Document ID: SEC-2016-0333-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-02-25T05:00Z

[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)]
[Notices]
[Pages 9559-9561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03951]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77191; File No. SR-NASDAQ-2016-025]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 5940 To Adopt Entry and Annual Fees for NextShares

February 19, 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 11, 2016, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II and 
III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to amend certain fees in Nasdaq Rule 5940 in 
connection with listing a type of open-end management investment 
company registered under the Investment Company Act of 1940, as amended 
(``1940 Act''), called an exchange-traded managed fund 
(``NextShares''). The shares are collectively referred to herein as 
``NextShares.''
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com at Nasdaq 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 and 
discussed any comments it received on the proposed rule change. The 
text of those statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to amend certain fees in Nasdaq Rule 5940 
(entitled ``Exchange Traded Products'') associated with the listing of 
NextShares.\3\ At the time of the Commission's approval of Nasdaq Rule 
5745, Nasdaq did not specify fees applicable to NextShares. The 
Exchange now proposes to amend Nasdaq Rule 5940 to adopt both the entry 
fees and annual fees for NextShares.
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    \3\ The Commission approved Nasdaq Rule 5745 in Securities 
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov. 
14, 2014) (SR-NASDAQ-2014-020).
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    Specifically, the proposed entry fee for when a company submits an 
application for listing a series \4\ of NextShares under Nasdaq Rule 
5745 will be $20,000 for the first series of NextShares (which will 
include a $1,000 non-refundable application fee) and an additional 
entry fee of $7,500 for each subsequent series of NextShares (which 
will include a $1,000 non-refundable application fee).
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    \4\ A series refers to each individual NextShares. For example, 
assume an issuer launches four NextShares (e.g., a Large Cap 
NextShares, a Large Cap Value NextShares, a Large Cap Growth 
NextShares and a Small Cap NextShares). Under Nasdaq Rule 5940(a)(2) 
as it is proposed to be amended, the issuer would pay a one-time 
initial listing fee of $20,000 for the Large Cap NextShares since it 
is the first series listed, and pay a separate $7,500 initial 
listing fee for each of the Large Cap Value NextShares, Large Cap 
Growth NextShares and Small Cap NextShares since they each would be 
considered a subsequent series of NextShares.

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[[Page 9560]]

    The proposed annual fee for the issuer of a series of NextShares 
will be paid for each individual series of NextShares and calculated on 
total shares outstanding for that specific series of NextShares. The 
annual fee, which can vary from year to year based on the NextShares' 
total shares outstanding, will be $6,500 for a series of NextShares 
with up to 25 million shares; $15,000 for over 25 million to 100 
million shares; and $25,000 for over 100 million shares.
    The Exchange intends to treat each series of NextShares 
independently and in connection with the calculation of the proposed 
annual fee, the Exchange will not aggregate the total shares 
outstanding across different series \5\ from the same issuer or 
sponsor.
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    \5\ Id.
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    NextShares will have a distinct fee schedule for both entry and 
annual fees because the costs Nasdaq incurs in support of NextShares is 
greater than the costs the Exchange incurs with other exchange-traded 
products (``ETPs''). The increased Nasdaq costs for NextShares, as 
compared with other ETPs, that the higher entry fees are intended to 
address, include the technological changes and the platform needed to 
support the initial listing, launch, and trading of NextShares. The 
Exchange also anticipates greater costs associated with the necessary 
regulatory review and extra legal work associated with the launch of 
each NextShares, which may include the preparation of filings under 
Section 19(b) of the Exchange Act and initial work with each NextShares 
licensee.
    The increased Nasdaq costs for NextShares, as compared with other 
ETPs, that the higher annual fees are intended to address, include the 
ongoing trading and continued support of NextShares by the Exchange. 
This will require Nasdaq to expend greater resources than it currently 
expends on other ETPs. Specifically, the Exchange believes that as a 
result of supporting intra-day NAV-based trading, NextShares' will 
require additional daily support that is more than what is currently 
provided for traditional ETPs.
    Each series of NextShares has a different investment strategy and 
strikes a unique net asset value (``NAV'') at the end of each trading 
day and will require the calculation of a final exchange trading price 
each day after the NAV is calculated. This involves supplementary 
operational procedures that are specific to NextShares (e.g., 
generating two daily trade confirmations, converting intra-day proxy 
price \6\ share trades that are recorded and stored intra-day by Nasdaq 
to the NextShares' end-of-day NAV, and the determination of final trade 
pricing). Nasdaq also anticipates an increase in time, effort and 
expense in responding to trading and data inquiries from third party 
vendors/counterparties, as compared with what it expends on other ETPs. 
The Exchange also anticipates greater costs associated with the 
necessary regulatory review and extra legal work associated with the 
ongoing support of each NextShares.
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    \6\ A NextShares next-determined NAV will be represented at the 
beginning of each trading day by a proxy price of 100.00.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\8\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers and other persons using its 
facilities, and does not unfairly discriminate between customers, 
issuers, brokers or dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the addition of an initial entry fee and 
an annual fee in connection with each series of NextShares under 
proposed Nasdaq Rule 5940 is consistent with Section 6(b)(4) of the Act 
\9\ in that it provides for the equitable allocation of reasonable 
dues, fees and other charges among members and issuers and other 
persons using any facility or system that the Exchange operates or 
controls.
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    \9\ 15 U.S.C. 78f(b)(4).
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    Specifically, Nasdaq believes that although the proposed entry fee 
of $20,000 for the first series \10\ of NextShares (which includes a 
$1,000 non-refundable application fee) and the additional entry fees of 
$7,500 for each subsequent series of NextShares (which includes a 
$1,000 non-refundable application fee) are higher than the entry fee of 
$5,000 (which includes a $1,000 non-refundable application fee) for 
other ETPs, the proposed entry fees for NextShares are reasonable 
because they will help offset the higher costs Nasdaq incurs in support 
of NextShares as compared with the costs it incurs for other ETPs. 
These higher costs include the technological changes and the platform 
needed to support the initial listing, launch, and trading of 
NextShares, as well as the greater costs that the Exchange anticipates 
that will be associated with the necessary regulatory review and extra 
legal work associated with the launch of each NextShares, which may 
include the preparation of SEC filings and initial work with each 
NextShares licensee.
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    \10\ See footnote 4 above.
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    The Exchange also believes that the proposed entry fees are 
equitable and not unfairly discriminatory because the Exchange assesses 
the same entry fees uniformly and for all series of NextShares. 
Additionally, Nasdaq believes that although the proposed entry fees are 
higher than those for other ETPs for the reasons explained above, they 
are equitable and not unfairly discriminatory.
    Nasdaq also believes that the proposed annual fee for the issuer of 
a series of NextShares that will be paid for each individual series and 
calculated on total shares outstanding for that specific NextShares is 
reasonable because it will help offset the higher ongoing costs, 
including regulatory, legal, surveillance, and operational costs to 
monitor the listing of NextShares and that these costs are greater than 
what is currently provided for other ETPs.
    These costs include the ongoing trading and continued support of 
NextShares by the Exchange and will require Nasdaq to expend greater 
resources than it currently expends on other ETPs. Specifically, the 
Exchange believes that as a result of supporting intra-day NAV-based 
trading, NextShares' will require additional daily support that is more 
than what is currently provided for traditional ETPs. Additionally, 
each series of NextShares has a different investment strategy and 
strikes a unique NAV at the end of each trading day and will require 
the calculation of a final exchange trading price each day after the 
NAV is calculated. This involves supplementary operational procedures 
that are specific to NextShares (e.g., generating two daily trade 
confirmations, converting intra-day proxy price \11\ share trades that 
are recorded and stored intra-day by Nasdaq to the NextShares' end-of-
day NAV and the determination of final trade pricing).
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    \11\ A NextShares next-determined NAV will be represented at the 
beginning of each trading day by a proxy price of 100.00.
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    Nasdaq also anticipates an increase in time, effort and expense in 
responding to trading and data inquiries from third party vendors/
counterparties, as compared with what it expends on other ETPs. The 
Exchange also anticipates greater costs associated with the necessary 
regulatory review and extra legal work associated with the ongoing 
support of each NextShares.
    The Exchange will not aggregate the total shares outstanding across 
different series of NextShares for purposes of the

[[Page 9561]]

proposed annual fee. This differs with the methodology used to 
calculate the total shares outstanding for other ETPs, including 
Portfolio Depository Receipts, Index Fund Shares, Managed Fund Shares, 
or other security listed under the Rule 5700 Series where no other fee 
schedule is specifically applicable listed on The Nasdaq Global Market. 
The Exchange believes that although the proposed annual fees are higher 
for NextShares than for other ETPs, for the reasons discussed above, 
these fees are equitable and not unfairly discriminatory.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Sections 6(b)(4) and 6(b)(5) of the 
Act.\12\
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    \12\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that the proposed fees for this new exchange-traded product 
will promote competition to the benefit of the markets and investors by 
making NextShares available to investors at a reasonable cost across a 
broad range of actively managed investment strategies in a structure 
that offers the cost and tax efficiencies and shareholder protections 
of exchange-traded funds. In order to remain competitive with other 
exchanges that also develop and market new ETPs, Nasdaq scrutinizes its 
fees closely before adopting such entry and annual fees.

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

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\13\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2016-025 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-2016-025. 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 the filing also will be available 
for inspection and copying at the principal offices 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-
025, and should be submitted on or before March 17, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR Sec.  200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-03951 Filed 2-24-16; 8:45 am]
 BILLING CODE 8011-01-P