Document ID: SEC-2015-1333-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2015-08-11T04:00Z

[Federal Register Volume 80, Number 154 (Tuesday, August 11, 2015)]
[Notices]
[Pages 48125-48128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19646]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75613; File No. SR-NASDAQ-2015-059]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 
Thereto, To List and Trade Shares of the Reaves Utilities ETF of ETFis 
Series Trust I

August 5, 2015.

I. Introduction

    On June 2, 2015, The NASDAQ Stock Market LLC (``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to list and 
trade shares (``Shares'') of the Reaves Utilities ETF (``Fund'') of 
ETFis Series Trust I (``Trust'') under Nasdaq Rule 5735. On June 12, 
2015, the Exchange filed Amendment No. 1 to the proposed rule change. 
The Commission published notice of the proposed rule change, as 
modified by Amendment No. 1, in the Federal Register on June 22, 
2015.\3\ On June 17, 2015, the Exchange filed Amendment No. 2 to the 
proposed rule change.\4\ The Commission received no comments on the 
proposal, as modified by Amendment No. 1. This order approves the 
proposed rule change, as modified by Amendment Nos. 1 and 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. 75178 (June 16, 
2015), 80 FR 35682 (``Notice'').
    \4\ In Amendment No. 2, the Exchange clarified the term ``cash 
equivalents'' in the Other Investments section means only money 
market instruments, short duration repurchase agreements, and short 
duration commercial paper. Amendment No. 2 is not subject to notice 
and comment because it is a technical amendment that does not 
materially alter the substance of the proposed rule change or raise 
any novel regulatory issues.

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[[Page 48126]]

II. The Exchange's Description of the Proposal \5\
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    \5\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. Terms not 
defined herein are defined in the Notice. See Notice and 
Registration Statement, supra note 3 and infra note 6, respectively.
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General

    The Fund will be an actively-managed exchange-traded fund 
(``ETF''). The Shares will be offered by the Trust, which was 
established as a Delaware statutory trust on September 20, 2012. 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\ The Fund will be a series of the 
Trust. Etfis Capital LLC will be the investment adviser (``Adviser'') 
to the Fund, and W.H. Reaves & Co., Inc. (d/b/a Reaves Asset 
Management) will be the investment sub-adviser (``Sub-Adviser'') to the 
Fund.\7\ ETF Distributors LLC will be the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon (``BNY 
Mellon'') will act as the administrator, accounting agent, custodian, 
and transfer agent to the Fund.
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    \6\ See Registration Statement on Form N-1A for the Trust filed 
on January 30, 2015 (File Nos. 333-187668 and 811-22819) 
(``Registration Statement'').
    \7\ The Adviser is not registered as a broker-dealer; however 
the Adviser is affiliated with a broker-dealer. The Sub-Adviser is 
registered as a broker-dealer. The Adviser has implemented a fire 
wall with respect to its broker-dealer affiliate, and the Sub-
Adviser has also implemented a firewall, regarding access to 
information concerning the composition and/or changes to the 
portfolio. In addition, personnel of both the Adviser and the Sub-
Adviser who make decisions on the Fund's portfolio composition will 
be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
Fund's portfolio. In the event (a) the Adviser 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 affiliate, if applicable, 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. See Notice, supra note 3, 80 FR at 35683.
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Principal Investments

    The Fund's investment objective will be to seek to provide total 
return through a combination of capital appreciation and income. Under 
normal market conditions, the Fund will invest not less than 80% of its 
total assets in exchange-listed equity securities of companies in the 
Utility Sector (``Utility Sector Companies''). The Fund considers a 
company to be a ``Utility Sector Company'' if the company is a utility 
or if at least 50% of the company's assets or customers are committed 
to (or at least 50% of the company's revenues, gross income or profits 
are derived from) the provision of products, services, or equipment for 
the generation or distribution of electricity, gas, or water.

Other Investments

    To seek its investment objective, the Fund may hold cash and invest 
in U.S. exchange-traded options overlying securities and securities 
indexes and the following cash equivalents: money market instruments; 
short-duration, high-quality repurchase agreements; \8\ and short 
duration commercial paper.\9\ The Fund also may make short sales.
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    \8\ See id. at 35682, n.3.
    \9\ See Amendment No. 2, supra note 4.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \10\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\11\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\12\ 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 notes that the Fund and the Shares must comply 
with the initial and continued listing criteria in Nasdaq Rule 5735 for 
the Shares to be listed and traded on the Exchange.
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    \10\ 15 U.S.C. 78f.
    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\13\ 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 and any underlying exchange-traded 
products other than options 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. Quotation and last-sale information for options is available 
via the Options Price Reporting Authority (``OPRA''). In addition, the 
Intraday Indicative Value,\14\ as defined in Nasdaq Rule 5735(c)(3), 
available on the NASDAQ OMX Information LLC proprietary index data 
service, will be widely disseminated by one or more major market data 
vendors at least every 15 seconds during the Regular Market 
Session.\15\ On each business day, before commencement of trading in 
Shares in the Regular Market Session \16\ on the Exchange, the Fund 
will disclose on its 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 the Fund that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\17\ BNY Mellon, through the National Securities Clearing 
Corporation, will make available on each business day, prior to the 
opening of business of the Exchange (currently 9:30 a.m., E.T.), the 
list of the names and the quantity of each Deposit

[[Page 48127]]

Security to be included in the current Fund Deposit (based on 
information at the end of the previous business day). The NAV of the 
Fund will be determined as of the close of trading (normally 4:00 p.m., 
E.T.) on each day the New York Stock Exchange is open for business.\18\ 
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. Price information regarding the equity 
securities, options, money market instruments and money market funds 
held by the Fund will be available through the U.S. exchanges trading 
such assets, in the case of exchange-traded securities, as well as 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. Intra-day price 
information for all assets held by the Fund will also be available 
through subscription services, such as Bloomberg, Markit and Thomson 
Reuters, which can be accessed by Authorized Participants and other 
investors. The Fund's Web site will include a form of the prospectus 
for the Fund and additional data relating to NAV and other applicable 
quantitative information.
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    \13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \14\ The Intraday Indicative Value will be calculated using 
estimated intraday values of the components of the Fund's Disclosed 
Portfolio. For the definition of ``Disclosed Portfolio'', see infra 
note 17 and accompanying text.
    \15\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service. The 
Exchange represents that GIDS offers real-time updates, daily 
summary messages, and access to widely followed indexes and Intraday 
Indicative Values for ETFs and that GIDS provides investment 
professionals with the daily information needed to track or trade 
NASDAQ OMX indexes, listed ETFs, or third-party partner indexes and 
ETFs.
    \16\ 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., E.T.; (2) Regular Market Session from 9:30 a.m. to 4:00 p.m. 
or 4:15 p.m., E.T.; and (3) Post-Market Session from 4:00 p.m. or 
4:15 p.m. to 8:00 p.m., E.T.).
    \17\ The Fund's disclosure of derivative positions in the 
Disclosed Portfolio will include information that market 
participants can use to value these positions intraday. On a daily 
basis, 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); 
the identity of the security or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or 
number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; 
and the percentage weighting of the holding in the Fund's portfolio.
    \18\ NAV will be calculated for the Fund by taking the market 
price of the Fund's total assets, including interest or dividends 
accrued but not yet collected, less all liabilities, and dividing 
this amount by the total number of Shares outstanding.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer of 
the Shares that the NAV per Share will be calculated daily and that the 
NAV and the Disclosed Portfolio will be made available to all market 
participants at the same time. Trading in the Shares will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
the trading pause provisions under Nasdaq Rules 4120(a)(11) and (12). 
Trading in the Shares may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable,\19\ and trading in the Shares will be subject to Nasdaq 
Rule 5735(d)(2)(D), which sets forth circumstances under which trading 
in the Shares may be halted. The Exchange states that it has a general 
policy prohibiting the distribution of material, non-public information 
by its employees. Further, the Commission notes that the Reporting 
Authority \20\ that provides the Disclosed Portfolio must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material, non-public information regarding the actual 
components of the portfolio.\21\ In addition, the Exchange states that 
the Adviser is not registered as a broker-dealer; however the Adviser 
is affiliated with a broker-dealer, and the Sub-Adviser is registered 
as a broker-dealer. The Adviser has implemented a fire wall with 
respect to its broker-dealer affiliate, and the Sub-Adviser has also 
implemented a firewall regarding access to information concerning the 
composition and/or changes to the portfolio, and personnel who make 
decisions on the Fund's portfolio composition will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Fund's portfolio.\22\ The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by both Nasdaq and also FINRA on 
behalf of the Exchange, which are designed to detect violations of 
Exchange rules and applicable federal securities laws.\23\ The Exchange 
further 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. Moreover, prior to the commencement of trading, the 
Exchange states that it will inform its members in an Information 
Circular of the special characteristics and risks associated with 
trading the Shares.
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    \19\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and/or the other assets 
constituting the Disclosed Portfolio of the Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. With respect 
to trading halts, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares.
    \20\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
    \21\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \22\ See supra note 7. The Exchange states that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940.
    \23\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including the following:
    (1) The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in 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''),\24\ 
and FINRA may obtain trading information regarding trading in the 
Shares and other 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 other 
exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG, or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
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    \24\ 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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    (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 Intraday Indicative Value is disseminated; (d) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing

[[Page 48128]]

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 Act.\25\
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    \25\ See 17 CFR 240.10A-3.
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    (6) The Fund's net assets that are invested in exchange-traded 
equities, including ETPs and common stock, will be invested in 
instruments that trade in markets that are members of ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities and other illiquid assets (calculated at 
the time of investment). The Fund will monitor its portfolio liquidity 
on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid securities or other illiquid assets.
    (8) Under normal market conditions, the Fund will invest not less 
than 80% of its total assets in exchange-listed equity securities of 
companies in the utility sector.
    (9) Under normal market conditions, no more than 20% of the value 
of the Fund's net assets will be invested in any combination of cash 
and cash equivalents, which include only money market instruments, 
short duration repurchase agreements, and short duration commercial 
paper, and U.S. exchange-traded options on securities and securities 
indexes.
    (10) The Fund's investments will be consistent with its investment 
objective. The Fund does not presently intend to engage in any form of 
borrowing for investment purposes, except in the case of short sales 
and will not be operated as a ``leveraged ETF,'' i.e., it will not be 
operated in a manner designed to seek a multiple of the performance of 
an underlying reference index.
    (11) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, and 
the Exchange's description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \26\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \26\ 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,\27\ that the proposed rule change (SR-NASDAQ-2015-059), as 
modified by Amendment Nos. 1 and 2, be, and it hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19646 Filed 8-10-15; 8:45 am]
 BILLING CODE 8011-01-P