Document ID: SEC-2015-0912-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2015-05-28T04:00Z

[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30508-30511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12835]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75031; File No. SR-NASDAQ-2015-023]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade the Shares of the Tuttle Tactical Management Multi-
Strategy Income ETF of ETFis Series Trust I

May 21, 2015.

I. Introduction

    On March 25, 2015, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to list and trade shares 
(``Shares'') of the Tuttle Tactical Management Multi-Strategy Income 
ETF (``Fund''), a series of ETFis Series Trust I (``Trust'') under 
NASDAQ Rule 5735. The proposed rule change was published for comment in 
the Federal Register on April 10, 2015.\4\ On May 20, 2015, the 
Exchange filed Amendment No. 1 to the proposed rule change.\5\ The 
Commission received no comments on the proposed rule change. This order 
approves the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 74653 (April 6, 
2015), 80 FR 19371 (``Notice'').
    \5\ In Amendment No. 1, the Exchange clarified that under normal 
market conditions, the Fund will invest only in those assets listed 
under the ``Principal Investments'' section of the Notice. Amendment 
No. 1 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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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under Nasdaq 
Rule 5735, which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Fund will be an actively-managed exchange-traded 
fund (``ETF''). The Shares will be offered by the Trust.\6\ 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.\7\ The Fund is a series of the Trust.
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    \6\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 30607 (July 23, 2013).
    \7\ See Registration Statement on Form N-1A for the Trust filed 
on January 30, 2015 (File Nos. 333-187668 and 811-22819).
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    Etfis Capital LLC will be the investment adviser (``Adviser'') to 
the Fund. Tuttle Tactical Management, LLC will be the investment sub-
adviser (``Sub-Adviser'') to the Fund. ETF Distributors LLC will be the 
principal underwriter and distributor of the Fund's Shares. The Bank of 
New York Mellon will act as the administrator, accounting agent, 
custodian, and transfer agent to the Fund. The Exchange states that the 
Adviser and Sub-Adviser are not registered as broker-dealers but that 
the Adviser is affiliated with a broker-dealer.\8\ In addition, the 
Exchange states that 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, and will be

[[Page 30509]]

subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding the Fund's portfolio.\9\ In 
the event (a) the Adviser or the Sub-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 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.\10\
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    \8\ See Notice, supra note 4, 80 FR at 19372.
    \9\ See id.
    \10\ See id.
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    The Exchange has made the following representations and statements 
regarding the Fund.\11\
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    \11\ Additional information regarding, among other things, the 
Fund, the Shares, the Fund's investment objectives, the Fund's 
strategies, methodology and restrictions, risks; fees and expenses 
associated with the Shares, creations and redemptions of Shares, 
availability of price information, trading rules and halts, and 
surveillance procedures can be found in the Notice and the 
Registration Statement. See Notice, supra note 4, and Registration 
Statement, supra note 7, respectively.
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Investments for the Fund

    The Fund's investment objective will be to seek current income 
while maintaining a secondary emphasis on long-term capital 
appreciation and low volatility. The Fund will seek to achieve its 
investment objective by utilizing a long-only, multi-strategy, 
tactically-managed exposure to the U.S. equity market. To obtain such 
exposure, the Sub-Adviser will invest, under normal market 
conditions,\12\ the Fund's assets in ETFs, exchange-traded notes 
(``ETNs''),\13\ exchange-traded trusts that hold commodities (``ETTs'') 
(collectively, ETFs, ETNs and ETTs are referred to hereinafter as 
``exchange-traded products'' or ``ETPs''), individually selected U.S. 
exchange-traded common stocks (when the Sub-Adviser determines that is 
more efficient or otherwise advantageous to do so), money market funds, 
U.S. treasuries or money market instruments. The Exchange states that, 
to the extent that the Fund invests in ETFs or money market funds to 
gain domestic exposure, the Fund is considered, in part, a ``fund of 
funds.''
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    \12\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of adverse market, economic, 
political or other conditions, including extreme volatility or 
trading halts in the fixed income 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.
    \13\ The Exchange states that ETNs are limited to those 
described in Nasdaq Rule 5710.
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Investment Restrictions

     The Fund will not use derivative instruments, including 
options, swaps, forwards and futures contracts.
     The Fund will not invest in leveraged, inverse, or 
leveraged inverse ETPs.
     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 the Intermarket 
Surveillance Group (``ISG'') or are parties to a comprehensive 
surveillance sharing agreement with the Exchange.\14\
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    \14\ See Notice, supra note 4, 80 FR at 19375.
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     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).\15\
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    \15\ 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. Illiquid securities and other 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.
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     The Fund does not presently intend to engage in any form 
of borrowing for investment purposes, 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.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\17\ 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.
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    \16\ 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).
    \17\ 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 
Exchange Act,\18\ 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 
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.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Price information regarding the ETPs, equity securities, U.S. 
treasuries, 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. 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.
    The Commission also believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. On each business day, before commencement of trading in Shares 
in the Regular Market Session \19\ on the

[[Page 30510]]

Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (``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.\20\ The Web site information will be publicly 
available at no charge. The NAV 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. 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.\21\ 
The Intraday Indicative Value, available on the NASDAQ OMX Information 
LLC proprietary index data service,\22\ 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.\23\ 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.\24\
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    \19\ 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 (``E.T.''); (2) Regular Market Session from 9:30 
a.m. to 4 p.m. or 4:15 p.m. E.T.; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. E.T.).
    \20\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
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 
Fund will be able to disclose at the beginning of the business day 
the portfolio that will form the basis for the NAV calculation at 
the end of the business day.
    \21\ See Notice, supra note 4, 80 FR at 19375.
    \22\ 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.
    \23\ See id. at 19374.
    \24\ See id.
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    The Exchange represents that it may consider all relevant factors 
in exercising its discretion to halt or suspend trading in the Shares 
of the Fund. 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 also 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable.\25\ 
Trading in the Shares also will be subject to Rule 5735(d)(2)(D), which 
sets forth circumstances under which Shares of the Fund may be halted.
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    \25\ These 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. See id. at 19375.
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    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees.\26\ 
The Exchange states that the Adviser and Sub-Adviser are not registered 
as broker-dealers, but that the Adviser is affiliated with a broker-
dealer. In addition, the Exchange states that 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, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the Fund's portfolio.\27\ In the event (a) the Adviser or the 
Sub-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 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.\28\
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    \26\ See id.
    \27\ See id. at 19372.
    \28\ See supra text accompanying note 10.
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    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 ISG,\29\ 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 the 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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    \29\ 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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    The Commission notes that the Fund and the Shares must comply with 
the requirements of Nasdaq Rule 5735 to be listed and traded on the 
Exchange. 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. In support of this 
proposal, the Exchange represented that:
    (1) The Shares will be subject to Nasdaq Rule 5735, which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) Trading in the Shares will be subject to the existing trading 
surveillances administered by both Nasdaq and FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws, and 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.
    (3) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (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 and Disclosed Portfolio 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 newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 \30\ under the Act.
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    \30\ See 17 CFR 240.10A-3.

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[[Page 30511]]

    (6) The Fund will not use derivative instruments, including 
options, swaps, forwards and futures contracts, both listed and OTC.
    (7) 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.
    (8) 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).
    (9) 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. For 
the foregoing reasons, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \31\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \31\ 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 
Exchange Act,\32\ that the proposed rule change (SR-NASDAQ-2015-023), 
as modified by Amendment No. 1, is hereby approved.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12835 Filed 5-27-15; 8:45 am]
 BILLING CODE 8011-01-P