Document ID: SEC-2020-1935-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2020-12-07T05:00Z

[Federal Register Volume 85, Number 235 (Monday, December 7, 2020)]
[Notices]
[Pages 78890-78892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26784]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90542; File No. SR-NASDAQ-2020-078]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Exempt Proxy Portfolio Shares From Certain Governance Requirements and 
Include Proxy Portfolio Shares to the List of Products Covered Under 
Nasdaq Rule 4120 (Limit Up-Limit Down Plan and Trading Halts)

December 1, 2020.
    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 November 19, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to provide an exemption from certain 
governance requirements, as well as to include Proxy Portfolio Shares 
(listed on the Exchange pursuant to Nasdaq Rule 5750) to the list of 
products covered under Nasdaq Rule 4120 (Limit Up-Limit Down Plan and 
Trading Halts).
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange recently adopted Nasdaq Rule 5750, which relates to 
the listing and trading of Proxy Portfolio Shares \3\ on the 
Exchange.\4\ Nasdaq proposes to amend the definition of ``Derivative 
Securities'' under Nasdaq Rule 5615(a)(6)(B) as well as certain 
portions of Nasdaq Rule 4120 to include and apply to a series of Proxy 
Portfolio Shares listed on the Exchange pursuant to Nasdaq Rule 5750.
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    \3\ The term ``Proxy Portfolio Shares'' means ``a security that: 
(A) Represents an interest in an investment company registered under 
the Investment Company Act of 1940 (``Investment Company'') 
organized as an open- end management investment company, that 
invests in a portfolio of securities selected by the Investment 
Company's investment adviser consistent with the Investment 
Company's investment objectives and policies; (B) is issued in a 
specified aggregate minimum number in return for a deposit of a 
specified Proxy Basket and/or a cash amount with a value equal to 
the next determined net asset value; (C) when aggregated in the same 
specified minimum number, may be redeemed at a holder's request, 
which holder will be paid specified Proxy Basket and/or a cash 
amount with a value equal to the next determined net asset value; 
and (D) the portfolio holdings for which are disclosed within at 
least 60 days following the end of every fiscal quarter.''
    \4\ See Securities and Exchange Act Release No. 34-89110 (June 
22, 2020), 85 FR 38461 (June 26, 2020) (SR-NASDAQ-2020-032) (the 
``Rule Proposal''). The Rule Proposal was effective upon filing 
pursuant to Section 19(b)(3)(A)(iii) of the Act and Rule 19b-4(f)(6) 
thereunder and became operative 30 calendar days following the 
filing date of June 11, 2020.
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    Nasdaq notes that the proposed rule change, as discussed below, 
results from the Exchange proposing to make conforming changes to its 
corporate governance requirements in order to accommodate the listing 
of Proxy Portfolio Shares. This will subject Proxy Portfolio Shares to 
the same corporate governance requirements as other exchange-traded 
products listed on the Exchange.
    Currently, Nasdaq Rule 5615(a)(5) provides management investment 
companies exemptions to certain corporate governance requirements.\5\ 
Nasdaq Rule 5615(a)(5) also provides that management investment 
companies that are Derivative Securities (as defined in Nasdaq Rule 
5615(a)(6)(B)) \6\ are also exempt from the additional requirements of 
Nasdaq Rule 5600 as outlined in Nasdaq Rule 5615(a)(6)(A). In addition 
to the exemptions found in Nasdaq Rule 5615(a)(5), Nasdaq Rule 
5615(a)(6)(A) also includes exemptions from the audit committee 
requirements in Nasdaq Rule 5605(c), except for the applicable 
requirements of SEC Rule 10A-3.\7\
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    \5\ See Nasdaq Rule 5605(b) (Independent Directors); Nasdaq Rule 
5605(d) (Compensation Committee); Nasdaq Rule 5605(e) (Independent 
Director Oversight of Director Nominations); and Nasdaq Rule 5610 
(Codes of Conduct).
    \6\ Nasdaq Rule 5615(a)(6)(B) states: ``For the purposes of this 
Rule 5600 Series only, the term ``Derivative Securities'' is defined 
as the following: Exchange Traded Fund Shares (Rule 5704), Portfolio 
Depository Receipts and Index Fund Shares (Rule 5705); Equity Index-
Linked Securities (Rule 5710(k)(i)), Commodity-Linked Securities 
(Rule 5710(k)(ii)), Fixed Income Index-Linked Securities 
(5710(k)(iii)), Futures-Linked Securities (5710(k)(iv)), Multifactor 
Index-Linked Securities (5710(k)(v)), Index-Linked Exchangeable 
Notes (Rule 5711(a)), Equity Gold Shares (Rule 5711(b)), Trust 
Certificates (Rule 5711(c)), Commodity-Based Trust Shares (Rule 
5711(d)), Currency Trust Shares (Rule 5711(e)), Commodity Index 
Trust Shares (Rule 5711(f)), Commodity Futures Trust Shares (Rule 
5711(g)), Partnership Units (Rule 5711(h)), Managed Trust Securities 
(Rule 5711(j)), SEEDS (Rule 5715), Trust Issued Receipts (Rule 
5720), Managed Fund Shares (Rule 5735), and NextShares (Rule 5745). 
Derivative Securities are subject to certain exemptions to the Rule 
5600 Series as described in Rule 5615(a)(6).''
    \7\ 17 CFR 240.10A-3.
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    Index Fund Shares, Managed Fund Shares and Exchange Traded Fund 
Shares are all considered Derivative Securities and, therefore, exempt 
from the audit committee requirements set forth in Nasdaq Rule 5605(c). 
They are exempted from such requirements because they are otherwise 
subject to the accounting and auditing requirements of the Investment 
Company Act of 1940 (the ``1940 Act''), including Section 32(a).\8\
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    \8\ 15 U.S.C. 80a-31.
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    Proxy Portfolio Shares are also subject to the accounting and 
auditing requirements under the 1940 Act and are so similarly situated 
as Index Fund Shares, Managed Fund Shares and Exchange Traded Fund 
Shares, that the Exchange believes Proxy Portfolio Shares should be 
subject to, and exempt from, the same corporate governance

[[Page 78891]]

requirements associated with listing on the Exchange. Thus, Nasdaq is 
proposing to make a change to amend Nasdaq Rule 5615(a)(6)(B) to add 
Proxy Portfolio Shares to the definition of Derivative Securities. 
Nasdaq Rule 5615(a)(5) allows management investment companies that are 
considered Derivative Securities to be subject to the exemptions from 
the audit committee requirements in Nasdaq Rule 5605(c) (except for the 
applicable requirements of SEC Rule 10A-3) included in Nasdaq Rule 
5615(a)(6)(A).
    Index Fund Shares, Managed Fund Shares and Exchange Traded Fund 
Shares are all considered Derivative Securities and, therefore, exempt 
from the annual meeting requirements set forth in Nasdaq Rule 5620(a). 
They are exempted from such requirements because they are securities 
issued by an open-end investment company registered under the 1940 Act 
that are available for creation and redemption on a continuous basis, 
and require dissemination of a relevant portfolio value at regular 
intervals. These requirements provide important investor protections 
and ensure that the net asset value and the market price remain closely 
tied to one another while maintaining a liquid market for the security. 
These protections, along with the disclosure documents regularly 
received by investors, allow shareholders of Index Fund Shares, Managed 
Fund Shares and Exchange Traded Fund Shares to value their holdings on 
an ongoing basis and lessen the need for shareholders to directly deal 
with management at an annual meeting.\9\
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    \9\ See Securities and Exchange Act Release No. 34-86072 (June 
10, 2019), 84 FR 27816 (June 14, 2020) (SR-NASDAQ-2019-039).
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    Thus, Nasdaq is proposing to amend Nasdaq Rule 5615(a)(6)(B) to add 
Proxy Portfolio Shares to the definition of Derivative Securities. 
Nasdaq Rule 5615(a)(5) allows management investment companies that are 
considered Derivative Securities to be subject to the exemptions in 
Nasdaq Rule 5615(a)(6)(A), which includes the exemption from the annual 
meeting requirements in Nasdaq Rule 5620(a). The Exchange notes that 
the proposed changes would result in rules that are substantially 
similar to that of NYSE Arca, Inc.\10\
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    \10\ See Securities and Exchange Act Release No. 34-89185 (June 
29, 2020), 85 FR 40328 (July 6, 2020) (SR-NYSEArca-2019-95).
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    Nasdaq is also proposing to amend Nasdaq Rule 4120(a)(9) to include 
Proxy Portfolio Shares in the list of securities that Nasdaq will have 
discretion to halt trading in if ``(A) trading in underlying securities 
comprising the index or portfolio applicable to that series has been 
halted in the primary market(s), (B) the extent to which trading has 
ceased in securities underlying the index or portfolio, or (C) the 
presence of other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market.'' Nasdaq believes change 
this is appropriate because it will subject Proxy Portfolio Shares to 
the same halt requirements as other Nasdaq listed securities that 
derive value from an index or portfolio of underlying securities.
    Additionally, Nasdaq is proposing to amend Nasdaq Rule 4120(a)(10) 
to specify that Nasdaq will halt trading in a series of Proxy Portfolio 
Shares if the net asset value, Proxy Basket, or Fund Portfolio are not 
being disseminated to market participants at the same time. Nasdaq 
believes this change is appropriate because it will subject Proxy 
Portfolio Shares to the same halt requirements as other Nasdaq listed 
securities that are required to publish similar values on a regular 
basis.
    Nasdaq is also proposing to add Proxy Portfolio Shares to the 
definition of ``Derivative Securities Products'' as found in Nasdaq 
Rule 4120(b)(4)(A). Nasdaq believes change this is appropriate because 
it will specify the Proxy Portfolio Shares are subject to the 
requirements of Nasdaq Rule 4120(a)(10).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, in that it is consistent with 
the Section 6(b)(5) requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change to amend Nasdaq Rule 
5615(a)(6)(B) to include Proxy Portfolio Shares in the definition of 
Derivative Securities (along with Index Fund Shares, Managed Fund 
Shares and Exchange Traded Fund Shares, among others), and thereby 
exempting Proxy Portfolio Shares from the audit committee requirements 
in Nasdaq Rule 5605(c) (except for the applicable requirements of SEC 
Rule 10A-3) and the annual meeting requirements in Nasdaq Rule 5620(a), 
is consistent with the Act because it is meant only to subject Proxy 
Portfolio Shares to the same corporate governance requirements 
currently applicable to the very similar product structures of Index 
Fund Shares, Managed Fund Shares and Exchange Traded Fund Shares. The 
Exchange believes that this will promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, protect 
investors and the public interest.
    The Exchange further believes that the proposed changes to Nasdaq 
Rule 4120(a)(9), Nasdaq Rule 4120(a)(10), and Nasdaq Rule 4120(b)(4)(A) 
are consistent with the Act because it is meant only to subject Proxy 
Portfolio Shares to the same halt requirements currently applicable to 
the very similar product structures of Index Fund Shares, Managed Fund 
Shares and Exchange Traded Fund Shares. Nasdaq believes that this too 
will promote just and equitable principles of trade, remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest.

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. To the contrary, the 
Exchange believes that the proposed rule change would promote both 
intermarket and intramarket competition by providing Proxy Portfolio 
Shares the same exemptions as management investment companies from 
certain corporate governance requirements \13\ the audit committee 
requirements set forth in Nasdaq Rule 5605(c) (except for the 
applicable requirements of SEC Rule 10A-3) and the annual meeting 
requirements of Nasdaq Rule 5620(a). This is consistent with the 
exemptions provided to Index Fund Shares, Managed Fund Shares, and 
Exchange Traded Fund Shares.
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    \13\ Supra note 5.
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    Additionally, the Exchange believes that the proposed changes to 
Nasdaq Rule 4120(a)(9), Nasdaq Rule 4120(a)(10), and Nasdaq Rule 
4120(b)(4)(A) will not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because these only serve to subject Proxy Portfolio

[[Page 78892]]

Shares to the same halt requirements currently applicable to the 
similar product structures of Index Fund Shares, Managed Fund Shares 
and Exchange Traded Fund Shares.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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.

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-2020-078 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-2020-078. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2020-078 and should be submitted 
on or before December 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26784 Filed 12-4-20; 8:45 am]
BILLING CODE 8011-01-P