69966 Federal Register / Vol. 79, No. 226 / Monday, November 24, 2014 / Notices 

5See Chapter XV, Section 2(4). 

6 15 U.S.C. 78s(b)(3)(a)(ii). 

7 17 CFR 240.19b–4(f)(6). 

8 17 CFR 200.30–3(a)(12). 

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

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest, in that 

the amendments will provide greater 

clarity to the Pricing Schedule. 

The Exchange believes that removing 

the historical reference date to the JBO 

definition in the Preface will provide 

greater clarity to the Pricing Schedule. 

The Exchange believes that the 

amendments provide greater specificity 

and conforms word usage with the 

Rulebook with respect to the usage of 

the terms RMM and RMO. Also, by 

adding tier numbers, it will be easier to 

reference the various streaming fees. 

The Exchange believes that generally 

referring to Mini Options as specified in 

the Rulebook will assist the Exchange in 

maintaining a current list of Mini 

Options which are subject to Section A 

pricing. The NASDAQ Options Market 

LLC pricing for Mini Options does not 

specifically reference the Mini Options 

symbols.5

The Exchange believes that further 

clarifying the manner in which a 

Category B Customer Rebate is paid by 

stating that a Customer Complex PIXL 

Order is excluded in the same manner 

as other Customer Complex Orders adds 

further clarity to the rule text. The 

Exchange excludes Customer Complex 

PIXL Orders today from the Category B 

rebate. The Exchange will not change 

the manner in which the Exchange pays 

a rebate as a result of this filing. 

Customer Complex PIXL Orders will 

continue to be excluded. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange is merely seeking to add 

greater clarity to the Pricing Schedule 

by conforming the RMM and RMO 

language to the current usage in Rule 

507 of the Rulebook. The Exchange also 

believes that the addition of tiers 

provides greater clarity and 

transparency to the Pricing Schedule 

which benefits all market participants. 

Generally citing to all Mini Options 

provides greater accuracy to the Pricing 

Schedule. Specifically stating that 

Customer Complex PIXL Orders are 

excluded in a manner similar to 

Customer Complex Orders adds more 

specificity to the manner in which the 

Exchange pays the Category B Customer 

Rebate. Finally, correcting typographical 

errors and removing historical dates 

avoid confusion. 

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 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 6 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.7

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

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– 

Phlx–2014–75 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–Phlx–2014–75. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–Phlx– 

2014–75 and should be submitted on or 

before December 15, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–27710 Filed 11–21–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73630; File No. SR– 

NASDAQ–2014–038] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Order 

Granting Approval of a Proposed Rule 

Change, as Modified by Amendments 

No. 1 and No. 2 Thereto, Relating to the 

Listing and Trading of the Shares of 

the Reality Shares NASDAQ–100 DIVS 

Index ETF Under Nasdaq Rule 5705 

November 18, 2014. 

I. Introduction 

On April 10, 2014, The NASDAQ 

Stock Market LLC (‘‘Exchange’’ or 

‘‘NASDAQ’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

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

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


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2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 72014 

(Apr. 24, 2014), 79 FR 24465 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange confirmed 

the hours of the three trading sessions on the 

Exchange, clarified the valuation of investments for 

purposes of calculating net asset value, clarified 

what information would be available on the Fund’s 

Web site, and provided additional information 

relating to surveillance with respect to certain 

assets held by the Fund. Amendment No. 1 

provided clarification to the proposed rule change, 

and because it does not materially affect the 

substance of the proposed rule change or raise 

novel or unique regulatory issues, Amendment No. 

1 is not subject to notice and comment. 

5The Exchange filed Amendment No. 2 to the 

proposal to reflect a change to the name of the Fund 

and the underlying index. Specifically, the 

Exchange replaced each reference in the proposal 

to the ‘‘Reality Shares NASDAQ–100 Isolated 

Dividend Growth ETF’’ (the original name of the 

Fund) with a reference to the ‘‘Reality Shares 

NASDAQ–100 DIVS Index ETF.’’ Similarly, the 

Exchange replaced each reference in the proposal 

to the ‘‘Reality Shares NASDAQ–100 Isolated 

Dividend Growth Index’’ with a reference to the 

‘‘Reality Shares NASDAQ–100 DIVS Index.’’ 

Amendment No. 2 is a technical amendment and 

is not subject to notice and comment as it does not 

materially affect the substance of the filing. 

6 15 U.S.C. 78s(b)(2). 

7See Securities Exchange Act Release No. 72384, 

79 FR 35205 (Jun. 19, 2014). The Commission 

designated a longer period within which to take 

action on the proposed rule change and designated 

July 29, 2014, as the date by which it should 

approve, disapprove, or institute proceedings to 

determine whether to disapprove the proposed rule 

change. 

8 15 U.S.C. 78s(b)(2)(B). 

9See Securities Exchange Act Release No. 72715, 

79 FR 45556 (Aug. 5, 2014) (‘‘Order Instituting 

Proceedings’’). Specifically, the Commission 

instituted proceedings to allow for additional 

analysis of the proposed rule change’s consistency 

with Section 6(b)(5) of the Act, which requires, 

among other things, that the rules of a national 

securities exchange be ‘‘designed to prevent 

fraudulent and manipulative acts and practices, to 

promote just and equitable principles of trade,’’ and 

‘‘to protect investors and the public interest.’’ See 

id. 

10See Letter from Eric R. Ervin, President, Reality 

Shares ETF Trust and Reality Shares Advisors, LLC, 

and President and CEO, Reality Shares, Inc., to 

Kevin M. O’Neill, Deputy Secretary, Commission, 

dated August 22, 2014 (‘‘Reality Shares Letter 1’’); 

Letter from Eric R. Ervin, President, Reality Shares 

ETF Trust and Reality Shares Advisors, LLC, and 

President and CEO, Reality Shares, Inc., to Arun 

Manoharan, Financial Economist, Commission, 

dated October 21, 2014 (‘‘Reality Shares Letter 2’’). 

11See Securities Exchange Act Release No. 73418, 

79 FR 64431 (Oct. 29, 2014). 

12 Index Fund Shares that are issued by an openend investment company and listed and traded on 

the Exchange under NASDAQ Rule 5705 seek 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. 

See Rule 5705(b)(1)(A). 

13The NASDAQ–100 Index is an index of 100 of 

the largest domestic and international securities 

(based on market capitalization) listed on The 

NASDAQ Stock Market. The NASDAQ–100 Index 

includes companies across major industry groups, 

including computer hardware and software, 

telecommunications, retail/wholesale trade and 

biotechnology, and excludes securities of financial 

companies. 

14According to the Exchange, the Trust will be 

registered under the Investment Company Act of 

1940 (‘‘1940 Act’’). On November 12, 2013, the 

Trust filed a registration statement on Form N–1A 

under the Securities Act of 1933 and the 1940 Act 

relating to the Fund, as amended by Pre-Effective 

Amendment Number 1, filed with the Commission 

on February 6, 2014 (File Nos. 333–192288 and 

811–22911) (‘‘Registration Statement’’). In addition, 

the Exchange states that the Trust has obtained 

certain exemptive relief under the 1940 Act. 

Investment Company Act Release No. 30678 (Aug. 

27, 2013) (‘‘Exemptive Order’’). The Exchange 

represents that investments made by the Fund will 

comply with the conditions set forth in the 

Exemptive Order. 

15The Adviser is a wholly-owned subsidiary of 

the Index Provider. 

16See note 19, infra. 

17Additional information regarding the Trust, the 

Fund, and the Shares, including investment 

strategy, risks, creation and redemption procedures, 

fees, portfolio holdings disclosure policies, 

distributions, and taxes, among other things, is 

included in the Notice, Registration Statement, and 

Exemptive Order, as applicable. See Notice, supra 

note 3; see also Registration Statement and 

Exemptive Order, supra note 14. 

18The Index will be calculated by International 

Data Corporation, which is not affiliated with the 

Adviser, Index Provider, or The NASDAQ OMX 

Group, and which is not a broker-dealer or fund 

advisor. 

19According to the Exchange, the Adviser and the 

Index Provider have represented that a fire wall 

exists around the respective personnel who have 

access to information concerning changes and 

adjustments to the Index. The Exchange further 

represents that in the event (a) the Adviser, any subadviser, or the Index Provider becomes registered as 

a broker-dealer or is newly affiliated with a broker 

dealer, or (b) any new adviser, sub-adviser, or Index 

Provider is a registered broker-dealer or becomes 

affiliated with a broker dealer, the Adviser, subadviser or Index Provider will implement a fire wall 

with respect to its relevant personnel or such broker 

dealer affiliate, as applicable, regarding access to 

information concerning the composition or changes 

to the portfolio and will be subject to procedures 

designed to prevent the use and dissemination of 

material, non-public information regarding the 

portfolio. The Fund does not currently intend to use 

Continued 

Rule 19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the Reality Shares 

NASDAQ–100 DIVS Index ETF 

(‘‘Fund’’) under Rule 5705. The 

proposed rule change was published for 

comment in the Federal Register on 

April 30, 2014.3 On May 13, 2014, the 

Exchange filed Amendment No. 1 to the 

proposed rule change, which amended 

and replaced the proposed rule change 

in its entirety.4 On June 4, 2014, the 

Exchange filed Amendment No. 2 to the 

proposed rule change.5 On June 13, 

2014, pursuant to Section 19(b)(2) of the 

Act,6 the Commission designated a 

longer period within which to approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.7

On July 29, 2014, the Commission 

instituted proceedings under Section 

19(b)(2)(B) of the Act 8 to determine 

whether to approve or disapprove the 

proposed rule change.9 In response to 

the Order Instituting Proceedings, the 

Commission received two comment 

letters on the proposal.10 On October 23, 

2014, the Commission designated a 

longer period for Commission action on 

the Order Instituting Proceedings.11

This order grants approval of the 

proposed rule change, as modified by 

Amendments No. 1 and No. 2 thereto. 

II. Description of the Proposal, as 

Modified by Amendments No. 1 and 

No. 2 Thereto 

The Exchange proposes to list and 

trade the Shares of the Fund under 

NASDAQ Rule 5705(b), which governs 

the listing and trading of Index Fund 

Shares on the Exchange.12

A. The Fund, Generally 

The Fund is an exchange-traded fund 

(‘‘ETF’’) that will seek long-term capital 

appreciation by tracking the Reality 

Shares NASDAQ–100 DIVS Index 

(‘‘Index’’). The Index measures market 

expectations for dividend growth of the 

companies included in the NASDAQ– 

100 Index.13 The Shares of the Fund 

will be offered by the Reality Shares 

ETF Trust (‘‘Trust’’), which was 

established as a Delaware statutory trust 

on March 26, 2013. The Fund is a series 

of the Trust. The Exchange represents 

that the Trust will be registered with the 

Commission as an open-end 

management investment company.14

Reality Shares Advisors, LLC will serve 

as the investment adviser to the Fund 

(‘‘Adviser’’).15 ALPS Distributors, Inc. 

will be the principal underwriter and 

distributor of the Fund’s Shares. The 

Bank of New York Mellon will serve as 

administrator, custodian, and transfer 

agent for the Fund. The Exchange states 

that the Adviser is not a broker-dealer 

and is not affiliated with any brokerdealers.16

B. The Exchange’s Description of the 

Fund 

The Exchange has made the following 

representations and statements in 

describing the Fund and its investment 

strategy, including permitted portfolio 

holdings and investment restrictions.17

Reality Shares NASDAQ–100 DIVS 

Index ETF 

The Exchange states that the Index 

was developed by Reality Shares, Inc., 

the parent company of the Adviser, in 

conjunction with The NASDAQ OMX 

Group, Inc., and is maintained by 

Reality Shares, Inc. (‘‘Index 

Provider’’).18 The Index Provider is not 

a broker-dealer and is not affiliated with 

any broker-dealers.19 The Exchange 


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a sub-adviser. See Rule 5705(b)(1)(C); Rule 

5705(b)(5)(A). 

20Paragraph (b)(1)(D) of Rule 5705 states that the 

term ‘‘U.S. Component Stock’’ shall mean an equity 

security that is registered under Sections 12(b) or 

12(g) of the Exchange Act, or an American 

Depositary Receipt, the underlying equity security 

of which is registered under Sections 12(b) or 12(g) 

of the Act. See Rule 5705(b)(1)(D). 

21Paragraph (b)(3)(A)(i) of Rule 5705 states, in 

relevant part, that upon the initial listing of a series 

of Index Fund Shares pursuant to 19b–4(e) under 

the Act, all securities in the index or portfolio shall 

be U.S. Component Stocks listed on NASDAQ 

(including The NASDAQ Capital Market) or another 

national securities exchange, and shall be NMS 

Stocks as defined in Rule 600 of Regulation NMS 

under the Act. The Exchange states that each 

component stock of the NASDAQ–100 Index is a 

U.S. Component Stock that is listed on a national 

securities exchange and is an NMS Stock. Options, 

however, are excluded from the definition of NMS 

Stock. The Fund and the Index meet all of the 

requirements of the listing standards for Index Fund 

Shares in Rule 5705 except the requirements in 

5705(b)(3)(A)(i)(a)–(e), because the Index includes 

options on U.S. Component Stocks. 

22The Exchange notes that there is no guarantee 

that either the level of overall dividends paid by 

such companies will grow over time, or that the 

Index or Fund’s investment strategies will capture 

such growth. The Fund will include appropriate 

risk disclosure in its offering documents disclosing 

these risks, which will be available for free on the 

Commission’s Web site and on the Fund’s Web site, 

www.realityshares.com. 

23See Rule 5705(b)(3). 

states that the Index for the Fund does 

not meet all of the ‘‘generic’’ listing 

requirements of paragraph (b)(3)(A)(i) of 

Rule 5705 applicable to the listing of 

Index Fund Shares based upon an index 

of ‘‘U.S. Component Stocks.’’ 20

Specifically, Rule 5705(b)(3)(A)(i) sets 

forth the requirements to be met by 

components of an index or portfolio of 

U.S. Component Stocks. The Index will 

consist primarily of U.S. exchange-listed 

and traded options on the NASDAQ– 

100 Index and U.S. exchange-listed and 

traded options on ETFs that track the 

NASDAQ–100 Index.21 The Fund may 

also invest up to 20% of its total assets 

in other securities such as over-thecounter (‘‘OTC’’) options, futures, and 

forward contracts on the NASDAQ–100 

Index, and OTC options, futures, and 

forward contracts on ETFs that track the 

NASDAQ–100 Index. The Exchange has 

represented that the Shares will 

conform to the initial and continued 

requirements of listing criteria under 

Rule 5705(b), except to the extent that 

the Index is composed of options based 

on U.S. Component Stocks (i.e., ETFs 

based on the NASDAQ–100 Index) and 

options on an index of U.S. Component 

Stocks (i.e., the NASDAQ–100 Index). 

Principal Investments of the Fund 

The Fund will seek long-term capital 

appreciation and will seek investment 

results that, before fees and expenses, 

generally correspond to the performance 

of the Index. At least 80% of the Fund’s 

total assets (exclusive of collateral held 

from securities lending, if any) will be 

invested in the component securities of 

the Index. The Fund will seek a 

correlation of 0.95 or better between its 

performance and the performance of its 

Index (a figure of 1.00 would represent 

perfect correlation). The Fund generally 

will use a representative sampling 

investment strategy. 

The Fund will buy (i.e., hold a ‘‘long’’ 

position in) and sell (i.e., hold a ‘‘short’’ 

position in) put and call options. The 

strategy of taking both a long position in 

a security through its ex-dividend date 

(the last date an investor can own the 

security and receive dividends paid on 

the security) and a corresponding short 

position in the same security 

immediately thereafter is designed to 

allow the Fund to isolate its exposure to 

the growth of the level of dividends 

expected to be paid on such security 

while minimizing its exposure to 

changes in the trading price of such 

security. 

The Fund will buy and sell U.S. 

exchange-listed options on the 

NASDAQ–100 Index and U.S. exchangelisted options on ETFs designed to track 

the NASDAQ–100 Index. A put option 

gives the purchaser of the option the 

right to sell, and the issuer of the option 

the obligation to buy, the underlying 

security or instrument on a specified 

date or during a specified period of 

time. A call option on a security gives 

the purchaser of the option the right to 

buy, and the writer of the option the 

obligation to sell, the underlying 

security or instrument on a specified 

date or during a specified period of 

time. The Fund will invest in a 

combination of put and call options 

designed to allow the Fund to isolate its 

exposure to the growth of the level of 

expected dividends reflected in options 

on the NASDAQ–100 Index and options 

on ETFs tracking the NASDAQ–100 

Index, while minimizing the Fund’s 

exposure to changes in the trading price 

of such securities. 

Index Methodology 

The Index will be calculated using a 

proprietary, rules-based methodology 

designed to track market expectations 

for dividend growth conveyed in realtime using the mid-point of the bid-ask 

spread on NASDAQ–100 Index options 

and options on ETFs designed to track 

the NASDAQ–100 Index.22 All options 

included in the Index will be listed and 

traded on a U.S. national securities 

exchange. The Index will consist of a 

minimum of 20 components.23

The prices of index and ETF options 

reflect the market trading prices of the 

securities included in the applicable 

underlying index or ETF, as well as 

market expectations regarding the level 

of dividends to be paid on such indexes 

or ETFs during the term of the option. 

The Index constituents, and, therefore, 

most of the Fund’s portfolio holdings, 

will consist of multiple corresponding 

near-term and long-term put and call 

option combinations on the same 

reference assets (i.e., options on the 

NASDAQ–100 Index or options on 

NASDAQ–100 ETFs) with the same 

strike price. Because option prices 

reflect both stock price and dividend 

expectations, they can be used in 

combination to isolate either price 

exposure or dividend expectations. The 

use of near-term and long-term put and 

call options combinations on the same 

reference asset with the same strike 

price, but with different maturities, is 

designed to gain exposure to the 

expected dividends reflected in options 

on the NASDAQ–100 Index and options 

on ETFs tracking the NASDAQ–100 

Index while neutralizing the impact of 

stock price. 

Once established, this portfolio 

construction of options combinations 

will accomplish two goals. First, the use 

of corresponding buy or sell positions 

on near and long-term options at the 

same strike price is designed to 

neutralize underlying stock price 

movements. In other words, the 

corresponding ‘‘buy’’ and ‘‘sell’’ 

positions on the same reference asset are 

designed to net against each other and 

eliminate the impact that changes to the 

stock price of the reference asset would 

otherwise have on the value of the Index 

(and Fund Shares). Second, by 

minimizing the impact of price 

fluctuations through the construct of the 

near- and long-term contract 

combinations, the strategy is designed to 

isolate market expectations for 

dividends implied between expiration 

dates of the near-term and long-term 

option contracts. Over time, the Index 

will increase or decrease in value as the 

dividend spread between the near-term 

and long-term options combinations 

increases or decreases as a result of 

changing market expectations for 

dividend growth. 

Other Fund Investments 

While, as described above, at least 

80% of the Fund’s total assets (exclusive 

of collateral held from securities 

lending, if any) will be invested in the 

component securities of the Index, the 

Fund may invest up to 20% of its total 

assets in other securities and financial 

instruments, as described below. 

The Fund may invest in: (a) U.S. 

exchange-listed futures contracts based 


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24The Fund will transact only with swap dealers 

that have in place an ISDA agreement with the 

Fund. 

25Where practicable, the Fund intends to invest 

in swaps cleared through a central clearing house 

(‘‘Cleared Swaps’’). Currently, only certain of the 

interest rate swaps in which the Fund intends to 

invest are Cleared Swaps, while the dividend and 

total return swaps (including equity swaps) in 

which the Fund may invest are currently not 

Cleared Swaps. 

26The Fund may enter into repurchase 

agreements with banks and broker-dealers. A 

repurchase agreement is an agreement under which 

securities are acquired by a fund from a securities 

dealer or bank subject to resale at an agreed upon 

price on a later date. The acquiring fund bears a risk 

of loss in the event that the other party to a 

repurchase agreement defaults on its obligations 

and the fund is delayed or prevented from 

exercising its rights to dispose of the collateral 

securities. 

27The Fund may invest in shares of money 

market mutual funds to the extent permitted by the 

1940 Act. 

28The Fund will seek, where possible, to use 

counterparties, as applicable, whose financial status 

is such that the risk of default is reduced; however, 

the risk of losses resulting from default is still 

possible. The Adviser will evaluate the 

creditworthiness of counterparties on an ongoing 

basis. In addition to information provided by credit 

agencies, the Adviser will evaluate each approved 

counterparty using various methods of analysis, 

such as, for example, the counterparty’s liquidity in 

the event of default, the counterparty’s reputation, 

the Adviser’s past experience with the 

counterparty, and the counterparty’s share of 

market participation. 

29To limit the potential risk associated with such 

transactions, the Fund will segregate or ‘‘earmark’’ 

assets determined to be liquid by the Adviser in 

accordance with procedures established by the 

Trust’s Board of Trustees and in accordance with 

the 1940 Act (or, as permitted by applicable 

regulation, enter into certain offsetting positions) to 

cover its obligations arising from such transactions. 

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 certain transactions of the Fund, 

including the Fund’s use of derivatives, may give 

rise to leverage, causing the Fund to be more 

volatile than if it had not been leveraged. To 

mitigate leveraging risk, the Adviser will segregate 

or ‘‘earmark’’ liquid assets or otherwise cover the 

transactions that may give rise to such risk. 

30 In reaching liquidity decisions, the Adviser 

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). 

on the NASDAQ–100 Index and ETFs 

designed to track the NASDAQ–100 

Index; and (b) forward contracts based 

on the NASDAQ–100 Index and ETFs 

designed to track the NASDAQ–100 

Index. The Fund’s use of exchangelisted futures contracts and forward 

contracts is designed to allow the Fund 

to isolate its exposure to the growth of 

the level of expected dividends reflected 

in options on the NASDAQ–100 Index 

and options on ETFs tracking the 

NASDAQ–100 Index, while minimizing 

the Fund’s exposure to changes in the 

trading price of such securities. The 

Fund may also buy and sell OTC 

options on the NASDAQ–100 Index and 

on ETFs designed to track the 

NASDAQ–100 Index. 

The Fund may enter into dividend 

and total return swap transactions 

(including equity swap transactions) 

based on the NASDAQ–100 Index and 

ETFs designed to track the NASDAQ– 

100 Index.24 In a typical swap 

transaction, one party agrees to make 

periodic payments to another party 

(‘‘counterparty’’) based on the change in 

market value or level of a specified rate, 

index, or asset. In return, the 

counterparty agrees to make periodic 

payments to the first party based on the 

return of a different specified rate, 

index, or asset. Swap transactions are 

usually done on a net basis, whereby the 

Fund would receive or pay only the net 

amount of the two payments. In a 

typical dividend swap transaction, the 

Fund would pay the swap counterparty 

a premium and would be entitled to 

receive the value of the actual dividends 

paid on the subject index during the 

term of the swap contract. In a typical 

total return swap, the Fund might 

exchange long or short exposures to the 

return of the underlying securities or 

index to isolate the value of the 

dividends paid on the underlying 

securities or index constituents. The 

Fund also may engage in interest rate 

swap transactions. In a typical interest 

rate swap transaction one stream of 

future interest payments is exchanged 

for another. Such transactions often take 

the form of an exchange of a fixed 

payment for a variable payment based 

on a future interest rate. The Fund 

intends to use interest rate swap 

transactions to manage or hedge 

exposure to interest rate fluctuations. 

The Fund may invest up to 20% of its 

assets (exclusive of collateral held from 

securities lending, if any) in exchangelisted equity securities and derivative 

instruments (specifically, futures 

contracts, forward contracts, and swap 

transactions, as noted above) 25 relating 

to the Index and its component 

securities that the Adviser believes will 

help the Fund track the Index. For 

example, the Fund may buy and sell 

ETFs and, to a limited extent, individual 

large-capitalization equity securities 

listed and traded on a U.S. national 

securities exchange. 

The Fund may invest in the securities 

of other investment companies 

(including money market funds) to the 

extent permitted under the 1940 Act. 

The Fund’s short positions and its 

investments in swaps, futures contracts, 

forward contracts and options based on 

the NASDAQ–100 Index and ETFs 

designed to track the NASDAQ–100 

Index will be backed by investments in 

cash, high-quality short-term debt 

securities and money-market 

instruments in an amount equal to the 

Fund’s maximum liability under the 

applicable position or contract, or will 

otherwise be offset in accordance with 

Section 18 of the 1940 Act. Short-term 

debt securities and money market 

instruments include shares of fixed 

income or money market mutual funds, 

commercial paper, certificates of 

deposit, bankers’ acceptances, U.S. 

government securities (including 

securities issued or guaranteed by the 

U.S. government or its authorities, 

agencies, or instrumentalities), 

repurchase agreements,26 and bonds 

that are rated BBB or higher. In addition 

to the investments described above, and 

in a manner consistent with its 

investment objective, the Fund may 

invest a limited portion of its net assets 

in high-quality, short-term debt 

securities and money market 

instruments for cash management 

purposes.27

The Fund will attempt to limit 

counterparty risk in non-cleared swap, 

forward, and OTC option contracts by 

entering into such contracts only with 

counterparties the Adviser believes are 

creditworthy and by limiting the Fund’s 

exposure to each counterparty. The 

Adviser will monitor the 

creditworthiness of each counterparty 

and the Fund’s exposure to each 

counterparty on an ongoing basis.28

The Fund’s investments in swaps, 

futures contracts, forward contracts and 

options will be consistent with the 

Fund’s investment objective and with 

the requirements of the 1940 Act.29

Investment Restrictions 

To the extent the Index concentrates 

(i.e., holds 25% or more of its total 

assets) in the securities of a particular 

industry or group of industries, the 

Fund will concentrate its investments to 

approximately the same extent as the 

Index. 

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment) deemed illiquid by the 

Adviser, consistent with Commission 

guidance.30 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 


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31See Reality Shares Letter 1; Reality Shares 

Letter 2, supra note 10. 

32 In the Order Instituting Proceedings, the 

Commission sought comment on the following 

questions: (a) Because the Index is designed to 

reflect changes in market expectations of future 

dividend growth, rather than to track actual 

dividend growth, is the Fund’s investment strategy 

fundamentally based on an assumption that the 

options markets systemically underprice dividend 

growth? What are commenters’ views regarding 

whether investors would be able to understand the 

strategy, risks, potential rewards, assumptions, and 

expected performance of the Fund’s strategy? (b) 

With respect to the trading of the Shares on the 

Exchange, do commenters believe that the 

Exchange’s rules governing sales practices are 

adequately designed to ensure the suitability of 

recommendations regarding the Shares? Why or 

why not? If not, should the Exchange’s rules 

governing sales practices be enhanced? If so, in 

what ways? (c) How closely do commenters think 

the market price of the Shares will track the Fund’s 

intraday indicative value (‘‘IIV’’) or the intraday 

value of the Index? Are certain of these values 

likely to be more volatile than others? If so, how 

would this affect trading in the Shares? Are the 

Shares likely to trade with a significant premium 

or discount to IIV? What are commenters’ views of 

how effectively the IIV of the Fund would represent 

the Fund’s portfolio? What are commenters’ views 

of how the Shares’ market price, the Fund’s IIV, and 

the intraday value of the Index will relate to one 

another during times of market stress? and (d) Does 

the liquidity of the long-dated options in which the 

Fund will invest differ materially from that of the 

short-dated options in which the Fund will invest? 

If so, how would that affect the ability of market 

makers to engage in arbitrage or to hedge their 

positions while making a market in the Shares? 

Would the liquidity characteristics of the Index 

components or of the options in the Fund’s 

portfolio affect the calculation of the Index value, 

the calculation of the Fund’s IIV, the calculation of 

the Fund’s NAV, or the ability of market makers or 

other market participants to value the Shares? If so, 

how? 

33See Reality Shares Letter 1, supra note 10, at 

2–3. 

34See id., at 3. 

35See id., at 3–4. 

36See id., at 4. 

37See id., at 5. 

38See Reality Shares Letter 1, supra note 10, at 

6. 

39See id. 

40See id. 

41See id., at 7. 

42See id. 

43See Reality Shares Letter 1, supra note 10, at 

9. 

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. 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. 

The Fund may make secured loans of 

its portfolio securities; however, 

securities loans will not be made if, as 

a result, the aggregate amount of all 

outstanding securities loans by the Fund 

exceeds 331⁄3% of its total assets 

(including the market value of collateral 

received). To the extent the Fund 

engages in securities lending, securities 

loans will be made to broker-dealers 

that the Adviser believes to be of 

relatively high credit standing pursuant 

to agreements requiring that the loans 

continuously be collateralized by cash, 

liquid securities, or shares of other 

investment companies with a value at 

least equal to the market value of the 

loaned securities. 

The Fund will be classified as a ‘‘nondiversified’’ investment company under 

the 1940 Act. The Fund intends to 

qualify for and to elect treatment as a 

separate regulated investment company 

(‘‘RIC’’) under Subchapter M of the 

Internal Revenue Code. 

The Fund’s investments will be 

consistent with its investment objective 

and will not be used to provide multiple 

returns of a benchmark or to produce 

leveraged returns. 

III. Summary of Comment Letters 

As noted above, the Commission 

received two comment letters in 

response to the Order Instituting 

Proceedings.31 Both comment letters, 

which were in favor of the proposal, 

sought to address certain questions, as 

outlined in the Order Instituting 

Proceedings,32 and provide additional 

clarification regarding the proposal. 

A. Reality Shares Letter 1 

In Reality Shares Letter 1, the 

commenter offers its responses to the 

Commission’s questions. The 

commenter responds that the Fund’s 

investment strategy is not based on the 

assumption that dividend growth is 

underpriced by the options markets, 

stating that it is instead based on the 

expected dividend value to be paid on 

Nasdaq–100 securities (as implied in the 

price of listed Nasdaq– Index options 

over time) and the ‘‘historical high 

correlation between such expected 

dividend values and the value of actual 

dividends paid on Nasdaq– 

securities.’’ 33 The commenter then 

explains that, as the value of actual 

dividends paid increases or decreases, 

market expectations for dividends 

typically move up or down in a 

corresponding direction and that, if the 

current expected dividend value of the 

options in the Fund’s portfolio changes, 

the value of an investment in the Fund 

changes correspondingly.34

The commenter asserts that the 

Fund’s Registration Statement will 

sufficiently disclose to investors the key 

features of the Fund, including 

explanations of how the Fund’s strategy 

works and how the Fund is expected to 

perform under various market 

conditions, and disclosures highlighting 

all material risks of investing in the 

Fund.35 The commenter believes that 

these disclosures, and the disclosures in 

the Fund’s marketing materials, will 

allow investors to understand the 

Fund’s investment objective, strategy, 

risks, potential rewards, assumptions, 

and performance characteristics.36

Further, the commenter believes that the 

Exchange’s rules governing sales 

practices are sufficient to ensure the 

suitability of recommendations to 

investors regarding the Fund’s Shares.37

With respect to IIV, the commenter 

responds that it believes that the market 

price of the Fund Shares will closely 

approximate the IIV of the Fund’s 

portfolio and the intraday value of the 

Fund’s underlying Index.38 While it 

believes that ‘‘the Fund’s IIV and 

intraday Index values may reflect higher 

volatility than the market trading price 

of Fund Shares,’’ the commenter does 

not expect this will have any material 

impact on secondary market trading of 

Fund Shares or arbitrage in Fund 

Shares.39 The commenter expects that 

Authorized Participants and other 

institutional investors will quote and 

trade the option contracts held by the 

Fund in combination (by holding 

simultaneous long and short positions 

in the same put/call contracts) and that 

this combination tends to trade at 

tighter bid/ask spreads than do the 

individual contracts.40 The commenter 

expects that Authorized Participants 

and other market makers will factor the 

price of the combination trades into 

their assessment of the value of Fund 

Shares, which will be reflected in the 

trading price of Fund Shares.41 The 

commenter explains that the Fund’s IIV 

and the intraday Index values are based 

on the intraday market price of 

individual option contracts and do not 

reflect the trading price of option 

contracts held in combination. So, while 

the commenter expects the price of 

Fund Shares to closely approximate the 

Fund’s IIV and the intraday values of 

the Index, it also expects that the 

trading price of Fund shares will be less 

volatile than the Fund’s IIV and the 

intraday value of the Index.42

In times of market stress, the 

commenter believes that the Fund’s 

Shares will trade within an acceptable 

spread to the Fund’s IIV and the 

intraday value of the Index.43 The 

commenter believes that, because the 

Fund’s portfolio is transparent and the 

Index constituents are publicly 

disclosed, market participants will be 

able to assess the value of the Fund and 

the Index and access the securities 

necessary to hedge their position 

exposures, even during times of market 


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44See id. 

45See id., at 10. 

46See id. 

47See id., at 11. 

48See Reality Shares Letter 1, supra note 10, at 

12. 

49See Reality Shares Letter 2, supra note 10, at 

1. 

50See id. 

51See id. 

52See id. 

53See id. 

54See Reality Shares Letter 2, supra note 10, at 

2. 

55See id. 

56See id. 

57See id. 

58See id. 

59See Reality Shares Letter 2, supra note 10, at 

2. 

60See id., at 3. 

61 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). 

62 15 U.S.C. 78f(b)(5). 

63 15 U.S.C. 78k–1(a)(1)(C)(iii). 

64Currently, the NASDAQ OMX Global Index 

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

index data feed service, offering real-time updates, 

daily summary messages, and access to widely 

followed indexes and Intraday Indicative Values for 

ETFs. GIDS provides investment professionals with 

the daily information needed to track or trade 

NASDAQ OMX indexes, listed ETFs, or third-party 

partner indexes and ETFs. 

stress.44 Further, the commenter asserts 

that, ‘‘[b]ecause of the transparency of 

the Fund’s portfolio and the liquidity 

and transparency of the underlying 

listed index options . . . investors will 

continue to have the ability to buy and 

sell Shares in the secondary market at 

fair and representative prices should 

there be any material departure from the 

IIV.’’ 45

The commenter states that the 

liquidity of the longer-dated option 

contracts in the Fund’s portfolio will 

not differ materially from the liquidity 

of the shorter-dated option contracts.46

Further, the commenter explains that 

the liquidity characteristics of the 

option contracts held by the Fund will 

not negatively impact the Fund’s 

operation, the calculation of the Index 

value, the calculation of the Fund’s IIV, 

or the calculation of the Fund’s NAV.47

The commenter believes that the 

options contracts provide ‘‘sufficient 

and ample liquidity . . . for Authorized 

Participants and other investors to 

engage in efficient hedging activity, to 

value Fund Shares and to make markets 

in Fund Shares.’’ 48

B. Reality Shares Letter 2 

In Reality Shares Letter 2, the 

commenter seeks to address whether the 

Fund’s strategy will produce positive 

returns for buy-and-hold investors over 

the longer term in light of the efficient 

nature of markets and the ability of 

astute market participants to predict 

dividend growth.49 The commenter 

claims that the historical returns of the 

Fund’s strategy have been positive over 

long periods of time and that an investor 

can reasonably expect returns in the 

future that are non-zero and positive in 

the long term.50

In support of this claim, the 

commenter argues that all investments, 

even in perfectly efficient markets, are 

expected to have, at minimum, a riskfree rate associated with them.51 For 

example, Treasury Bills (theoretically 

risk-free assets) are discounted by the 

risk-free rate in order to entice investors 

to purchase them.52 Thus, even in a 

perfectly efficient market such as the 

one for Treasury Bills, an investment in 

a riskless asset will produce a long-term 

return greater than zero.53 In addition, 

the commenter adds that, if any 

uncertainty surrounds the future payoff 

of an investment, one would expect a 

risk premium to be attached to the 

investment.54 This would be quantified 

as the amount of money by which the 

expected return on the asset exceeds the 

known return of a risk-free asset.55 This 

risk premium compensates investors for 

the uncertainty in their investment in a 

risky asset.56 If the dividend risk 

premium were low, one would expect 

the strategy to earn less than the actual 

growth of dividends; if dividend risk 

premium were high, one would expect 

the strategy to earn more than actual 

dividend growth.57 The commenter 

notes that, while expected dividend 

returns may not match dividend growth 

exactly, the rate of return would (at a 

minimum) be expected to be equal to 

the risk free rate, plus the risk 

premium.58

The commenter further asserts that, 

beyond the theoretical analogy stated 

above, an investment in the expected 

dividend implied in the options markets 

has historically produced positive 

returns and that the Fund’s strategy can 

be expected to produce future positive 

long-term returns.59 While the 

commenter believes that it is possible 

for implied dividend strategies to 

outperform equity returns, as well as 

actual dividend growth, the commenter 

argues that the foundation of the Fund’s 

investment strategy is predicated on its 

conclusion that implied dividends carry 

risk and that, in an efficient market, this 

risk will be reflected in the form of a 

dividend risk premium.60

IV. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposal and the 

comments submitted in response to the 

questions raised by the Commission in 

the Order Instituting Proceedings. For 

the reasons discussed below, the 

Commission finds that the Exchange’s 

proposal to list and trade the Shares is 

consistent with the Exchange Act and 

the rules and regulations thereunder 

applicable to a national securities 

exchange.61 In particular, the 

Commission finds that the proposed 

rule change, as modified by 

Amendments No. 1 and No. 2 thereto, 

is consistent with Section 6(b)(5) of the 

Exchange Act,62 which requires, among 

other things, that the Exchange’s rules 

be designed to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. The Commission also 

finds that the proposal to list and trade 

the Shares on the Exchange is consistent 

with Section 11A(a)(1)(C)(iii) of the 

Exchange Act,63 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, as well as in accordance with 

the Unlisted Trading Privileges and the 

Consolidated Tape Association plans for 

the Shares. The value of the Index will 

be published by one or more major 

market data vendors every 15 seconds 

during the Regular Market Session. 

Information about the Index 

constituents, the weighting of the 

constituents, the Index’s methodology, 

and the Index’s rules will be available 

at no charge on the Index Provider’s 

Web site at www.realityshares.com. In 

addition, an estimated value, defined in 

Rule 5705(b)(3)(C) as the ‘‘Intraday 

Indicative Value,’’ will be disseminated. 

The Intraday Indicative Value, available 

on the NASDAQ OMX Information LLC 

proprietary index data service,64 will be 

based upon the current value for the 

components of the Disclosed Portfolio 

(as discussed herein) and will be 

updated and widely disseminated and 

broadly displayed at least every 15 

seconds during the Regular Market 

Session (currently 9:30 a.m. Eastern 

time). On each business day, before 

commencement of trading in Shares in 

the Regular Market Session on the 


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65Under 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. On a daily basis, the Adviser, on behalf of the 

Fund, will disclose on the Fund’s Web site 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, such as the type of swap); the identity of 

the security, commodity, index, 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 the 

percentage weighting of the holdings in the Fund’s 

portfolio. The Web site information will be publicly 

available at no charge. 

66The Trust will generally value exchange-listed 

securities (which include common stocks and 

ETFs), exchange-listed options, and options on the 

NASDAQ–100 Index or NASDAQ–100 ETFs at 

market closing prices. Market closing price is 

generally determined on the basis of last reported 

sales prices on the applicable exchange, or if no 

sales are reported, based on the mid-point between 

the last reported bid and ask. The Trust will 

generally value exchange-listed futures at the 

settlement price determined by the applicable 

exchange. Non-exchange-traded derivatives, 

including OTC options, swap transactions, and 

forward transactions, will normally be valued on 

the basis of quotations or equivalent indication of 

value supplied by a third-party pricing service or 

major market makers or dealers. Debt securities and 

money market instruments generally will be valued 

based on prices provided by third-party pricing 

services, which may use valuation models or matrix 

pricing to determine current value. Investment 

company securities (other than ETFs) will be valued 

at NAV. The Trust generally will use amortized cost 

to value fixed income or money market securities 

that have a remaining maturity of 60 days or less. 

67These reasons may include: (1) The extent to 

which trading is not occurring in the securities or 

the financial instruments comprising the Disclosed 

Portfolio of the Fund; or (2) whether other unusual 

conditions or circumstances detrimental to the 

maintenance of a fair and orderly market are 

present. The Exchange represents that it may 

consider all relevant factors in exercising its 

discretion to halt or suspend trading in the Shares 

of the Fund. 

68See supra note 19 and accompanying text. 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. 

Exchange, the Fund will disclose on its 

Web site the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘Disclosed Portfolio’’) held 

by the Fund that will form the basis for 

the Fund’s calculation of NAV at the 

end of the business day.65 In addition, 

a basket composition file, which 

includes the security names and 

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 

basket will represent one Creation Unit 

of the Fund. The portfolio composition 

file will represent one Creation Unit of 

Shares of the Fund. 

The Fund will calculate its NAV by: 

(i) taking the current market value of its 

total assets; (ii) subtracting any 

liabilities; and (iii) dividing that amount 

by the total number of Shares 

outstanding. The Fund will calculate 

NAV once each business day as of the 

regularly scheduled close of trading on 

the NYSE (normally, 4:00 p.m., Eastern 

Time).66 Intra-day, executable price 

quotations on the securities and other 

assets held by the Fund will be available 

from major broker-dealer firms or on the 

exchange on which they are traded, as 

applicable. Intra-day price information 

will also be available through 

subscription services, such as 

Bloomberg, Markit, and Thomson 

Reuters, which can be accessed by 

Authorized Participants and other 

investors. Specifically, the intra-day, 

closing and settlement prices of the 

portfolio securities and other Fund 

investments, including exchange-listed 

equity securities (which include 

common stocks and ETFs), exchangelisted futures, and exchange-listed 

options, will be readily available from 

the national securities exchanges 

trading such securities, automated 

quotation systems, published or other 

public sources, and, with respect to 

OTC options, swaps, and forwards, from 

third party pricing sources, or on-line 

information services such as Bloomberg 

or Reuters. Price information regarding 

investment company securities and 

ETFs will be available from on-line 

information services and from the Web 

site for the applicable investment 

company security. The intra-day, 

closing and settlement prices of debt 

securities and money market 

instruments will be readily available 

from published and other public sources 

or on-line information services. 

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. The Fund’s Web 

site will include a form of the 

prospectus for the Fund that may be 

downloaded and additional data 

relating to NAV and other applicable 

quantitative information. 

The Commission also 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 Fund that the NAV for the 

Fund will be calculated daily and will 

be made available to all market 

participants at the same time. The 

Exchange represents that it will halt or 

pause 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 also may 

be halted because of market conditions 

or for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable.67 Trading in the Shares also 

will be subject to Rules 5705(b)(1)(B) 

and 5705(b)(9)(B), which sets forth 

circumstances under which Shares of 

the Fund may be halted. In addition, if 

the IIV, the Index Value or the value of 

the Index Components is not being 

disseminated as required, the Exchange 

may halt trading during the day in 

which the disruption occurs; if the 

interruption persists past the day in 

which it occurred, the Exchange will 

halt trading no later than the beginning 

of the trading day following the 

interruption. 

The Exchange states that it has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. The 

Commission notes that the Index 

Provider is not registered as an 

investment adviser or broker dealer and 

is not affiliated with any broker-dealers, 

and the Adviser is not registered as a 

broker-dealer and is not affiliated with 

any broker-dealers.68 Prior to the 

commencement of trading, the Exchange 

will inform its members in an 


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69The Exchange states that FINRA 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 portfolio for the Fund may trade 

on markets that are members of ISG or with which 

the Exchange has in place a comprehensive 

surveillance sharing agreement. 71See NASDAQ Rule 5705(b)(7) (describing the 

three trading sessions on the Exchange: Regular 

Market Session trading will occur between 9:30 

a.m. and either 4:00 p.m. or 4:15 p.m. for each 

series of Index Fund Shares, as specified by 

NASDAQ). In addition, NASDAQ may designate 

each series of Index Fund Shares for trading during 

a Pre-Market Session beginning at 4:00 a.m. and/or 

a Post-Market Session ending at 8:00 p.m. 72 17 CFR 240.10A–3. 

Information Circular of the special 

characteristics and risks associated with 

trading the Shares. The Financial 

Industry Regulatory Authority 

(‘‘FINRA’’), on behalf of the Exchange,69

will communicate as needed regarding 

trading in the Shares, exchange-listed 

equity securities, ETFs, futures 

contracts, and exchange-traded options 

contracts with other markets and other 

entities that are members of the 

Intermarket Surveillance Group (‘‘ISG’’), 

and FINRA, on behalf of the Exchange, 

may obtain trading information 

regarding trading in the Shares, 

exchange-listed equity securities, ETFs, 

futures contracts, and exchange-traded 

options contracts from such markets and 

other entities. In addition, the Exchange 

may obtain information regarding 

trading in the Shares, exchange-listed 

equity securities, ETFs, futures 

contracts, and exchange-traded options 

contracts from markets and other 

entities that are members of ISG or with 

which the Exchange has in place a 

comprehensive surveillance sharing 

agreement.70 All exchange-listed equity 

securities, ETFs, futures contracts and 

options held by the Fund will be traded 

on U.S. exchanges, all of which are 

members of ISG or are exchanges with 

which the Exchange has in place a 

comprehensive surveillance sharing 

agreement. In addition, FINRA, on 

behalf of the Exchange, is 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. 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. In support of this 

proposal, the Exchange has made 

representations, including: 

(1) The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions.71

(2) The Shares will be subject to Rule 

5705, which sets forth the initial and 

continued listing criteria applicable to 

Index Fund Shares. 

(3) Trading in the Shares will be 

subject to the existing trading 

surveillances, administered by both 

NASDAQ and also FINRA on behalf of 

the Exchange, which are designed to 

detect violations of Exchange rules and 

applicable federal securities laws. 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. 

(4) 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) how 

information regarding the Index Value 

and Intraday Indicative Value will be 

disseminated; (d) the risks involved in 

trading the Shares during the PreMarket and Post-Market Sessions when 

an updated Index Value and 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; and (f) trading information. 

(5) For initial and continued listing, 

the Fund must be in compliance with 

Rule 10A–3 under the Exchange Act.72

(6) At least 80% of the Fund’s total 

assets (exclusive of collateral held from 

securities lending, if any) will be 

invested in the component securities of 

the Index. The Fund will seek a 

correlation of 0.95 or better between its 

performance and the performance of its 

Index. A figure of 1.00 would represent 

perfect correlation. All options included 

in the Index will be listed and traded on 

a U.S. national securities exchange. 

(7) The Fund’s investments in swaps, 

futures contracts, forward contracts and 

options will be consistent with the 

Fund’s investment objective and with 

the requirements of the 1940 Act. To 

limit the potential risk associated with 

such transactions, the Fund will 

segregate or ‘‘earmark’’ assets 

determined to be liquid by the Adviser 

in accordance with procedures 

established by the Trust’s Board of 

Trustees and in accordance with the 

1940 Act (or, as permitted by applicable 

regulation, enter into certain offsetting 

positions) to cover its obligations arising 

from such transactions. 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 certain transactions of the 

Fund, including the Fund’s use of 

derivatives, may give rise to leverage, 

causing the Fund to be more volatile 

than if it had not been leveraged. To 

mitigate leveraging risk, the Adviser 

will segregate or ‘‘earmark’’ liquid assets 

or otherwise cover the transactions that 

may give rise to such risk. The Fund 

may not invest in leveraged or inverse 

leveraged (e.g., 2X, –2X, 3X, or –3X) 

ETFs or options on such ETFs. The 

Fund’s investments will be consistent 

with its investment objective and will 

not be used to provide multiple returns 

of a benchmark or to produce leveraged 

returns. 

(8) The Fund will transact only with 

swap dealers that have in place an ISDA 

agreement with the Fund. Where 

practicable, the Fund intends to invest 

in Cleared Swaps. The Fund will 

attempt to limit counterparty risk in 

non-cleared swap, forward, and OTC 

option contracts by entering into such 

contracts only with counterparties the 

Adviser believes are creditworthy and 

by limiting the Fund’s exposure to each 

counterparty. The Adviser will monitor 

the creditworthiness of each 

counterparty and the Fund’s exposure to 

each counterparty on an ongoing basis. 

The Fund will seek, where possible, to 

use counterparties, as applicable, whose 

financial status is such that the risk of 

default is reduced. The Adviser will 

evaluate the creditworthiness of 

counterparties on an ongoing basis. In 

addition to information provided by 

credit agencies, the Adviser will 

evaluate each approved counterparty 

using various methods of analysis, such 

as, for example, the counterparty’s 

liquidity in the event of default, the 

counterparty’s reputation, the Adviser’s 

past experience with the counterparty, 

and the counterparty’s share of market 

participation. 

(9) The Fund may hold up to an 

aggregate amount of 15% of its net 

assets in illiquid assets (calculated at 

the time of investment) deemed illiquid 

by the Adviser, consistent with 

Commission guidance. 

(10) A minimum of 100,000 Shares for 

the Fund will be outstanding at the 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
69974 Federal Register / Vol. 79, No. 226 / Monday, November 24, 2014 / Notices 

73 15 U.S.C. 78f(b)(5). 

74 Id. 

75 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 3See Supplementary Material .02(a) to Rule 504. 

4See Supplementary Material .02 to Rule 504. 

5See Supplementary Material .12 to Rule 504. 

6 Id. 

7See Rule 504(g). 

8 Id. The term ‘‘primary market’’ is defined in ISE 

Rule 100(a)(37) as the principal market in which an 

underlying security is traded. 

commencement of trading on the 

Exchange. 

(11) The Fund will include 

appropriate risk disclosure in its 

offering documents, which will be 

available on the Commission’s Web site 

and on the Fund’s Web site, 

www.realityshares.com. 

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, as modified by 

Amendments No. 1 and No. 2 thereto, 

is consistent with Section 6(b)(5) of the 

Act 73 and the rules and regulations 

thereunder applicable to a national 

securities exchange. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,74 that the 

proposed rule change (SR–Nasdaq– 

2014–038), as modified by Amendments 

No. 1 and No. 2 thereto, be, and it 

hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.75

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–27711 Filed 11–21–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73633; File No. SR–ISE– 

2014–52] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change Regarding the Short Term 

Option Series Program 

November 18, 2014. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that, on 

November 6, 2014 the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

the proposed rule change, as described 

in Items I, II, and III below, which items 

have been prepared by the selfregulatory organization. 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 ISE proposes to amend its rules 

governing the Short Term Option Series 

Program to extend current $0.50 strike 

price intervals in non-index options to 

short term options with strike prices 

less than $100. The text of the proposed 

rule change is available on the 

Exchange’s Web site (http://

www.ise.com), at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization 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 self-regulatory organization 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 amend its 

rules governing the Short Term Option 

Series Program to introduce finer strike 

price intervals for certain short term 

options. In particular, the Exchange 

proposes to amend Supplementary 

Material .12 to Rule 504 to extend $0.50 

strike price intervals in non-index 

options to short term options with strike 

prices less than $100 instead of the 

current $75. This proposed change is 

intended to eliminate gapped strikes 

between $75 and $100 that result from 

conflicting strike price parameters 

under the Short Term Option Series and 

$2.50 Strike Price Programs as described 

in more detail below. 

Under the ISE’s rules, the Exchange 

may list short term options in up to fifty 

option classes in addition to option 

classes that are selected by other 

securities exchanges that employ a 

similar program under their respective 

rules.3 On any Thursday or Friday that 

is a business day, the Exchange may list 

short term option series in designated 

option classes that expire at the close of 

business on each of the next five Fridays 

that are business days and are not 

Fridays in which monthly or quarterly 

options expire.4 These short term option 

series trade in $0.50, $1, or $2.50 strike 

price intervals depending on the strike 

price and whether the option trades in 

dollar increments in the related monthly 

expiration.5 Specifically, short term 

options in non-index option classes 

admitted to the Short Term Options 

Series Program currently trade in: (1) 

$0.50 intervals [sic] for strike prices less 

than $75, or for option classes that trade 

in one dollar increments in the related 

monthly expiration option; (2) $1 

intervals [sic] for strike prices that are 

between $75 and $150; and (3) $2.50 

intervals [sic] for strike prices above 

$150.6

The ISE also operates a $2.50 Strike 

Price Program that permits the Exchange 

to select up to sixty options classes on 

individual stocks to trade in $2.50 strike 

price intervals, in addition to option 

classes selected by other securities 

exchanges that employ a similar 

program under their respective rules.7

Monthly expiration options in classes 

admitted to the $2.50 Strike Price 

Program trade in $2.50 intervals where 

the strike price is (1) greater than $25 

but less than $50; or (2) between $50 

and $100 if the strikes are no more than 

$10 from the closing price of the 

underlying stock in its primary market 

on the preceding day.8 These strike 

price parameters conflict with strike 

prices allowed for short term options as 

dollar strikes between $75 and $100 

otherwise allowed under the Short Term 

Option Series Program may be within 

$0.50 of strikes listed pursuant to the 

$2.50 Strike Price Program. In order to 

remedy this conflict, the Exchange 

proposes to extend the $0.50 strike price 

intervals currently allowed for short 

term options with strike prices less than 

$75 to short term options with strike 

prices less than $100. With this 

proposed change, short term options in 

non-index option classes will trade in: 

(1) $0.50 intervals [sic] for strike prices 

less than $100, or for option classes that 

trade in one dollar increments in the 

related monthly expiration option; (2) 

$1 intervals [sic] for strike prices that 

are between $100 and $150; and (3) 

$2.50 intervals [sic] for strike prices 

above $150. 


asabaliauskas on DSK5VPTVN1PROD with NOTICES