Document ID: SEC-2015-1419-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2015-08-25T04:00Z

[Federal Register Volume 80, Number 164 (Tuesday, August 25, 2015)]
[Notices]
[Pages 51632-51638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20937]

[[Page 51632]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75738 ; File No. SR-NASDAQ-2015-095]

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 AltShares Long/Short High Yield Fund of 
ETFis Series Trust I

August 19, 2015.
    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 August 7, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by 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 AltShares Long/
Short High Yield Fund (the ``Fund'') of ETFis Series Trust I (the 
``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\ The 
shares of the Funds 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.
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    \3\ 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 Exchange believes the proposed 
rule change raises no significant issues not previously addressed in 
prior Commission orders.
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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 the 
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 \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Delaware series trust on 
September 20, 2012.\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 is a 
series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940, as amended (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.
    \5\ The Commission has issued an order, upon which the Trust may 
rely (the ``Exemptive Order''), granting certain exemptive relief to 
the investment adviser to the Fund under the 1940 Act. See 
Investment Company Act Release No. 30607 (July 23, 2013) (File No. 
812-14080).
    \6\ See Post-Effective Amendment No. 40/41 to Form N-1A 
Registration Statement for the Trust, dated May 4, 2015 (File Nos. 
333-187668 and 811-22819) (the ``Registration Statement''). The 
description of the Fund and the Shares contained herein is based, in 
part, on information in the Registration Statement.
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Description of the Shares and the Fund
    Etfis Capital LLC is the investment adviser (``Adviser'') to the 
Fund. Bramshill Investments, LLC is the investment sub-adviser to the 
Fund (the ``Sub-Adviser''). The Sub-Adviser is responsible for daily 
portfolio management and all investment decisions for the Fund. ETF 
Distributors LLC (the ``Distributor'') will be the principal 
underwriter and distributor of the Fund's Shares. The Bank of New York 
Mellon Corporation (``BNY'') will act as the administrator, accounting 
agent, custodian and transfer agent 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 ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\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, nonpublic information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. The Adviser is not a broker-dealer, although it is affiliated 
with the Distributor, a broker-dealer. 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. The Sub-Adviser is not a broker-dealer and is not affiliated 
with a broker-dealer. In the event (a) the Adviser or the Sub-Adviser 
becomes newly affiliated with a broker-dealer \8\ or registers as a 
broker-dealer, or (b) any new adviser or new sub-adviser is a 
registered broker-dealer or is 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, as

[[Page 51633]]

applicable, regarding access to information concerning the composition 
and/or changes to the Fund portfolio and will be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding such 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, the Sub-Adviser and each such 
party's 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 applicable federal securities laws as defined in 
Rule 204A-1(e)(4). Accordingly, procedures designed to prevent the 
communication and misuse of nonpublic 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.
    \8\ In the case of the Adviser, which is already affiliated with 
a broker-dealer and has implemented a fire wall with respect to such 
affiliated broker-dealer, this refers to a new affiliation with an 
additional broker-dealer.
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Investment Objective
    The Fund's investment objective is to seek current income and 
capital appreciation with reduced volatility over time.
Principal Investments
    The Fund will seek to achieve its investment objective primarily by 
investing in a portfolio of ``high yield'' debt securities of U.S. 
companies.
    Under normal market conditions,\9\ the Fund will hold long 
positions in high yield debt securities selected because the Sub-
Adviser believes they are likely to outperform the market over time or 
increase in value in the near term (the ``Long Position''), and will 
hold short positions in high yield debt securities selected because the 
Sub-Adviser believes they are likely to lose value in the near or 
longer term (the ``Short Position'').
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    \9\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the fixed income or other securities 
markets or the financial markets generally; operational issues 
causing dissemination of inaccurate market information; or force 
majeure type events such as systems failure, natural or man-made 
disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance. In periods 
of extreme market disturbance, the Fund may take temporary defensive 
positions, by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objectives.
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    The Fund will not have any portfolio maturity limitation and may 
invest its assets in instruments with short-term, medium-term or long-
term maturities. Issuers of securities in which the Fund expects to 
invest will include large and medium capitalization companies, and may 
include small capitalization companies. The Sub-Adviser expects the 
Fund's investment portfolio to include up to 200 different securities 
positions with a target portfolio net exposure (the market value of the 
Long Position minus the market value of the Short Position) of between 
-20% and 100%.
    In selecting securities for the Fund's portfolio, the Sub-Adviser 
generally will analyze debt securities included in the Bloomberg USD 
Corporate High Yield Bond Index (the ``Bloomberg High Yield Index''). 
While the Fund may invest directly in high yield debt securities, the 
Sub-Adviser may also implement the Fund's strategy by investing in 
exchange-traded pools (which will consist of exchange-traded funds,\10\ 
exchange-traded notes,\11\ or closed-end funds, and each of which will 
be listed for trading on a U.S. exchange) (``ETPs'') that invest a 
significant portion of their portfolios in high yield debt instruments 
(``High Yield ETPs'').
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    \10\ See Nasdaq Rules 5705.
    \11\ See Nasdaq Rules 5710.
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    Positions in high-yield debt securities also may include foreign 
debt securities traded on U.S. or foreign exchanges or in U.S. or 
foreign over-the-counter markets, which may be denominated in foreign 
currencies. (Any currency hedging will be accomplished by taking long 
or short positions in ETPs.)
    ``High yield debt securities'' generally include debt securities 
that are rated lower than ``BBB-'' by Standard & Poor's Ratings Group 
or ``Baa3'' by Moody's Investors Service, Inc. or at a similar level by 
another nationally recognized statistical rating organization, or are 
unrated but are deemed to be of comparable quality by the Sub-Adviser. 
These securities consist of senior and subordinated corporate debt 
obligations (bonds, debentures, notes and commercial paper). The Fund 
may invest in the foregoing corporate debt obligations, senior bank 
loans (including through loan assignments and loan participations), 
preferred stocks, municipal bonds, convertible bonds and convertible 
preferred stocks.\12\ The Fund will not invest in other types of high-
yield debt securities, such as asset-backed securities. The Fund will 
not be limited to investing in high-yield securities, so any of the 
securities listed may also be investment grade. The Fund may invest in 
U.S. treasuries.
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    \12\ Convertible bonds and convertible preferred stocks in which 
the Fund invests, and the equity securities into which these 
securities may be converted, and also preferred stocks (non-
convertible) in which the Fund invests, generally will be exchange-
traded. The Sub-Adviser's current expectation is that at least 80% 
of these securities will be exchange-traded. At least 90% of these 
exchange-traded securities will be traded on exchanges that are 
Intermarket Surveillance Group (``ISG'') members.
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The Fund
    As a result of its trading strategy, the Fund expects to engage in 
frequent portfolio transactions that will likely result in higher 
portfolio turnover than other similar investment companies. Portfolio 
turnover is a ratio that indicates how often the securities in an 
investment company's portfolio change during a year. A higher portfolio 
turnover rate indicates a greater number of changes, and a lower 
portfolio turnover rate indicates a smaller number of changes. Under 
normal circumstances, the anticipated annual portfolio turnover rate 
for the Fund is expected to be greater than 100%.
Other Investments
    The Fund may invest in other types of investments, as set forth in 
this section. In addition to investing in High Yield ETPs as discussed 
under Principal Investments, the Fund could invest in other fixed-
income ETPs--but will not invest in leveraged ETPs. Due to legal 
limitations, the Fund will be prevented from purchasing more than 3% of 
an ETF's outstanding shares unless: (i) The ETF or the Fund has 
received an order for exemptive relief from the 3% limitation from the 
Commission that is applicable to the Fund; and (ii) the ETF and the 
Fund take appropriate steps to comply with any conditions in such 
order. The Fund may invest in warrants.\13\
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    \13\ Warrants in which the Fund invests, and the equity 
securities into which these warrants may be converted, generally 
will be exchange-traded. The Sub-Adviser's current expectation is 
that at least 80% of these securities will be exchange-traded. At 
least 90% of these exchange-traded securities will be traded on 
exchanges that are ISG members.
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    In certain adverse market, economic, political, or other 
conditions, the Fund may temporarily depart from its normal investment 
policies and strategy, provided that the alternative is consistent with 
the Fund's investment objective and is in the best interest of the 
Fund. At such times, the Fund may invest in cash or cash equivalents, 
such as money market instruments,\14\ and to the extent permitted by 
applicable law and the Fund's investment restrictions, the Fund may 
invest in shares of money market mutual funds. Under such 
circumstances, the Fund may invest up to 100% of its assets in these 
investments and may do so for extended periods of time. Under normal 
circumstances, however, the Fund may also hold money market instruments 
and/or shares of money market mutual funds for various reasons 
including to provide for funds awaiting investment, to accumulate cash 
for anticipated purchases of portfolio securities, to allow for 
shareholder redemptions and to provide for the Fund's operating 
expenses.
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    \14\ The money market instruments in which the Fund may invest 
are short-term (less than one-year) notes issued by (i) the U.S. 
government, (ii) an agency of the U.S. government, or (iii) a U.S. 
corporation.
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    The Fund anticipates investing entirely in fully liquid assets, but 
it has the flexibility to invest up to 15% of its net assets in 
illiquid securities and other

[[Page 51634]]

illiquid assets.\15\ Under the supervision of the Board of Trustees of 
the Trust (the ``Trust Board''), the Sub-Adviser will determine the 
liquidity of the Fund's investments, and through reports from the Sub-
Adviser, the Trust Board monitors investments in illiquid instruments. 
In determining the liquidity of the Fund's investments, the Sub-Adviser 
may consider various factors including: (i) The frequency of trades and 
quotations; (ii) the number of dealers and prospective purchasers in 
the marketplace; (iii) dealer undertakings to make a market; (iv) the 
nature of the security (including any demand or tender features); and 
(v) the nature of the marketplace for trades (including the ability to 
assign or offset the Fund's rights and obligations relating to the 
investment). If through a change in values, net assets, or other 
circumstances, the Fund were in a position where more than 15% of its 
net assets were invested in illiquid securities or other illiquid 
assets, it would seek to take appropriate steps to protect liquidity. 
In keeping with the foregoing focus on liquidity, the Fund will 
generally seek to invest in high-yield debt securities, bank loans, and 
other debt issuances that the Sub-Adviser deems to be liquid, with 
readily available prices. The Fund will only invest in bank loans that 
have a par amount outstanding of U.S. $100 million or greater at the 
time the loan is originally issued. The Fund will not enter into a long 
or short position in high yield debt securities with a par amount 
outstanding of less than U.S. $100 million at the time of issuance of 
such high yield debt securities, if upon establishing such position, 
the total value of such positions would represent fifty percent or 
greater of the Fund's net assets.
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    \15\ 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), FN 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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    The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any particular industry.\16\
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    \16\ 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 Fund's investments (including investments in ETPs) will not be 
utilized to seek to achieve a leveraged return on the Fund's net 
assets. The Fund will not invest in futures contracts, will not invest 
in options, will not invest in swaps, and will not invest in other 
derivative instruments.
The Shares
    The Fund will issue and redeem Shares only in Creation Units, 
through the Distributor, without a sales load (but subject to 
transaction fees), at the net asset value (``NAV'') next determined 
after receipt of an order in proper form, on a continuous basis every 
day except weekends and specified holidays, pursuant to the terms of 
the agreement executed with each Authorized Participant (as defined 
below). The NAV of the Fund will be determined once each business day, 
normally as of the close of regular trading on the NYSE, generally, 
4:00 p.m. Eastern time.\17\ Creation Unit sizes will be 25,000 Shares 
per Creation Unit.
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    \17\ NAV per Share will be calculated by dividing the Fund's net 
assets by the number of Fund Shares outstanding. For more 
information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see ``Net Asset Value'' below and see 
``Determination of Net Asset Value'' in the Registration Statement.
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    The consideration for purchase of a Creation Unit will consist of 
either (i) an in-kind deposit of a designated portfolio of securities 
(the ``Deposit Securities'') for each Creation Unit constituting a 
substantial replication, or a representation, of the securities 
included in the Fund's portfolio and an amount of cash (the ``Cash 
Component'') computed as described below or (ii) cash totaling the NAV 
of the Creation Unit (``Deposit Cash''). The ``Cash Component'' will be 
an amount equal to the difference between the NAV of the shares (per 
Creation Unit) and the market value of the Deposit Securities. The Fund 
may also effect a portion of an otherwise in-kind creation or 
redemption for cash, in accordance with the Exemptive Order.
    As applicable, (i) the Deposit Securities and the Cash Component, 
together, or (ii) the Deposit Cash, will constitute the ``Fund 
Deposit,'' which will represent the minimum initial and subsequent 
investment amount for a Creation Unit of the Fund. If the Cash 
Component is a positive number (i.e., the NAV per Creation Unit exceeds 
the market value of the Deposit Securities), the Cash Component will be 
such positive amount. If the Cash Component is a negative number (i.e., 
the NAV per Creation Unit is less than the market value of the Deposit 
Securities), the Cash Component will be such negative amount and the 
creator will be entitled to receive cash from the Fund in an amount 
equal to the Cash Component. The Cash Component will serve the function 
of compensating for any difference between the NAV per Creation Unit 
and the market value of the Deposit Securities.
    To be eligible to place orders with respect to creations and 
redemptions of Creation Units, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC'') or (ii) a Depository Trust 
Company (``DTC'') Participant (a ``DTC Participant''). In addition, 
each Participating Party or DTC Participant (each, an ``Authorized 
Participant'') must execute an agreement that has been agreed to by the 
Distributor and the Fund Administrator, BNY, with respect to purchases 
and redemptions of Creation Units.
    BNY, through the NSCC, will make available on each business day, 
immediately prior to the opening of business on the Exchange's Regular 
Market Session (currently 9:30 a.m. Eastern time), the list of the 
names and the required number of shares of each Deposit Security to be 
included in the current Fund Deposit (based on information at the end 
of the previous business day) for the Fund. Such Fund Deposit, subject 
to any relevant adjustments, will be applicable in order to effect 
purchases of Creation Units of the Fund until such time as the next 
announced composition of the Deposit Securities is made available.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through BNY and only on a business day.
    With respect to the Fund, BNY, through the NSCC, will make 
available immediately prior to the opening of business on the Exchange 
(9:30 a.m. Eastern time) on each business day, the list of the names 
and share quantities of the Fund's portfolio securities (``Fund 
Securities'') that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day. 
Fund Securities received on redemption

[[Page 51635]]

may not be identical to Deposit Securities.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit will consist of Fund 
Securities as announced by BNY on the business day of the request for 
redemption received in proper form plus cash in an amount equal to the 
difference between the NAV of the Shares being redeemed, as next 
determined after a receipt of a request in proper form, and the value 
of the Fund Securities (the ``Cash Redemption Amount''), less a fixed 
redemption transaction fee and any applicable additional variable 
charge as set forth in the Registration Statement. In the event that 
the Fund Securities have a value greater than the NAV of the Shares, a 
compensating cash payment equal to the differential will be required to 
be made by or through an Authorized Participant by the redeeming 
shareholder. Notwithstanding the foregoing, at the Trust's discretion, 
an Authorized Participant may receive the corresponding cash value of 
the securities in lieu of one or more Fund Securities.
    The creation order and redemption order cut off time for the Fund 
is expected to be 3:00 p.m. Eastern time. On days when the Exchange 
closes earlier than normal and in the case of custom orders, the Fund 
may require orders for Creation Units to be placed earlier in the day.
Net Asset Value
    The NAV per Share for the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares 
outstanding, rounded to the nearest cent. Expenses and fees, including 
the management fees, will be accrued daily and taken into account for 
purposes of determining NAV. The NAV of the Fund will be calculated by 
BNY and determined at the close of regular trading on the NYSE 
(ordinarily 4:00 p.m. Eastern time) on each day that such exchange is 
open. In calculating the Fund's NAV per Share, investments will 
generally be valued by 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) or (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).\18\
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    \18\ Under normal market conditions, the Fund will obtain 
pricing information on all of its assets from these sources.
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    ETPs, exchange-traded fixed income securities, exchange-traded 
convertible securities, exchange-traded warrants and any other exchange 
traded securities will be valued at the official closing price on their 
principal exchange or board of trade, or lacking any current reported 
sale at the time of valuation, at the mean between the most recent bid 
and asked quotations on the principal exchange or board of trade. 
Portfolio securities traded on more than one securities exchange will 
be valued at the last sale price or official closing price, as 
applicable, on the business day as of which such value is being 
determined at the close of the exchange representing the principal 
market for such securities. Fixed-income securities traded over-the-
counter (including high yield fixed-income securities and money market 
instruments); warrants traded over-the-counter; and convertible 
securities traded over-the-counter will be valued at the mean between 
the most recent available bid and asked quotations provided by parties 
that make a market in the instrument. If recent bid and asked 
quotations are not available, these securities will be valued in 
accordance with the Fund's fair valuation procedures. Money market 
instruments with maturities of less than 60 days will be valued at 
amortized cost. Shares of mutual funds that are not exchange-listed 
will be valued at their net asset value.
    Notwithstanding the foregoing, in determining the value of any 
security or asset, the Fund may use a valuation provided by a pricing 
vendor employed by the Trust and approved by the Trust Board. The 
pricing vendor may base such valuations upon dealer quotes, by 
analyzing the listed market, by utilizing matrix pricing, by analyzing 
market correlations and pricing and/or employing sensitivity analysis.
    The Adviser may use various pricing services, or discontinue the 
use of any pricing service, as approved by the Trust Board from time to 
time. A price obtained from a pricing service based on such pricing 
service's valuation matrix may be considered a market valuation. Any 
assets or liabilities denominated in currencies other than the U.S. 
dollar will be converted into U.S. dollars at the current market rates 
on the date of valuation as quoted by one or more sources.
    In the event that current market valuations are not readily 
available or such valuations do not reflect current market value, the 
Trust's procedures require the Adviser's Pricing Committee to determine 
a security's fair value in accordance with the Fund's fair value 
pricing procedures, which are approved by the Trust Board and 
consistent with the 1940 Act.\19\ In determining such value the 
Adviser's Pricing Committee may consider, among other things, (i) price 
comparisons among multiple sources, (ii) a review of corporate actions 
and news events, and (iii) a review of relevant financial indicators. 
In these cases, the Fund's NAV may reflect certain portfolio 
securities' fair values rather than their market prices. Fair value 
pricing involves subjective judgments and it is possible that the fair 
value determination for a security is materially different than the 
value that could be realized upon the sale of the security.
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    \19\ The Valuation Committee of the Trust Board will be 
responsible for the oversight of the pricing procedures of the Fund 
and the valuation of the Fund's portfolio. The Valuation Committee 
has delegated day-to-day pricing responsibilities to the Adviser's 
Pricing Committee, which will be composed of officers of the 
Adviser. The Pricing Committee will be responsible for the valuation 
and revaluation of any portfolio investments for which market 
quotations or prices are not readily available. The Trust and the 
Adviser have implemented procedures designed to prevent the use and 
dissemination of material, nonpublic information regarding valuation 
and revaluation of any portfolio investments.
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Availability of Information
    The Fund's Web site, 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 additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV; (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; and (3) daily trading volume. On each 
business day, before commencement of trading in Shares in the Regular 
Market Session \21\ on the Exchange, the Trust will disclose on its Web 
site the identities and quantities of the portfolio of securities and 
other

[[Page 51636]]

assets (the ``Disclosed Portfolio'') held by the Fund that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\22\
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    \20\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of such Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \21\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 7 a.m. to 9:30 
a.m. Eastern time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m. Eastern time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. Eastern time).
    \22\ 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.
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    On a daily basis, the Fund will disclose for each portfolio 
security and other asset of the Fund the following information on the 
Fund's Web site (if applicable): Name, ticker symbol, CUSIP number or 
other identifier, if any; type of holding (such as ``bond'', ``note'', 
``preferred stock'', ``ETP'', ``mutual fund''); quantity held (as 
measured by, for example, number of shares, contracts or units); 
maturity date, if any; coupon rate, if any; effective date, if any; 
market value of the holding; and the percentage weighting of the 
holdings in the Fund's portfolio. The Web site information will be 
publicly available at no charge.
    In addition, for the Fund, an estimated value, defined in Rule 5735 
as the ``Intraday Indicative Value,'' that reflects an estimated 
intraday value of the Fund's portfolio, will be disseminated. Moreover, 
the Intraday Indicative Value, available on the NASDAQ OMX Information 
LLC proprietary index data service,\23\ will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated and broadly displayed at least every 15 seconds 
during the Regular Market Session. In addition, during hours when the 
local markets for foreign securities in the Fund's portfolio are 
closed, the Intraday Indicative Value will be updated at least every 15 
seconds during the Regular Market Session to reflect currency exchange 
fluctuations.
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    \23\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and Intraday Indicative Values for ETFs. 
GIDS provides investment professionals with the daily information 
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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    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 to provide a 
close estimate of that value throughout the trading day.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's 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 from the Fund free upon request, 
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.
    Intra-day, executable price quotations on the high yield debt 
securities, bank loans, warrants, other fixed-income and convertible 
securities, including cash and cash equivalents, ETPs and other assets 
held by the Fund are available from major broker-dealer firms or on the 
exchange on which they are traded, if applicable. The foregoing, intra-
day price information is available through subscription services, such 
as Bloomberg and Thomson Reuters, which can be accessed by Authorized 
Participants and other investors. The previous day's closing price and 
trading volume information for the exchange-traded securities held by 
the Fund will be published daily in the financial section of 
newspapers. Quotation and last sale information for the exchange-traded 
securities held by the Fund will be available via UTP Level 1, as well 
as Nasdaq proprietary quote and trade services.
    Information regarding market price and volume of the Shares is and 
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 UTP Level 1, as well as Nasdaq proprietary quote and trade 
services.
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 must be in compliance with Rule 10A-3 \24\ 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.
---------------------------------------------------------------------------

    \24\ See 17 CFR 240.10A-3.
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Trading Halts and Trading Pauses
    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 or pause trading in 
the Shares under the conditions specified in Nasdaq Rules 4120 and 
4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and 
(12). Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
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. 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 7:00 a.m. until 8:00 p.m. Eastern time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\25\ 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.
---------------------------------------------------------------------------

    \25\ 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.
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    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.

[[Page 51637]]

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. In addition, 
the Exchange may obtain information from the Trade Reporting and 
Compliance Engine (``TRACE''), which is the FINRA-developed vehicle 
that facilitates mandatory reporting of over-the-counter secondary 
market transactions in eligible fixed income securities.\26\
---------------------------------------------------------------------------

    \26\ All broker/dealers who are FINRA member firms have an 
obligation to report transactions in corporate bonds to TRACE.
---------------------------------------------------------------------------

    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares or other exchange-traded securities 
with other markets and other entities that are ISG members, and FINRA, 
on behalf of the Exchange, may obtain trading information regarding 
trading in the Shares; exchange-traded fixed income securities; 
exchange-traded warrants; exchange-traded convertible securities; ETPs; 
or other exchange-traded securities from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares; exchange-traded warrants; exchange-traded fixed-
income securities; exchange-traded convertible securities; ETPs; or 
other exchange-traded securities from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\27\ FINRA, on behalf of 
the Exchange, is able to access, as needed, trade information for 
certain fixed income securities, including corporate debt securities 
and money market instruments, held by the Fund reported to FINRA's 
TRACE.
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    \27\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, nonpublic 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.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund' 
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \28\ in general and Section 6(b)(5) of the Act \29\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

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

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on Nasdaq during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. The Adviser is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. 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 
Exchange may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The Fund's portfolio holdings 
will be disclosed on its Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. Moreover, the Intraday Indicative Value, available on 
the NASDAQ OMX Information LLC proprietary index data service will be 
widely disseminated 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 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 is and 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 UTP Level 1, as well as Nasdaq 
proprietary quote and trade services. Intra-day, executable price 
quotations on the high yield debt securities, bank loans, other fixed-
income and convertible securities, including cash and cash equivalents, 
ETPs and other assets held by the Fund are available from major broker-
dealer firms or on the exchange on which they are traded, if 
applicable. The foregoing

[[Page 51638]]

intra-day price information is available through subscription services, 
such as Bloomberg and Thomson Reuters, which can be accessed by 
Authorized Participants and other investors.
    The Web site for the Fund 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 Fund will be halted 
if the circuit breaker parameters in Nasdaq Rule 4120(a)(11) have been 
reached or because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable, and 
trading in the Shares will be subject to Nasdaq Rule 5735(d)(2)(D), 
which sets forth circumstances under which Shares of the 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, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In 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 such 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-2015-095 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2015-095. 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-2015-095 and should 
be submitted on or before September 15, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-20937 Filed 8-24-15; 8:45 am]
 BILLING CODE 8011-01-P