Document ID: SEC-2014-1103-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2014-07-03T04:00Z

[Federal Register Volume 79, Number 128 (Thursday, July 3, 2014)]
[Notices]
[Pages 38088-38098]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15610]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72493; File No. SR-NASDAQ-2014-063]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, Relating to the Listing and Trading of the Shares of the Arrow DWA 
Balanced ETF, Arrow DWA Tactical ETF and Arrow DWA Tactical Yield ETF 
of Arrow Investments Trust

June 27, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 23, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by Nasdaq. On June 26, 
2014, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as modified by Amendment No. 1, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange clarifies that the Arrow 
Investments Trust will issue and sell shares of the Arrow DWA 
Balanced ETF, Arrow DWA Tactical ETF and Arrow DWA Tactical Yield 
ETF only in aggregations of 100,000 shares.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the Arrow DWA 
Balanced ETF, Arrow DWA Tactical ETF and Arrow DWA Tactical Yield ETF 
(each a ``Fund'' and, collectively, the ``Funds'') of Arrow Investments 
Trust (the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund 
Shares'').\4\ The shares

[[Page 38089]]

of the Fund [sic] are collectively referred to herein as the 
``Shares.''
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    \4\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). The Funds would not be the first 
actively-managed fund listed on the Exchange; see Securities 
Exchange Act Release No. 66489 (February 29, 2012), 77 FR 13379 
(March 6, 2012) (SR-NASDAQ-2012-004) (order approving listing and 
trading of WisdomTree Emerging Markets Corporate Bond Fund). 
Additionally, the Commission has previously approved the listing and 
trading of a number of actively managed WisdomTree funds on NYSE 
Arca, Inc. pursuant to Rule 8.600 of that exchange. See, e.g., 
Securities Exchange Act Release No. 64643 (June 10, 2011), 76 FR 
35062 (June 15, 2011) (SR-NYSE Arca-2011-21) (order approving 
listing and trading of WisdomTree Global Real Return Fund). The 
Exchange believes the proposed rule change raises no significant 
issues not previously addressed in those prior Commission orders.
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    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com, at Nasdaq's principal office, 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, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of the Funds 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \5\ on the Exchange. The Funds will each be an 
actively managed exchange-traded fund (``ETF''). The Shares will be 
offered by the Trust, which was organized as a Delaware statutory trust 
on August 2, 2011. The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ Each Fund is a 
series of the Trust.
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    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \6\ See Post-Effective Amendment No. 7 to Registration Statement 
on Form N-1A for the Trust (File Nos. 333-178164 and 811-22638). The 
descriptions of the Funds and the Shares contained herein are based, 
in part, on information in the Registration Statement.
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Description of the Shares and the Funds
    Arrow Investment Advisors, LLC is the investment adviser 
(``Adviser'') to the Funds. Northern Lights Distributors, LLC (the 
``Distributor'') is the principal underwriter and distributor of each 
Fund's Shares.\7\ Gemini Fund Services, LLC (``Administrator'') will 
act as the administrator and transfer agent to the Funds. Brown 
Brothers Harriman & Co. (``Custodian'') will act as the custodian and 
transfer agent to the Funds.
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    \7\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act (the ``Exemptive 
Order''). See Investment Company Act Release No. 30127 (July 3, 
2012) (File No. 812-13937), as supplemented December 6, 2012.
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    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\8\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser is not a broker-dealer. The Adviser is affiliated 
with a broker-dealer, although it is not the Funds' distributor. The 
Adviser has implemented a fire wall with respect to its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio. 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, it will implement a fire wall 
with respect to its relevant personnel and/or such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the portfolio and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \8\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``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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Arrow DWA Balanced ETF
    The Fund's primary investment objective is to seek to achieve an 
appropriate balance between long-term capital appreciation and capital 
preservation.
    In pursuing its investment objective, the Fund will invest in other 
ETFs \9\ that each invest primarily in domestic and foreign (including 
emerging markets) (i) equity securities of any market capitalization, 
(ii) fixed income securities of any credit quality, or (iii) 
alternative assets. In addition, the Fund will invest in commodity 
futures through a wholly-owned and controlled Cayman subsidiary (the 
``Balanced Subsidiary''). The Fund defines ``equity securities'' to be 
exchange-traded common and preferred stocks; and defines ``fixed income 
securities'' to be bonds, notes or debentures; and defines 
``alternative assets'' to be investments that are historically 
uncorrelated to either equity or fixed income investments, which are 
commodity futures, exchange-traded master limited partnerships 
(``MLPs'') and real estate-related securities, which include foreign 
and domestic exchange-traded real estate investment trusts (``REITs'') 
or exchange-traded real estate operating companies (``REOCs''). The 
Fund's fixed income securities may be rated below investment grade 
(rated BB+ or lower by Standard & Poor's Ratings Services (``S&P'') or 
comparably rated by another nationally recognized statistical rating 
organization (``NRSRO''), also known as ``high yield'' or ``junk'' 
bonds, and in unrated debt securities determined by the Adviser to be 
of comparable quality.
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    \9\ The ETFs in which the Fund may invest include Index Fund 
Shares and Portfolio Depositary Receipts (as described in Nasdaq 
Rule 5705(a) and (b)) and Managed Fund Shares (as described in 
Nasdaq Rule 5735).
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    The Fund is a ``fund of funds,'' which means that it primarily 
invests in ETFs; however, the Adviser may elect to invest directly in 
the types of securities

[[Page 38090]]

described above. The Adviser may elect to make these direct investments 
when it is cost effective for the Fund to do so (such as when the Fund 
reaches a size sufficient to effectively purchase the underlying 
securities held by the ETFs in which it invests, allowing the Fund to 
avoid the costs associated with indirect investments). The Adviser uses 
technical analysis to allocate the Fund's portfolio among the asset 
classes described above.
    Technical analysis is the method of evaluating securities by 
analyzing statistics generated by market activity, such as past prices 
and trading volume, in an effort to determine probable future prices.
    Under normal market conditions,\10\ the Fund will invest:
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    \10\ 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 objective.
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     From 25% to 65% in ETFs that invest in equity securities;
     from 25% to 65% in ETFs that invest in fixed income 
securities; and
     from 10% to 40% in ETFs that invest in alternative assets.
    The Fund will have the ability to invest up to 25% of its total 
assets in the Balanced Subsidiary. The Balanced Subsidiary will invest 
primarily in commodity futures, as well as fixed income securities and 
cash equivalents, which are intended to serve as margin or collateral 
for the Balanced Subsidiary's investments in commodity futures.
    The Fund will invest in ETFs within specific asset classes when the 
technical models used by the Adviser indicate a high probability that 
the applicable asset classes and ETFs are likely to outperform the 
applicable universe. The Fund will sell interests or reduce investment 
exposure among an asset class or ETF when the technical models used by 
the Adviser indicate that such asset class or ETF is likely to 
underperform the applicable universe. The Fund may be more heavily 
invested in fixed-income ETFs, cash positions and similar securities 
when the technical models indicate these assets should significantly 
outperform the equity and/or alternative asset classes.
    In general, the Fund's investments in equity securities are 
intended to achieve the capital appreciation component of its 
investment objective and the Fund's investments in fixed income 
securities are intended to achieve the capital preservation component 
of its investment objective. Under normal market conditions, the 
Adviser expects that the Fund will invest a combined minimum of 35% in 
fixed-income securities and in alternative assets. The Fund's 
investments in alternative assets are intended to enable the portfolio 
to be less reliant on fixed-income investments for reducing volatility 
and equities for increasing returns. The Adviser may engage in frequent 
buying and selling of portfolio securities to achieve the Fund's 
investment objective. The Fund will not invest in options or swaps.
    The Fund seeks to achieve its investment objective by implementing 
a proprietary technical asset allocation (``TAA'') model. The Adviser 
will overweight asset classes, rotation strategies and underlying ETFs 
exhibiting positive relative strength and underweight asset classes, 
rotation strategies and underlying ETFs exhibiting negative relative 
strength. In essence, TAA works by reallocating at different times in 
response to the changing patterns of returns available in the markets.
    This methodology does not attempt to predict the future; it simply 
reacts to pattern changes in the marketplace at any given time. This 
methodology allows the Fund to be adaptive to current market 
conditions.
    The tactical model relies on a number of technical indicators when 
making allocation decisions for the Fund. The Adviser utilizes relative 
strength as the primary technical indicator to tactically allocate 
assets both within and across asset classes and rotation strategies. 
The relative strength indicator is important because it adapts to the 
changing market conditions. Relative strength measures the likelihood 
that an ETF or a group of ETFs will outperform the appropriate base 
index. When the indicator is moving up, it shows that the ETF or group 
of ETFs is performing better than the base index. When the indicator is 
moving down, it shows that the ETF or group of ETFs is performing worse 
than the base index (i.e., not rising as fast or falling faster).
    For example, in the sector rotation strategy, the Adviser creates a 
sector-based index to compare all available sector ETFs for investment 
in the Fund. The performance of each ETF is compared to the base index 
and ranked. The Adviser generally purchases the ETFs that demonstrate 
the highest-ranked relative strength and sells any positions that are 
not included in that list.
    The Adviser has discretion to add to or delete from the universe of 
eligible ETFs for each strategy based on holdings, expense ratio, 
volume, liquidity, new product availability and other factors that can 
positively contribute to achieving the Fund's investment objectives.
Arrow DWA Tactical ETF
    The Fund's primary investment objective is to seek to achieve long-
term capital appreciation with capital preservation as a secondary 
objective.
    In pursuing its investment objective, the Fund will invest in other 
ETFs \11\ that each invest primarily in domestic and foreign (including 
emerging markets) (i) equity securities of any market capitalization, 
(ii) fixed-income securities of any credit quality, or (iii) 
alternative assets. In addition, the Fund will invest in commodity 
futures through a wholly-owned and controlled Cayman subsidiary (the 
``Tactical Subsidiary''). The Fund defines equity securities to be 
exchange-traded common and preferred stocks; and defines fixed-income 
securities to be bonds, notes or debentures; and defines alternative 
assets to be investments that are historically uncorrelated to either 
equity or fixed income investments, which are commodity futures, MLPs 
and real estate-related securities, which include foreign and domestic 
REITs or REOCs. The Fund's fixed income securities may be rated below 
investment grade (rated BB+ or lower by S&P or comparably rated by 
another NRSRO, also known as ``high yield'' or ``junk'' bonds, and in 
unrated debt securities determined by the Adviser to be of comparable 
quality.
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    \11\ The ETFs in which the Fund may invest include Index Fund 
Shares and Portfolio Depositary Receipts (as described in Nasdaq 
Rule 5705(a) and (b)) and Managed Fund Shares (as described in 
Nasdaq Rule 5735).
---------------------------------------------------------------------------

    The Fund is a ``fund of funds,'' which means that it primarily 
invests in ETFs; however, the Adviser may elect to invest directly in 
the types of securities described above. The Adviser may elect to make 
these direct investments when it is cost effective for the Fund to do 
so (such as when the Fund reaches a size sufficient to effectively 
purchase the underlying securities held by the ETFs in which it 
invests, allowing the Fund to avoid the costs associated with indirect 
investments). The Adviser uses technical analysis to allocate the 
Fund's assets among the asset classes described above.

[[Page 38091]]

    Technical analysis is the method of evaluating securities by 
analyzing statistics generated by market activity, such as past prices 
and trading volume, in an effort to determine probable future prices.
    Under normal market conditions, the Fund will invest:
     From 0% to 100% of its assets in ETFs that invest in 
equity securities;
     From 0% to 100% of its assets in ETFs that invest in 
fixed-income securities; and
     From 0% up to 90% of its assets in ETFs that invest in 
alternative assets.
    The Fund will have the ability to invest up to 25% of its total 
assets in the Tactical Subsidiary. The Tactical Subsidiary will invest 
primarily in commodity futures, as well as fixed-income securities and 
cash equivalents, which are intended to serve as margin or collateral 
for the Tactical Subsidiary's investments in commodity futures.
    The Fund will invest in ETFs within specific asset classes when the 
technical models used by the Adviser indicate a high probability that 
the applicable asset classes and ETFs are likely to outperform the 
applicable universe. The Fund will sell interests or reduce investment 
exposure among an asset class or ETF when the technical models used by 
the Adviser indicate that such asset class or ETF is likely to 
underperform the applicable universe. The Fund may invest more heavily 
in fixed-income ETFs, cash positions and similar securities when the 
technical models indicate these assets should significantly outperform 
the equity and/or alternative asset classes.
    In general, the Fund's investments in equity securities are 
intended to achieve the capital appreciation component of the Fund's 
investment objectives. At times, the Fund may invest in fixed-income 
securities in order to achieve the capital preservation component of 
the Fund's investment objectives. The Fund's investments in alternative 
assets are intended to enable the portfolio to be less reliant on 
fixed-income investments for reducing volatility and equities for 
increasing returns. The Adviser may engage in frequent buying and 
selling of portfolio securities to achieve the Fund's investment 
objectives. The Fund will not invest in options or swaps.
    The Fund seeks to achieve its investment objectives by implementing 
a proprietary TAA model. The Adviser will overweight asset classes, 
rotation strategies and underlying ETFs exhibiting positive relative 
strength and underweight asset classes, rotation strategies and 
underlying ETFs exhibiting negative relative strength.
    The tactical model relies on a number of technical indicators when 
making allocation decisions for the Fund. The Adviser utilizes relative 
strength as the primary technical indicator to tactically allocate 
assets both within and across asset classes and rotation strategies. 
The relative strength indicator is important because it adapts to the 
changing market conditions. Relative strength measures the likelihood 
that an ETF or a group of ETFs will outperform the appropriate base 
index. When the indicator is moving up, it shows that the ETF or group 
of ETFs is performing better than the base index. When the indicator is 
moving down, it shows that the ETF or group of ETFs is performing worse 
than the base index (i.e., not rising as fast or falling faster).
    For example, in the sector rotation strategy, the Adviser creates a 
sector-based index to compare all available sector ETFs for investment 
in the Fund. The performance of each ETF is compared to the base index 
and ranked. The Adviser generally purchases the ETFs that demonstrate 
the highest-ranked relative strength and sells any positions that are 
not included in that list.
    The Adviser has discretion to add to or subtract from the universe 
of eligible ETFs for each strategy based on holdings, expense ratio, 
volume, liquidity, new product availability and other factors that can 
positively contribute to achieving the Fund's investment objectives.
The Subsidiaries
    Each of the Balanced Fund and Tactical Fund have the ability to 
invest up to 25% of its total assets in the Balanced Subsidiary and the 
Tactical Subsidiary, respectively (each a ``Subsidiary''; together, the 
``Subsidiaries''). Each Subsidiary will invest primarily in commodity 
futures, as well as fixed-income securities and cash equivalents, which 
are intended to serve as margin or collateral for each Subsidiary's 
investments in commodity futures. Each Subsidiary may have both long 
and short positions in commodities futures. However, for a given 
commodity, each Subsidiary will have a net long exposure. Each 
Subsidiary will also be advised by the Adviser.\12\ Each Subsidiary 
will initially consider investing in the commodities futures contracts 
set forth in the following table. The table also provides each 
instrument's trading hours, exchange and ticker symbol. The table is 
subject to change.
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    \12\ Neither Subsidiary will be registered under the 1940 Act 
nor will be directly subject to its investor protections, except as 
noted in the Registration Statement. However, each Subsidiary will 
be wholly-owned and controlled by the applicable Fund and will be 
advised by the Adviser. Therefore, each Fund's ownership and control 
of their respective Subsidiary will prevent the applicable 
Subsidiary from taking action contrary to the interests of the Fund 
or its shareholders. The Board of Trustees of the Trust (the 
``Board'') will have oversight responsibility for the investment 
activities of each Fund, including its expected investment in the 
applicable Subsidiary, and the Fund's role as the sole shareholder 
of the applicable Subsidiary. The Adviser will receive no additional 
compensation for managing the assets of each Subsidiary. Each 
Subsidiary will also enter into separate contracts for the provision 
of custody, transfer agency, and accounting agent services with the 
same or with affiliates of the same service providers that provide 
those services to the Funds.
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    \13\ The exchange codes listed are Bloomberg shorthand codes for 
the corresponding exchanges. The New York Board of Trade is 
currently owned by the ICE Futures Exchange; Bloomberg continues to 
use NYB as its shorthand code for certain contracts formerly traded 
on the New York Board of Trade.
    \14\ All of the exchanges are ISG members except for the London 
Metal Exchange (``LME''). The LME falls under the jurisdiction of 
the United Kingdom Financial Conduct Authority (``FCA''). The FCA is 
responsible for ensuring the financial stability of the exchange 
members' businesses, whereas the LME is largely responsible for the 
oversight of day-to-day exchange activity, including conducting the 
arbitration proceedings under the LME arbitration regulations.

----------------------------------------------------------------------------------------------------------------
                                      Bloomberg                                                 Contract ticker
            Commodity               exchange code     Exchange name \14\     Trading hours    (generic Bloomberg
                                         \13\                               (eastern time)          ticker)
----------------------------------------------------------------------------------------------------------------
Cattle, Live/Choice Average.....  CME..............  Chicago Mercantile   18:00-17:00.......  LC.
                                                      Exchange.
Cocoa...........................  NYB..............  ICE Futures          04:00-14:00.......  CC.
                                                      Exchange.
Cotton/1\1/16\``................  NYB..............  ICE Futures          21:00-14:30.......  CT.
                                                      Exchange.
Feeder Cattle...................  CME..............  Chicago Mercantile   18:00-17:00.......  FC.
                                                      Exchange.
Coffee `C'/Colombian............  NYB..............  ICE Futures          03:30-14:00.......  KC.
                                                      Exchange.
Soybeans/No. 2 Yellow...........  CBT..............  Chicago Board of     20:00-14:15.......  S.
                                                      Trade.
Soybean Meal/48% Protein........  CBT..............  Chicago Board of     20:00-14:15.......  SM.
                                                      Trade.

[[Page 38092]]

 
Soybean Oil/Crude...............  CBT..............  Chicago Board of     20:00-14:15.......  BO.
                                                      Trade.
Corn/No. 2 Yellow...............  CBT..............  Chicago Board of     20:00-14:15.......  C.
                                                      Trade.
Wheat/No. 2 Hard Winter.........  KCB..............  Kansas City Board    20:00-14:15.......  KW.
                                                      of Trade.
Wheat/No. 2 Soft Red............  CBT..............  Chicago Board of     20:00-14:15.......  W.
                                                      Trade.
Sugar 11/World Raw.....  NYB..............  ICE Futures          02:30-14:00.......  SB.
                                                      Exchange.
Hogs, Lean/Average Iowa/S Minn..  CME..............  Chicago Mercantile   18:00-17:00.......  LH.
                                                      Exchange.
Crude Oil, WTI/Global Spot......  NYM..............  New York Mercantile  18:00-17:15.......  CL.
                                                      Exchange.
Crude Oil, Brent/Global Spot....  ICE..............  ICE Futures          20:00-18:00.......  CO.
                                                      Exchange.
NY Harb ULSD....................  NYM..............  New York Mercantile  18:00-17:15.......  HO.
                                                      Exchange.
Gas-Oil-Petroleum...............  ICE..............  ICE Futures          20:00-18:00.......  QS.
                                                      Exchange.
Natural Gas, Henry Hub..........  NYM..............  New York Mercantile  18:00-17:15.......  NG.
                                                      Exchange.
Gasoline, Blendstock (RBOB).....  NYM..............  New York Mercantile  18:00-17:15.......  XB.
                                                      Exchange.
Gold............................  CMX..............  COMEX..............  18:00-17:15.......  GC.
Silver..........................  CMX..............  COMEX..............  18:00-17:15.......  SI.
Platinum........................  NYM..............  New York Mercantile  18:00-17:15.......  PL.
                                                      Exchange.
Copper High Grade/Scrap No. 2     CMX..............  COMEX..............  18:00-17:15.......  HG.
 Wire.
Aluminum, LME Primary 3 Month     LME..............  London Metal         15:00-14:45.......  LA.
 Rolling Forward.                                     Exchange.
Lead, LME Primary 3 Month         LME..............  London Metal         15:00-14:45.......  LL.
 Rolling Forward.                                     Exchange.
Nickel, LME Primary 3 Month       LME..............  London Metal         15:00-14:45.......  LN.
 Rolling Forward.                                     Exchange.
Tin, LME Primary 3 Month Rolling  LME..............  London Metal         15:00-14:45.......  LT.
 Forward.                                             Exchange.
Zinc, LME Primary 3 Month         LME..............  London Metal         15:00-14:45.......  LX.
 Rolling Forward.                                     Exchange.
----------------------------------------------------------------------------------------------------------------

    As U.S. and London exchanges list additional contracts, as 
currently listed contracts on those exchanges gain sufficient liquidity 
or as other exchanges list sufficiently liquid contracts, the Adviser 
will include those contracts in the list of possible investments of the 
Subsidiaries. The list of commodities futures and commodities markets 
considered for investment can and will change over time.
    By investing in commodities futures indirectly through the 
applicable Subsidiary, each of the Balanced Fund and the Tactical Fund 
will obtain exposure to the commodities markets within the federal tax 
requirements that apply to the Fund. Investment in each Subsidiary is 
expected to provide the applicable Fund with exposure to the 
commodities markets within the limitations of the federal tax 
requirements of Subchapter M of the Code.
    Because each of the Balanced Fund and the Tactical Fund may invest 
up to 25% of its assets in its respective Subsidiary, such Fund may be 
considered to be investing indirectly in some of those investments 
through its Subsidiary. For that reason, references to each of the 
Balanced Fund and Tactical Fund may also include its Subsidiary. When 
viewed on a consolidated basis, each Subsidiary will be subject to the 
same investment restrictions and limitations, and follow the same 
compliance policies and procedures, as the applicable Fund.
Commodities Regulation
    The Commodity Futures Trading Commission (``CFTC'') has recently 
adopted substantial amendments to CFTC Rule 4.5 relating to the 
permissible exemptions and conditions for reliance on exemptions from 
registration as a commodity pool operator. As a result of the 
instruments that will be indirectly held by each of the Balanced Fund 
and the Tactical Fund, the Adviser has registered as a commodity pool 
operator \15\ and is also a member of the National Futures Association 
(``NFA''). Each of the Balanced Fund, Tactical Fund and the 
Subsidiaries are subject to regulation by the CFTC and NFA and 
additional disclosure, reporting and recordkeeping rules imposed upon 
commodity pools.
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    \15\ As defined in Section 1a(11) of the Commodity Exchange Act.
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Arrow DWA Tactical Yield ETF
    The Fund's primary investment objective is to seek high current 
income with an appropriate balance between long-term capital 
appreciation and capital preservation.
    In pursuing its investment objective, the Fund will invest in other 
ETFs that each invest in domestic and foreign (including emerging 
markets) (i) equity securities of any market capitalization or (ii) 
fixed-income securities of any credit quality. The Fund also invests 
indirectly in these asset classes through various exchange-traded 
products (``ETPs''),\16\ exchange-traded closed-end funds and directly 
through individual securities. In order to mitigate the settlement risk 
of the foreign denominated securities in which it invests due to 
currency fluctuations, the Fund may also invest in Spot Forex futures 
with up to 25% of the Fund's assets. The Fund will not invest in 
options or swaps.
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    \16\ The ETPs in which the Fund may invest include exchange-
traded currency trusts (as described in Nasdaq Rule 5711(e)) and 
exchange-traded notes (``ETNs'') (as described in Nasdaq Rule 5730).
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    The Fund defines equity securities to be exchange-traded common and 
preferred stocks and REITs, and defines fixed-income securities to be 
bonds, notes and debentures.
    The Fund will maintain two income strategies that focus on (i) 
securities that generate ``high beta yield,'' consisting of securities 
correlated to equities based on a proprietary methodology, and (ii) 
securities that generate ``low beta yield'', consisting of securities 
less correlated to equities based on a proprietary methodology, 
respectively. Beta is a measure of the price volatility, or risk, of a 
security or a portfolio in comparison to the market as a whole. A 
security's correlation to equities is a measure of the performance 
similarity of the security to the S&P 500 index. The high beta strategy 
is a composite of securities that are selected based on

[[Page 38093]]

their credit and equity risk premiums characteristics. The low beta 
yield strategy is a composite of securities that are selected based on 
their inflation, interest and credit risk characteristics. The Fund 
uses a proprietary selection methodology designed to identify 
securities that demonstrate strong relative strength characteristics 
within each strategy. The Fund will then utilize a quantitative 
methodology that relies on economic and fundamental factors to 
tactically underweight and overweight the income strategies.
    The Fund will, under normal market conditions, invest as follows:
     From 20% to 80% in the Low Beta (LB). The LB will be 
comprised of equity and fixed income securities, including exchanged 
traded products that invest in international and domestic securities; 
and
     From 20% to 80% in the High Beta (HB). The HB will be in 
equity and fixed income securities, including exchanged traded products 
that invest in international and domestic securities.
    The Fund expects to be a ``fund of funds,'' which means that it 
primarily invests in ETFs and also in ETPs and closed-end funds; 
however, the Adviser may elect to invest directly in the asset classes 
described above. The Adviser may elect to make these direct investments 
when it is cost effective for the Fund to do so (such as when the Fund 
reaches a size sufficient to effectively purchase the underlying 
securities held by the ETFs, ETPs or closed-end Funds in which it 
invests, allowing the Fund to avoid the costs associated with indirect 
investments).
All Funds
    Each Fund will not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry.\17\ Each Fund may 
hold up to an aggregate amount of 15% of its net assets in illiquid 
assets (calculated at the time of investment). Each 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 a 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.\18\
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    \17\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
    \18\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
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    In certain situations or market conditions, a Fund may temporarily 
depart from its normal investment policies and strategies provided that 
the alternative is consistent with the Fund's investment objective and 
is in the best interest of the Fund. For example, a Fund may hold a 
higher than normal proportion of its assets in cash in times of extreme 
market stress. The Funds may borrow money from a bank as permitted by 
the 1940 Act or other governing statute, by applicable rules 
thereunder, or by Commission or other regulatory agency with authority 
over the Funds, but only for temporary or emergency purposes. The use 
of temporary investments is not a part of a principal investment 
strategy of the Funds.
    The Funds will be classified as ``non-diversified'' investment 
companies under the 1940 Act.\19\ The Funds intend to qualify for and 
to elect treatment as a separate regulated investment company under 
Subchapter M of the Internal Revenue Code.\20\
---------------------------------------------------------------------------

    \19\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
    \20\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    Each Fund's investments and each Subsidiary's investments will be 
consistent with its respective investment objective and although 
certain derivative investments will have a leveraging effect on the 
Funds and Subsidiaries, the Funds and Subsidiaries will not seek 
leveraged returns (e.g., 2X or -3X).
Purchasing and Redeeming Creation Units
    The Trust will issue and sell Shares of the Funds only in 
aggregations of 100,000 Shares (``Creation Units'') on a continuous 
basis through the Distributor, without a sales load (but subject to 
transaction fees), at their net asset value (``NAV'') next determined 
after receipt of an order, on any business day, in proper form. The NAV 
of a Fund will be determined once each business day, normally as of the 
close of trading of the New York Stock Exchange (``NYSE''), generally, 
4:00 p.m. Eastern time.
    Only authorized participants may purchase or redeem any Creation 
Units. An ``Authorized Participant'' is either a broker-dealer or other 
participant in the Continuous Net Settlement System (``Clearing 
Process'') of the National Securities Clearing Corporation (``NSCC'') 
or a participant in the Depository Trust Company (``DTC'') with access 
to the DTC system (``DTC Participant'') that has executed an agreement 
(``Participant Agreement'') with the Distributor that governs 
transactions in each Fund's Creation Units.
    The consideration for a Creation Unit generally consists of the in-
kind deposit of designated securities (``Deposit Securities'') and an 
amount of cash in U.S. dollars (``Cash Component''). Together, the 
Deposit Securities and the Cash Component constitute the ``Portfolio 
Deposit.'' The consideration received in connection with the redemption 
of a Creation Unit generally consists of an in-kind basket of 
designated securities (``Redemption Securities'') and the Cash 
Component. Together, the Redemption Securities and the Cash Component 
constitute the ``Redemption Basket.''
    The Cash Component compensates for any differences between the net 
asset value per Creation Unit and the Deposit Securities or Redemption 
Securities. Thus, the Cash Component is equal to the difference between 
(x) the net asset value per Creation Unit of each Fund and (y) the 
market value of the Deposit Securities or Redemption Securities. If (x) 
is more than(y), the Authorized Participant will receive the Cash 
Component from the applicable Fund. If (x) is less than (y), the 
Authorized Participant will pay the Cash Component to the applicable 
Fund.
    On each Business Day, prior to the opening of business on the 
Exchange (currently 9:30 a.m., Eastern Time), the Adviser through the 
Custodian makes available through NSCC the name and amount of each 
Deposit Security in the current Portfolio Deposit (based on information 
at the end of the previous Business Day) for each Fund and the 
(estimated) Cash Component, effective through and including the 
previous Business Day, per Creation Unit. The Deposit Securities 
announced are

[[Page 38094]]

applicable, subject to any adjustments as described below, to purchases 
of Creation Units until the next announcement of Deposit Securities.
    If the Redemption Securities on a Business Day are different from 
the Deposit Securities, prior to the opening of business on the 
Exchange, the Adviser through the Custodian makes available through 
NSCC the name and amount of each Redemption Security in the current 
Redemption Basket (based on information at the end of the previous 
Business Day) for a Fund and the (estimated) Cash Component, effective 
through and including the previous Business Day, per Creation Unit.
    The Trust will reserve the right to permit or require the 
substitution of an amount of cash (i.e., a ``cash-in-lieu'') amount to 
be added to the Cash Component to replace any Deposit Security or 
Redemption Security that may not be available in sufficient quantity 
for delivery or which might not be eligible for trading by an 
Authorized Participant or the investor for which it is acting or other 
relevant reason. To the extent the Trust effects the purchase or 
redemption of Shares in cash, such transactions will be effected in the 
same manner for all Authorized Participants.
    All orders to create Creation Unit aggregations must be received by 
the Distributor no later than the earlier of (i) 4:00 p.m. Eastern Time 
or (ii) the closing time of the bond markets and/or the regular trading 
session on the Exchange, in each case, on the date such order is placed 
in order for creations of Creation Unit aggregations to be effected 
based on the NAV of Shares of a Fund as next determined on such date 
after receipt of the order in proper form.
    In order to redeem Creation Units of a Fund, an Authorized 
Participant must submit an order to redeem for one or more Creation 
Units. All such orders must be received by the Distributor in proper 
form no later than the earlier of (i) 4:00 p.m. Eastern Time or (ii) 
the closing time of the bond markets and/or the regular trading session 
on the Exchange, in order to receive that day's closing NAV per Share.
Net Asset Value
    The Administrator calculates each Fund's NAV at the close of 
regular trading (normally 4:00 p.m., Eastern Time) every day that the 
NYSE is open. NAV is calculated by deducting all of a Fund's 
liabilities from the total value of its assets and dividing the result 
by the number of Shares outstanding, rounding to the nearest cent. All 
valuations are subject to review by the Trust's Board or its delegate.
    In determining NAV, expenses are accrued and applied daily and 
securities and other assets for which market quotations are readily 
available are valued at market value. The NAV for a Fund will be 
calculated and disseminated daily. The value of a Fund's portfolio 
securities is based on market value when market quotations are readily 
available.
    Exchange-traded securities, such as common and preferred stocks, 
ETFs, ETPs, ETNs, closed-end funds, REITs, MLPs, REOCs and similar 
instruments, generally are valued by using market quotations, but may 
be valued on the basis of prices furnished by a pricing service when 
the Adviser believes such prices accurately reflect the fair market 
value of such securities. Securities that are traded on any stock 
exchange or on Nasdaq are generally valued by the pricing service at 
the last quoted sale price. Lacking a last sale price, an equity 
security is generally valued by the pricing service at its last bid 
price. When market quotations are not readily available, when the 
Adviser determines that the market quotation or the price provided by 
the pricing service does not accurately reflect the current market 
value, or when restricted or illiquid securities are being valued, such 
securities are valued as determined in good faith by the Adviser. If a 
security's market price is not readily available, the security will be 
valued at fair value as determined by the Trust's Fair Value Committee 
in accordance with the Trust's valuation policies and procedures 
approved by the Board. The values of assets denominated in foreign 
currencies are converted into U.S. dollars based on the mean of the 
current bid and asked prices by major banking institutions and currency 
dealers.
    Bonds, notes, debentures or similar instruments are valued by a 
pricing service when the Fund's Adviser believes such prices are 
accurate and reflect the fair market value of such securities. If the 
Adviser decides that a price provided by the pricing service does not 
accurately reflect the fair market value of the securities, when prices 
are not readily available from a pricing service, or when restricted or 
illiquid securities are being valued, securities are valued at fair 
value as determined in good faith by the Fund's Adviser, subject to 
review by the Board of Trustees. Short-term investments in fixed income 
securities with maturities of less than 60 days when acquired, or which 
subsequently are within 60 days of maturity, are valued by using the 
amortized cost method of valuation.
    Futures contracts listed for trading on a futures exchange or board 
of trade for which market quotations are readily available are valued 
at the last quoted sales price or, in the absence of a sale, at the 
mean of the last bid and ask prices.
    The Subsidiaries will be valued at their NAV at the close of 
regular trading (normally 4:00 p.m., Eastern time) every day that the 
NYSE is open. NAV is calculated by deducting all of a Subsidiary's 
liabilities from the total value of its assets and dividing the result 
by the number of shares of the Subsidiary outstanding, rounding to the 
nearest cent. The total value of the assets of each Subsidiary is 
determined using the same valuation policy as the Funds.
    Even when market quotations are available, they may be stale or 
unreliable because the validity of market quotations appears to be 
questionable; the number of quotations is such as to indicate that 
there is a thin market in the security; a significant event occurs 
after the close of a market but before a Fund's NAV calculation that 
may affect a security's value; or the Adviser is aware of any other 
data that calls into question the reliability of market quotations such 
as issuer-specific events, which may include a merger or insolvency, 
events which affect a geographical area or an industry segment, such as 
political events or natural disasters, or market events, such as a 
significant movement in the U.S. market. Where market quotations are 
not readily available, including where the Adviser determines that the 
closing price of the security is unreliable, the Adviser will value the 
security at fair value in good faith using procedures approved by the 
Board. Fair value pricing involves subjective judgments and it is 
possible that a fair value determination for a security is materially 
different than the value that could be realized upon the sale of the 
security.
    Because foreign markets may be open on different days than the days 
during which a shareholder may purchase Shares, the value of a Fund's 
investments may change on days when shareholders are not able to 
purchase Shares.
Availability of Information
    The Funds' Web site (www.arrowshares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Web site 
will include each Fund's ticker, Cusip and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for

[[Page 38095]]

each Fund: (1) daily trading volume, the prior business day's reported 
NAV and closing price, mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price'') \21\ and a calculation 
of the premium and discount of the Bid/Ask Price against the NAV; and 
(2) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily Bid/Ask Price against the NAV, 
within appropriate ranges, for each of the four previous calendar 
quarters. On each business day, before commencement of trading in 
Shares in the Regular Market Session \22\ on the Exchange, the Funds 
will disclose on their Web site the identities and quantities of the 
portfolio of securities and other assets (the ``Disclosed Portfolio'' 
as defined in Nasdaq Rule 5735(c)(2)) held by each Fund that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\23\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting and market value of securities 
and other assets held by each Fund and each Subsidiary and the 
characteristics of such assets. The Web site and information will be 
publicly available at no charge.
---------------------------------------------------------------------------

    \21\ The Bid/Ask Price of each Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Funds and their service 
providers.
    \22\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m. Eastern Time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. Eastern Time).
    \23\ Under accounting procedures to be followed by the Funds, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any business day may be 
booked and reflected in NAV on such business day. Accordingly, the 
Funds 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.
---------------------------------------------------------------------------

    In addition, for the Funds, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of each Fund's portfolio, will be 
disseminated. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service \24\ will be 
based upon the current value for the components of the Disclosed 
Portfolio and will be updated and widely disseminated by one or more 
major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. Information regarding the 
ETFs, other ETPs, futures, equity securities, fixed income securities 
and other investments held by the Funds and Subsidiaries will be 
available from on-line information services such as Bloomberg.
---------------------------------------------------------------------------

    \24\ Currently, 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.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of each Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Intraday, executable price quotations on the securities and other 
assets held by the Funds and Subsidiaries, will be available from major 
broker-dealer firms or on the exchange on which they are traded, as 
applicable. Intraday 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: 
(a) pricing information for exchange-traded securities such as common 
and preferred stocks, ETFs, ETPs, ETNs, closed-end funds, futures 
contracts, REITs, MLPs, and REOCs will be publicly available from the 
Web sites of the exchanges on which they trade, on public financial Web 
sites, and through subscription services such as Bloomberg and Thompson 
Reuters; and (b) pricing information regarding debt securities 
(including high yield fixed-income securities, bonds, notes and 
debentures will be available through subscription services such as 
Markit, Bloomberg and Thompson Reuters.
    Investors will also be able to obtain the Funds' Statement of 
Additional Information (``SAI''), the Funds' annual and semi-annual 
shareholder reports (``Shareholder Reports''), and their Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Funds, and those documents 
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded 
from the Commission's Web site at www.sec.gov. Information regarding 
market price and volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services. 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 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 and any 
underlying exchange-traded products.
    Additional information regarding the Funds and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes will be included in the Registration Statement. All terms 
relating to a Fund that are referred to, but not defined in, this 
proposed rule change are defined in the Registration Statement.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Funds must be in compliance with Rule 10A-3 \25\ under the 
Act. A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and other assets constituting the Disclosed Portfolio of 
the Funds; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Funds may be halted.

[[Page 38096]]

Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. Eastern Time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also 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.\26\ 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.
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    \26\ 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.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading information it can obtain relating to the Shares and 
other exchange-traded securities and instruments held by the Fund with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG'') \27\ and FINRA may obtain trading 
information regarding trading in the Shares and exchange-traded 
securities and instruments held by the Fund from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and exchange-traded securities and instruments 
held by the Fund from markets and other entities that are members of 
ISG, which includes all U.S. national securities and certain futures 
exchanges, or are parties to 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 each Fund reported to FINRA's TRACE. At all times, 
90% of each Fund's exchange-traded assets will be securities that trade 
in markets that are members of the ISG, which includes all U.S. 
national securities and certain futures exchanges, or are parties to a 
comprehensive surveillance sharing agreement.
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    \27\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how and by whom 
information regarding the Intraday Indicative Value and Disclosed 
Portfolio is disseminated; (4) the risks involved in trading the Shares 
during the Pre-Market and Post-Market Sessions when an updated Intraday 
Indicative Value will not be calculated or publicly disseminated; (5) 
the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the 
Distributor's Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f.
    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. At all times, 90% of each Fund's exchange-traded 
assets will be securities that trade in markets that are members of the 
ISG, which includes all U.S. national securities and certain futures 
exchanges, or are parties to a comprehensive surveillance sharing 
agreement. The Exchange may obtain information via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. In 
pursuing its investment objective, the Balanced Fund and the Tactical 
Fund seek to achieve their respective investment objectives by 
investing in ETFs that each invest primarily in domestic and foreign 
(including emerging markets) (i) equity securities of any market 
capitalization, (ii) fixed income securities of any credit quality, or 
(iii) alternative assets. In addition, each of the Balanced Fund and 
the Tactical Fund invests in commodity futures through its respective 
Subsidiary. In pursuing its investment objective, the Tactical Yield 
Fund invests in ETFs that each invest primarily in domestic and foreign

[[Page 38097]]

(including emerging markets) (i) equity securities of any market 
capitalization, and (ii) fixed income securities of any credit quality.
    The Funds will not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry.\30\ The Funds may 
hold up to an aggregate amount of 15% of its net assets in illiquid 
assets (calculated at the time of investment).
---------------------------------------------------------------------------

    \30\ See supra note 17.
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    Each of the Balanced Fund and Tactical Fund has the ability to 
invest up to 25% of its total assets in the Balanced Subsidiary and the 
Tactical Subsidiary, respectively. Each Subsidiary will invest 
primarily in commodity futures, as well as fixed income securities and 
cash equivalents, which are intended to serve as margin or collateral 
for the subsidiary's investments in commodity futures. Each Subsidiary 
may have both long and short positions in commodities futures. However, 
for a given commodity, each Subsidiary will have a net long exposure.
    The Adviser is not a broker-dealer, but the Adviser is affiliated 
with a broker-dealer and has implemented a ``fire wall'' with respect 
to such broker-dealer regarding access to information concerning the 
composition and/or changes to the Funds' portfolio. In addition, as 
required by paragraph (g) of Nasdaq Rule 5735, Adviser personnel who 
make decisions on each Fund's portfolio composition will be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the each Fund's portfolio. The Funds' 
investments will be consistent with the Funds' investment objectives 
and, although certain derivative investments will have a leveraging 
effect on the Funds and Subsidiaries, the Funds and Subsidiaries will 
not seek leveraged returns (e.g., 2X or -3X).
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Funds and the Shares, 
thereby promoting market transparency.
    The Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service will be widely 
disseminated by one or more major market data vendors and broadly 
displayed at least every 15 seconds during the Regular Market Session. 
The dissemination of the Intraday Indicative Value, together with the 
Disclosed Portfolio, will allow investors to determine the value of the 
underlying portfolio of each Fund on a daily basis and will provide a 
close estimate of that value throughout the trading day. 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, and quotation 
and last sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services. Intraday, executable price 
quotations of the securities and other assets held by the Funds will be 
available from major broker-dealer firms or on the exchange on which 
they are traded, if applicable. Intraday price information is available 
through subscription services, such as Bloomberg, Markit and Thomson 
Reuters, which can be accessed by Authorized Participants and other 
investors.
    Trading in Shares of the Funds will be halted under the conditions 
specified in Nasdaq Rule 4120(a)(11) have been reached or because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Funds may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Funds' holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-063 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-063. 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

[[Page 38098]]

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 such filing will also 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-NASDAQ-2014-063 and should 
be submitted on or before July 24, 2014.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15610 Filed 7-2-14; 8:45 am]
BILLING CODE 8011-01-P