Document ID: SEC-2015-1298-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2015-08-05T04:00Z

[Federal Register Volume 80, Number 150 (Wednesday, August 5, 2015)]
[Notices]
[Pages 46631-46640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19125]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75555; File No. SR-NASDAQ-2015-085]

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 PowerShares High Income Downside Hedged 
Portfolio a series of the PowerShares Actively Managed Exchange-Traded 
Fund Trust

July 30, 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 July 28, 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 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 common shares of beneficial 
interest of the PowerShares High Income Downside Hedged Portfolio (the 
``Fund''), a series of the PowerShares Actively Managed Exchange-Traded 
Fund Trust (the ``Trust''), under Nasdaq Rule 5735 (``Rule 5735''). The 
common shares of beneficial interest of the Fund are 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.

[[Page 46632]]

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Rule 5735, which rule governs the listing and trading of Managed 
Fund Shares \3\ on the Exchange.\4\ The Shares will be offered by the 
Fund, which will be an actively managed exchange-traded fund (``ETF'') 
and a series of the Trust. The Trust was established as a Delaware 
statutory trust on November 6, 2007. The Trust is registered with the 
Commission as an open-end management investment company and has filed a 
post-effective amendment to its registration statement on Form N-1A 
(the ``Registration Statement'') with the Commission to register the 
Fund and its Shares under the 1940 Act and the Securities Act of 
1933.\5\ Invesco PowerShares Capital Management LLC will serve as the 
investment adviser (the ``Adviser'') to the Fund. Invesco Distributors, 
Inc. (the ``Distributor'') will serve as the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon will act 
as the administrator, accounting agent, custodian (the ``Custodian'') 
and transfer agent for the Fund.
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    \3\ A ``Managed Fund Share'' is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \4\ The Commission approved Nasdaq Rule 5735 (formerly Nasdaq 
Rule 4420(o)) in Securities Exchange Act Release No. 57962 (June 13, 
2008), 73 FR 35175 (June 20, 2008) (SR-NASDAQ-2008-039). There are 
already multiple actively managed funds listed on the Exchange; see, 
e.g., Securities Exchange Act Release Nos. 69464 (April 26, 2013), 
78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order approving 
listing and trading of First Trust Senior Loan Fund); and 66489 
(February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-
004) (order approving listing and trading of WisdomTree Emerging 
Markets Corporate Bond Fund). Additionally, the Commission has 
previously approved the listing and trading of a number of actively-
managed funds on NYSE Arca, Inc. pursuant to Rule 8.600 of that 
exchange. See, e.g., Securities Exchange Act Release No. 68870 
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (order approving listing and trading of First Trust 
Preferred Securities and Income ETF). Moreover, the Commission 
previously approved the listing and trading of other actively 
managed funds within the PowerShares family of ETFs. See, e.g., 
Securities Exchange Act Release Nos. 68158 (November 5, 2012), 77 FR 
67412 (November 9, 2012) (SR-NYSEArca-2012-101) (order approving 
listing and trading of PowerShares S&P 500 Downside Hedged 
Portfolio) and 69915 (July 2, 2013), 78 FR 41145 (July 9, 2013) (SR-
NYSEArca-2013-56) (order approving listing of PowerShares China A-
Share Portfolio). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
    \5\ See Registration Statement for the Trust, filed on April 13, 
2015 (File Nos. 333-147622 and 811-22148). In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the1940 Act. See Investment Company Act Release No. 
28171 (February 27, 2008) (File No. 812-13386) (``Exemptive 
Order'').
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    Paragraph (g) of Rule 5735 provides that, if the investment adviser 
to an 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's portfolio.\6\ In addition, paragraph (g) of Rule 
5735 further requires that personnel who make decisions on such 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the investment company's portfolio. 
Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i), which applies 
to index-based funds and requires ``fire-walls'' between affiliated 
broker-dealers and investment advisers regarding the index-based fund's 
underlying benchmark index. Rule 5735(g), however, applies to the 
establishment of a ``fire wall'' between affiliated investment advisers 
and the broker-dealers with respect to the investment company's 
portfolio and not with respect to an underlying benchmark index, as is 
the case with index-based funds. The Adviser is itself not a broker-
dealer, but it is affiliated with the Distributor, a broker-dealer. The 
Adviser has therefore implemented a fire wall between itself and the 
Distributor with respect to the access of information concerning the 
composition and/or changes to the Fund's portfolio. In the event (a) 
the Adviser becomes newly affiliated with a different broker-dealer (or 
becomes a registered broker-dealer), or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes affiliated 
with a broker-dealer, it will implement a fire wall with respect to its 
relevant personnel and/or such broker-dealer affiliate, if applicable, 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio. The Fund does not currently 
intend to use a sub-adviser.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with the Advisers Act and Rule 204A-1 
thereunder. In addition, Rule 206(4)-7 under the Advisers Act makes 
it unlawful for an investment adviser to provide investment advice 
to clients unless such investment adviser has (i) adopted and 
implemented written policies and procedures reasonably designed to 
prevent violation, by the investment adviser and its supervised 
persons, of the Advisers Act and the Commission rules adopted 
thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designated an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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Description of the Fund
    The Fund will be an actively managed ETF, and its investment 
objective will be to seek to achieve high income and positive total 
returns. The Fund will seek to achieve its investment objective by 
using a quantitative, rules-based investment methodology designed to 
provide returns that exceed the performance of the S&P High Income 
VEQTOR Index (the ``Benchmark'').\7\ As

[[Page 46633]]

described below, the Fund will seek to gain exposure to the securities 
contained in the equity component of the Benchmark and CBOE Volatility 
Index (``VIX Index'') related instruments (``VIX Index Related 
Instruments,'' as defined below).
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    \7\ The Fund's Benchmark allocates between equity securities and 
CBOE Volatility Index futures. The Commission has previously 
approved listing and trading of exchange traded products with 
Chicago Board Options Exchange (``CBOE'') volatility index futures 
as components of benchmarks. See, e.g., Securities Exchange Act 
Release No. 68158 (November 5, 2012), 77 FR 67412 (November 9, 2012) 
(SR-NYSEArca-2012-101) (order approving listing and trading of 
PowerShares S&P 500 Downside Hedged Portfolio); Securities Exchange 
Act Release Nos. 65134 (August 15, 2011), 76 FR 52034 (August 19, 
2011) (SR-NYSEArca-2011-23) (order approving listing of ProShares 
Short VIX Short-Term Futures ETF, ProShares Short VIX Mid-Term 
Futures ETF, ProShares Ultra VIX Short-Term Futures ETF, ProShares 
Ultra VIX Mid-Term Futures ETF, ProShares UltraShort VIX Short-Term 
Futures ETF, and ProShares UltraShort VIX Mid-Term Futures ETF); and 
63610 (December 27, 2010), 76 FR 199 (January 3, 2011) (SR-NYSEArca-
2010-101 [sic]) (order approving listing of ProShares VIX Short-Term 
Futures ETF and ProShares VIX Mid-Term Futures ETF).
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The Benchmark, the VIX Index and the S&P 500 VIX Short Term Futures 
Index
    The Benchmark, using strategy allocation rules developed by 
Standard & Poor's (``S&P''),\8\ is composed of two types of components: 
An equity component, represented by the constituents of the S&P High 
Income Equity Composite Index (``Equity Component Index''), and a 
volatility component, represented by the S&P 500 VIX Short Term Futures 
Index (``VIX Futures Index''). The Benchmark allocates its constituents 
between the two components in any given amount from time to time based 
on the level of volatility in the market.
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    \8\ S&P is a division of the McGraw-Hill Companies, Inc. S&P is 
not a broker-dealer and has implemented procedures designed to 
prevent the use and dissemination of material, non-public 
information regarding the Benchmark.
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    The Equity Component Index is composed of 150 high yield securities 
that meet certain size, liquidity and listing exchange criteria as 
determined by S&P. This component is comprised of the following four 
sub-components: (i) Preferred stocks, (ii) units of master limited 
partnerships (``MLPs''), (iii) real estate investment trusts 
(``REITs''), and (iv) a portfolio of global securities engaged in the 
real estate industry (``global property securities'') and/or global 
securities that pay high dividends (``global dividend securities'' 
which, collectively with global property securities, are ``Global 
Equities'').
    The VIX Index is a theoretical calculation and cannot be traded. 
The VIX Index is a benchmark index designed to measure the market price 
of volatility in large cap U.S. stocks over 30 days in the future, and 
is calculated based on the prices of certain put and call options on 
the S&P 500[supreg] Index. The VIX Index measures the premium paid by 
investors for certain options linked to the S&P 500[supreg] Index. 
During periods of market instability, the implied level of volatility 
of the S&P 500[supreg] Index typically increases and, consequently, the 
prices of options linked to the S&P 500[supreg] Index typically 
increase (assuming all other relevant factors remain constant or have 
negligible changes). This, in turn, causes the level of the VIX Index 
to increase. The VIX Index historically has had negative correlations 
to the S&P 500[supreg] Index. Because the level of the VIX Index may 
increase in times of uncertainty, the VIX Index is known as the ``fear 
gauge'' of the broad U.S. equities market.
    The VIX Futures Index utilizes the prices of the first and second 
month futures contracts based on the VIX Index, replicating a position 
that rolls the nearest month VIX futures contracts to the next month 
VIX futures contracts on a daily basis in equal fractional amounts. The 
Benchmark's allocation to its volatility component serves as an implied 
volatility hedge, as volatility historically tends to correlate 
negatively to the performance of the equity markets (i.e., rapid 
declines in the performance of the equity markets generally are 
associated with particularly high volatility in such markets).
    On any Business Day (as defined below), the Benchmark allocates 
between its equity and volatility components based on a combination of 
realized volatility and implied volatility trend decision variables. 
The allocation to the VIX Futures Index generally increases when 
realized volatility and implied volatility are higher, and decreases 
when realized volatility and implied volatility are lower. While 
allocations are reviewed daily, these allocations may change on a less 
frequent basis.
    The U.S. Index Committee (the ``Committee'') of S&P maintains the 
Benchmark. The Committee meets monthly. At each meeting, the Committee 
reviews pending corporate actions that may affect Benchmark 
constituents, statistics comparing the composition of the Benchmark to 
the market, companies that are being considered as candidates for 
addition to the Benchmark, and any significant market events. In 
addition, the Committee may revise the Benchmark's policy covering 
rules for selecting companies, treatment of dividends, share counts, or 
other matters.
Principal Investment Strategies of the Fund
    The Fund's investment strategy is similar to the rules-based 
allocation methodology of its Benchmark. Therefore, the allocation 
among the Fund's investments generally will tend to approximate the 
allocation between the equity and volatility components of the 
Benchmark. However, the Fund seeks returns that exceed the returns of 
the Benchmark; accordingly, the Fund can have a higher or lower 
exposure to either component (or any respective sub-component) of the 
Benchmark at any time.\9\
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    \9\ The Fund will be ``non-diversified'' under the 1940 Act and 
therefore may invest more of its assets in fewer issuers than 
``diversified'' funds. The diversification standard is set forth in 
Section 5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
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    In pursuing its investment objective, under normal market 
conditions,\10\ the Fund will invest substantially all of its assets in 
(i) an equity sleeve that generally corresponds to the Equity Component 
Index, represented by a combination of 150 high yield securities that 
includes preferred stocks, MLPs, REITs, and Global Equities, each of 
which will be listed either on a U.S. securities exchange or a member 
exchange of the Intermarket Surveillance Group (``ISG''); \11\ and (ii) 
a volatility sleeve, represented by instruments relating to the VIX 
Index and consisting of futures contracts on the VIX Index and options 
on those futures contracts. During periods of low volatility, a greater 
portion of the Fund's assets will be invested in equity securities, and 
during periods of increased volatility, a greater portion of the Fund's 
assets will be invested in VIX Index Related Instruments (as defined 
below). Any U.S. security invested by the Fund must be listed on a 
national securities exchange, and any non-U.S. security must be listed 
on a member exchange of the ISG.
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    \10\ 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 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 objective.
    \11\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    Additionally, the Fund may invest in ETFs and exchange-traded notes 
(``ETNs'') that are listed on U.S. securities exchanges that provide 
exposure to the components of the Equity Component Index, as well as 
ETFs and ETNs that provide exposure to the VIX Index (these 
instruments, collectively with VIX Index futures contracts and options 
on those futures contracts, are termed the ``VIX Index Related 
Instruments'').

[[Page 46634]]

Other Investments of the Fund
    The Fund may invest its remaining assets in U.S. government 
securities, high-quality money market instruments, cash and cash 
equivalents to provide liquidity and to collateralize its investments 
in derivative instruments. These instruments in which the Fund may 
invest include: (i) Short-term obligations issued by the U.S. 
Government; \12\ (ii) short-term negotiable obligations of commercial 
banks, fixed time deposits and bankers' acceptances of U.S. and foreign 
banks and similar institutions; \13\ (iii) commercial paper rated at 
the date of purchase ``Prime-1'' by Moody's Investors Service, Inc. or 
``A-1+'' or ``A-1'' by S&P or, if unrated, of comparable quality, as 
the Adviser of the Fund determines, and (iv) money market mutual funds, 
including affiliated money market funds.
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    \12\ The Fund may invest in U.S. government obligations. 
Obligations issued or guaranteed by the U.S. Government, its 
agencies and instrumentalities include bills, notes and bonds issued 
by the U.S. Treasury, as well as ``stripped'' or ``zero coupon'' 
U.S. Treasury obligations representing future interest or principal 
payments on U.S. Treasury notes or bonds.
    \13\ Time deposits are non-negotiable deposits maintained in 
banking institutions for specified periods of time at stated 
interest rates. Banker's acceptances are time drafts drawn on 
commercial banks by borrowers, usually in connection with 
international transactions.
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    In addition, the Fund's investment in securities of other 
investment companies (including money market funds) may exceed the 
limits permitted under the 1940 Act, in accordance with certain terms 
and conditions set forth in a Commission exemptive order issued to the 
Trust pursuant to Section 12(d)(1)(J) of the 1940 Act.\14\
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    \14\ Investment Company Act Release No. 30238 (October 23, 2012) 
(File No. 812-13820).
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    The Fund may enter into repurchase agreements, which are agreements 
pursuant to which securities are acquired by the Fund from a third 
party with the understanding that they will be repurchased by the 
seller at a fixed price on an agreed date. These agreements may be made 
with respect to any of the portfolio securities in which the Fund is 
authorized to invest. Repurchase agreements may be characterized as 
loans secured by the underlying securities. The Fund may enter into 
repurchase agreements with (i) member banks of the Federal Reserve 
System having total assets in excess of $500 million and (ii) 
securities dealers (``Qualified Institutions''). The Adviser will 
monitor the continued creditworthiness of Qualified Institutions.
    The Fund may enter into reverse repurchase agreements, which 
involve the sale of securities with an agreement to repurchase the 
securities at an agreed-upon price, date, and interest payment and have 
the characteristics of borrowing. The securities purchased with the 
funds obtained from the agreement and securities collateralizing the 
agreement will have maturity dates no later than the repayment date.
    The Fund may purchase exchange-listed warrants. However, the Fund 
does not expect to enter into swap agreements, including credit default 
swaps, but may do so if such investments are in the best interests of 
the Fund's shareholders.
Investment Restrictions of the Fund
    The Fund may not concentrate its investments (i.e., invest more 
than 25% of the value of its net assets) in securities of issuers in 
any one industry or group of industries. This restriction will not 
apply to obligations issued or guaranteed by the U.S. government, its 
agencies or instrumentalities.\15\
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    \15\ 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 may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment), including Rule 144A securities. The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid securities or other illiquid assets. 
Illiquid securities and other illiquid assets include those subject to 
contractual or other restrictions on resale and other instruments or 
assets that lack readily available markets as determined in accordance 
with Commission staff guidance.\16\
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    \16\ 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 Nos. 5847 (October 21, 
1969), 35 FR 19989 (December 31, 1970) (Statement Regarding 
``Restricted Securities''); and 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 
Nos. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); and 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 intends to qualify for and to elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.\17\
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    \17\ 26 U.S.C. 851.
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    As a result of the instruments that the Fund will hold, the Fund 
will be subject to regulation by the Commodity Futures Trading 
Commission and the National Futures Association (``NFA'') as a 
commodity pool, and thus must comply with additional disclosure, 
reporting, and recordkeeping rules imposed upon commodity pools.\18\
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    \18\ The Exchange represents that the Adviser has previously 
registered as a commodity pool operator and commodity trading 
advisor and also is a member of the NFA.
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    The Fund's investments will be consistent with the Fund's 
investment objective. Additionally, the Fund may engage in frequent and 
active trading of portfolio securities to achieve its investment 
objective. The Fund may utilize instruments or investment techniques 
that have a leveraging effect on the Fund. This effective leverage 
occurs when the Fund's market exposure exceeds the amounts actually 
invested. Any instance of effective leverage will be covered in 
accordance with guidance promulgated by the Commission and its 
staff.\19\ The Fund does not presently intend to engage in any form of 
borrowing for investment purposes, and will not be operated as a 
``leveraged ETF,'' i.e., it will not be operated in a manner designed 
to seek a multiple of the performance of an underlying reference index. 
The Fund will not use futures for speculative purposes, nor will the 
Fund invest in OTC equities or enter into futures contracts that are 
not traded on a U.S. exchange.
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    \19\ In re Securities Trading Practices of Investment Companies, 
Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 
25128 (April 27, 1979).
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Net Asset Value
    The Fund's administrator will calculate the Fund's net asset value 
(``NAV'') per Share as of the close of regular trading (normally 4:00 
p.m., Eastern time (``E.T.'')) on each day the New York Stock Exchange 
(``NYSE'') is open for business (a ``Business Day''). NAV per Share 
will be calculated for the Fund by deducting all of the Fund's 
liabilities from the total value of its assets and dividing the result 
by the number of Shares outstanding, rounding to the nearest cent. All 
valuations will be subject to review by the Board of Trustees of the 
Trust (``Board'') or its delegate.

[[Page 46635]]

    In determining NAV, expenses will be accrued and applied daily and 
securities and other assets for which market quotations are readily 
available will be valued at market value. Securities listed or traded 
on an exchange (including high yield Global Equities, preferred stocks, 
MLPs, REITs and warrants) will be valued at the last sale price or 
official closing price that day as of the close of the exchange on 
which such securities primarily trade. Shares of open-end registered 
investment companies (i.e., mutual funds) will be valued at net asset 
value; shares of exchange-traded investment companies (i.e., ETFs) and 
ETNs will be valued at the last sale price or official closing price on 
the exchange on which they primarily trade. Futures contracts are 
valued as of the final settlement price on the exchange on which they 
trade. Options will be valued at the closing price (and, if no closing 
price is available, at the mean of the last bid/ask quotations) from 
the exchange where such instruments principally trade. U.S. government 
securities will be valued at the mean price provided by a third party 
vendor. Illiquid securities, as well as cash and cash equivalents, 
money market funds, repurchase agreements (including reverse repurchase 
agreements) and other short-term obligations (including corporate 
commercial paper, negotiable short-term obligations of commercial 
banks, fixed time deposits, bankers acceptances and similar securities) 
will each be valued in accordance with the Trust's valuation policies 
and procedures, which have been approved by the Trust's Board.
    The NAV for the Fund will be calculated and disseminated daily. If 
an asset's market price is not readily available, the asset will be 
valued using pricing provided from independent pricing services or by 
another method that the Adviser, in its judgment, believes will better 
reflect the asset's fair value in accordance with the Trust's valuation 
policies and procedures approved by the Trust's Board and with the 1940 
Act. Fair value pricing involves subjective judgments and it is 
possible that a fair value determination for an asset may be materially 
different than the value that could be realized upon the sale of the 
asset.
Creation and Redemption of Shares
    The Trust will issue Shares of the Fund at NAV only with authorized 
participants (``APs'') and only in aggregations of 50,000 shares (each 
aggregation is called a ``Creation Unit'') or multiples thereof, on a 
continuous basis through the Distributor, without a sales load, at the 
NAV next determined after receipt, on any Business Day, of an order in 
proper form.
    The consideration an AP must provide for purchase of Creation Unit 
aggregations of the Fund may consist of (i) cash, in lieu of all or a 
portion of the Deposit Securities, as defined below, in an amount 
calculated based on the NAV per Share, multiplied by the number of 
Shares representing a Creation Unit (``Deposit Cash''), plus fixed and 
variable transaction fees; or (ii) an ``in-kind'' deposit of a 
designated portfolio of securities determined by the Adviser that 
generally will conform to the holdings of the Fund consistent with its 
investment objective (the ``Deposit Securities'') per each Creation 
Unit aggregation and generally an amount of cash (the ``Cash 
Component'') computed as described below.
    Together, the Deposit Securities and the Cash Component (including 
the cash in lieu amount) will constitute the ``Fund Deposit,'' which 
will represent the minimum initial and subsequent investment amount for 
a Creation Unit aggregation of the Fund. The Cash Component is 
sometimes also referred to as the Balancing Amount. The Cash Component 
will serve the function of compensating for any differences between the 
NAV per Creation Unit aggregation and the Deposit Amount (as defined 
below). For example, for a creation the Cash Component will be an 
amount equal to the difference between the NAV of Fund Shares (per 
Creation Unit aggregation) and the ``Deposit Amount''--an amount equal 
to the market value of the Deposit Securities and/or cash in lieu of 
all or a portion of the Deposit Securities. If the Cash Component is a 
positive number (i.e., the NAV per Creation Unit aggregation exceeds 
the Deposit Amount), the AP will deliver the Cash Component. If the 
Cash Component is a negative number (i.e., the NAV per Creation Unit 
aggregation is less than the Deposit Amount), the AP will receive the 
Cash Component.
    Shares may be redeemed only in Creation Unit aggregations at their 
NAV next determined after receipt of a redemption request in proper 
form by the Fund through the Custodian and only on a Business Day. The 
Fund will not redeem Shares in amounts less than Creation Unit 
Aggregations. APs must accumulate enough Shares in the secondary market 
to constitute a Creation Unit Aggregation in order to have such Shares 
redeemed by the Trust. The redemption proceeds for a Creation Unit 
Aggregation generally consist of (i) cash, in lieu of all or a portion 
of the Fund Securities as defined below, in an amount calculated based 
on the NAV per Share, multiplied by the number of Shares representing a 
Creation Unit, less any redemption transaction fees; or (ii) a 
designated portfolio of securities determined by the Adviser that 
generally will conform to the holdings of the Fund consistent with its 
investment objective per each Creation Unit aggregation (``Fund 
Securities'')--as announced on the Business Day of the request for 
redemption received in proper form-- plus or minus 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, less any redemption transaction fees. In 
the event that the Fund Securities have a value greater than the NAV of 
the Shares, a compensating Cash Component payment equal to the 
difference is required to be made by or through an AP by the redeeming 
shareholder.
    Creation Units of the Fund generally will be sold partially in cash 
and partially in-kind. However, the Fund also reserves the right to 
permit or require Creation Units to be issued principally in-kind or 
principally for cash. At all times, the Trust reserves the right to 
permit or require the substitution of Deposit Cash--i.e., a ``cash in 
lieu'' amount--to be added to the Cash Component to replace any Deposit 
Security that may not be available in sufficient quantity for delivery, 
or that may not be eligible for transfer or which might not be eligible 
for trading by an AP or the investor for which it is acting or other 
relevant reason.\20\
---------------------------------------------------------------------------

    \20\ Such substitutions of certain Deposit Securities are termed 
``custom orders.'' On any given Business Day, if the Fund accepts a 
custom order, the Adviser represents that the Fund will accept 
similar custom orders from all other APs on the same basis.
---------------------------------------------------------------------------

    To the extent that the Fund permits Creation Units to be issued 
principally or partially in-kind, the Custodian, through the National 
Securities Clearing Corporation (``NSCC''), will make available on each 
Business Day, prior to the opening of business of the NYSE (currently 
9:30 a.m., E.T.), the list of the names and the quantity of each 
Deposit Security to be included in the current Fund Deposit (based on 
information at the end of the previous Business Day), plus any 
estimated Cash Component, for the Fund. Such Fund Deposit will be 
applicable, subject to any adjustments as described below, to effect 
creations of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities is made available. 
Information on the specific names and holdings in a Fund

[[Page 46636]]

Deposit also will be available at www.pstrader.net.
    To the extent that the Fund permits Creation Units to be redeemed 
in-kind, the Custodian, through the NSCC, will make available on each 
Business Day, prior to the opening of business of NYSE (currently 9:30 
a.m., E.T.), the identity of the 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 may not be identical to Deposit Securities that are 
applicable to creations of Creation Unit aggregations.
    When applicable, during times that the Fund permits in-kind 
creations, the identity and quantity of the Deposit Securities required 
for a Fund Deposit for the Shares may change as rebalancing adjustments 
and corporate action events occur and are reflected within the Fund 
from time to time by the Adviser, consistent with the investment 
objective of the Fund.
    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 NSCC or 
(ii) a Depository Trust Company (``DTC'') Participant (a ``DTC 
Participant''). In addition, each Participating Party or DTC 
Participant (each, an AP) must execute an agreement that has been 
agreed to by the Distributor and the Custodian with respect to 
purchases and redemptions of Creation Units.
    All orders to create Creation Unit aggregations must be received by 
the transfer agent no later than the closing time of the regular 
trading session on the NYSE (ordinarily 4:00 p.m., E.T.) in each case 
on the date such order is placed in order for creations of Creation 
Unit aggregations to be effected based on the NAV of Shares of the Fund 
as next determined on such date after receipt of the order in proper 
form.
    In order to redeem Creation Units of the Fund, an AP must submit an 
order to redeem for one or more Creation Units. All such orders must be 
received by the Fund's transfer agent in proper form no later than the 
close of regular trading on the NYSE (ordinarily 4:00 p.m. E.T.) in 
order to receive that day's closing NAV per Share.
    The right of redemption may be suspended or the date of payment 
postponed (i) for any period during which the NYSE is closed (other 
than customary weekend and holiday closings); (ii) for any period 
during which trading on the NYSE is suspended or restricted; (iii) for 
any period during which an emergency exists as a result of which 
disposal of the Shares of the Fund or determination of the Fund's NAV 
is not reasonably practicable; or (iv) in such other circumstances as 
is permitted by the Commission.
    APs may be required to pay an administrative fee and a variable 
transaction fee for purchasing or redeeming Creation Units. Creation 
and redemption transactions for the Fund are subject to a fixed 
administrative fee of $500, payable to the Custodian, irrespective of 
the size of the order. In addition to the fixed administrative fee, the 
Custodian may impose an additional variable transaction fee of up to 
four times the fixed administrative fee. This additional administrative 
fee may be incurred for administration and settlement of (i) in-kind 
creations and redemptions effected outside the normal Clearing Process, 
and (ii) cash creations and redemptions. Finally, to the extent the 
Fund permits or requires APs to substitute cash in lieu of Deposit 
Securities, the Adviser may set additional variable fees separate from 
the fees already described that are also payable to the Fund up to 2%. 
These cash-in-lieu fees will be negotiated between the Adviser and the 
AP and are charged to offset the transaction cost to the Fund of buying 
(or selling) those particular Deposit Securities, to cover spreads and 
slippage costs and to protect existing shareholders against sudden 
movements in the prices of the portfolio investments due to market 
events. From time to time, the Adviser, in its sole discretion, may 
adjust the Fund's variable transaction fees or reimburse APs for all or 
a portion of the creation or redemption transaction fees.
Availability of Information
    The Fund's Web site (www.invescopowershares.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The 
Fund's Web site will include the ticker symbol for the Shares, CUSIP 
and exchange information, along with additional quantitative 
information updated on a daily basis, including, for the Fund: (1) 
daily trading volume, the prior Business Day's reported NAV, closing 
price and mid-point of the bid/ask spread at the time of calculation of 
such NAV (the ``Bid/Ask Price''),\21\ and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for the most recently completed calendar year and each of the 
four most recently completed calendar quarters since that year (or the 
life of the Fund if shorter). On each Business Day, before commencement 
of trading in Shares in the Regular Market Session \22\ on the 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (the 
``Disclosed Portfolio'' as such term is defined in Rule 5735(c)(2)) 
held by the Fund that will form the basis for the Fund's calculation of 
NAV at the end of the Business Day.\23\ In addition to disclosing the 
identities and quantities of the portfolio of securities and other 
assets in the Disclosed Portfolio, the Fund also will disclose on a 
daily basis on its Web site the following information, as applicable to 
the type of holding: ticker symbol, CUSIP number or other identifier, 
if any; a description of the holding (including the type of holding), 
the identity of the security or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or number 
of shares, contracts or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge. In addition, 
to the extent the Fund permits full or partial creations in-kind, a 
basket composition file, which will include the security names and 
share quantities to deliver (along with requisite cash in lieu) in 
exchange for Shares, together with estimates and actual Cash 
Components, will be publicly disseminated daily prior to the opening

[[Page 46637]]

of the Exchange via the NSCC and at www.pstrader.net. The basket will 
represent the equity component of the Shares of the Fund.
---------------------------------------------------------------------------

    \21\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \22\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
    \23\ 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.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service \24\ will be based upon 
the current value for the components of the Disclosed Portfolio and 
will be updated and widely disseminated by one or more major market 
data vendors and broadly displayed at least every 15 seconds during the 
Regular Market Session.
---------------------------------------------------------------------------

    \24\ 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.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Intra-day, executable price quotations on the securities and other 
assets held by the Fund, as well as closing price information, will be 
available from major broker-dealer firms or on the exchange on which 
they are traded, as applicable. Intra-day and closing price information 
on the securities and other assets held by the Fund also will be 
available through subscription services, such as Bloomberg, Markit and 
Thomson Reuters, which can be accessed by APs and other investors.
    Investors also will be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's Shareholder Reports, and 
its Trust's Form N-CSR and Form N-SAR, each of which is filed twice a 
year, except the SAI, which is filed at least annually. The Fund's SAI 
and Shareholder Reports will be available free upon request from the 
Trust, and those documents and the Form N-CSR and Form N-SAR may be 
viewed on-screen or downloaded from the Commission's Web site at 
www.sec.gov. Information regarding market price and trading volume of 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services. Information regarding the previous day's closing price and 
trading volume for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via Nasdaq proprietary quote and trade 
services, as well as in accordance with the Unlisted Trading Privileges 
and the Consolidated Tape Association plans for the Shares. Quotation 
and last sale information for any U.S. exchange-traded instruments will 
be available via the quote and trade service of their respective 
primary exchanges, as well as in accordance with the Unlisted Trading 
Privileges and the Consolidated Tape Association plans. Quotation and 
last sale information for any non-U.S. exchange-listed securities will 
be available from the foreign exchanges on which such securities trade 
as well as from major market data vendors. Pricing information for any 
futures contracts or options will be available via the quote and trade 
service of their respective primary exchanges. Pricing information 
related to U.S. government securities, money market mutual funds, 
commercial paper, repurchase and reverse repurchase agreements and 
other short-term investments held by the Fund will be available through 
publicly available quotation services, such as Bloomberg, Markit and 
Thomson Reuters.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, distributions and taxes, will 
be included in the Registration Statement.
Initial and Continued Listing of the Fund's Shares
    The Shares will conform to the initial and continued listing 
criteria applicable to Managed Fund Shares, as set forth under Rule 
5735. The Exchange represents that, for initial and/or continued 
listing, the Fund will be in compliance with Rule 10A-3 \25\ under the 
Exchange 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.
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts of the Fund's Shares
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading also 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 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules 
to facilitate transactions in the Shares during all trading sessions. 
As provided in 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 
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.\26\ 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.
---------------------------------------------------------------------------

    \26\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of

[[Page 46638]]

the Exchange, will communicate as needed regarding trading in the 
Shares and other exchange-traded securities (including the equity 
component securities, ETFs, ETNs and warrants) and instruments 
(including futures contracts and options) held by the Fund with other 
markets and other entities that are members of the ISG, and FINRA may 
obtain trading information regarding trading in the Shares and other 
exchange-traded securities (including the equity component securities, 
ETFs, ETNs and warrants) and instruments (including futures contracts 
and options) held by the Fund from such markets and other entities.
    In addition, the Exchange may obtain information regarding trading 
in the Shares and other exchange-traded securities (including the 
equity component securities, ETFs, ETNs and warrants) and instruments 
(including futures contracts and options) held by the Fund from markets 
and other entities that are members of ISG, which includes securities 
and futures exchanges, or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
    In addition, with regard to the Fund's investments in futures 
contracts and options, such instruments shall have their principal 
trading market be a member of ISG or a market with which the Exchange 
has a comprehensive surveillance sharing agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how 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 purchasing Shares from the Fund for resale to 
investors 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 
Exchange Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses. The Information Circular will 
also disclose the trading hours of the Shares of the Fund and the 
applicable NAV calculation time for the Shares. The Information 
Circular will disclose that information about the Shares of the Fund 
will be publicly available on the Fund's Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Exchange Act in general, and Section 6(b)(5) \27\ of the 
Exchange Act 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, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78(f)(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 Rule 5735. The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by both Nasdaq and FINRA, on behalf 
of the Exchange, which are designed to deter and detect violations of 
Exchange rules and applicable federal securities laws and are adequate 
to properly monitor trading in the Shares in all trading sessions. The 
Adviser is affiliated with a broker-dealer and has implemented a fire 
wall with respect to its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, paragraph (g) of Rule 5735 further requires 
that personnel who make decisions on an open-end fund's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
open-end fund's portfolio.
    FINRA may obtain information via ISG from other exchanges that are 
members of ISG. In addition, the Exchange may obtain information 
regarding trading in the Shares and other exchange-traded securities 
(including the equity component securities, ETFs, ETNs and warrants) 
and instruments (including futures contracts and options) held by the 
Fund from markets and other entities that are members of ISG, which 
includes securities and futures exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. The Fund 
will limit its investments in illiquid securities or other illiquid 
assets to an aggregate amount of 15% of its net assets (calculated at 
the time of investment). The holdings of the Fund will be comprised 
primarily of securities included in the Equity Component Index, VIX 
Index Related Instruments, U.S. government securities, money market 
instruments, cash and cash equivalents. The Fund will invest in U.S. 
government securities, money market instruments, cash and cash 
equivalents to provide liquidity and to collateralize its investments 
in derivative instruments. The Fund also may invest directly in ETFs 
and ETNs. The Fund will not invest in OTC equities or enter into 
futures contracts that are not traded on a U.S. exchange.
    The Fund will not use futures for speculative purposes, and its 
investments will be consistent with the Fund's investment objective. 
Additionally, the Fund may engage in frequent and active trading of 
portfolio securities to achieve its investment objective. In pursuing 
its investment objective, the Fund may utilize instruments or 
investment techniques that have a leveraging effect on the Fund. This 
effective leverage occurs when the Fund's market exposure exceeds the 
amounts actually invested. Any instance of effective leverage will be 
covered in accordance with guidance promulgated by the Commission and 
its staff.\28\ The Fund does not presently intend to engage in any form 
of borrowing for investment purposes, and will not be operated as a 
``leveraged ETF,'' i.e., it will not be operated in a manner designed 
to seek a multiple of

[[Page 46639]]

the performance of an underlying reference index. The Fund does not 
expect to enter into swap agreements, including credit default swaps, 
but may do so if such investments are in the best interests of the 
Fund's shareholders.
---------------------------------------------------------------------------

    \28\ See FN 18 [sic], supra.
---------------------------------------------------------------------------

    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 every day that 
the Fund is traded, and that the NAV and the Disclosed Portfolio will 
be made available to all market participants at the same time. In 
addition, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service, will be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Exchange's Regular Market Session. On each 
Business Day, before commencement of trading in Shares in the Regular 
Market Session on the Exchange, the Fund will disclose on its Web site 
the Disclosed Portfolio of the Fund that will form the basis for the 
Fund's calculation of NAV at the end of the Business Day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last-sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association plans 
for the Shares. Quotation and last sale information for any U.S. 
exchange-traded instruments also be available via the quote and trade 
service of their respective primary exchanges, as well as in accordance 
with the Unlisted Trading Privileges and the Consolidated Tape 
Association plans. Quotation and last sale information for any non-U.S. 
exchange-listed securities will be available from the foreign exchanges 
on which such securities trade as well as from major market data 
vendors. Pricing information for any futures contracts or options will 
be available via the quote and trade service of their respective 
primary exchanges. Pricing information related to U.S. government 
securities, money market mutual funds, commercial paper, repurchase and 
reverse repurchase agreements and other short-term investments held by 
the Fund will be available through publicly available quotation 
services, such as Bloomberg, Markit and Thomson Reuters. Intra-day and 
closing price information will be available through subscription 
services, such as Bloomberg, Markit and Thomson Reuters, which can be 
accessed by APs and other investors.
    The Fund's Web site will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, 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. Trading in Shares of the Fund will be halted under 
the conditions specified in Nasdaq Rules 4120 and 4121 or because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to 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.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Exchange 
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 Exchange Act. The Exchange 
believes that the proposed rule change 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.

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 Exchange 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-2015-085 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-2015-085. 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

[[Page 46640]]

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-2015-085 and should be submitted on or before 
August 26, 2015.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19125 Filed 8-4-15; 8:45 am]
 BILLING CODE 8011-01-P