Document ID: SEC-2018-0004-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2018-01-02T05:00Z

[Federal Register Volume 83, Number 1 (Tuesday, January 2, 2018)]
[Notices]
[Pages 186-192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28310]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82408; File No. SR-NASDAQ-2017-131]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To List and Trade the Shares 
of the Reinhart Intermediate Bond NextShares Fund

December 27, 2017.
    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 December 20, 2017, 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 list and trade under Nasdaq Rule 5745 
(Exchange-Traded Managed Fund Shares (``NextShares'')) the common 
shares (``Shares'') of the Reinhart Intermediate Bond NextShares (the 
``Fund'').

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 proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5745, which governs the listing and trading of 
exchange-traded managed fund shares, as defined in Nasdaq Rule 
5745(c)(1), on the Exchange.\3\ Managed Portfolio Series, which is 
discussed below, is registered with the Commission as an open-end 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission. The Fund is a series 
of Managed Portfolio Series and will be advised by an investment 
adviser registered under the Investment Advisers Act of 1940 
(``Advisers Act''), as described below. The Fund will be actively 
managed and will pursue the principal investment strategy noted 
below.\4\
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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).
    \4\ Additional information regarding the Fund will be available 
on the free public website for the Fund at www.reinhartfunds.com and 
in the Registration Statement for the Fund.
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I. Managed Portfolio Series
    Managed Portfolio Series is registered with the Commission as an 
open-end investment company and has filed a Registration Statement with 
the Commission.\5\ The following Fund is a series of Managed Portfolio 
Series.\6\
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    \5\ See Post-Effective Amendment number 316 to the Registration 
Statement on Form N-1A for Managed Portfolio Series dated Oct. 26, 
2017 (File Nos. 333-172080 and 811-22525). The descriptions of the 
Fund and the Shares contained herein conform to the initial 
Registration Statement.
    \6\ The Commission has issued an order granting Managed 
Portfolio Series and certain affiliates exemptive relief under the 
Investment Company Act of 1940, as amended (the ``Investment Company 
Act''). See Investment Company Act Release No. 32893 (Nov. 28, 2017) 
(File No. 812-14830).
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    Reinhart Partners, Inc. (the ``Adviser'') will be the adviser to 
the Fund. The Adviser is not a registered broker-dealer, and is not 
affiliated with a broker-dealer. Personnel who make decisions on the 
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.\7\
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    \7\ An investment adviser to an open-end fund is required to be 
registered under 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 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    In the event that (a) the Adviser registers as a broker-dealer or 
becomes newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser to the Fund is a registered broker-dealer or is 
affiliated with a broker-dealer, such adviser or sub-adviser will 
implement and will maintain a fire wall with respect to its relevant 
personnel and/or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
Fund's portfolio and will be subject to procedures designed to prevent 
the use and dissemination of material non-public information regarding 
such portfolio.
    Quasar Distributors, LLC will be the principal underwriter and 
distributor of the Fund's Shares. U.S. Bancorp Fund Services, LLC will 
act as the administrator and accounting agent to the Fund; U.S. Bancorp 
Fund Services, LLC will act as transfer agent to the Fund; and U.S. 
Bank, NA will act as custodian to the Fund.
    The Fund will be actively managed and will pursue the principal 
investment strategies described below.\8\
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    \8\ Additional information regarding the Fund will be available 
on a free public website for the Fund (www.reinhartfunds.com which 
may contain links for certain information to www.nextshares.com) and 
in the Registration Statement for the Fund.
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Reinhart Intermediate Bond NextShares
    The investment objective of the Reinhart Intermediate Bond 
NextShares is that the Fund will seek to outperform its benchmark, the 
Barclays Capital Intermediate Government/Credit Index, measured over an 
entire market cycle, while maintaining key risks (interest

[[Page 187]]

rate risk, credit risk, structure risk, and liquidity risk) similar to 
the benchmark. An entire market cycle refers to the broad economy 
transitioning from a peak in economic growth through a trough and back.
    Under normal market conditions, the Reinhart Intermediate Bond 
NextShares will invest primarily in investment grade fixed income 
securities. The Fund considers a fixed income security to be investment 
grade if it is rated within the BBB-category or better by Standard & 
Poor's Ratings Services or the Baa3 category or better by Moody's 
Investors Services, Inc., or an equivalent rating by another nationally 
recognized statistical rating organization; or, if unrated, determined 
by the Adviser to be of comparable quality.
    The Fund will normally invest within the intermediate term 
structure of the yield curve. The average-dollar weighted maturity of 
the securities in which the Fund expects to invest will generally range 
from 3 to 10 years. The Fund's investments in fixed income securities 
may include government or agency securities or obligations, corporate 
bonds, mortgage-backed securities, asset-backed securities, municipal 
bonds, revenue bonds, variable and floating rate securities, zero 
coupon bonds and collateralized mortgage obligations (``CMOs''). 
Normally, the Reinhart Intermediate Bond NextShares will invest at 
least 80% of its total assets in fixed income securities.
Creations and Redemptions of Shares
    Shares will be issued and redeemed on a daily basis at the Fund's 
next-determined net asset value (``NAV'') \9\ in specified blocks of 
Shares called ``Creation Units.'' A Creation Unit will consist of at 
least 25,000 Shares. Creation Units may be purchased and redeemed by or 
through ``Authorized Participants.'' \10\ Purchases and sales of Shares 
in amounts less than a Creation Unit may be effected only in the 
secondary market, as described below, and not directly with the Fund.
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    \9\ As with other registered open-end investment companies, NAV 
generally will be calculated daily (on each day the New York Stock 
Exchange is open for trading), as of 4:00 p.m. Eastern Time. NAV 
will be calculated by dividing the Fund's net asset value by the 
number of Shares outstanding. Information regarding the valuation of 
investments in calculating the Fund's NAV will be contained in the 
Registration Statement for its Shares.
    \10\ ``Authorized Participants'' will be either: (1) 
``participating parties,'' i.e., brokers or other participants in 
the Continuous Net Settlement System (``CNS System'') of the 
National Securities Clearing Corporation (``NSCC''), a clearing 
agency registered with the Commission and affiliated with the 
Depository Trust Company (``DTC''), or (2) DTC participants, which 
in either case have executed participant agreements with the Fund's 
distributor, and which have been acknowledged by the transfer agent, 
regarding the creation and redemption of Creation Units. Investors 
will not have to be Authorized Participants in order to transact in 
Creation Units, but must place an order through and make appropriate 
arrangements with an Authorized Participant for such transactions.
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    The creation and redemption process for the Fund may be effected 
``in kind,'' in cash, or in a combination of securities and cash. 
Creation ``in kind'' means that an Authorized Participant--usually a 
brokerage house or large institutional investor--purchases the Creation 
Unit with a basket of securities equal in value to the aggregate NAV of 
the Shares in the Creation Unit. When an Authorized Participant redeems 
a Creation Unit in kind, it receives a basket of securities equal in 
value to the aggregate NAV of the Shares in the Creation Unit.\11\
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    \11\ In compliance with Nasdaq Rule 5745(b)(5), which applies to 
Shares based on an international or global portfolio, Managed 
Portfolio Series' application for exemptive relief under the 
Investment Company Act states that Managed Portfolio Series will 
comply with the federal securities laws in accepting securities for 
deposits and satisfying redemptions with securities, including that 
the securities accepted for deposits and the securities used to 
satisfy redemption requests are sold in transactions that would be 
exempt from registration under the Securities Act of 1933, as 
amended (15 U.S.C. 77a).
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Composition File
    As defined in Nasdaq Rule 5745(c)(3), the Composition File is the 
specified portfolio of securities and/or cash that the Fund will accept 
as a deposit in issuing a Creation Unit of Shares, and the specified 
portfolio of securities and/or cash that the Fund will deliver in a 
redemption of a Creation Unit of Shares. The Composition File will be 
disseminated through the NSCC once each business day before the open of 
trading in Shares on such day and also will be made available to the 
public each day on a free public website.\12\ Because the Fund will 
seek to preserve the confidentiality of its current portfolio trading 
program, the Fund's Composition File generally will not be a pro rata 
reflection of the Fund's investment positions.
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    \12\ The free public website containing the Composition File 
will be www.nextshares.com.
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    Each security included in the Composition File will be a current 
holding of the Fund, but the Composition File generally will not 
include all of the securities in the Fund's portfolio or match the 
weightings of the included securities in the portfolio. Securities that 
the Adviser is in the process of acquiring for the Fund generally will 
not be represented in the Fund's Composition File until their purchase 
has been completed. Similarly, securities that are held in the Fund's 
portfolio but in the process of being sold may not be removed from its 
Composition File until the sale program is substantially completed. To 
the extent that the Fund creates or redeems Shares in kind, it will use 
cash amounts to supplement the in-kind transactions to the extent 
necessary to ensure that Creation Units are purchased and redeemed at 
NAV. The Composition File also may consist entirely of cash, in which 
case it will not include any of the securities in the Fund's 
portfolio.\13\
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    \13\ In determining whether the Fund will issue or redeem 
Creation Units entirely on a cash basis, the key consideration will 
be the benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution for the Fund than Authorized Participants because 
of the Adviser's size, experience and potentially stronger 
relationships in the fixed-income markets.
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Transaction Fees
    All persons purchasing or redeeming Creation Units are expected to 
incur a transaction fee to cover the estimated cost to the Fund of 
processing the transaction, including the costs of clearance and 
settlement charged to it by NSCC or DTC, and the estimated trading 
costs (i.e., brokerage commissions, bid-ask spread and market impact) 
to be incurred in converting the Composition File to or from the 
desired portfolio holdings. The transaction fee is determined daily and 
will be limited to amounts approved by the board of trustees of the 
Fund and determined by the Adviser to be appropriate to defray the 
expenses that the Fund incurs in connection with the purchase or 
redemption of Creation Units.
    The purpose of transaction fees is to protect the Fund's existing 
shareholders from the dilutive costs associated with the purchase and 
redemption of Creation Units. Transaction fees may vary over time for 
the Fund depending on the estimated trading costs for its portfolio 
positions and Composition File, processing costs and other 
considerations. To the extent that the Fund specifies greater amounts 
of cash in its Composition File, it may impose higher transaction fees. 
In addition, to the extent that the Fund includes in its Composition 
File instruments that clear through DTC, the Fund may impose higher 
transaction fees than when the Composition File consists solely of 
instruments that clear through NSCC, because DTC may charge more than 
NSCC in connection with Creation Unit transactions.\14\ The transaction 
fees

[[Page 188]]

applicable to the Fund's purchases and redemptions on a given business 
day will be disseminated through the NSCC prior to the open of market 
trading on that day and also will be made available to the public each 
day on a free public website.\15\ In all cases, the transaction fees 
will be limited in accordance with the requirements of the Commission 
applicable to open-end management investment companies offering 
redeemable securities.
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    \14\ Authorized Participants that participate in the CNS System 
of the NSCC are expected to be able to use the enhanced NSCC/CNS 
process for effecting in-kind purchases and redemptions of Shares 
(the ``NSCC Process'') to purchase and redeem Creation Units of the 
Fund that limits the composition of its basket to include only NSCC 
Process-eligible instruments (generally domestic equity securities 
and cash). Because the NSCC Process is generally more efficient than 
the DTC clearing process, NSCC is likely to charge the Fund less 
than DTC to settle purchases and redemptions of Creation Units.
    \15\ The free public website will be www.nextshares.com.
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NAV-Based Trading
    Because Shares will be listed and traded on the Exchange, Shares 
will be available for purchase and sale on an intraday basis. Shares 
will be purchased and sold in the secondary market at prices directly 
linked to the Fund's next-determined NAV using a new trading protocol 
called ``NAV-Based Trading.'' \16\ All bids, offers and execution 
prices of Shares will be expressed as a premium/discount (which may be 
zero) to the Fund's next-determined NAV (e.g., NAV-$0.01, NAV + $0.01). 
The Fund's NAV will be determined daily (on each day the New York Stock 
Exchange is open for trading), as of 4:00 p.m. Eastern Time. Trade 
executions will be binding at the time orders are matched on Nasdaq's 
facilities, with the transaction prices contingent upon the 
determination of NAV.
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    \16\ Aspects of NAV-Based Trading are protected intellectual 
property subject to issued and pending U.S. patents held by 
NextShares Solutions LLC (``NextShares Solutions''), a wholly owned 
subsidiary of Eaton Vance Corp. Nasdaq has entered into a license 
agreement with NextShares Solutions to allow for NAV-Based Trading 
on the Exchange of exchange-traded managed funds that have 
themselves entered into license agreements with NextShares 
Solutions.
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Trading Premiums and Discounts
    Bid and offer prices for Shares will be quoted throughout the day 
relative to NAV. The premium or discount to NAV at which Share prices 
are quoted and transactions are executed will vary depending on market 
factors, including the balance of supply and demand for Shares among 
investors, transaction fees and other costs in connection with creating 
and redeeming Creation Units of Shares, the cost and availability of 
borrowing Shares, competition among market makers, the Share inventory 
positions and inventory strategies of market makers, the profitability 
requirements and business objectives of market makers, and the volume 
of Share trading. Reflecting such market factors, prices for Shares in 
the secondary market may be above, at or below NAV. A fund with higher 
transaction fees may trade at wider premiums or discounts to NAV than 
other funds with lower transaction fees, reflecting the added costs to 
market makers of managing their Share inventory positions through 
purchases and redemptions of Creation Units.
    Because making markets in Shares will be simple to manage and low 
risk, competition among market makers seeking to earn reliable, low-
risk profits should enable the Shares to routinely trade at tight bid-
ask spreads and narrow premiums/discounts to NAV. As noted below, the 
Fund will make available on a free public website that will be updated 
on a daily basis current and historical trading spreads and premiums/
discounts of Shares trading in the secondary market.\17\
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    \17\ The free public website containing this information will be 
www.nextshares.com, which will be available directly and through a 
link from www.reinhartfunds.com.
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    Transmitting and Processing Orders. Member firms will utilize 
certain existing order types and interfaces to transmit Share bids and 
offers to Nasdaq, which will process Share trades like trades in shares 
of other listed securities.\18\ In the systems used to transmit and 
process transactions in Shares, the Fund's next-determined NAV will be 
represented by a proxy price (e.g., 100.00) and a premium/discount of a 
stated amount to the next-determined NAV to be represented by the same 
increment/decrement from the proxy price used to denote NAV (e.g., NAV-
$0.01 would be represented as 99.99; NAV + $0.01 as 100.01).
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    \18\ As noted below, all orders to buy or sell Shares that are 
not executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. Prior to the 
commencement of trading in the Fund, the Exchange will inform its 
members in an Information Circular of the effect of this 
characteristic on existing order types.
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    To avoid potential investor confusion, Nasdaq will work with member 
firms and providers of market data services to seek to ensure that 
representations of intraday bids, offers and execution prices of Shares 
that are made available to the investing public follow the ``NAV-$0.01/
NAV + $0.01'' (or similar) display format. Shares listed on the 
Exchange will have a unique identifier associated with its ticker 
symbol, which would indicate that the Shares are traded using NAV-Based 
Trading. Nasdaq makes available to member firms and market data 
services certain proprietary data feeds that are designed to supplement 
the market information disseminated through the consolidated tape 
(``Consolidated Tape'').
    Specifically, the Exchange will use the Nasdaq Basic and Nasdaq 
Last Sale data feeds to disseminate intraday price and quote data for 
Shares in real time in the ``NAV-$0.01/NAV + $0.01'' (or similar) 
display format. Member firms could use the Nasdaq Basic and Nasdaq Last 
Sale data feeds to source intraday Share prices for presentation to the 
investing public in the ``NAV-$0.01/NAV + $0.01'' (or similar) display 
format. Alternatively, member firms could source intraday Share prices 
in proxy price format from the Consolidated Tape and other Nasdaq data 
feeds (e.g., Nasdaq TotalView and Nasdaq Level 2) and use a simple 
algorithm to convert prices into the ``NAV-$0.01/NAV + $0.01'' (or 
similar) display format. As noted below, prior to the commencement of 
trading in the Fund, the Exchange will inform its members in an 
Information Circular of the identities of the specific Nasdaq data 
feeds from which intraday Share prices in proxy price format may be 
obtained.
    Intraday Reporting of Quotes and Trades. All bids and offers for 
Shares and all Share trade executions will be reported intraday in real 
time by the Exchange to the Consolidated Tape \19\ and separately 
disseminated to member firms and market data services through the 
Exchange data feeds listed above. The Exchange will also provide the 
member firms participating in each Share trade with a contemporaneous 
notice of trade execution, indicating the number of Shares bought or 
sold and the executed premium/discount to NAV.\20\
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    \19\ Due to systems limitations, the Consolidated Tape will 
report intraday execution prices and quotes for Shares using a proxy 
price format. As noted, Nasdaq will separately report real-time 
execution prices and quotes to member firms and providers of market 
data services in the ``NAV-$0.01/NAV + $0.01'' (or similar) display 
format, and otherwise seek to ensure that representations of 
intraday bids, offers and execution prices for Shares that are made 
available to the investing public follow the same display format.
    \20\ All orders to buy or sell Shares that are not executed on 
the day the order is submitted will be automatically cancelled as of 
the close of trading on such day.
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    Final Trade Pricing, Reporting and Settlement. All executed Share 
trades will be recorded and stored intraday by Nasdaq to await the 
calculation of the Fund's end-of- day NAV and the determination of 
final trade pricing. After the Fund's NAV is calculated and provided to 
the Exchange, Nasdaq will price each Share trade entered into

[[Page 189]]

during the day at the Fund's NAV plus/minus the trade's executed 
premium/discount. Using the final trade price, each executed Share 
trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.\21\ After the pricing is finalized, Nasdaq will deliver the 
Share trading data to NSCC for clearance and settlement, following the 
same processes used for the clearance and settlement of trades in other 
exchange-traded securities.
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    \21\ File Transfer Protocol (``FTP'') is a standard network 
protocol used to transfer computer files on the internet. Nasdaq 
will arrange for the daily dissemination of an FTP file with 
executed Share trades to member firms and market data services.
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Availability of Information
    Prior to the commencement of market trading in Shares, the Fund 
will be required to establish and maintain a free public website 
through which its current prospectus may be downloaded.\22\ The free 
public website will include directly or through a link additional Fund 
information updated on a daily basis, including the prior business 
day's NAV, and the following trading information for such business day 
expressed as premiums/discounts to NAV: (a) Intraday high, low, average 
and closing prices of Shares in Exchange trading; (b) the midpoint of 
the highest bid and lowest offer prices as of the close of Exchange 
trading, expressed as a premium/discount to NAV (the ``Closing Bid/Ask 
Midpoint''); and (c) the spread between highest bid and lowest offer 
prices as of the close of Exchange trading (the ``Closing Bid/Ask 
Spread.'').\23\ The free public website will also contain charts 
showing the frequency distribution and range of values of trading 
prices, Closing Bid/Ask Midpoints and Closing Bid/Ask Spreads over 
time.
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    \22\ The free public website containing this information will be 
www.reinhartfunds.com.
    \23\ The free public website containing the Fund's NAV will be 
www.reinhartfunds.com. All other information listed will be made 
available on www.nextshares.com, which can be accessed directly and 
via a link on www.reinhartfunds.com.
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    The Composition File will be disseminated through the NSCC before 
the open of trading in Shares on each business day and also will be 
made available to the public each day on a free public website as noted 
above.\24\ Consistent with the disclosure requirements that apply to 
traditional open-end investment companies, a complete list of current 
Fund portfolio positions will be made available at least once each 
calendar quarter, with a reporting lag of not more than 60 days. The 
Fund may provide more frequent disclosures of portfolio positions at 
its discretion.
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    \24\ The free public website containing this information will be 
www.nextshares.com.
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    Reports of Share transactions will be disseminated to the market 
and delivered to the member firms participating in the trade 
contemporaneous with execution. Once the Fund's daily NAV has been 
calculated and disseminated, Nasdaq will price each Share trade entered 
into during the day at the Fund's NAV plus/minus the trade's executed 
premium/discount. Using the final trade price, each executed Share 
trade will then be disseminated to member firms and market data 
services via an FTP file to be created for exchange-traded managed 
funds and confirmed to the member firms participating in the trade to 
supplement the previously provided information to include final 
pricing.
    Information regarding NAV-based trading prices, best bids and 
offers for Shares, and volume of Shares traded will be continuously 
available on a real-time basis throughout each trading day on brokers' 
computer screens and other electronic services.
Initial and Continued Listing
    Shares will conform to the initial and continued listing criteria 
as set forth under Nasdaq Rule 5745. A minimum of 50,000 Shares and no 
less than two Creation Units of the Fund 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 (on each day the New York Stock Exchange is 
open for trading) and provided to Nasdaq via the Mutual Fund Quotation 
Service (''MFQS'') by the fund accounting agent. As soon as the NAV is 
entered into MFQS, Nasdaq will disseminate the NAV to market 
participants and market data vendors via the Mutual Fund Dissemination 
Service (``MFDS'') so all firms will receive the NAV per Share at the 
same time. The Reporting Authority \25\ also will implement and 
maintain, or will ensure that the Composition File will be subject to, 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Fund's portfolio positions and 
changes in the positions.
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    \25\ See Nasdaq Rule 5745(c)(4).
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    An estimated value of an individual Share, defined in Nasdaq Rule 
5745(c)(2) as the ``Intraday Indicative Value,'' will be calculated and 
disseminated at intervals of not more than 15 minutes throughout the 
Regular Market Session \26\ when Shares trade on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the IIV for the Fund will be calculated on an intraday basis and 
provided to Nasdaq for dissemination via the Nasdaq Global Index 
Service (``GIDS'').
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    \26\ 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. Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m. Eastern Time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m. Eastern Time).
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    The IIV for the Fund will be based on current information regarding 
the value of the securities and other assets held by the Fund.\27\ The 
purpose of the IIV for the Fund is to enable investors to estimate the 
next-determined NAV so they can determine the number of Shares to buy 
or sell if they want to transact in an approximate dollar amount (e.g., 
if an investor wants to acquire approximately $5,000 of the Fund, how 
many Shares should the investor buy?).\28\
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    \27\ IIVs for the Fund disseminated throughout each trading day 
would be based on the same portfolio as used to calculate that day's 
NAV. The Fund will reflect purchases and sales of portfolio 
positions in its NAV the next business day after trades are 
executed.
    \28\ Because, in NAV-Based Trading, prices of executed trades 
are not determined until the reference NAV is calculated, buyers and 
sellers of Shares during the trading day will not know the final 
value of their purchases and sales until the end of the trading day. 
The Fund's Registration Statement, free public website and any 
advertising or marketing materials will include prominent disclosure 
of this fact. Although the IIV for the Fund may provide useful 
estimates of the value of intraday trades, they cannot be used to 
calculate with precision the dollar value of the Shares to be bought 
or sold.
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    The Adviser is not a registered broker-dealer, or affiliated with a 
broker-dealer. Personnel who make decisions on the 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.
    In the event that (a) the Adviser registers as a broker-dealer or 
becomes newly affiliated with a 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, such adviser or sub-adviser will 
implement and will maintain a fire wall with respect to its relevant 
personnel and/or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
Fund's portfolio and will be subject to procedures designed to prevent 
the use and

[[Page 190]]

dissemination of material non- public information regarding such 
portfolio.
Trading Halts
    The Exchange may consider all relevant factors in exercising its 
discretion to halt or suspend trading in Shares. Nasdaq will halt 
trading in Shares under the conditions specified in Nasdaq Rules 4120 
and in Nasdaq Rule 5745(d)(2)(C). Additionally, Nasdaq may cease 
trading Shares if other unusual conditions or circumstances exist 
which, in the opinion of Nasdaq, make further dealings on Nasdaq 
detrimental to the maintenance of a fair and orderly market. To manage 
the risk of a non-regulatory Share trading halt, Nasdaq has in place 
back-up processes and procedures to ensure orderly trading.
    Because, in NAV-Based Trading, all trade execution prices are 
linked to end-of-day NAV, buyers and sellers of Shares should be less 
exposed to risk of loss due to intraday trading halts than buyers and 
sellers of conventional exchange-traded funds (``ETFs'') and other 
exchange-traded securities.
    Every order to trade Shares of the Fund is subject to the proxy 
price protection threshold of plus/minus $1.00, which determines the 
lower and upper threshold for the life of the order and whereby the 
order will be cancelled at any point if it exceeds $101.00 or falls 
below $99.00, the established thresholds.\29\ With certain exceptions, 
each order also must contain the applicable order attributes, including 
routing instructions and time-in-force information, as described in 
Nasdaq Rule 4703.\30\
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    \29\ See Nasdaq Rule 5745(h).
    \30\ See Nasdaq Rule 5745(b)(6).
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Trading Rules
    Nasdaq deems Shares to be equity securities, thus rendering trading 
in Shares subject to Nasdaq's existing rules governing the trading of 
equity securities. Nasdaq will allow trading in Shares from 9:30 a.m. 
until 4:00 p.m. Eastern Time.
Surveillance
    The Exchange represents that trading in Shares will be subject to 
the existing trading surveillances, administered by both Nasdaq and the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\31\ The Exchange represents 
that these procedures are adequate to properly monitor trading of 
Shares on the Exchange and to deter and detect violations of Exchange 
rules and applicable federal securities laws.
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    \31\ FINRA provides surveillance of trading on the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed with 
other markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG'') \32\ regarding trading in Shares, and in 
exchange-traded securities and instruments held by the Fund (to the 
extent such exchange-traded securities and instruments are known 
through the publication of the Composition File and periodic public 
disclosures of the Fund's portfolio holdings), and FINRA may obtain 
trading information regarding such trading from other markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in Shares, and in exchange-traded securities and instruments 
held by the Fund (to the extent such exchange-traded securities and 
instruments are known through the publication of the Composition File 
and periodic public disclosures of the Fund's portfolio holdings), from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, will be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE'').\33\
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    \32\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Fund's portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
    \33\ For municipal securities, trade information can generally 
be found on the Electronic Municipal Market Access (``EMMA'') of the 
Municipal Securities Rulemaking Board (``MSRB'').
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    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 in the Fund, the Exchange will 
inform its members in an Information Circular of the special 
characteristics and risks associated with trading the Shares of the 
Fund. Specifically, the Information Circular will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Units (and noting that Shares are not individually 
redeemable); (2) Nasdaq Rule 2111A, which imposes suitability 
obligations on Nasdaq members with respect to recommending transactions 
in Shares to customers; (3) how information regarding the IIV and 
Composition File is disseminated; (4) the requirement that members 
deliver a prospectus to investors purchasing Shares prior to or 
concurrently with the confirmation of a transaction; and (5) 
information regarding NAV-Based Trading protocols.
    As noted above, all orders to buy or sell Shares that are not 
executed on the day the order is submitted will be automatically 
cancelled as of the close of trading on such day. The Information 
Circular will discuss the effect of this characteristic on existing 
order types. The Information Circular also will identify the specific 
Nasdaq data feeds from which intraday Share prices in proxy price 
format may be obtained.
    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 summary prospectus to such 
investors. The Information Circular will also discuss any exemptive, 
no-action and interpretive relief granted by the Commission from any 
rules under the Act.
    The Information Circular also will reference that the Fund is 
subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares will be publicly available on the Fund's free public 
website.\34\
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    \34\ See supra footnote 23.
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    Information regarding Fund trading protocols will be disseminated 
to Nasdaq members in accordance with current processes for newly listed 
products. Nasdaq intends to provide its members with a detailed 
explanation of NAV-Based Trading through a Trader

[[Page 191]]

Alert issued prior to the commencement of trading in Shares on the 
Exchange.
Continued Listing Representations
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference assets, (b) 
limitations on portfolio holdings or reference assets, (c) 
dissemination and availability of the reference asset or intraday 
indicative values, or (d) the applicability of Exchange listing rules 
shall constitute continued listing requirements for listing the Shares 
on the Exchange. In addition, the issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under the Nasdaq 5800 
Series.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\35\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\36\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares would be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5745. The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of Shares on Nasdaq and to deter and 
detect violations of Exchange rules and the applicable federal 
securities laws. The Adviser is not a registered broker-dealer, and is 
not affiliated with a broker-dealer. Personnel who make decisions on 
the 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.
    In the event that (a) the Adviser registers as a broker-dealer or 
becomes newly affiliated with a 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, such adviser or sub-adviser will 
implement and will maintain a fire wall with respect to its relevant 
personnel and/or such broker-dealer affiliate, as applicable, regarding 
access to information concerning the composition and/or changes to the 
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 Exchange may obtain information via ISG from other exchanges 
that are members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. Moreover, FINRA, on 
behalf of the Exchange, will be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's TRACE.\37\
---------------------------------------------------------------------------

    \37\ See supra footnote 33.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
The Exchange will obtain a representation from the issuer of Shares 
that the NAV per Share will be calculated daily (on each day the New 
York Stock Exchange is open for trading) and provided to Nasdaq via the 
MFQS by the fund accounting agent. As soon as the NAV is entered into 
MFQS, Nasdaq will disseminate the NAV to market participants and market 
data vendors via MFDS so all firms will receive the NAV per Share at 
the same time. In addition, a large amount of information would be 
publicly available regarding the Fund and the Shares, thereby promoting 
market transparency.
    Prior to the commencement of market trading in Shares, the Fund 
will be required to establish and maintain a free public website 
through which its current prospectus may be downloaded.\38\ The free 
public website will include directly or through a link additional Fund 
information updated on a daily basis, including the prior business 
day's NAV, and the following trading information for such business day 
expressed as premiums/discounts to NAV: (a) Intraday high, low, average 
and closing prices of Shares in Exchange trading; (b) the Closing Bid/
Ask Midpoint; and (c) the Closing Bid/Ask Spread.\39\ The free public 
website will also contain charts showing the frequency distribution and 
range of values of trading prices, Closing Bid/Ask Midpoints and 
Closing Bid/Ask Spreads over time.
---------------------------------------------------------------------------

    \38\ See supra footnote 22.
    \39\ See supra footnote 23.
---------------------------------------------------------------------------

    The Composition File will be disseminated through the NSCC before 
the open of trading in Shares on each business day and also will be 
made available to the public each day on a free public website.\40\ An 
estimated value of an individual Share, defined in Nasdaq Rule 
5745(c)(2) as the ``Intraday Indicative Value,'' will be calculated and 
disseminated at intervals of not more than 15 minutes throughout the 
Regular Market Session \41\ when Shares trade on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the IIV for the Fund will be calculated on an intraday basis and 
provided to Nasdaq for dissemination via GIDS. A complete list of 
current portfolio positions for the Fund will be made available at 
least once each calendar quarter, with a reporting lag of not more than 
60 days. The Fund may provide more frequent disclosures of portfolio 
positions at its discretion.
---------------------------------------------------------------------------

    \40\ See supra footnote 12.
    \41\ See supra footnote 26.
---------------------------------------------------------------------------

    Transactions in Shares will be reported to the Consolidated Tape at 
the time of execution in proxy price format and will be disseminated to 
member firms and market data services through Nasdaq's trading service 
and market data interfaces, as defined above. Once the Fund's daily NAV 
has been calculated and the final price of its intraday Share trades 
has been determined, Nasdaq will deliver a confirmation with final 
pricing to the transacting parties. At the end of the day, Nasdaq will 
also post a newly created FTP file with the final transaction data for 
the trading and market data services. Information regarding NAV-based 
trading prices, best bids and offers for Shares, and volume of Shares 
traded will be continuously available on a real-time basis throughout 
each trading day on brokers' computer screens and other electronic 
services. Because Shares will trade at prices based on the next-
determined NAV, investors will be able to buy and sell individual 
Shares at a known premium or discount to NAV that they can limit by 
transacting using limit orders at the time of order entry. Trading in 
Shares will be subject to Nasdaq Rules 5745(d)(2)(B) and (C), which 
provide for the suspension of trading or trading halts under certain 
circumstances, including if, in the view of the Exchange, trading in 
Shares becomes inadvisable.

[[Page 192]]

    Every order to trade Shares of the Fund is subject to the proxy 
price protection threshold of plus/minus $1.00, which determines the 
lower and upper threshold for the life of the order and whereby the 
order will be cancelled at any point if it exceeds $101.00 or falls 
below $99.00, the established thresholds. With certain exceptions, each 
order also must contain the applicable order attributes, including 
routing instructions and time-in-force information, as described in 
Nasdaq Rule 4703.
    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 
the Fund, which will seek to provide investors with access to actively 
managed investment strategies in a structure that offers the cost and 
tax efficiencies and shareholder protections of ETFs, while removing 
the requirement for daily portfolio holdings disclosure, and is 
designed to ensure a tight relationship between market trading prices 
and NAV.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the introduction of the Fund would promote 
competition by making available to investors actively managed 
investment strategies in a structure that offers the cost and tax 
efficiencies and shareholder protections of ETFs, while removing the 
requirement for daily portfolio holdings disclosure, and is designed to 
ensure a tight relationship between market trading prices and NAV. 
Moreover, the Exchange believes that the proposed method of Share 
trading would provide investors with transparency of trading costs, and 
the ability to control trading costs using limit orders, that is not 
available for conventionally traded ETFs.
    These developments could significantly enhance competition to the 
benefit of the markets and investors.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2017-131 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-2017-131. 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 No. SR-NASDAQ-2017-131 and should be submitted on 
or before January 23, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-28310 Filed 12-29-17; 8:45 am]
 BILLING CODE 8011-01-P