Document ID: SEC-2019-0331-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-03-25T04:00Z

[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Notices]
[Pages 11148-11149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05571]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85362; File No. SR-NASDAQ-2018-079]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 2, To Amend Nasdaq Rules 5705 and 5710 To Adopt a Disclosure 
Requirement for Certain Securities

March 19, 2019.

I. Introduction

    On November 29, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities

[[Page 11149]]

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 amend Nasdaq Rules 5705 and 
5710 to adopt a disclosure requirement for certain securities. The 
proposed rule change was published for comment in the Federal Register 
on December 19, 2018.\3\ On January 29, 2019, pursuant to Section 
19(b)(2) of the Act,\4\ the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On March 5, 2019, the Exchange 
filed Amendment No. 1 to the proposed rule change.\6\ On March 19, 
2019, the Exchange filed Amendment No. 2 to the proposed rule 
change.\7\ The Commission has received no comments on the proposed rule 
change. This order grants approval of the proposed rule change, as 
modified by Amendment No. 2.
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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. 84812 (December 13, 
2018), 83 FR 65184.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 85000, 84 FR 1525 
(February 4, 2019).
    \6\ Amendment No. 1, which amends and replaces the proposed rule 
change in its entirety, is available at: https://www.sec.gov/comments/sr-nasdaq-2018-079/srnasdaq2018079-5020213-183007.pdf.
    \7\ In Amendment No. 2, which amends and replaces the proposed 
rule change, as modified by Amendment No. 1, in its entirety, the 
Exchange removes (i) the proposed definition of Closing Indicative 
Value relating to Linked Securities, and (ii) all of the proposed 
changes in the first paragraph of Nasdaq Rule 5710(d). Because 
Amendment No. 2 does not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues, it 
is not subject to notice and comment. Amendment No. 2 is available 
at: https://www.sec.gov/comments/sr-nasdaq-2018-079/srnasdaq2018079-5146426-183370.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2 8
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    \8\ For more information regarding the proposal, including the 
proposed amendments to Nasdaq Rules 5705 and 5710, see Amendment No. 
2, supra note 7.
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    The Exchange proposes to amend Nasdaq Rule 5705(b)(1)(B) relating 
to Index Fund Shares and Nasdaq Rule 5710(d) relating to Linked 
Securities. Specifically, the Exchange proposes to require issuers of 
leveraged or inverse Index Fund Shares and Linked Securities that seek 
returns on a daily basis to provide additional website disclosure 
highlighting the daily return feature of these products and the risks 
associated with holding these products for longer than one day. The 
Exchange proposes to amend Nasdaq Rules 5705(b)(1)(B) and 5710(d) to 
require issuers of such Index Fund Shares or Linked Securities to 
include on each such product's website a statement that the product 
seeks returns for a single day,\9\ and that, due to the compounding of 
returns, holding periods of longer than one day can result in 
investment returns that are significantly different than the product's 
target returns. The proposed disclosure would also direct investors to 
consult the prospectus for further information on the calculation of 
the returns and other risks associated with investing in this type of 
product. The Exchange represents that, while issuers' websites already 
typically contain language similar to the disclosure proposed herein, 
Nasdaq believes that providing example language enhances the 
transparency of the proposed listing standard.
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    \9\ The Exchange notes that the proposed rule change is limited 
to Multiple/Inverse Daily Products.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\10\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 2, is consistent 
with Section 6(b)(5) of the Act,\11\ which requires, among other 
things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, 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.
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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
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    Currently, Nasdaq rules permit the listing and trading of Index 
Fund Shares and Linked Securities that seek investment results to 
exceed by a multiple of the performance (leveraged), or exceed by a 
multiple of the inverse of the performance (inverse), of an underlying 
index or reference asset. According to the Exchange, these products are 
designed to track the daily performance of an underlying instrument, 
and holding these products for longer than a day can result in 
investment returns that are significantly different than the target 
return. The Exchange states that some investors may not fully 
understand this risk. The Commission believes that the proposed 
amendments requiring additional disclosure for these types of Index 
Fund Shares and Linked Securities listed on the Exchange are consistent 
with investor protection because the disclosure would provide investors 
with additional information regarding the investment risks associated 
with these products.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
2.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act \12\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \12\ 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,\13\ that the proposed rule change (SR-NASDAQ-2018-079), as 
modified by Amendment No. 2 be, and it hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05571 Filed 3-22-19; 8:45 am]
 BILLING CODE 8011-01-P