Document ID: SEC-2016-0461-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-03-16T04:00Z

[Federal Register Volume 81, Number 51 (Wednesday, March 16, 2016)]
[Notices]
[Pages 14142-14150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05853]

[[Page 14142]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77338; File No. SR-NASDAQ-2016-030]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the Elkhorn Dorsey Wright Commodity Rotation 
Portfolio of Elkhorn ETF Trust

March 10, 2016.
    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 February 26, 2016, 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. 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

    Nasdaq proposes to list and trade the shares of the Elkhorn Dorsey 
Wright Commodity Rotation Portfolio (the ``Fund'') of Elkhorn ETF Trust 
(the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares''). The 
shares of the Fund are collectively referred to herein as the 
``Shares.''
    The text of the proposed rule change is available at http://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 Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \3\ on the Exchange.\4\ The Fund will be an 
actively-managed exchange-traded fund (``ETF''). The Shares will be 
offered by the Trust, which was established as a Massachusetts business 
trust on December 12, 2013.\5\ 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. The Fund will 
invest in, among other things, exchange-traded commodity futures 
contracts and exchange-traded commodity-linked instruments held 
indirectly through a wholly-owned subsidiary controlled by the Fund and 
organized under the laws of the Cayman Islands (referred to herein as 
the ``Subsidiary'').
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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 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.
    \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 Fund 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) and 
Securities Exchange Act Release No. 72728 (July 31, 2014) 79 FR 
45852 (August 6, 2014) (SR-NASDAQ-2014-059) (order approving listing 
and trading of Global X Commodities Strategy ETF). The Exchange 
believes the proposed rule change raises no significant issues not 
previously addressed in those prior Commission orders.
    \5\ The Trust has obtained from the Commission an order granting 
certain exemptive relief to the Trust under the 1940 Act (File No. 
812-14262). In compliance with Nasdaq Rule 5735(b)(5), which applies 
to Managed Fund Shares based on an international or global 
portfolio, the Trust's application for exemptive relief under the 
1940 Act states that the Fund will comply with the federal 
securities laws in accepting securities for deposits and satisfying 
redemptions with redemption securities, including that the 
securities accepted for deposits and the securities used to satisfy 
redemption requests are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (15 U.S.C. 77a).
    \6\ See Registration Statement on Form N-1A for the Trust dated 
February 18, 2016 (File Nos. 333-201473 and 811-22926).
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    Elkhorn Investments, LLC will be the investment adviser (the 
``Adviser'') to the Fund and will monitor the Fund's investment 
portfolio. It is currently anticipated that day-to-day portfolio 
management for the Fund will be provided by the Adviser. However, the 
Fund and the Adviser may contract with an investment sub-adviser (a 
``Sub-Adviser'') to provide day-to-day portfolio management for the 
Fund. ALPS Distributors, Inc. (the ``Distributor'') will be the 
principal underwriter and distributor of the Fund's Shares. The Fund 
will contract with unaffiliated third parties to provide 
administrative, custodial and transfer agency services to the Fund.
    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 
``firewall'' 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.\7\ 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 ``firewall'' between the investment adviser and 
the broker-dealer reflects

[[Page 14143]]

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, although it is affiliated with a broker-dealer. The 
Adviser has implemented a firewall with respect to its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio.
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    \7\ 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 any Sub-Adviser and their 
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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    In addition, 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. In the event (a) the Adviser or a Sub-Adviser 
becomes, or 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 firewall with respect to its relevant personnel and/or 
such broker-dealer affiliate, as 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.
Elkhorn Dorsey Wright Commodity Rotation Portfolio
    The Fund's investment objective will be to provide total return 
which exceeds that of the DWA Commodity Rotation Index (the 
``Benchmark'').\8\ The Fund will seek excess return above the Benchmark 
solely through the active management of a short duration portfolio of 
highly liquid, high quality bonds.
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    \8\ The Benchmark is developed, maintained and sponsored by 
Dorsey, Wright & Associates, LLC (``Dorsey Wright'').
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    The Fund will be an actively-managed ETF that seeks to achieve its 
investment objective by, under normal market conditions,\9\ investing 
in exchange-traded commodity futures contracts, exchange-cleared and 
non-exchange-cleared swaps,\10\ exchange-traded options on futures 
contracts and exchange-traded commodity-linked instruments \11\ 
(collectively, ``Commodities'') through the Subsidiary, thereby 
obtaining exposure to the commodities markets.
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    \9\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the fixed income markets, futures 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.
    \10\ Investments in non-exchange-cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net 
assets. When investing in non-exchange-cleared swaps, the Subsidiary 
will seek, where possible, to use counterparties, as applicable, 
whose financial status is such that the risk of default is reduced; 
however, the risk of losses resulting from default is still 
possible. The Adviser and/or a Sub-Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser's and/or a 
Sub-Adviser's analysis will evaluate each approved counterparty 
using various methods of analysis and may consider such factors as 
the counterparty's liquidity, its reputation, the Adviser's and/or 
Sub-Adviser's past experience with the counterparty, its known 
disciplinary history and its share of market participation.
    \11\ Exchange-traded commodity-linked instruments include: (1) 
ETFs that provide exposure to commodities as would be listed under 
Nasdaq Rules 5705 and 5735; and (2) pooled investment vehicles that 
invest primarily in commodities and commodity-linked instruments as 
would be listed under Nasdaq Rules 5710 and 5711(b), (d), (f), (g), 
(h), (i) and (j). Such pooled investment vehicles are commonly 
referred to as ``exchange-traded funds'' but they are not registered 
as investment companies because of the nature of their underlying 
assets.
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    The Fund's Commodities investments, in part, will be comprised of 
exchange-traded futures contracts on commodities that comprise the 
Benchmark. Although the Fund, through the Subsidiary, will generally 
hold many of the futures contracts included in the Benchmark, the Fund 
and the Subsidiary will be actively managed and will not be obligated 
to invest in all the futures contracts on commodities that comprise the 
Benchmark. In addition, with respect to investments in exchange-traded 
futures contracts, the Fund and the Subsidiary will not be obligated to 
invest in the same amount or proportion as the Benchmark, or be 
obligated to track the performance of the Benchmark. In addition to 
exchange-traded futures contracts, the Fund's Commodities investments 
will also be comprised of exchange-cleared and non-exchange-cleared 
swaps on commodities, exchange-traded options on futures contracts that 
provide exposure to the investment returns of the commodities markets, 
and exchange-traded commodity-linked instruments, without investing 
directly in physical commodities.
    The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets. In addition to Commodities, the Fund may invest its 
assets in (1) the following short-term debt instruments: \12\ Fixed 
rate and floating rate U.S. government securities, including bills, 
notes and bonds differing as to maturity and rates of interest, which 
are either issued or guaranteed by the U.S. Treasury or by U.S. 
government agencies or instrumentalities; \13\ certificates of deposit 
issued against funds deposited in a bank or savings and loan 
association; bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions; repurchase 
agreements,\14\ which involve purchases of debt securities; bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; and commercial paper, which are short-term unsecured 
promissory notes (collectively, ``Short-Term Debt Instruments); \15\ 
(2) corporate debt obligations; \16\ (3) money market instruments; \17\ 
(4) investment companies (other than those that are commodity-linked 
instruments),\18\

[[Page 14144]]

including both exchange-traded and non-exchange traded investment 
companies, that provide exposure to commodities, equity securities and 
fixed income securities to the extent permitted under the 1940 Act and 
any applicable exemptive relief; \19\ and (5) cash and other cash 
equivalents (collectively, ``Other Investments''). The Fund will use 
the Other Investments as investments, to provide liquidity and to 
collateralize the Subsidiary's commodity exposure on a day-to-day 
basis.
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    \12\ Short-term debt instruments are issued by issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings 
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P 
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch 
Ratings (``Fitch'') and have a maturity of one year or less.
    \13\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \14\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser and/
or a Sub-Adviser to present minimal credit risks in accordance with 
criteria approved by the Board of Trustees of the Trust (the 
``Board''). The Adviser and/or a Sub-Adviser will review and monitor 
the creditworthiness of such institutions. The Adviser and/or a Sub-
Adviser will monitor the value of the collateral at the time the 
transaction is entered into and at all times during the term of the 
repurchase agreement.
    \15\ The Fund may additionally invest in commercial paper only 
if it has received the highest rating from at least one nationally 
recognized statistical rating organization or, if unrated, has been 
judged by the Adviser and/or a Sub-Adviser to be of comparable 
quality.
    \16\ At least 75% of corporate debt obligtions will have a 
minimum principal amount outstanding of $100 million or more.
    \17\ For the Fund's purposes, money market instruments will 
include only the following instruments: Short-term, high-quality 
securities issued or guaranteed by non-U.S. governments, agencies 
and instrumentalities; non-convertible corporate debt securities 
with remaining maturities of not more than 397 days that satisfy 
ratings requirements under Rule 2a-7 under the 1940 Act; and money 
market mutual funds.
    \18\ The Fund may invest in the securities of certain other 
investment companies in excess of the limits imposed under the 1940 
Act pursuant to an exemptive order obtained by the Trust and the 
Adviser from the Commission. See Investment Company Act Release No. 
31401 (December 29, 2014) (File No. 812-14264). The exchange-traded 
investment companies in which the Fund may invest include Index Fund 
Shares (as described in Nasdaq Rule 5705), Portfolio Depository 
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares 
(as described in Nasdaq Rule 5735). The non-exchange-traded 
investment companies in which the Fund may invest include all non-
exchange-traded investment companies that are not money market 
instruments, as described above. While the Fund and the Subsidiary 
may invest in inverse commodity-linked instruments, the Fund and the 
Subsidiary will not invest in leveraged or inverse leveraged (e.g., 
2X or -3X) commodity-linked instruments.
    \19\ The exchange-traded investment companies in which the Fund 
invests will be listed and traded in the U.S. on registered 
exchanges.
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    The Fund's investment in the Subsidiary will be designed to help 
the Fund achieve exposure to commodity returns in a manner consistent 
with the federal tax requirements applicable to the Fund and other 
regulated investment companies.
    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.\20\
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    \20\ 26 U.S.C. 851.
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Subsidiary's Investments
    The Subsidiary will generally seek to make investments in 
Commodities and its portfolio will be managed by the Adviser or a Sub-
Adviser.\21\ The Adviser or a Sub-Adviser will use its discretion to 
determine the percentage of the Fund's assets allocated to the 
Commodities held by the Subsidiary that will be invested in exchange-
traded commodity futures contracts, exchange-cleared and non-exchange-
cleared swaps, exchange-traded options on futures contracts and 
exchange-traded commodity-linked instruments. Generally, the Adviser or 
a Sub-Adviser will take various factors into account on a periodic 
basis in allocating the assets of the Subsidiary, including, but not 
limited to the results of the Benchmark's proprietary model developed 
by Dorsey Wright that is discussed further below, the performance of 
commodity indexes relative to each other, relative price differentials 
for a range of commodity futures for current delivery as compared to 
similar commodity futures for future delivery, and other market 
conditions. The weightings of the Fund's portfolio will be reviewed and 
updated at least annually.
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    \21\ The Subsidiary will not be registered under the 1940 Act 
and will not be directly subject to its investor protections, except 
as noted in the Registration Statement. However, the Subsidiary will 
be wholly-owned and controlled by the Fund. Therefore, the Fund's 
ownership and control of the Subsidiary will prevent the Subsidiary 
from taking action contrary to the interests of the Fund or its 
shareholders. The Board will have oversight responsibility for the 
investment activities of the Fund, including its expected investment 
in the Subsidiary, and the Fund's role as the sole shareholder of 
the Subsidiary. The 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 Fund.
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    In connection with the Benchmark's proprietary model, Dorsey Wright 
applies a relative strength methodology to rank twenty-five to thirty 
single commodity futures, each represented by single commodity futures 
index with an embedded dynamic roll strategy, and selects a subset of 
commodity futures that demonstrate relative strength characteristics. 
The methodology takes into account, among other characteristics, the 
performance of a commodity as compared to the broad commodity market, 
the relative performance of each single commodity versus all of the 
other commodities, and the liquidity of the underlying commodities.
    The Fund will not be sponsored, endorsed, sold or promoted by 
Dorsey Wright. Dorsey Wright's only relationship to the Fund will be 
the licensing of certain service marks and service names of Dorsey 
Wright. Dorsey Wright will have no obligation to take the needs of the 
Adviser, any Sub-Adviser or the Fund into consideration in connection 
with the Benchmark's proprietary model or its application of the 
related methodology.
    The Fund's investment in the Subsidiary is intended to provide the 
Fund with exposure to commodity markets within the limits of current 
federal income tax laws applicable to investment companies such as the 
Fund, which limit the ability of investment companies to invest 
directly in the derivative instruments. The Subsidiary will have the 
same investment objective as the Fund, but unlike the Fund, it may 
invest without limitation in Commodities. The Subsidiary's investments 
will provide the Fund with exposure to domestic and international 
markets.
    The Subsidiary will initially consider investing in 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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                                                                             Trading hours          Contract
           Commodity              Exchange code     Exchange name \22\     electronic (E.T.)        symbol(s)
----------------------------------------------------------------------------------------------------------------
SRW Wheat.....................  CBT.............  Chicago Board of       Sun-F 20:00-08:45....  W; ZW
                                                   Exchange.             M-F 09:30-14:15......
HRW Wheat.....................  CBT.............  Chicago Board of       Sun-F 20:00-08:45....  KW; KE
                                                   Exchange.             M-F 09:30-14:15......
Corn..........................  CBT.............  Chicago Board of       Sun-F 20:00-08:45....  C; ZC
                                                   Trade.                M-F 09:30-14:15......
Soybeans......................  CBT.............  Chicago Board of       Sun-F 20:00-08:45....  S; ZS
                                                   Trade.                M-F 09:30-14:15......
Coffee ``C'' Arabica..........  NYB.............  ICE Futures US.......  04:15-13:30..........  KC
Sugar #11.....................  NYB.............  ICE Futures US.......  03:30-13:00..........  SB
Cocoa.........................  NYB.............  ICE Futures US.......  04:45-13:30..........  CC
Cotton........................  NYB.............  ICE Futures US.......  21:00-14:20..........  CT
Live Cattle...................  CME.............  Chicago Mercantile     M 10:05-F 14:55......  LC; LE
                                                   Exchange.             (Halts 17:00-18:00)..
Lean Hogs.....................  CME.............  Chicago Mercantile     M 10:05-F 14:55......  LH; HE
                                                   Exchange.             (Halts 17:00-18:00)..
NY Harbor ULSD................  NYM.............  New York Mercantile    18:00-17:15..........  HO
                                                   Exchange.
Gasoil........................  ICE.............  ICE Futures Europe...  20:00-18:00..........  G

[[Page 14145]]

 
WTI Crude Oil.................  NYM.............  New York Mercantile    18:00-17:15..........  CL
                                                   Exchange.
Brent Crude Oil...............  ICE.............  ICE Futures Europe...  20:00-18:00..........  B
Natural Gas...................  NYM.............  New York Mercantile    18:00-17:15..........  NG
                                                   Exchange.
Aluminum primary..............  LME.............  London Metal Exchange  20:00-14:00..........  AH
Copper grade A................  LME.............  London Metal Exchange  20:00-14:00..........  CA
Zinc high grade...............  LME.............  London Metal Exchange  20:00-14:00..........  ZS
Gold..........................  CMX.............  Commodity Exchange...  18:00-17:15..........  GC
Silver........................  CMX.............  Commodity Exchange...  18:00-17:15..........  SI
RBOB Gasoline.................  NYM.............  New York Mercantile    18:00-17:15..........  RB
                                                   Exchange.
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\22\ All of the exchanges are Intermarket Surveillance Group (``ISG'') members except for the London Metal
  Exchange (``LME''), ICE Futures Europe and Commodity Exchange. The LME falls under the jurisdiction of the
  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. With respect
  to the futures contracts in which the Subsidiary invests, not more than 10% of the weight (to be calculated as
  the value of the contract divided by the total absolute notional value of the Subsidiary's futures contracts)
  of the futures contracts held by the Subsidiary in the aggregate shall consist of instruments whose principal
  trading market (a) is not a member of ISG or (b) is a market with which the Exchange does not have a
  comprehensive surveillance sharing agreement, provided that, so long as the Exchange may obtain market
  surveillance information with respect to transactions occurring on the Commodity Exchange pursuant to the ISG
  memberships of the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile
  Exchange, futures contracts whose principal trading market is the Commodity Exchange shall not be subject to
  the prohibition in (a), above. In addition, at least 90% of the Fund's net assets that are invested in
  exchange-traded options on futures contracts 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.

    As the U.S. and foreign exchanges noted above list additional 
contracts, as currently listed contracts on those exchanges gain 
sufficient liquidity or as other exchanges list sufficiently liquid 
contracts, the Adviser and/or any Sub-Adviser will include those 
contracts in the list of possible investments of the Subsidiary. The 
list of commodities futures and commodities markets considered for 
investment can and will change over time.
    In addition to investing in Commodities, the Subsidiary, like the 
Fund, may invest in Other Investments (e.g., as investments or to serve 
as margin or collateral or otherwise support the Subsidiary's positions 
in Commodities).
Commodities Regulation
    The Commodity Futures Trading Commission (``CFTC'') has 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 the Fund, the Adviser will register as a 
commodity pool operator \23\ and will also be a member of the National 
Futures Association (``NFA''). Any Sub-Adviser will register as a 
commodity pool operator or commodity trading adviser, as required by 
CFTC regulations. The Fund and the Subsidiary will be subject to 
regulation by the CFTC and NFA and additional disclosure, reporting and 
recordkeeping rules imposed upon commodity pools.
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    \23\ As defined in Section 1a(11) of the Commodity Exchange Act.
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Investment Restrictions
    While the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will be consistent with the Fund's 
investment objective and will not be used to seek performance that is 
the multiple or inverse multiple (i.e., 2X and -3X) of an index.
    The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any one industry or group of 
industries. This restriction will not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other investment companies.\24\
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    \24\ 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).
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    The Subsidiary's shares will be offered only to the Fund and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund and the Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary). The Fund will not 
purchase securities of open-end or closed-end investment companies 
except in compliance with the 1940 Act or any applicable exemptive 
relief.\25\
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    \25\ See note 18.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser.\26\ 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 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.\27\
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    \26\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \27\ 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 Securities Act of 1933).
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Net Asset Value
    The Fund's net asset value (``NAV'') will be determined as of the 
close of trading (normally 4:00 p.m., Eastern time (``E.T.'')) on each 
day the New York Stock Exchange (``NYSE'') is open for

[[Page 14146]]

business. The NAV of the Fund will be calculated by dividing the value 
of the net assets of such Fund (i.e. the value of its total assets, 
less total liabilities) by the total number of outstanding Shares, 
generally rounded to the nearest cent.
    The Fund's and the Subsidiary's investments will be generally 
valued using market valuations. A market valuation generally means a 
valuation (i) obtained from an exchange, a pricing service, or a major 
market maker (or dealer), (ii) based on a price quotation or other 
equivalent indication of value supplied by an exchange, a pricing 
service, or a major market maker (or dealer), or (iii) based on 
amortized cost. The Fund and the Subsidiary may use various pricing 
services or discontinue the use of any pricing service. A price 
obtained from a pricing service based on such pricing service's 
valuation matrix may be considered a market valuation.
    If available, Short-Term Debt Instruments (other than certificates 
of deposits, bank time deposits and repurchase agreements), corporate 
debt obligations, other cash equivalents and money market instruments 
(other than money market mutual funds) with maturities of more than 60 
days will typically be priced based on valuations provided by 
independent, third-party pricing agents. Such values will generally 
reflect the last reported sales price if the instrument is actively 
traded. The third-party pricing agents may also value debt instruments 
at an evaluated bid price by employing methodologies that utilize 
actual market transactions, broker-supplied valuations, or other 
methodologies designed to identify the market value for such 
instruments. Short-Term Debt Instruments (other than certificates of 
deposit, bank time deposits and repurchase agreements), corporate debt 
obligations, other cash equivalents and money market instruments (other 
than money market mutual funds) with remaining maturities of 60 days or 
less may be valued on the basis of amortized cost, which approximates 
market value. If such prices are not available, the instrument will be 
valued based on values supplied by independent brokers or by fair value 
pricing, as described below.
    Certificates of deposit and bank time deposits will typically be 
valued at cost.
    Repurchase agreements will typically be valued as follows: 
Overnight repurchase agreements will be valued at amortized cost when 
it represents the best estimate of value. Term repurchase agreements 
(i.e., those whose maturity exceeds seven days) will be valued at the 
average of the bid quotations obtained daily from at least two 
recognized dealers.
    Futures contracts will be valued at the settlement price 
established each day by the board or exchange on which they are traded.
    Exchange-traded options will be valued at the closing price in the 
market where such contracts are principally traded.
    Swaps will be valued based on valuations provided by independent, 
third-party pricing agents.
    Securities of non-exchange-traded investment companies will be 
valued at the investment company's applicable NAV.
    Equity securities (including exchange-traded commodity-linked 
instruments and exchange-traded investment companies other than 
exchange-traded commodity-linked instruments) listed on a securities 
exchange, market or automated quotation system for which quotations are 
readily available (except for securities traded on the Exchange) will 
be valued at the last reported sale price on the primary exchange or 
market on which they are traded on the valuation date (or at 
approximately 4:00 p.m., E.T. if a security's primary exchange is 
normally open at that time). For a security that trades on multiple 
exchanges, the primary exchange will generally be considered to be the 
exchange on which the security generally has the highest volume of 
trading activity. If it is not possible to determine the last reported 
sale price on the relevant exchange or market on the valuation date, 
the value of the security will be taken to be the most recent mean 
between the bid and asked prices on such exchange or market on the 
valuation date. Absent both bid and asked prices on such exchange, the 
bid price may be used. For securities traded on the Exchange, the 
Exchange official closing price will be used. If such prices are not 
available, the security will be valued based on values supplied by 
independent brokers or by fair value pricing, as described below.
    The prices for foreign instruments will be reported in local 
currency and converted to U.S. dollars using currency exchange rates. 
Exchange rates will be provided daily by recognized independent pricing 
agents.
    In the event that current market valuations are not readily 
available or such valuations do not reflect current market values, the 
affected investments will be valued using fair value pricing pursuant 
to the pricing policy and procedures approved by the Board in 
accordance with the 1940 Act. The frequency with which the Fund's and 
the Subsidiary's investments are valued using fair value pricing will 
be primarily a function of the types of securities and other assets in 
which they invest pursuant to their respective investment objectives, 
strategies and limitations.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
\28\ only in large blocks of Shares (``Creation Units'') in 
transactions with authorized participants, generally including broker-
dealers and large institutional investors (``Authorized 
Participants''). Creation Units are not expected to consist of less 
than 25,000 Shares. The Fund will issue and redeem Creation Units in 
exchange for an in-kind portfolio of instruments and/or cash in lieu of 
such instruments (the ``Creation Basket''). In addition, if there is a 
difference between the NAV attributable to a Creation Unit and the 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will pay to the 
other an amount in cash equal to the difference (referred to as the 
``Cash Component'').
---------------------------------------------------------------------------

    \28\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the NYSE, generally 4:00 p.m., E.T. (the ``NAV Calculation 
Time''). NAV per Share will be calculated by dividing the Fund's net 
assets by the number of Fund Shares outstanding.
---------------------------------------------------------------------------

    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor with respect to creations and redemptions of Creation 
Units. All standard orders to create Creation Units must be received by 
the Distributor no later than the closing time of the regular trading 
session on the NYSE (ordinarily 4:00 p.m., E.T.) (the ``Closing Time'') 
in each case on the date such order is placed in order for the creation 
of Creation Units to be effected based on the NAV of Shares as next 
determined on such date after receipt of the order in proper form. 
Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt not later than the Closing Time of a 
redemption request in proper form by the Fund through the Distributor 
and only on a business day.
    On each business day, prior to the opening of business of the 
Exchange, the Fund will cause to be published through the National 
Securities Clearing Corporation the list of the names and quantities of 
the instruments comprising the Creation Basket, as well as the 
estimated Cash Component (if any), for that day. The published Creation 
Basket will apply until a new Creation Basket

[[Page 14147]]

is announced on the following business day.
Availability of Information
    The Fund's Web site (www.elkhorn.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include the Shares' ticker, CUSIP and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the 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'') \29\ 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 \30\ on the 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities, Commodities and other assets 
(the ``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held 
by the Fund and the Subsidiary that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\31\ 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 such as the type of swap), the identity 
of the security, commodity 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 
percentage weighting of the holding in the Fund's portfolio. The Web 
site and information will be publicly available at no charge.
---------------------------------------------------------------------------

    \29\ The Bid/Ask Price of the Fund will be determined using the 
mid-point 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 Fund and its service 
providers.
    \30\ 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 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.).
    \31\ 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''). 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.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio (including the 
Subsidiary's portfolio), will be disseminated. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service \32\ 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.
---------------------------------------------------------------------------

    \32\ 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 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 the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Intra-day executable price quotations on the securities and other 
assets held by the Fund and the Subsidiary will be available from major 
broker-dealer firms or on the exchange on which they are traded, as 
applicable. Intra-day price information on the securities and other 
assets held by the Fund and the Subsidiary will also be available 
through subscription services, such as Bloomberg and Thomson Reuters, 
which can be accessed by Authorized Participants and other investors. 
More specifically, pricing information for exchange-traded commodity 
futures contracts, exchange-traded options on futures contracts, 
exchange-traded commodity-linked instruments and exchange-traded 
investment companies (other than exchange-traded commodity-linked 
instruments) will be available on the exchanges on which they are 
traded and through subscription services. Pricing information for non-
exchange-traded U.S. registered open-end investment companies will be 
available through the applicable fund's Web site or major market data 
vendors. Pricing information for swaps, corporate debt obligations, 
money market instruments (other than money market mutual funds), other 
cash equivalents and Short-Term Debt Instruments will be available 
through subscription services and/or broker-dealer firms and/or pricing 
services. Additionally, the Trade Reporting and Compliance Engine 
(``TRACE'') of the Financial Industry Regulatory Authority (``FINRA'') 
will be a source of price information for certain fixed income 
securities held by the Fund.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its 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 Fund, 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 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. 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.
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 Fund and the Subsidiary must be in compliance with Rule 
10A-3 \33\ under the Act. A minimum of 100,000 Shares 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.
---------------------------------------------------------------------------

    \33\ See 17 CFR 240.10A-3.

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[[Page 14148]]

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 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 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, Commodities and other assets constituting the Disclosed 
Portfolio of the Fund and the Subsidiary; 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 Fund may be halted.
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., E.T. 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 FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\34\ 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.
---------------------------------------------------------------------------

    \34\ 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 in the Shares and in the exchange-traded Commodities 
and exchange-traded investment companies not included within the 
definition of ``Commodities'' (such investment companies, together with 
exchange-traded Commodities, are referred to as ``Exchange-Traded 
Instruments'') held by the Fund and the Subsidiary with other markets 
and other entities that are members of the ISG \35\ and FINRA may 
obtain trading information regarding trading in the Shares and in the 
Exchange-Traded Instruments held by the Fund and the Subsidiary from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and in the Exchange-Traded 
Instruments held by the Fund and the Subsidiary from markets and other 
entities that are members of ISG, which includes securities and futures 
exchanges, or with which the Exchange has in place 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 the Fund reported to FINRA's 
TRACE.
---------------------------------------------------------------------------

    \35\ 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.
---------------------------------------------------------------------------

    With respect to the futures contracts in which the Subsidiary 
invests, not more than 10% of the weight (to be calculated as the value 
of the contract divided by the total absolute notional value of the 
Subsidiary's futures contracts) of the futures contracts held by the 
Subsidiary in the aggregate shall consist of instruments whose 
principal trading market (a) is not a member of ISG or (b) is a market 
with which the Exchange does not have a comprehensive surveillance 
sharing agreement, provided, that so long as the Exchange may obtain 
market surveillance information with respect to transactions occurring 
on the Commodity Exchange pursuant to the ISG memberships of the 
Chicago Mercantile Exchange, the Chicago Board of Trade and the New 
York Mercantile Exchange, futures contracts whose principal trading 
market is the Commodity Exchange shall not be subject to the 
prohibition in (a), above. In addition, at least 90% of the Fund's net 
assets that are invested in exchange-traded options on futures 
contracts 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. Investments in non-exchange-
cleared swaps (through the Subsidiary) will not represent more than 20% 
of the Fund's net assets.
    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 the 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.
    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 Fund's 
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act in particular in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and

[[Page 14149]]

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 in general, to protect investors and the public interest.
    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 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.
    The Adviser is not registered as a broker-dealer, although it is 
affiliated with a broker-dealer, and is therefore required to implement 
a ``firewall'' with respect to such broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to the 
Fund's portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 
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 Fund's portfolio.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and in the Exchange-Traded Instruments 
held by the Fund and the Subsidiary with other markets and other 
entities that are members of the ISG and FINRA may obtain trading 
information regarding trading in the Shares and in the Exchange-Traded 
Instruments held by the Fund and the Subsidiary from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and in the Exchange-Traded Instruments 
held by the Fund and the Subsidiary from markets and other entities 
that are members of ISG, which includes securities and futures 
exchanges, or with which the Exchange has in place 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 the Fund reported to FINRA's 
TRACE.
    With respect to the futures contracts in which the Subsidiary 
invests, not more than 10% of the weight (to be calculated as the value 
of the contract divided by the total absolute notional value of the 
Subsidiary's futures contracts) of the futures contracts held by the 
Subsidiary in the aggregate shall consist of instruments whose 
principal trading market (a) is not a member of ISG or (b) is a market 
with which the Exchange does not have a comprehensive surveillance 
sharing agreement, provided that, so long as the Exchange may obtain 
market surveillance information with respect to transactions occurring 
on the Commodity Exchange pursuant to the ISG memberships of the 
Chicago Mercantile Exchange, the Chicago Board of Trade and the New 
York Mercantile Exchange, futures contracts whose principal trading 
market is the Commodity Exchange shall not be subject to the 
prohibition in (a), above. In addition, at least 90% of the Fund's net 
assets that are invested in exchange-traded options on futures 
contracts 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. Investments in non-exchange-
cleared swaps (through the Subsidiary) will not represent more than 20% 
of the Fund's net assets.
    The Fund's investment objective will be to provide total return 
which exceeds that of the Benchmark. The Fund will invest in 
Commodities through investments in the Subsidiary and will not invest 
directly in physical commodities. The Fund's investment in the 
Subsidiary may not exceed 25% of the Fund's total assets. While the 
Fund will be permitted to borrow as permitted under the 1940 Act, the 
Fund's investments will not be used to seek performance that is the 
multiple or inverse multiple (i.e., 2X and -3X) of an index. The Fund 
may hold up to an aggregate amount of 15% of its net assets in illiquid 
assets (calculated at the time of investment), including securities 
deemed illiquid by the Adviser. The Fund and the Subsidiary will not 
invest in any non-U.S. equity securities (other than shares of the 
Subsidiary).
    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 will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, 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. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio of the Fund and the Subsidiary that will form the basis for 
the Fund's calculation of NAV at the end of the business 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, as well as in 
accordance with the Unlisted Trading Privileges and the Consolidated 
Tape Association plans for the Shares.
    Intra-day executable price quotations on the securities and other 
assets held by the Fund and the Subsidiary will be available from major 
broker-dealer firms or on the exchange on which they are traded, as 
applicable. Intra-day price information on the securities and other 
assets held by the Fund and the Subsidiary will also be available 
through subscription services, such as Bloomberg and Thomson Reuters, 
which can be accessed by Authorized Participants and other investors. 
More specifically, pricing information for exchange-traded commodity 
futures contracts, exchange-traded options on futures contracts, 
exchange-traded commodity-linked instruments and exchange-traded 
investment companies other than exchange-traded commodity-linked 
instruments will be available on the exchanges on which they are traded 
and through subscription services. Pricing information for non-
exchange-traded investment companies will be available through the 
applicable fund's Web site or major market data vendors. Pricing 
information for swaps, corporate debt obligations, money market 
instruments (other than money market mutual funds), other cash 
equivalents and Short-Term Debt Instruments will be available through 
subscription services and/or broker-dealer firms and/or pricing 
services. Additionally, FINRA's TRACE will be a source of price 
information for certain fixed income securities held by the Fund.
    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. Trading in Shares of the

[[Page 14150]]

Fund will be halted under the conditions specified in Nasdaq Rules 4120 
and 4121 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 Fund may be 
halted. In addition, as noted above, investors will have ready access 
to information regarding the Fund's 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. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and in the Exchange-Traded Instruments held by the Fund and the 
Subsidiary with other markets and other entities that are members of 
the ISG and FINRA may obtain trading information regarding trading in 
the Shares and in the Exchange-Traded Instruments held by the Fund and 
the Subsidiary from such markets and other entities. In addition, as 
noted above, investors will have ready access to information regarding 
the Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    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-2016-030 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-2016-030. 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 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-2016-030 and should 
be submitted on or before April 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05853 Filed 3-15-16; 8:45 am]
 BILLING CODE 8011-01-P