 

reference asset or intraday indicative 

values, or (d) the applicability of 

Exchange listing rules shall constitute 

continued listing requirements for 

listing the Shares on the Exchange. In 

addition, the issuer has represented to 

the Exchange that it will advise the 

Exchange of any failure by the Fund to 

comply with the continued listing 

requirements, and, pursuant to its 

obligations under Section 19(g)(1) of the 

Act, the Exchange will monitor for 

compliance with the continued listing 

requirements. If the Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

the Nasdaq 5800 Series. 

2. Statutory Basis 

Nasdaq believes that the proposal is 

consistent with Section 6(b) of the Act 

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

in particular in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, and to remove 

impediments to and perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed and traded on the Exchange 

pursuant to the initial and continued 

listing criteria in Nasdaq Rule 5735. The 

Exchange represents that trading in the 

Shares will be subject to the existing 

trading surveillances, administered by 

both the Exchange and FINRA, on 

behalf of the Exchange, which are 

designed to deter and detect violations 

of Exchange rules and applicable federal 

securities laws and are adequate to 

properly monitor trading in the Shares 

in all trading sessions. The Manager and 

the Sub-Advisers are affiliated with a 

broker-dealer and have implemented, 

and will maintain, a fire wall with 

respect to its broker-dealer affiliate 

regarding access to information 

concerning proposed changes to the 

composition and/or changes to the 

Fund’s portfolio prior to 

implementation. In addition, paragraph 

(g) of Nasdaq Rule 5735 further requires 

that personnel who make decisions on 

an investment company’s portfolio 

composition must be subject to 

procedures designed to prevent the use 

and dissemination of material, nonpublic information regarding the 

investment company’s portfolio. 

The Fund’s investments, including 

derivatives, will be consistent with the 

Fund’s investment objectives, 

applicable legal requirements 72 and 

will not be used for the purpose of 

seeking leveraged returns or 

performance that is the multiple or 

inverse multiple of a benchmark 

(although derivatives may have 

embedded leverage). Although the Fund 

will be permitted to borrow as permitted 

under the 1940 Act, it will not be 

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

will not be operated in a manner 

designed to seek leveraged returns or a 

multiple or inverse multiple of the 

performance of an underlying reference 

index.73 The Fund may engage in 

frequent and active trading of portfolio 

investments to achieve its investment 

objective. 

The Exchange believes that, 

notwithstanding that the Fund would 

not meet all of the ‘‘generic’’ listing 


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74See, e.g., Securities Exchange Act Release Nos. 

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

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

for the listing of shares of the PIMCO Total Return 

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

(granting approval to the use of derivatives by the 

PIMCO Total Return Exchange Traded Fund); and 

76719 (December 21, 2015) (granting approval for 

the listing of shares of the Guggenheim Total Return 

Bond ETF). 

75As previously noted, the mark-to-market 

approach is consistent with the valuation 

methodology for derivatives for asset coverage 

purposes advocated by the Commission in proposed 

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

Rule Proposing Release. In a white paper published 

by staff of the Division of Economic and Risk 

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

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

staff of DERA noted that a derivative’s notional 

amount does not accurately reflect the risk of the 

derivative. See Daniel Deli, Paul Hanouna, Christof 

Stahel, Yue Tang and William Yost, Use of 

Derivatives by Registered Investment Companies 

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

are drawbacks to using notional amounts. First, 

because of differences in expected volatilities of the 

underlying assets, notional amounts of derivatives 

across different underlying asset generally do not 

represent the same unit of risk. For example, the 

level of risk associated with a $100 million notional 

of a S&P500 index futures is not equivalent to the 

level of risk of a $100 million notional of interest 

rate swaps, currency forwards or commodity 

futures.’’). 

76For purposes of this requirement, the weight of 

the Fund’s exposure to Private ABS/MBS 

referenced in derivatives shall be calculated based 

on the mark-to-market value or exposure of such 

derivatives. 

77See Securities Exchange Act Release No. 69061 

(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR– 

NYSEArca-2013–01) (approving investments in 

non-agency commercial MBS and non-agency 

residential MBS without a fixed limit but consistent 

with the fund’s objective of investing up to 80% of 

its assets in investment grade fixed-income 

securities). 

78The Sub-Adviser, using data from TRACE, 

compiled weekly trading data for Private ABS/MBS 

over a period of three years. A chart summarizing 

this data, which is available at https://

www.leggmason.com/content/dam/legg-mason/ 

documents/en/regulatory-documents/letters-andnotices/abs-mbs-trading-activity.pdf, shows that 

Private ABS/MBS experienced regular and 

reasonable liquidity over the prior three-year 

period. During that time period the weekly trading 

activity for non-agency, non-GSE residential MBS 

ranged from approximately $16 billion to $48 

billion (including both investment grade and noninvestment grade), the weekly trading activity for 

non-agency, non-GSE commercial MBS has ranged 

from approximately $21 billion to $57 billion 

(including both investment grade and noninvestment grade), and the weekly trading activity 

for non-agency, non-GSE ABS (other than MBS) 

ranged from approximately $17 billion to $35 

billion (including both investment grade and noninvestment grade). 

79Although foreign Private ABS/MBS are not 

trade-reported through TRACE, foreign Private 

ABS/MBS, as of the date of this application, are 

expected to constitute a very small percentage of 

the Fund’s net assets. Based on the Fund’s strategy 

and current market conditions, foreign Private ABS/ 

MBS, as of the date of this application, are expected 

to constitute approximately 1% of the Fund’s net 

assets, but that percentage could change in the 

future. 

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

the Fund will not be subject to 

manipulation, the investments of the 

Fund will be able to be monitored and 

surveilled by the Exchange and risks 

will be mitigated by alternative limits 

imposed by the Exchange. As a result, 

it is in the public interest to approve 

listing and trading of Shares of the Fund 

on the Exchange pursuant to the 

requirements set forth herein. 

Deviations from the generic 

requirements are necessary for the Fund 

to achieve its investment objective in a 

cost-effective manner that maximizes 

investors’ returns and to manage the 

risks associated with its investments, 

and the Exchange proposes that the 

Fund will be required to comply with 

alternative requirements that are 

customized to address the objectives of 

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

herein. Further, the strategy and 

investments of the Fund are 

substantially similar to those of other 

ETFs previously approved by the 

Commission, which have operated 

safely and without disrupting the 

market for several years.74

The Fund will not comply with the 

requirements in Nasdaq Rule 5735(b)(1) 

regarding the use of aggregate gross 

notional value or exposure of 

derivatives when calculating the weight 

of such derivatives or the exposure that 

such derivatives provide to underlying 

reference assets, including the 

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

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

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

proposes that for the purposes of any 

applicable requirements under Nasdaq 

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

requirements proposed by the Exchange, 

the Fund will use the mark-to-market 

value or exposure of its derivatives in 

calculating the weight of such 

derivatives or the exposure that such 

derivatives provide to their reference 

assets. The Exchange believes that this 

alternative requirement is appropriate 

because the mark-to-market value or 

exposure is a more accurate 

measurement of the actual exposure 

incurred by the Fund in connection 

with a derivatives position.75

The Fund will not meet the 

requirement in Nasdaq Rule 

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

in the Fund’s portfolio account, in the 

aggregate, for no more than 20% of the 

weight of the fixed income portion of 

the Fund’s portfolio. However, the Fund 

will limit the holdings in Private ABS/ 

MBS to 30% of the weight of the fixed 

income portion of the Fund’s 

portfolio.76 The Exchange believes that 

this limitation on the Fund’s investment 

in Private ABS/MBS, which is 

consistent with a similar limitation in a 

previous filing for the listing of an ETF 

approved by the Commission,77 is 

appropriate to provide the Fund with 

sufficient flexibility to invest in Private 

ABS/MBS, while still imposing a 

reasonable limit on such investments, 

consistent with the mandate in Section 

6(b) of the Act to facilitate transactions 

in securities while protecting investors 

and the public interest. Private ABS/ 

MBS held by the Fund are expected to 

provide investors with: (i) 

Diversification as compared to a 

portfolio more heavily weighted 

towards agency and GSE ABS and MBS 

(‘‘Government ABS/MBS’’), municipal 

securities and investment grade 

corporate debt; (ii) the potential for 

higher returns; and (iii) reasonable 

liquidity. Although the higher threshold 

will include a broader spectrum of 

credit quality among the issuers, this 

moderately increased risk can be 

appropriately addressed through 

disclosure and substantially mitigated 

through the careful credit monitoring 

performed by the Sub-Adviser. In 

addition, current economic conditions, 

which include robust growth and 

economic strength, are significant 

mitigants to the risk of credit 

deterioration. The Sub-Adviser seeks to 

maximize the Fund’s investments in 

Private ABS/MBS during economic 

periods, such as that currently 

experienced in the U.S., of robust 

growth. To the extent that the economy 

were to weaken, the Sub-Adviser would 

re-evaluate the level at which the Fund 

seeks to invest in Private ABS/MBS. 

Given the benefits provided, including, 

most importantly, the opportunity for a 

fixed income investor to diversify the 

portfolio across fixed income classes 

and earn marginally greater returns, 

together with the protections of credit 

monitoring and liquidity management 

provided by the Sub-Adviser, the 

Exchange believes that a 30% limit, 

rather than the 20% limit used by the 

generic listing standard, is appropriate. 

Private ABS/MBS include a number 

of different types of securitized debt 

products, including credit card debt, 

student loans, auto debt and residential 

and commercial mortgage debt. 

Investment in a variety of sectors, rather 

than simply residential mortgages 

comprising Government ABS/MBS, 

reduces concentration and diversifies 

sources of risk. Private ABS/MBS held 

by the Fund will be generally liquid 

instruments.78 The Sub-Adviser will be 

able to trade out of the instruments that 

do not satisfy Fund credit and other 

criteria. U.S. Private ABS/MBS are 

trade-reported through TRACE,79 and 


sradovich on DSK3GMQ082PROD with NOTICES
1076 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 

80As part of these policies and procedures, the 

Sub-Adviser rates the liquidity of the Fund’s 

investments (including Private ABS/MBS) using 

data on bid-ask spreads on the investments and 

haircut requirements for the investment when they 

are delivered in connection with repurchase 

agreements. 

81The Sub-Adviser has a fixed-income 

investment team that maintains and updates credit 

opinions on all Private ABS/MBS investments made 

by the team on an ongoing basis. This research 

allows the investment team to form a 

comprehensive view of the collateral pool 

associated with an investment. The team works 

with legal professionals as well to understand and 

track the legal documents associated with each 

distinct deal structure. 

82Nasdaq Rule 5735(b)(1)(B)(iv) provides that 

component securities that in the aggregate account 

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

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

that are required to file reports pursuant to Sections 

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

a worldwide market value of its outstanding 

common equity held by non-affiliates of $700 

million or more; (c) from issuers that have 

outstanding securities that are notes, bonds 

debentures, or evidence of indebtedness having a 

total remaining principal amount of at least $1 

billion; (d) exempted securities as defined in 

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

are a government of a foreign country or a political 

subdivision of a foreign country. 

83Private ABS/MBS are generally issued by 

special purpose vehicles, so the criteria in Nasdaq 

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

capitalization and the remaining principal amount 

of an issuer’s securities are typically unavailable 

with respect to Private ABS/MBS, even though such 

Private ABS/MBS may own significant assets. 

84For purposes of this requirement, the weight of 

the Fund’s exposure to any fixed income securities 

referenced in derivatives shall be calculated based 

on the mark-to-market value or exposure of such 

derivatives. 

85Nasdaq Rule 5735(b)(1)(A)(i)(e) generally 

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

national securities exchange. The Exchange notes 

that shares of Money Market Funds are not 

considered equity securities for the purposes of 

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

limitation on the percentage of the Fund’s portfolio 

invested in shares of Money Market Funds, in 

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

86These other equities will consist of ETFs 

(including money market ETFs) that provide 

exposure to fixed income securities and Debt. The 

weight of such ETFs in the Fund’s portfolio shall 

not be limited. 

87See Securities Exchange Act Release No. 80657 

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

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

fund’s assets (calculated on the basis of aggregate 

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

currency, interest rate, or credit risk arising from 

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

88Trading in foreign exchange markets averaged 

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

trading activity was in derivatives contracts such as 

currency or foreign exchange forwards, options and 

swaps (with the other 33% consisting of spot 

transactions). See Bank for International 

Settlements, Triennal Central Bank Survey, Foreign 

Exchange Turnover in April 2016, available at 

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

November 2017). Trading in OTC interest rate 

derivatives averaged $2.7 trillion per day in April 

2016. See Bank for International Settlements, 

Triennal Central Bank Survey, OTC Interest Rate 

Derivatives Turnover in April 2016, available at 

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

November 2017). 

the Sub-Adviser and the Fund will 

maintain liquidity policies and 

procedures pursuant to which the SubAdviser will monitor the liquidity of the 

Fund’s Private ABS/MBS investments 

and continuously manage any 

associated risks.80 The instruments are 

cleared through The Depository Trust 

Company. 

The Fund carries out its own credit 

analysis of Private ABS/MBS issuers 81

and conducts an extensive analysis of 

the features of the proposed 

investments. The features that the Fund 

looks for in selecting Private ABS/MBS 

include good credit quality, liquidity, 

bankruptcy remoteness, lower 

prepayment risk, overcollateralization, 

excess spread, amortization, 

professional servicing for and reporting 

to investors, and diversity of payers 

within each underlying pool. The SubAdviser regularly monitors the credit 

quality of the issuers of Private ABS/ 

MBS for compliance with the credit 

quality, liquidity and other investment 

requirements. 

The Fund will not meet the 

requirement that at least 90% of the 

fixed income weight of the Fund’s 

portfolio meet one of the criteria in 

Nasdaq Rule 5735(b)(1)(B)(iv) 82 because 

some Private ABS/MBS cannot satisfy 

the criteria in Nasdaq Rule 

5735(b)(1)(B)(iv).83 The Exchange 

proposes, in the alternative, to require 

the Fund to ensure that the investments 

in the fixed income portion of the 

Fund’s portfolio other than Private ABS/ 

MBS comply with the 90% requirement 

in Nasdaq Rule 5735(b)(1)(B)(iv).84 The 

Exchange believes that this alternative 

limitation is appropriate because 

Nasdaq Rule 5735(b)(1)(B)(iv) does not 

appear to be designed for structured 

finance vehicles such as Private ABS/ 

MBS, and the overall weight of Private 

ABS/MBS held by the Fund will be 

limited to 30% of the fixed income 

portion of the Fund’s portfolio, as 

described above. As discussed above, 

although Private ABS/MBS will be 

excluded for the purposes of 

compliance with Nasdaq Rule 

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

consistent with the statutory standard as 

a result of the diversification provided 

by the investments, the benefits related 

to the opportunity for higher returns, 

and the Sub-Adviser’s selection process, 

which closely monitors investments to 

ensure maintenance of credit and 

liquidity standards and relies on the 

higher investment levels in these 

instruments during periods of U.S. 

economic strength. 

The Fund will not meet the equity 

requirements in Nasdaq Rule 

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

Out Securities and Equity-Related 

Warrants, but will satisfy these 

requirements with respect to the ETFs 

in which the Fund will invest.85 In 

order to reflect this deviation, the 

Exchange proposes that (i) the Fund’s 

investments in equity securities other 

than Non-Convertible Preferred 

Securities, Work Out Securities and 

Equity-Related Warrants shall comply 

with the equity requirements in Nasdaq 

Rule 5735(b)(1)(A) 86 and (ii) the weight 

of Non-Convertible Preferred Securities, 

Equity-Related Warrants and Work Out 

Securities in the Fund’s portfolio shall 

together not exceed 30% of the Fund’s 

net assets. The Exchange believes that 

these alternative limitations are 

appropriate in light of the fact that the 

Non-Convertible Preferred Securities, 

Equity-Related Warrants and Work Out 

Securities are providing debt-oriented 

exposures or are received in connection 

with the Fund’s previous investment in 

Debt or fixed income securities, and all 

of the other equity securities held by the 

Fund will comply with the 

requirements of Nasdaq Rule 

5735(b)(1)(A). 

The Fund will not meet the 

requirement in Nasdaq Rule 

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

the assets in the Fund’s portfolio may be 

invested in over-the-counter derivatives. 

The Fund proposes that no limit be 

placed on Interest Rate and Currency 

Derivatives, which are necessary and 

appropriate to allow the Manager and 

Sub-Advisers to risk manage the Fund, 

but that the weight of all other OTC 

Derivatives (e.g., credit default swaps) 

be limited to 10% of the net assets in 

the Fund’s portfolio. For purposes of 

this 10% limit on OTC Derivatives, the 

weight of such OTC Derivatives will be 

calculated based on the mark-to-market 

value or exposure of such OTC 

Derivatives. The Exchange believes that 

this alternative requirement, which is 

generally consistent with the 

requirement in a previous filing for the 

listing of an ETF approved by the 

Commission,87 is appropriate in light of 

the fact that Interest Rate and Currency 

Derivatives are among the most liquid 

investment instruments (including not 

only derivatives but also securities) in 

the market 88 (and are even more liquid 

than most non-government or 

government-guaranteed securities). 

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

these derivatives are among the most 

liquid investments traded. In addition, 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 1077 

89Transactions in Interest Rate and Currency 

Derivatives are required to be reported to a swap 

data repository, and transactions in Interest Rate 

Derivatives and certain Currency Derivatives (i.e., 

Currency Derivatives that are not excluded from the 

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

publicly reported pursuant to rules issued by the 

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

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

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

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

definition of ‘‘foreign exchange forwards’’ or 

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

(25) of the CEA that are entered into between 

eligible contract participants (as defined in the 

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

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

CEA. See Determination of Foreign Exchange Swaps 

and Foreign Exchange Forwards Under the 

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

2012). However, as noted above, transactions in 

such Excluded Currency Derivatives are required to 

be reported to a swap data repository, but they are 

not subject to the public reporting requirements. 

90 Interest Rate Derivatives and Currency 

Derivatives other than Excluded Currency 

Derivatives are comprehensively regulated as swaps 

under the CEA and regulations issued thereunder 

by the CFTC and other federal financial regulators. 

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

requirements for swap dealers, business conduct 

standards for swap dealers, and swap 

documentation requirements); 17 CFR part 50 

(clearing requirements for swaps). While Excluded 

Currency Derivatives are not subject to all swap 

regulations, they are subject to the ‘‘business 

conduct standards’’ adopted by the CFTC pursuant 

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

Determination of Foreign Exchange Swaps and 

Foreign Exchange Forwards Under the Commodity 

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

91For purposes of this 10% limit, the weight of 

such Exchange-Traded Derivatives will be 

calculated based on the mark-to-market value or 

exposure of such Exchange-Traded Derivatives. 

92See CME Group, Interest Rate Futures Liquidity 

Metrics Reach New Highs (October 6, 2017), 

available at http://www.cmegroup.com/education/ 

interest-rates-liquidity-metrics-reach-newhighs.html (accessed November 2017) (providing 

statistics regarding liquidity and open interest in 

futures and options on Eurodollars and Treasury 

Securities, including that during the first three 

quarters of 2017, Eurodollar futures and options 

traded through CME Group had an average daily 

open interest of approximately 53 million contracts 

and futures and options on Treasury Securities had 

an average daily open interest of approximately 15 

million contracts); The Montreal Exchange, 

Statistics for Interest Rate Derivatives, Index 

Derivatives and Equity Derivatives (September 

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

1709_stats_en.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures and options on Canadian 

sovereign debt, including that, as of September 

2017, the open interest in futures and options on 

Canadian sovereign debt traded on The Montreal 

Exchange was approximately 560,000 contracts); 

Eurex Exchange, Benchmark Fixed Income 

Derivatives, available at https://

www.eurexchange.com/blob/115654/4c51e4b8

bc77355475b3b6f46afc0ef1/data/factsheet_eurex_

benchmark_fixed_income_derivatives.pdf (accessed 

November 2017) (providing statistics regarding 

liquidity and open interest in futures and options 

on German sovereign debt, including that, as of July 

2015, the open interest in futures on German 

sovereign debt traded on Eurex was approximately 

3,000,000 contracts and the open interest in options 

on German sovereign debt futures traded on Eurex 

was approximately 3,000,000 contracts); Eurex 

Exchange, Eurex Exchange Euro-BTP Futures, 

Italian Government Bond Futures, available at 

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

6a1281939d15ddbab960af40da6f11dc/data/ 

factsheet_eurex_euro_btp_futures_on_italian_

government_bonds.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures on Italian sovereign debt, 

including that the open interest peaks in 2017 for 

futures on long-term and short-term Italian 

sovereign debt traded on Eurex was approximately 

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

Exchange, Euro-OAT Derivatives, French 

Government Bond Futures and Options, available at 

http://www.eurexchange.com/blob/115652/48198ec

577f7b3b0ac44d4c5a39ed0de/data/factsheet_

eurex_euro_oat_futures_on_french_government_

bonds.pdf (accessed November 2017) (providing 

statistics regarding liquidity and open interest in 

futures on French sovereign debt, including that, as 

of July 2017, the open interest in futures on longterm French sovereign debt traded on Eurex was 

approximately 600,000 contracts); Intercontinental 

Exchange, Gilt Futures Overview, available at 

https://www.theice.com/publicdocs/futures/Gilt_

Futures_Overview.pdf (accessed November 2017) 

(providing statistics regarding liquidity and open 

interest in futures on British sovereign debt, 

including that, as of the third quarter of 2014, the 

open interest in futures on long-term British 

sovereign debt traded on the Intercontinental 

Exchange was approximately 400,000 contracts); 

Osaka Exchange, Japanese Government Bond 

Futures & Options, available at http://

www.jpx.co.jp/english/derivatives/products/jgb/jgbfutures/tvdivq0000003n94-att/JGB_FUT_OP_E.pdf 

(accessed November 2017) (providing statistics 

regarding liquidity and open interest in futures and 

options on Japanese sovereign debt, including that 

as of July 2016, the open interest in futures on 10- 

year Japanese sovereign debt traded on the Osaka 

Exchange was approximately 80,000 contracts). The 

Exchange also notes that the Commission has 

previously granted exemptions under the Act to 

facilitate the trading of futures on sovereign debt 

issued by each of the Group of Seven countries 

(among other countries) and that such exemptions 

were based in part on the Commission’s assessment 

of the sufficiency of the credit ratings and liquidity 

of such sovereign debt. See 17 CFR 240.3a12–8; 

Securities Exchange Act Release No. 41453 (May 

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

93For purposes of this requirement, the weight of 

the applicable derivatives will be calculated based 

on the mark-to-market value or exposure of such 

derivatives. 

most Interest Rate Derivatives traded by 

the Fund are centrally cleared by 

regulated clearing firms, and Interest 

Rate and Currency Derivatives are 

subject to trade reporting,89 and other 

robust regulation.90 Given the size of the 

trading market and the regulatory 

oversight of the markets, the Exchange 

believes that Interest Rate and Currency 

Derivatives are not readily subject to 

manipulation. The Exchange also 

believes that allowing the Fund to risk 

manage its portfolio through the use of 

Interest Rate and Currency Derivatives 

without limit is necessary to allow the 

Fund to achieve its investment objective 

and protect investors. 

The Fund will not comply with the 

requirement in Nasdaq Rule 

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

weight of the Fund’s holdings in 

futures, exchange-traded options, and 

listed swaps shall, on both an initial and 

continuing basis, consist of futures, 

options, and swaps for which the 

Exchange may obtain information via 

the ISG from other members or affiliates 

of the ISG, or for which the principal 

market is a market with which the 

Exchange has a comprehensive 

surveillance sharing agreement. Instead, 

the Exchange proposes that no more 

than 10% of the net assets of the Fund 

will be invested in Exchange-Traded 

Derivatives whose principal market is 

not a member of ISG or is a market with 

which the Exchange does not have a 

comprehensive surveillance sharing 

agreement.91 The Exchange believes that 

this alternative limitation is appropriate 

because the overall limit on ExchangeTraded Derivatives whose principal 

market is not a member of ISG or is a 

market with which the Exchange does 

not have a comprehensive surveillance 

sharing agreement will still be low 

relative to the overall size of the Fund. 

The Fund will not meet the 

requirement in Nasdaq Rule 

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

notional value of listed derivatives 

based on any five or fewer underlying 

reference assets shall not exceed 65% of 

the weight of the Fund’s portfolio 

(including gross notional exposures), 

and the aggregate gross notional value of 

listed derivatives based on any single 

underlying reference asset shall not 

exceed 30% of the weight of the Fund’s 

portfolio (including gross notional 

exposures) because the Fund may 

maintain significant positions in 

Eurodollar and G–7 Sovereign Futures 

and Options. The Manager has indicated 

that obtaining exposure to these 

investments through futures contracts is 

often the most cost efficient method to 

achieve such exposure. The Exchange 

notes that Eurodollar and G–7 Sovereign 

Futures and Options are highly liquid 

investments 92 and are not subject to the 

same concentration risks as ExchangeTraded Derivatives referencing other 

assets because of such liquidity. 

Further, the Exchange notes that the 

significantly diminished risk of 

Treasury Securities is reflected in their 

exclusion from the concentration 

requirements applicable to fixed income 

securities in Nasdaq Rule 

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

proposes that the Fund will comply 

with the concentration requirements in 

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

with respect to the Fund’s investment in 

Eurodollar and G–7 Sovereign Futures 

and Options.93 The Exchange believes 

that this alternative limitation is 

appropriate to provide the Fund with 

sufficient flexibility and because of the 

highly liquid and transparent nature of 


sradovich on DSK3GMQ082PROD with NOTICES
1078 Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 

94Broker-dealers that are FINRA member firms 

have an obligation to report transactions in 

specified debt securities to TRACE to the extent 

required under applicable FINRA rules. Generally, 

such debt securities will have at issuance a maturity 

that exceeds one calendar year. For fixed income 

securities that are not reported to TRACE, (i) 

intraday price quotations will generally be available 

from broker-dealers and trading platforms (as 

applicable) and (ii) price information will be 

available from market data vendors, as described 

above. 

Eurodollar and G–7 Sovereign Futures 

and Options. Further, as described 

above, the G–7 Sovereign Futures and 

Options in which the Fund invests will 

be listed on an exchange that is an ISG 

member or an exchange with which the 

Exchange has a comprehensive 

surveillance sharing agreement. 

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that the Exchange will 

obtain a representation from the issuer 

of the Shares that the NAV per Share 

will be calculated daily every day that 

the Fund is traded, and that the NAV 

and the Disclosed Portfolio will be made 

available to all market participants at 

the same time. In addition, a large 

amount of information will be publicly 

available regarding the Fund and the 

Shares, thereby promoting market 

transparency. 

Moreover, the Intraday Indicative 

Value, available on the Nasdaq 

Information LLC proprietary index data 

service, will be widely disseminated by 

one or more major market data vendors 

at least every 15 seconds during the 

Exchange’s Regular Market Session. On 

each Business Day, before 

commencement of trading in the Shares 

in the Regular Market Session on the 

Exchange, the Fund will disclose on its 

website the Disclosed Portfolio of the 

Fund that will form the basis for the 

Fund’s calculation of NAV at the end of 

the Business Day. Information regarding 

market price and trading volume of the 

Shares will be conditionally available 

on a real-time basis throughout the day 

on brokers’ computer screens and other 

electronic services. Quotation and last 

sale information for the Shares will be 

available via Nasdaq proprietary quote 

and trade services, as well as in 

accordance with the Unlisted Trading 

Privileges and the CTA plans for the 

Shares and for the following U.S. 

securities, to the extent they are 

exchange-listed: Work Out Securities, 

Non-Convertible Preferred Securities, 

Equity-Related Warrants, convertible 

fixed income securities and ETFs. Price 

information for U.S. exchange-listed 

options will be available via the Options 

Price Reporting Authority and for other 

U.S. exchange-listed derivative 

instruments will be available from the 

applicable listing exchange and from 

major market data vendors. Price 

information for restricted securities, 

including Regulation S and Rule 144A 

instruments, will be available from 

major market data vendors, brokerdealers and trading platforms. Money 

Market Funds are typically priced once 

each Business Day and their prices will 

be available through the applicable 

fund’s website or from major market 

data vendors. 

For exchange-listed securities 

(including foreign exchange-listed 

securities), equities traded in the overthe-counter market (including Work Out 

Securities, Non-Convertible Preferred 

Securities and ETFs), Exchange-Traded 

Derivatives, OTC Derivatives, Debt and 

fixed income securities (including 

convertible fixed income securities), 

warrants on fixed income securities and 

Equity-Related Warrants, intraday price 

quotations will generally be available 

from broker-dealers and trading 

platforms (as applicable). Price 

information will also be available from 

feeds from market data vendors, 

published or other public sources, or 

online information services for 

exchange-listed securities (including 

foreign exchange-listed securities), 

equities traded in the over-the-counter 

market (including Work Out Securities, 

Non-Convertible Preferred Securities 

and ETFs), Exchange-Traded 

Derivatives, Debt and fixed income 

securities, warrants on fixed income 

securities and Equity-Related Warrants. 

Additionally, TRACE will be a source of 

price information for corporate bonds, 

privately-issued securities, MBS and 

ABS, to the extent transactions in such 

securities are reported to TRACE.94

Intraday and other price information 

related to U.S. government securities, 

Money Market Funds, and other cash 

equivalents that are traded over-thecounter also will be available through 

subscription services, such as 

Bloomberg, Markit and Thomson 

Reuters, which can be accessed by APs 

and other investors. EMMA will be a 

source of price information for 

municipal bonds. Pricing for repurchase 

transactions and reverse repurchase 

agreements entered into by the Fund are 

not publicly reported. Prices are 

determined by negotiation at the time of 

entry with counterparty brokers, dealers 

and banks. 

The Fund’s website will include a 

form of the prospectus for the Fund and 

additional data relating to NAV and 

other applicable quantitative 

information. Moreover, prior to the 

commencement of trading, the Exchange 

will inform its members in an 

Information Circular of the special 

characteristics and risks associated with 

trading the Shares. Trading in the 

Shares of the Fund will be halted under 

the conditions specified in Nasdaq 

Rules 4120 and 4121 or because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable, and trading in 

the Shares will be subject to Nasdaq 

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

circumstances under which Shares of 

the Fund may be halted. In addition, as 

noted above, investors will have ready 

access to information regarding the 

Fund’s holdings, the Intraday Indicative 

Value, the Disclosed Portfolio, and 

quotation and last sale information for 

the Shares. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of activelymanaged ETF that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

For the above reasons, Nasdaq 

believes the proposed rule change is 

consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange believes that the proposed 

rule change will facilitate the listing and 

trading of an additional type of activelymanaged ETF that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

shall: (a) By order approve or 

disapprove such proposed rule change, 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices 1079 

95 17 CFR 200.30–3(a)(12). 

1Section 2(a)(48) of the Act defines a ‘‘BDC’’ to 

be any closed-end investment company that 

operates for the purpose of making investments in 

securities described in sections 55(a)(1) through 

55(a)(3) of the Act and makes available significant 

managerial assistance with respect to the issuers of 

such securities. 

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 rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2017–128 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2017–128. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2017–128 and 

should be submitted on or before 

January 30, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.95

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00161 Filed 1–8–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

32960; File No. 812–14821] 

Guggenheim Credit Income Fund, et 

al.; Notice of Application 

January 3, 2018. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice. 

Notice of application for an order 

under sections 17(d) and 57(i) of the 

Investment Company Act of 1940 (the 

‘‘Act’’) and rule 17d–1 under the Act to 

permit certain joint transactions 

otherwise prohibited by sections 17(d) 

and 57(a)(4) of the Act and rule 17d–1 

under the Act. 

SUMMARY OF APPLICATION: Applicants 

request an order to permit certain 

business development companies 

(‘‘BDC’’) and closed-end management 

investment companies to co-invest in 

portfolio companies with each other and 

with affiliated investment funds. 

APPLICANTS: Guggenheim Credit Income 

Fund (the ‘‘Fund’’) (f/k/a Carey Credit 

Income Fund); Guggenheim Partners 

Investment Management, LLC 

(‘‘Guggenheim’’); Guggenheim Funds 

Distributors, LLC, Guggenheim Funds 

Investment Advisors, LLC, Security 

Investors, LLC (collectively, together 

with Guggenheim, the ‘‘Existing 

Guggenheim Advisers’’); Guggenheim 

European Credit Fund, Guggenheim 

Private Debt Fund Note Issuer, LLC, 

Guggenheim Private Debt Fund, LLC, 

Guggenheim Private Debt Fund, Ltd., 

Guggenheim Private Debt Master Fund, 

LLC, Guggenheim Private Debt Fund 

Note Issuer 2.0, LLC, Guggenheim 

Private Debt Fund 2.0, LLC, 

Guggenheim Private Debt Fund 2.0, 

Ltd., Guggenheim Private Debt Master 

Fund 2.0, LLC, Guggenheim Private 

Debt MFLTB 2.0, LLC, NZC 

Guggenheim Fund LLC, NZC 

Guggenheim Fund Limited, NZC 

Guggenheim Master Fund Limited, 

NZCG Funding Ltd., NZCG Funding 2 

Limited, South Dock Funding Limited, 

NZCG Feeder I, L.P., NZCG Funding 2, 

LLC, NZCG Funding LLC, Guggenheim 

U.S. Loan Fund, Guggenheim U.S. Loan 

Fund II, Guggenheim U.S. Loan Fund 

III, Guggenheim Opportunistic U.S. 

Loan and Bond Fund IV, GFI Fund, and 

GHY Fund (collectively, the ‘‘Existing 

Affiliated Investors’’). 

FILING DATES: The application was filed 

on September 22, 2017, and amended 

on November 22, 2017. 

HEARING OR NOTIFICATION OF HEARING: 

An order granting the requested relief 

will be issued unless the Commission 

orders a hearing. Interested persons may 

request a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on January 29, 2018, and 

should be accompanied by proof of 

service on applicants, in the form of an 

affidavit or, for lawyers, a certificate of 

service. Pursuant to rule 0–5 under the 

Act, hearing requests should state the 

nature of the writer’s interest, any facts 

bearing upon the desirability of a 

hearing on the matter, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Commission’s Secretary. 

ADDRESSES: Secretary, U.S. Securities 

and Exchange Commission, 100 F St. 

NE, Washington, DC 20549–1090. 

Applicants: Guggenheim and the Fund: 

330 Madison Avenue, New York, NY 

10017; the Existing Guggenheim 

Advisers and the Existing Affiliated 

Investors: 100 Wilshire Boulevard, 5th 

Floor, Santa Monica, CA 90401. 

FOR FURTHER INFORMATION CONTACT: 

Hae-Sung Lee, Attorney-Adviser, at 

(202) 551–7345 or Robert H. Shapiro, 

Branch Chief, at (202) 551–6821 (Chief 

Counsel’s Office, Division of Investment 

Management). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained via the Commission’s 

website by searching for the file 

number, or for an applicant using the 

Company name box, at http://

www.sec.gov/search/search.htm or by 

calling (202) 551–8090. 

Applicants’ Representations 

1. The Fund is a Delaware statutory 

trust organized as a closed-end 

management investment company that 

has elected to be regulated as a BDC 

under the Act.1 The Fund serves as the 


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