[Federal Register Volume 79, Number 215 (Thursday, November 6, 2014)]
[Notices]
[Pages 66022-66025]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26343]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73480; File No. SR-NASDAQ-2014-090]


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

October 31, 2014.

I. Introduction

    On September 11, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the shares (``Shares'') of the 
Validea Market Legends ETF (``Fund'') under Nasdaq Rule 5735. The 
proposed rule change was published for comment in the Federal Register 
on September 26, 2014.\3\ The Commission received no comments on the 
proposed rule change. On October 28, 2014, the Exchange filed Amendment 
No. 1 to the proposed rule change.\4\ The Commission is approving the 
proposed rule change, as modified by Amendment No. l thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73178 (Sep. 22, 
2014), 79 FR 58012 (``Notice'').
    \4\ In Amendment No. 1, Nasdaq corrected a typographical error, 
deleting the second use of the word ``not'' in the following 
statement throughout the filing: ``ADRs not listed on an exchange 
that is not a member of ISG or a party to a comprehensive 
surveillance sharing agreement with the Exchange.'' See infra note 
10 (setting forth the full representation, as amended). Because 
Amendment No. 1 is a technical amendment that does not raise unique 
or novel regulatory issues, Amendment No. 1 is not subject to notice 
and comment.
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II. Description of Proposed Rule Change

    The Exchange proposes to list and trade the Shares pursuant to 
Nasdaq Rule 5735, which governs the listing and trading of Managed Fund 
Shares on the Exchange. The Shares will be offered by the ETF Series 
Solutions Trust (``Trust''), which was established as a Delaware 
business trust on February 9, 2012.\5\ The Fund is a series of the 
Trust. Validea Capital Management, LLC will be the investment adviser 
(``Adviser'') to the Fund.\6\ Quasar Distributors, LLC will be the 
principal underwriter and distributor of the Fund's Shares. U.S. 
Bancorp Fund Services, LLC (``USBFS'') will act as the administrator, 
accounting agent, and transfer agent to the Fund. U.S. Bank National 
Association will act as the custodian to the Fund.
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    \5\ According to the Exchange, the Trust is registered with the 
Commission as an investment company under the Investment Company Act 
of 1940 (``1940 Act'') and has filed a registration statement on 
Form N-1A (``Registration Statement'') with the Commission. The 
Exchange states that the Trust has obtained, or will obtain prior to 
listing Shares of the Fund on the Exchange, an order from the 
Commission granting certain exemptive relief to the Trust under the 
1940 Act. See Post-Effective Amendment No. 14 to the Registration 
Statement on Form N-1A for the Trust, dated July 16, 2014 (File Nos. 
333-179562 and 811-22668). See Application for an Order (Jun. 16, 
2014) (File No. 812-14322).
    \6\ The Exchange states that the Adviser is not a broker-dealer 
and is not affiliated with the any broker-dealer. The Exchange 
represents that in the event (a) the Adviser becomes newly 
affiliated with a broker-dealer or registers as a broker-dealer, or 
(b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, the Adviser, new adviser, 
or new sub-adviser, as the case may be, will implement a fire wall 
with respect to its relevant personnel and/or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition or changes to the portfolio, and the Adviser, new 
adviser, or new sub-adviser, as the case may be, will be subject to 
procedures designed to prevent the use and dissemination of 
material, non-public information regarding the portfolio. The 
Exchange also states that the Adviser does not currently intend to 
become newly affiliated with any broker-dealer, and the Fund does 
not currently intend to use a sub-adviser.
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    The Exchange has made the following representations and statements 
in describing the Fund and its principal investments, other 
investments, and investment restrictions.\7\
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    \7\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, creation and redemption procedures, calculation 
of net asset value (``NAV''), fees, portfolio holdings disclosure 
policies, distributions, and taxes, among other things, can be found 
in the Notice and Registration Statement, as applicable. See supra 
notes 3 and 5, respectively.
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Principal Investments of the Fund
    According to the Exchange, the Fund's primary investment objective 
is to achieve capital appreciation, with a secondary focus on income. 
The Fund is a non-diversified, actively-managed exchange-traded fund 
(``ETF'') that will pursue its objectives by investing primarily at 
least 80% of its assets under normal market conditions,\8\ in U.S. 
exchange-listed equity securities of U.S. companies and foreign equity 
securities traded on a U.S. exchange as American Depositary Receipts 
(``ADRs'').\9\ The Fund's investment in ADRs may include ADRs 
representing companies in emerging markets. With respect to its 
investments in exchange-listed common stocks and ADRs, the Fund will 
invest in such securities that trade in markets that are members of the 
Intermarket Surveillance Group (``ISG'').

[[Page 66023]]

The Fund may invest in the securities of companies of any market 
capitalization, but the Adviser expects that the Fund will have a bias 
toward small-cap and mid-cap companies. The Adviser also expects to 
limit the Fund's investment in any individual economic sector to no 
more than 40% of the Fund's total assets.
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    \8\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption, or any similar intervening circumstance. In periods of 
extreme market disturbance, the Fund may take temporary defensive 
positions by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objectives.
    \9\ ADRs are receipts, typically issued by a bank or trust 
issuer, which evidence ownership of underlying securities issued by 
a non-U.S. issuer. For ADRs, the depository is typically a U.S. 
financial institution and the underlying securities are issued by a 
non-U.S. issuer. ADRs are not necessarily denominated in the same 
currency as their underlying securities.
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    The Exchange notes that the Adviser will select securities using a 
proprietary quantitative and fundamentals-based system that evaluates 
investment opportunities based on the published investment strategies 
of legendary investors whose investment strategies have generally been 
subject to significant academic or media analysis, such as Warren 
Buffet, Peter Lynch, and David Dreman. The Adviser's system 
incorporates 17 stock selection models, each intended to replicate the 
strategy of a legendary investor. The models incorporate over 300 
unique fundamental metrics of companies, including measures relating to 
profitability, valuation, growth, cash flow, financing, and past 
performance, among others. The Adviser scores over 6,000 companies 
based on the metrics of its investor models and expects that the Fund 
will generally hold approximately 100 securities.
    According to the Exchange, the Adviser's system, using historical 
data, evaluates the long term performance, risks, and correlation of 
each model, and blends some or all of the models to identify the 
composite strategy that the Adviser believes is most likely to achieve 
the Fund's investment objectives while reducing volatility. By 
utilizing various stock picking methods in the creation of the 
composite strategy, the Adviser will seek to reduce the volatility of 
the Fund's returns in different market environments and limit 
investment style specific risk.
    The Exchange notes that the Adviser expects that the Fund will 
regularly update or ``rebalance'' the securities that it holds, but no 
more often than once every 28 days and at least 5 times per year. On 
each such date, securities whose fundamental scores no longer meet the 
Fund's requirements will be removed and replaced with higher scoring 
securities. A stock will only be sold in between rebalance dates if the 
stock has significantly underperformed the overall market since the 
time the stock was purchased.
Other Investments and Restrictions
    While the Fund, under normal circumstances, will invest at least 
80% of its assets in U.S. exchange-listed equity securities, the Fund 
may invest the remaining assets in a variety of other securities in 
support of its primary investment strategy, including, but not limited 
to: (a) Equity securities traded over-the-counter; \10\ (b) equity 
securities of other U.S. registered investment companies, including 
open-end mutual funds, money market mutual funds and exchange-traded 
funds; and (c) money market instruments.\11\
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    \10\ The Exchange represents that, while the Fund's investments 
in equity securities traded over-the-counter include shares of 
common stock and ADRs, not more than 10% of the net assets of the 
Fund, in the aggregate, will be invested in: (1) Unlisted or 
unsponsored ADRs; (2) ADRs not listed on an exchange that is a 
member of ISG or a party to a comprehensive surveillance sharing 
agreement with the Exchange; or (3) unlisted common stocks or common 
stocks not listed on an exchange that is a member of the ISG or a 
party to a comprehensive surveillance sharing agreement with the 
Exchange.
    \11\ The term ``money market instruments,'' as used herein, 
means: (i) Short-term obligations issued by the U.S. Government; 
(ii) short term negotiable obligations of commercial banks, fixed 
time deposits and bankers' acceptances of U.S. and foreign banks and 
similar institutions; (iii) commercial paper rated at the date of 
purchase ``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' 
or ``A-1'' by Standard & Poor's, or, if unrated, of comparable 
quality, as the Adviser of the Fund determines; and (iv) money 
market mutual funds.
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    While the Fund will generally invest in sponsored ADRs that are 
listed on ISG member exchanges and that the Adviser deems as liquid, in 
certain limited circumstances, as stated above, the Fund may invest in 
unlisted or unsponsored ADRs \12\ or ADRs that the Adviser deems 
illiquid at the time of purchase or for which pricing information is 
not readily available.\13\ The issuers of unlisted or unsponsored ADRs 
are not obligated to disclose material information in the United 
States. As such, according to the Exchange, there may be less 
information available regarding such issuers and there may be no 
correlation between available information and the market value of the 
ADRs.
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    \12\ See supra note 10 and accompanying text.
    \13\ See infra note 14 and accompanying text.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment).\14\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether 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 assets.
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    \14\ Illiquid assets include securities subject to contractual 
or other restrictions on resale and other instruments that lack 
readily available markets as determined in accordance with 
Commission staff guidance. See Notice, supra note 3, 79 FR at 58014.
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    The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other registered investment companies.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\15\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\16\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of Nasdaq 
Rule 5735 to be listed and traded on the Exchange.
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    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\17\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services and via the Consolidated Tape 
Association plans for the Shares. In addition, an estimated value, 
defined in Nasdaq Rule 5735(c)(3) as the ``Intraday Indicative Value,'' 
\18\ will be available on the

[[Page 66024]]

NASDAQ OMX Information LLC proprietary index data service and will be 
updated, widely disseminated, and broadly displayed at least every 15 
seconds during the Regular Market Session.\19\ On each business day, 
before commencement of trading in Shares in the Regular Market Session 
\20\ on the Exchange, the Fund will disclose on its Web site the 
Disclosed Portfolio, as defined in Nasdaq Rule 5735(c)(2), that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\21\ A basket composition file, which includes the 
security names, amounts, and share quantities, as applicable, required 
to be delivered in exchange for the Fund's Shares, together with 
estimates and actual cash components, will be publicly disseminated 
daily prior to the opening of Nasdaq via the National Securities 
Clearing Corporation. The NAV of the Fund's Shares generally will be 
calculated once daily Monday through Friday as of the close of regular 
trading on the New York Stock Exchange, generally 4:00 p.m. Eastern 
time.\22\ Information regarding market price and trading volume of the 
Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services. 
Information regarding the previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers. Quotation and last-sale information 
for any underlying exchange-traded products will be available via the 
quote and trade service of their respective primary exchanges. Intra-
day, executable price quotations on the securities and other assets 
held by the Fund will be available from major broker-dealer firms. 
Intra-day price information on the securities and other assets held by 
the Fund will also be available through subscription or free services 
that can be accessed by Authorized Participants and other investors: 
(a) Pricing information for exchange-traded equity securities; 
investment company securities; exchange-traded ADRs; or other exchange-
traded securities will be publicly available from the Web sites of the 
exchanges on which they trade,\23\ on public financial Web sites, and 
through subscription services such as Bloomberg and Thompson Reuters; 
and (b) pricing information regarding over-the-counter equities 
(including over-the-counter ADRs and certain investment company 
securities) and money market instruments, will be available through 
subscription services such as Markit, Bloomberg, and Thompson Reuters. 
The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund and additional quantitative information.
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    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \18\ According to the Exchange, the Intraday Indicative Value 
will reflect an estimated intraday value of the Fund's portfolio and 
will be based upon the current value for the components of the 
Disclosed Portfolio. The Exchange states that the Intraday 
Indicative Value will be based on quotes and closing prices from the 
securities' local market and may not reflect events that occur 
subsequent to the local market's close, that premiums and discounts 
between the Intraday Indicative Value and the market price may 
occur, and that the Intraday Indicative Value should not be viewed 
as a ``real time'' update of the NAV per Share of the Fund, which is 
calculated only once a day.
    \19\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service. The 
Exchange represents that GIDS offers real-time updates, daily 
summary messages, and access to widely followed indexes and Intraday 
Indicative Values for ETFs, and that GIDS provides investment 
professionals with the daily information needed to track or trade 
NASDAQ OMX indexes, listed ETFs, or third-party partner indexes and 
ETFs.
    \20\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4:00 a.m. to 
9:30 a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. 
to 4:00 p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session 
from 4:00 p.m. or 4:15 p.m. to 8:00 p.m., Eastern Time).
    \21\ On a daily basis, the Fund will disclose 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, index, or other asset or instrument 
underlying the holding, if any; quantity held (as measured by, for 
example, number of shares); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
    \22\ NAV per Share will be calculated for the Fund by taking the 
market price of the Fund's total assets, less all liabilities, 
dividing such amount by the total number of Shares outstanding, and 
rounding to the nearest cent. The value of the securities, other 
assets, and liabilities held by the Fund will be determined pursuant 
to valuation policies and procedures approved by the Trust's Board. 
Exchange-traded equities, exchange-traded ADRs, and other exchange-
traded securities will be valued at the official closing price on 
their principal exchange or board of trade, or lacking any current 
reported sale at the time of valuation, at the mean between the most 
recent bid and asked quotations on its principal exchange or board 
of trade. Portfolio securities traded on more than one securities 
exchange will be valued at the last sale price or official closing 
price, as applicable, on the business day as of which such value is 
being determined at the close of the exchange representing the 
principal market for such securities. Equity securities traded over-
the-counter and ADRs traded over-the-counter will be valued at the 
mean between the most recent bid and asked quotations received from 
pricing services; if the most recent bid and asked quotations are 
not available, these securities will be valued in accordance with 
the Fund's fair valuation procedures. Money market instruments with 
maturities of less than 60 days will be valued at amortized cost; 
money market instruments with longer maturities will be valued at 
the mid-point of the bid-ask prices. Investment company shares will 
be valued at NAV, unless the shares are exchange-traded, in which 
case they will be valued at the last sale or official closing price 
on the market on which they primarily trade.
    \23\ According to the Exchange, quotation and last-sale 
information for any underlying exchange-traded products will also be 
available via the quote and trade services of their respective 
primary exchanges, as well as in accordance with the Unlisted 
Trading Privileges and the Consolidated Tape Association plans, as 
applicable.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange 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 in Shares of the Fund will be 
halted under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pause provisions under Nasdaq Rules 4120(a)(11) 
and (12). Trading in the Shares may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable,\24\ and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth additional 
circumstances under which trading in Shares of the Fund may be halted. 
The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. 
Further, the Commission notes that the Reporting Authority, as defined 
in Nasdaq Rule 5735(c)(4), that provides the Disclosed Portfolio must 
implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the actual components of the portfolio.\25\ In addition, the 
Exchange states that the Adviser is not registered as a broker-dealer 
and is not affiliated with a broker-dealer and has no present intent or 
arrangement to become newly affiliated with any broker-dealer. The Fund 
does not currently intend to use a sub-adviser.\26\
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    \24\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and other financial instruments 
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. 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.
    \25\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \26\ See supra note 6. The Exchange states that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and its related personnel are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients, as 
well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non- public information by an investment adviser must be 
consistent with Rule 204A-1 under the Advisers Act. In addition, 
Rule 206(4)-7 under the Advisers Act makes it unlawful for an 
investment adviser to provide investment advice to clients unless 
such investment adviser has (i) adopted and implemented written 
policies and procedures reasonably designed to prevent violation, by 
the investment adviser and its supervised persons, of the Advisers 
Act and the Commission rules adopted thereunder; (ii) implemented, 
at a minimum, an annual review regarding the adequacy of the 
policies and procedures established pursuant to subparagraph (i) 
above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.

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[[Page 66025]]

    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
the Financial Industry Regulatory Authority (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\27\ Prior to the commencement 
of trading, the Exchange states that it will inform its members in an 
Information Circular of the special characteristics and risks 
associated with trading the Shares.
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    \27\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance 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. FINRA, on behalf of the Exchange, will communicate as 
needed regarding trading in the Shares and the exchange-traded 
securities and instruments held by the Fund, which include ADRs, 
exchange-listed investment companies, or other exchange-traded 
securities with other markets and other entities that are members of 
ISG, and FINRA may obtain trading information regarding trading in the 
Shares and such exchange-traded equities held by the Fund from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and such exchange-traded 
equities held by the Fund from markets and other entities that are 
members of ISG, or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. 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 
Trade Reporting and Compliance Engine.
    (4) Not more than 10% of the net assets of the Fund, in the 
aggregate, will be invested in (a) unlisted or unsponsored ADRs, (b) 
ADRs not listed on an exchange that is a member of ISG or a party to a 
comprehensive surveillance sharing agreement with the Exchange, or (c) 
unlisted common stocks or common stocks not listed on an exchange that 
is a member of the ISG or a party to a comprehensive surveillance 
sharing agreement with the Exchange.
    (5) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in creation units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) the dissemination of 
information regarding the Intraday Indicative Value through major index 
service providers such as NASDAQ OMX proprietary index data services or 
other major market proprietary index services; (d) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (f) trading 
information; and (g) the dissemination of the Disclosed Portfolio 
though the Fund's Web site.
    (6) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\28\
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    \28\ See 17 CFR 240.10A-3.
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    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment). The 
Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets.
    (8) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, and 
the Exchange's description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \29\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \29\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NASDAQ-2014-090), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26343 Filed 11-5-14; 8:45 am]
BILLING CODE 8011-01-P