Document ID: SEC-2019-1042-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-07-23T04:00Z

[Federal Register Volume 84, Number 141 (Tuesday, July 23, 2019)]
[Notices]
[Pages 35446-35448]
From the Federal Register Online via the Government Publishing Office [http://www.gpo.gov/]
[FR Doc No: 2019-15560]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86399; File No. SR-NASDAQ-2019-054]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Generic Listing Standards for Fixed Income Securities 
Included in the Portfolio of a Series of Managed Fund Shares

July 17, 2019.
    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 July 3, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Nasdaq Rule 5735(b)(1)(B)(v) 
relating to generic listing standards applicable to fixed income 
securities included in the portfolio of a series of Managed Fund Shares 
listed on the Exchange.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 5735(b)(1), which sets 
forth generic listing standards for the listing and trading of Managed 
Fund Shares.\3\ Nasdaq Rule 5735(b)(1)(B) sets forth generic listing 
standards applicable to fixed income securities included in the 
portfolio of a series of Managed Fund Shares listed on the Exchange.\4\ 
Nasdaq Rule 5735(b)(1)(B)(v) provides that non-agency, non-GSE and 
privately-issued mortgage related and other asset-backed securities 
(``ABS'' and, collectively, ``non-agency ABS'') components of a 
portfolio shall not account, in the aggregate, for more than 20% of the 
weight of the fixed income portion of the portfolio. Nasdaq proposes to 
amend Nasdaq Rule 5735(b)(1)(B)(v) by deleting the words ``fixed income 
portion'' to provide that such 20% limitation would apply to the entire 
portfolio rather than to only the fixed income portion of the

[[Page 35447]]

portfolio. Thus, Nasdaq Rule 5735(b)(1)(B)(v) would provide that non-
agency, non-GSE and privately-issued mortgage related and other ABS 
components of a portfolio shall not account, in the aggregate, for more 
than 20% of the weight of the portfolio.
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    \3\ 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 management 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 management investment company that issues 
Index Fund Shares that may be listed and traded on the Exchange 
under Nasdaq Rule 5705(b) seeks to provide investment results that 
correspond generally to the performance of a specific foreign or 
domestic stock index, fixed income securities index or combination 
thereof.
    \4\ Nasdaq Rule 5735(b)(1)(B) provides that fixed income 
securities are debt securities that are notes, bonds, debentures, or 
evidence of indebtedness that include, but are not limited to, U.S. 
Department of Treasury securities (``Treasury Securities''), 
government-sponsored entity securities (``GSE Securities''), 
municipal securities, trust preferred securities, supranational debt 
and debt of a foreign country or a subdivision thereof, investment 
grade and high yield corporate debt, bank loans, mortgage and asset 
backed securities, and commercial paper.
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    Nasdaq believes this amendment is appropriate because a fund's 
investment in non-agency, non-GSE and privately-issued mortgage-related 
and other ABS may provide a fund with benefits associated with 
increased diversification, as such investments may be less correlated 
to interest rates than many other fixed income securities. The Exchange 
notes that application of the 20% limitation only to the fixed income 
portion of a fund's portfolio may impose a much more restrictive 
percentage limit on permitted holdings of non-agency ABS for funds that 
have a more diversified investment portfolio than for funds that hold 
principally or exclusively fixed income securities. For example, a fund 
holding 100% of its assets in fixed income securities can hold 20% of 
its entire portfolio's weight in non-agency ABS. In contrast, a fund 
holding 25% of its assets in fixed income securities, 25% in U.S 
Component Stocks, and 50% in cash and cash equivalents is limited to a 
5% (25% * 20% = 5%) allocation to non-agency ABS. Nasdaq, therefore, 
believes application of the 20% limitation to a fund's entire portfolio 
would be more equitable for Managed Fund Shares issuers with different 
investment objectives and holdings.
    The Commission has previously approved a proposed rule change by 
NYSE Arca, Inc. that is substantively identical to the amendment to 
Nasdaq Rule 5735(b)(1)(B)(v) proposed herein.\5\ Therefore, Nasdaq 
believes it is appropriate to apply the 20% limitation to a fund's 
investment in non-agency, non-GSE and privately-issued mortgage-related 
and other ABS components of a portfolio in Nasdaq Rule 5735(b)(1)(B)(v) 
to a fund's total assets. Non-agency ABS would otherwise satisfy all 
generic listing requirements of Nasdaq Rule 5735(b)(1)(B).
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    \5\ See Securities Exchange Act Release No. 86017 (June 3, 
2019), 84 FR 26711 (June 7, 2019) (SR-NYSEArca-2019-06) (Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to 
Amend Certain Generic Listing Standards for Managed Fund Shares 
Applicable to Holdings of Fixed Income Securities).
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    Nasdaq believes the proposed amendments would provide issuers of 
Managed Fund Shares with additional investment choices for fund 
portfolios for funds permitted to list and trade on the Exchange 
pursuant to Rule 19b-4(e), which would enhance competition among market 
participants, to the benefit of investors and the marketplace.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange has in place surveillance procedures that are adequate 
to properly monitor trading in Managed Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange notes that Nasdaq or 
FINRA, on behalf of Nasdaq, or both, would communicate as needed 
regarding trading in Managed Fund Shares with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG''), and Nasdaq or FINRA, on behalf of Nasdaq, or both, could 
obtain trading information regarding trading in Managed Fund Shares 
from such markets and other entities. In addition, Nasdaq could obtain 
information regarding trading in Managed Fund Shares from markets and 
other entities that are members of ISG or with which Nasdaq has in 
place a comprehensive surveillance sharing agreement.
    Nasdaq believes that the proposed amendment to Nasdaq Rule 
5735(b)(1)(B)(v) is appropriate because a fund's investment in non-
agency, non-GSE and privately-issued mortgage-related and other ABS may 
provide a fund with benefits associated with increased diversification, 
as such investments may be less correlated to interest rates than many 
other fixed income securities. As noted above, application of the 20% 
limitation to only the fixed income portion of a fund's portfolio may 
impose a much lower percentage limit on permitted holdings of non-
agency ABS for funds that have a more diversified investment portfolio 
than for funds that hold principally or exclusively fixed income 
securities. Nasdaq, therefore, believes application of the 20% 
limitation to a fund's entire portfolio would be more equitable for 
issuers of Managed Fund Shares with different investment objectives and 
holdings.
    The Exchange notes that the Commission has previously approved a 
rule change by NYSE Arca, Inc. that is substantively identical to the 
amendment to Nasdaq Rule 5735(b)(1)(B)(v) proposed herein.\8\ 
Therefore, Nasdaq believes it is appropriate to apply the 20% 
limitation to a fund's investment in non-agency, non-GSE and privately-
issued mortgage-related and other ABS components of a portfolio in 
Nasdaq Rule 5735(b)(1)(B)(v) to a fund's total assets. Non-agency ABS 
would otherwise satisfy all generic listing requirements of Nasdaq Rule 
5735(b)(1)(B).
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    \8\ See supra note 5.
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    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 
additional types of Managed Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change would 
permit Exchange listing and trading under 19b-4(e) of additional types 
of Managed Fund Shares, which would 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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has

[[Page 35448]]

become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay. The 
Exchange states its belief that the proposed rule change does not raise 
any novel regulatory issues, noting that the Commission approved a 
substantively identical proposed rule change by NYSE Arca, Inc.\13\ For 
this reason, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission waives the 30-day operative delay 
and designates the proposed rule change operative upon filing.\14\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See supra note 5.
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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 [email protected]. Please include 
File Number SR-NASDAQ-2019-054 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-2019-054. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-054 and should be submitted 
on or before August 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15560 Filed 7-22-19; 8:45 am]
 BILLING CODE 8011-01-P