Document ID: SEC-2016-0039-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2016-01-08T05:00Z

[Federal Register Volume 81, Number 5 (Friday, January 8, 2016)]
[Notices]
[Pages 978-986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-103]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76817; File No. SR-NASDAQ-2015-161]

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 First Trust RiverFront Dynamic Europe ETF, 
First Trust RiverFront Dynamic Asia Pacific ETF, First Trust RiverFront 
Dynamic Emerging Markets ETF, and the First Trust RiverFront Dynamic 
Developed International ETF of First Trust Exchange-Traded Fund III

January 4, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 22, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the following under 
Nasdaq Rule 5735 (``Managed Fund Shares''): \3\ First Trust RiverFront 
Dynamic Europe ETF (the ``Europe Fund''); First Trust RiverFront 
Dynamic Asia Pacific ETF (the ``Asia Pacific Fund''); First Trust 
RiverFront Dynamic Emerging Markets ETF (the ``Emerging Markets 
Fund''); and First Trust RiverFront Dynamic Developed International ETF 
(the ``Developed International Fund''). The Europe Fund, Asia Pacific 
Fund, Emerging Markets Fund and Developed

[[Page 979]]

International Fund are each a ``Fund'' and collectively, the ``Funds.'' 
Each Fund is a series of First Trust Exchange-Traded Fund III (the 
``Trust''). The shares of each Fund are collectively referred to herein 
as the ``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively 
managed funds listed on the Exchange; see, e.g., Securities Exchange 
Act Release Nos. 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014) 
(SR-NASDAQ-2014-050) (order approving listing and trading of First 
Trust Strategic Income ETF); 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). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
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    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.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of each Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. Each Fund will be an actively 
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Massachusetts business trust on 
January 9, 2008.\5\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ Each Fund will be 
a series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \5\ The Commission has issued an order, upon which the Trust may 
rely, granting certain exemptive relief under the 1940 Act. See 
Investment Company Act Release No. 28468 (October 27, 2008) (File 
No. 812-13477) (the ``Exemptive Relief'').
    \6\ See Post-Effective Amendment No. 29 to Registration 
Statement on Form N-1A for the Trust, dated November 19, 2015 (File 
Nos. 333-176976 and 811-22245). The descriptions of the Funds and 
the Shares contained herein are based, in part, on information in 
the Registration Statement.
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    First Trust Advisors L.P. will be the investment adviser 
(``Adviser'') to the Funds. RiverFront Investment Group, LLC will serve 
as investment sub-adviser (``Sub-Adviser'') to the Funds and provide 
day-to-day portfolio management. First Trust Portfolios L.P. (the 
``Distributor'') will be the principal underwriter and distributor of 
each Fund's Shares. Brown Brothers Harriman & Co. (``BBH'') will act as 
the administrator, accounting agent, custodian and transfer agent to 
the Funds.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, paragraph 
(g) further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the open-end fund's portfolio. Rule 5735(g) is similar to 
Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in connection with 
the establishment of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds. Neither the Adviser nor the Sub-Adviser is a broker-dealer, 
although the Adviser is affiliated with the Distributor, a broker-
dealer, and the Sub-Adviser is affiliated with Robert W. Baird & Co. 
Incorporated, a broker-dealer, and each has implemented a fire wall 
with respect to its respective broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to a 
portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser, the Sub-Adviser and their 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 addition, personnel who make decisions on each Fund's portfolio 
composition will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
Fund's portfolio. In the event (a) the Adviser or the Sub-Adviser 
registers as a broker-dealer, or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with another broker-dealer, it will 
implement 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 a portfolio 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
    Each Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
Principal Investment Strategies Applicable to Each Fund
    Each Fund's investment objective will be to provide capital 
appreciation. Under normal market conditions,\8\ each Fund will seek to 
achieve its investment objective by investing at least 80% of its net 
assets (including investment borrowings) in a combination of (i)

[[Page 980]]

``Principal Fund Equity Securities'' (as defined below), (ii) forward 
currency contracts and non-deliverable forward currency contracts \9\ 
(collectively, ``Forward Contracts''), and (iii) currency transactions 
on a spot (i.e., cash) basis.\10\
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    \8\ 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. On a temporary 
basis, including for defensive purposes, during the initial invest-
up period and during periods of high cash inflows or outflows, a 
Fund may depart from its principal investment strategies; for 
example, it may hold a higher than normal proportion of its assets 
in cash. During such periods, a Fund may not be able to achieve its 
investment objective. A Fund may adopt a defensive strategy when the 
Adviser and/or the Sub-Adviser believes securities in which such 
Fund normally invests have elevated risks due to political or 
economic factors and in other extraordinary circumstances.
    \9\ A non-deliverable forward currency contract is a forward 
currency contract where there is no physical settlement of the two 
currencies at maturity. Instead, a net cash payment is made by one 
party to another based on the movement of the two currencies.
    \10\ A Fund would enter into Forward Contracts and/or currency 
spot transactions for hedging purposes.
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    For each Fund, (a) ``Principal Equity Securities'' will consist of 
the following U.S. and non-U.S. exchange-listed securities: (i) Common 
stocks; (ii) common and preferred shares of real estate investment 
trusts (``REITs''); \11\ and (iii) American Depositary Receipts 
(``ADRs''), European Depositary Receipts (``EDRs''), and Global 
Depositary Receipts (``GDRs'' and, together with ADRs and EDRs, 
``Depositary Receipts'' \12\), and (b) ``Principal Fund Equity 
Securities'' will consist of Principal Equity Securities that are 
suggested by such Fund's name.\13\ Accordingly:
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    \11\ A REIT is a company that owns and typically operates 
income-producing real estate or related assets.
    \12\ Depositary Receipts are receipts, typically issued by a 
bank or trust company, which evidence ownership of underlying 
securities issued by a foreign entity. The Funds will not invest in 
any unsponsored Depositary Receipts.
    \13\ For the avoidance of doubt, with respect to Depositary 
Receipts, whether such Principal Equity Securities are Principal 
Fund Equity Securities is based on the underlying securities, the 
ownership of which is represented by the Depositary Receipts (i.e., 
whether, as described below, the relevant underlying security is a 
security of a European company, an Asian Pacific company, an 
emerging market company or a developed market company, as 
applicable).
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    (i) For the Europe Fund, Principal Fund Equity Securities will be 
Principal Equity Securities of European companies; \14\
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    \14\ European companies are those companies (i) whose securities 
are traded principally on a stock exchange in a European country, 
(ii) that are organized under the laws of or have a principal office 
in a European country, or (iii) that have at least 50% of their 
assets in, or derive at least 50% of their revenues or profits from, 
a European country.
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    (ii) for the Asia Pacific Fund, Principal Fund Equity Securities 
will be Principal Equity Securities of Asian Pacific companies; \15\
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    \15\ Asian Pacific companies are those companies (i) whose 
securities are traded principally on a stock exchange in an Asian 
Pacific country, (ii) that are organized under the laws of or have a 
principal office in an Asian Pacific country, or (iii) that have at 
least 50% of their assets in, or derive at least 50% of their 
revenues or profits from, an Asian Pacific country.
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    (iii) for the Emerging Markets Fund, Principal Fund Equity 
Securities will be Principal Equity Securities of emerging market 
companies; \16\ and
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    \16\ An emerging market company is one (i) domiciled or with a 
principal place of business or primary securities trading market in 
an emerging market country, or (ii) that derives a substantial 
portion of its total revenues or profits from emerging market 
countries.
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    (iv) for the Developed International Fund, Principal Fund Equity 
Securities will be Principal Equity Securities of developed market 
companies.\17\
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    \17\ Developed market companies are those companies (i) whose 
securities are traded principally on a stock exchange in a developed 
market country, (ii) that are organized under the laws of or have a 
principal office in a developed market country, or (iii) that have 
at least 50% of their assets in, or derive at least 50% of their 
revenues or profits from, a developed market country.
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    In selecting securities for a Fund, the Sub-Adviser will score 
individual securities from a portfolio of eligible securities according 
to several core attributes, including, but not limited to, value, 
quality and momentum, using multiple proprietary factors within each 
core attribute.\18\ The Sub-Adviser will then rank each qualifying 
security based on its core attribute score, and the highest scoring 
securities will be considered for inclusion in the Fund's portfolio. 
The Sub-Adviser will utilize its proprietary optimization process to 
maximize the percentage of high-scoring securities included in each 
Fund's portfolio.
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    \18\ An example of a value factor would be price-to-book value 
and an example of a quality factor would be cash as a percentage of 
market capitalization.
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    In addition, for each Fund, by entering into Forward Contracts and 
currency spot transactions, the Sub-Adviser will deploy a dynamic 
currency hedge (hedging up to 100% of such Fund's foreign currency 
exposure) based on its proprietary hedging methodology. The Sub-
Adviser's hedging methodology will be constructed from a combination of 
quantitative measures, such as interest-rate differentials, central 
bank balance sheet expansion/contraction, and price momentum, and 
qualitative measures, such as formal and informal guidance from central 
bankers. Each Fund will only enter into transactions in Forward 
Contracts with counterparties that the Adviser and/or the Sub-Adviser 
reasonably believe are capable of performing under the applicable 
Forward Contract.\19\
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    \19\ Each Fund will seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser and/or the Sub-Adviser will 
evaluate the creditworthiness of counterparties on an ongoing basis. 
In addition to information provided by credit agencies, the 
Adviser's and/or Sub-Adviser's analysis will evaluate each approved 
counterparty using various methods of analysis and may consider the 
Adviser's and/or Sub-Adviser's past experience with the 
counterparty, its known disciplinary history and its share of market 
participation.
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Other Investments for the Funds
    Each Fund may invest (in the aggregate) up to 20% of its net assets 
in the following securities and instruments:
    Each Fund may invest in the following U.S. and non-U.S. exchange-
listed securities (other than Principal Fund Equity Securities): (i) 
Common stocks; (ii) common and preferred shares of REITs; (iii) 
Depositary Receipts; and (iv) equity securities of business development 
companies (``BDCs'') (collectively, ``Other Equity Securities'').\20\
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    \20\ For each Fund, Other Equity Securities and Principal Fund 
Equity Securities are referred to collectively as ``Equity 
Securities.''
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    Each Fund may invest in short-term debt securities and other short-
term debt instruments (described below), as well as cash equivalents, 
or it may hold cash. The percentage of each Fund invested in such 
holdings or held in cash will vary and will depend on several factors, 
including market conditions. Each Fund may invest in the following 
short-term debt instruments: \21\ (1) Fixed rate and floating rate U.S. 
government securities, including bills, notes and bonds differing as to 
maturity and rates of interest, which are either issued or guaranteed 
by the U.S. Treasury or by U.S. government agencies or 
instrumentalities; (2) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (3) bankers' 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (4) repurchase agreements,\22\ which involve 
purchases of debt securities; (5) bank time deposits, which are monies 
kept on deposit with banks or savings and loan associations for a 
stated period of time at a fixed rate of interest; (6) commercial 
paper, which is short-term unsecured

[[Page 981]]

promissory notes; \23\ and (7) short-term debt obligations issued or 
guaranteed by non-U.S. governments or by their agencies or 
instrumentalities.
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    \21\ Short-term debt instruments will be issued by issuers 
having a long-term debt rating of at least A by Standard & Poor's 
Ratings Services, a Division of The McGraw-Hill Companies, Inc. 
(``S&P Ratings''), Moody's Investors Service, Inc. (``Moody's'') or 
Fitch Ratings (``Fitch'') and have a maturity of one year or less.
    \22\ Each Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser and/
or the Sub-Adviser to present minimal credit risks in accordance 
with criteria approved by the Board of Trustees of the Trust 
(``Trust Board''). The Adviser and/or the Sub-Adviser will review 
and monitor the creditworthiness of such institutions. The Adviser 
and/or the Sub-Adviser will monitor the value of the collateral at 
the time the transaction is entered into and at all times during the 
term of the repurchase agreement. The Funds will not enter into 
reverse repurchase agreements.
    \23\ Each Fund may only invest in commercial paper rated A-1 or 
higher by S&P Ratings, Prime-1 or higher by Moody's or F1 or higher 
by Fitch.
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    Each Fund may invest (but only up to 5% of its net assets) in 
exchange-listed equity index futures contracts.
The Funds' Equity Securities
    Under normal market conditions, each Fund will invest in at least 
20 Equity Securities. Each Fund will satisfy the ``ISG Criteria'' (as 
described below) and/or the ``Alternative Criteria'' (as described 
below).
    A Fund will satisfy the ISG Criteria if at least 90% of such Fund's 
net assets that are invested (in the aggregate) in Equity Securities 
will be invested in Equity Securities that trade in markets that are 
members of the Intermarket Surveillance Group (``ISG'') \24\ or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
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    \24\ See note 41, infra.
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    A Fund will satisfy the Alternative Criteria if, under normal 
market conditions, its Equity Securities meet the following criteria at 
the time of purchase: (1) Non-U.S. Equity Securities \25\ each shall 
have a minimum market value of at least $100 million; (2) non-U.S. 
Equity Securities each shall have a minimum global monthly trading 
volume of 250,000 shares, or minimum global notional volume traded per 
month of $25,000,000, averaged over the last six months; (3) the most 
heavily weighted non-U.S. Equity Security shall not exceed 25% of the 
weight of the Fund's entire portfolio and, to the extent applicable, 
the five most heavily weighted non-U.S. Equity Securities shall not 
exceed 60% of the weight of the Fund's entire portfolio; (4) each non-
U.S. Equity Security shall be listed and traded on an exchange that has 
last-sale reporting; and (5) all of such Fund's net assets that are 
invested (in the aggregate) in Equity Securities other than non-U.S. 
Equity Securities shall be invested in Equity Securities that trade in 
markets that are members of ISG or are parties to a comprehensive 
surveillance sharing agreement with the Exchange.\26\
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    \25\ For purposes of this filing, the term ``non-U.S. Equity 
Securities'' means Equity Securities that are not listed on a U.S. 
exchange.
    \26\ Criteria (1) through (4) are similar to certain ``generic'' 
listing criteria in Nasdaq Rule 5705(b)(3)(A)(ii), which relate to 
criteria applicable to an index or portfolio of (a) non-U.S. stocks 
or (b) both U.S. and non-U.S. stocks underlying a series of Index 
Fund Shares to be listed and traded on the Exchange pursuant to Rule 
19b-4(e) under the Act. In addition, the Commission recently issued 
an order approving a proposed rule change relating to the listing 
and trading under NYSE Arca Equities Rule 8.600 based, in part, on a 
representation that the non-U.S. equity securities in the applicable 
ETF's portfolio would meet criteria similar to certain ``generic'' 
listing criteria in NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(B), which relate to criteria applicable to an index or 
portfolio of (a) non-U.S. stocks or (b) both U.S. and non-U.S. 
stocks underlying a series of Investment Company Units to be listed 
and traded on NYSE Arca, Inc. pursuant to Rule 19b-4(e) under the 
Act. See Securities Exchange Act Release No. 75023 (May 21, 2015), 
80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order approving 
listing and trading of SPDR SSgA Global Managed Volatility ETF).
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The Funds' Transactions in Forward Contracts and Exchange-Listed Equity 
Index Futures Contracts
    Each Fund's transactions in Forward Contracts and exchange-listed 
equity index futures contracts will be consistent with its investment 
objective and the 1940 Act and will not be used to seek to achieve a 
multiple or inverse multiple of an index. Each Fund will comply with 
the regulatory requirements of the Commission with respect to coverage 
in connection with its transactions in Forward Contracts and exchange-
listed equity index futures contracts. If the applicable guidelines 
prescribed under the 1940 Act so require, a Fund will earmark cash, 
U.S. government securities and/or other liquid assets permitted by the 
Commission in the amount prescribed.\27\
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    \27\ With respect to guidance under the 1940 Act, see 15 U.S.C. 
80a-18; Investment Company Act Release No. 10666 (April 18, 1979), 
44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
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Investment Restrictions
    Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
deemed illiquid by the Adviser and/or the Sub-Adviser.\28\ Each 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 such 
Fund's net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\29\
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    \28\ In reaching liquidity decisions, the Adviser and/or the 
Sub-Adviser may consider the following factors: The frequency of 
trades and quotes for the security or other instrument; the number 
of dealers wishing to purchase or sell the security or other 
instrument and the number of other potential purchasers; dealer 
undertakings to make a market in the security or other instrument; 
and the nature of the security or other instrument and the nature of 
the marketplace in which it trades (e.g., the time needed to dispose 
of the security or other instrument, the method of soliciting offers 
and the mechanics of transfer).
    \29\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    The Funds may not invest 25% or more of the value of their 
respective total assets in securities of issuers in any one industry. 
This restriction does not apply to (a) obligations issued or guaranteed 
by the U.S. government, its agencies or instrumentalities or (b) 
securities of other investment companies.\30\
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    \30\ 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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Creation and Redemption of Shares
    Each Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \31\ only in large blocks of Shares (``Creation 
Units'') in transactions with authorized participants, generally 
including broker-dealers and large institutional investors 
(``Authorized Participants''). Creation Units generally will consist of 
50,000 Shares, although this may change from time to time. Creation 
Units, however, are not expected to consist of less than 50,000 Shares. 
The Fund will issue and redeem Creation Units in exchange for an in-
kind portfolio of securities and/or cash in lieu of such securities 
(the ``Creation Basket'').\32\ In addition, if

[[Page 982]]

there is a difference between the NAV attributable to a Creation Unit 
and the market value of the Creation Basket exchanged for the Creation 
Unit, the party conveying securities with the lower value will pay to 
the other an amount in cash equal to the difference (referred to as the 
``Cash Component'').
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    \31\ The NAV of each Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m., 
Eastern Time (the ``NAV Calculation Time''). NAV per Share will be 
calculated by dividing a Fund's net assets by the number of Fund 
Shares outstanding.
    \32\ It is expected that each Fund will typically issue and 
redeem Creation Units on an in-kind basis; however, subject to, and 
in accordance with, the provisions of the Exemptive Relief, a Fund 
may, at times, issue and redeem Creation Units on a cash (or 
partially cash) basis.
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    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor and BBH with respect to creations and redemptions of 
Creation Units. All standard orders to create Creation Units 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., Eastern 
Time) (the ``Closing Time'') in each case on the date such order is 
placed in order for the creation of Creation Units to be effected based 
on the NAV of Shares as next determined on such date after receipt of 
the order in proper form. Shares may be redeemed only in Creation Units 
at their NAV next determined after receipt not later than the Closing 
Time of a redemption request in proper form by a Fund through the 
transfer agent and only on a business day.
    The Funds' custodian, through the National Securities Clearing 
Corporation, will make available on each business day, prior to the 
opening of business of the Exchange, the list of the names and 
quantities of the securities comprising the Creation Basket, as well as 
the estimated Cash Component (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following business day prior to commencement of trading in the 
Shares.
Net Asset Value
    Each Fund's NAV will be determined as of the close of regular 
trading on the NYSE on each day the NYSE is open for trading. If the 
NYSE closes early on a valuation day, the NAV will be determined as of 
that time. NAV per Share will be calculated for each Fund by taking the 
value of such Fund's total assets, including interest or dividends 
accrued but not yet collected, less all liabilities, including accrued 
expenses and dividends declared but unpaid, and dividing such amount by 
the total number of Shares outstanding. The result, rounded to the 
nearest cent, will be the NAV per Share. All valuations will be subject 
to review by the Trust Board or its delegate.
    The Funds' investments will be valued daily. As described more 
specifically below, investments traded on an exchange (i.e., a 
regulated market), will generally be valued at market value prices that 
represent last sale or official closing prices. In addition, as 
described more specifically below, non-exchange traded investments will 
generally be valued using prices obtained from third-party pricing 
services (each, a ``Pricing Service'').\33\ If, however, valuations for 
any of the Funds' investments cannot be readily obtained as provided in 
the preceding manner, or the Pricing Committee of the Adviser (the 
``Pricing Committee'') \34\ questions the accuracy or reliability of 
valuations that are so obtained, such investments will be valued at 
fair value, as determined by the Pricing Committee, in accordance with 
valuation procedures (which may be revised from time to time) adopted 
by the Trust Board (the ``Valuation Procedures''), and in accordance 
with provisions of the 1940 Act. The Pricing Committee's fair value 
determinations may require subjective judgments about the value of an 
investment. The fair valuations attempt to estimate the value at which 
an investment could be sold at the time of pricing, although actual 
sales could result in price differences, which could be material. 
Valuing the Fund's investments using fair value pricing can result in 
using prices for those investments (particularly investments that trade 
in foreign markets) that may differ from current market valuations.
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    \33\ The Adviser may use various Pricing Services or discontinue 
the use of any Pricing Services, as approved by the Trust Board from 
time to time.
    \34\ The Pricing Committee will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding each Fund's portfolio.
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    Certain securities in which a Fund may invest will not be listed on 
any securities exchange or board of trade. Such securities will 
typically be bought and sold by institutional investors in individually 
negotiated private transactions that function in many respects like an 
over-the-counter secondary market, although typically no formal market 
makers will exist. Certain securities, particularly debt securities, 
will have few or no trades, or trade infrequently, and information 
regarding a specific security may not be widely available or may be 
incomplete. Accordingly, determinations of the value of debt securities 
may be based on infrequent and dated information. Because there is less 
reliable, objective data available, elements of judgment may play a 
greater role in valuation of debt securities than for other types of 
securities.
    The information summarized below is based on the Valuation 
Procedures as currently in effect; however, as noted above, the 
Valuation Procedures are amended from time to time and, therefore, such 
information is subject to change.
    The following investments will typically be valued using 
information provided by a Pricing Service: (a) Except as provided 
below, short-term U.S. government securities, commercial paper, 
bankers' acceptances and short-term debt obligations issued or 
guaranteed by non-U.S. governments or by their agencies or 
instrumentalities, all as set forth under ``Other Investments for the 
Funds'' (collectively, ``Short-Term Debt Instruments'') and (b) 
currency spot transactions. Debt instruments may be valued at evaluated 
mean prices, as provided by Pricing Services. Pricing Services 
typically value non-exchange-traded instruments utilizing a range of 
market-based inputs and assumptions, including readily available market 
quotations obtained from broker-dealers making markets in such 
instruments, cash flows, and transactions for comparable instruments. 
In pricing certain instruments, the Pricing Services may consider 
information about an instrument's issuer or market activity provided by 
the Adviser and/or the Sub-Adviser.
    Short-Term Debt Instruments having a remaining maturity of 60 days 
or less when purchased will typically be valued at cost adjusted for 
amortization of premiums and accretion of discounts, provided the 
Pricing Committee has determined that the use of amortized cost is an 
appropriate reflection of value given market and issuer-specific 
conditions existing at the time of the determination.
    Repurchase agreements will typically be valued as follows:
    Overnight repurchase agreements will be valued at amortized cost 
when it represents the best estimate of value. Term repurchase 
agreements (i.e., those whose maturity exceeds seven days) will be 
valued at the average of the bid quotations obtained daily from at 
least two recognized dealers.
    Certificates of deposit and bank time deposits will typically be 
valued at cost.
    Equity Securities that are listed on any exchange other than the 
Exchange and the London Stock Exchange Alternative Investment Market 
(``AIM'') will typically be valued at the last sale price on the 
exchange on which they are principally traded on the business day as of 
which such value is being

[[Page 983]]

determined. Equity Securities listed on the Exchange or the AIM will 
typically be valued at the official closing price on the business day 
as of which such value is being determined. If there has been no sale 
on such day, or no official closing price in the case of securities 
traded on the Exchange or the AIM, such securities will typically be 
valued using fair value pricing. Equity Securities traded on more than 
one securities exchange will be valued at the last sale price or 
official closing price, as applicable, on the business day as of which 
such value is being determined at the close of the exchange 
representing the principal market for such securities.
    Exchange-listed equity index futures contracts will typically be 
valued at the closing price in the market where such instruments are 
principally traded.
    Forward Contracts will typically be valued at the current day's 
interpolated foreign exchange rate, as calculated using the current 
day's spot rate, and the thirty, sixty, ninety and one-hundred-eighty 
day forward rates provided by a Pricing Service or by certain 
independent dealers in such contracts.
    Because foreign exchanges may be open on different days than the 
days during which an investor may purchase or sell Shares, the value of 
the Funds' assets may change on days when investors are not able to 
purchase or sell Shares. Assets denominated in foreign currencies will 
be translated into U.S. dollars at the exchange rate of such currencies 
against the U.S. dollar as provided by a Pricing Service. The value of 
assets denominated in foreign currencies will be converted into U.S. 
dollars at the exchange rates in effect at the time of valuation.
Availability of Information
    The Funds' Web site (www.ftportfolios.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Web site 
will include the Shares' ticker, CUSIP and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for each Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price''),\35\ 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 each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Regular Market Session \36\ on the 
Exchange, each Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (the 
``Disclosed Portfolio'' as defined in Nasdaq 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.\37\
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    \35\ The Bid/Ask Price of each 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 each Fund and its service 
providers.
    \36\ 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).
    \37\ Under accounting procedures to be followed by the Funds, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
a 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.
---------------------------------------------------------------------------

    Each Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include sufficient information for market participants 
to use to value these positions intraday. On a daily basis, each Fund 
will disclose on its Web site the following information regarding each 
portfolio holding, 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, index or 
other asset or instrument underlying the holding, if any; 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, for each 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 Disclosed Portfolio, will be 
disseminated. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service,\38\ 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. The Intraday Indicative 
Value will be based on quotes and closing prices from the securities' 
local market and may not reflect events that occur subsequent to the 
local market's close. Premiums and discounts between the Intraday 
Indicative Value and the market price may occur. This should not be 
viewed as a ``real time'' update of the NAV per Share of a Fund, which 
is calculated only once a day.
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    \38\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the Nasdaq 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 indexes, listed ETFs, or third-party 
partner indexes and ETFs.
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    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of a Fund on a daily basis and will provide a 
close estimate of that value throughout the trading day.
    Investors will also be able to obtain each Fund's Statement of 
Additional Information (``SAI''), annual and semi-annual reports 
(together, ``Shareholder Reports''), and Form N-CSR and Form N-SAR, 
filed twice a year. Each Fund's SAI and Shareholder Reports will be 
available free upon request from such Fund, 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 information for the Shares will be 
published daily in the financial section of newspapers. Quotation and 
last sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association 
(``CTA'') plans for the Shares. Quotation and last sale information for 
the Equity Securities (to the extent traded on a U.S. exchange) will be 
available from the exchanges on which they are traded as well as in 
accordance with any applicable CTA plans.
    Pricing information for Short-Term Debt Instruments, repurchase 
agreements, Forward Contracts, bank time deposits, certificates of 
deposit and currency spot transactions will be

[[Page 984]]

available from major broker-dealer firms and/or major market data 
vendors and/or Pricing Services. Pricing information for exchange-
listed equity index futures contracts and non-U.S. Equity Securities 
will be available from the applicable listing exchange and from major 
market data vendors.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and continued 
listing, each Fund must be in compliance with Rule 10A-3 \39\ under the 
Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    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 a 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 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 other assets constituting the Disclosed Portfolio 
of a 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 a 
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., Eastern Time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\40\ 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.
---------------------------------------------------------------------------

    \40\ 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 the Exchange, will communicate as needed 
regarding trading in the Shares and certain of the Equity Securities 
and exchange-listed equity index futures contracts held by the Funds 
with other markets and other entities that are members of ISG,\41\ and 
FINRA may obtain trading information regarding trading in the Shares 
and such securities and instruments held by the Funds from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain of the Equity Securities 
and exchange-listed equity index futures contracts held by the Funds 
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 Funds 
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \41\ 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 a Fund may trade on markets that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    For each Fund, at least 90% of such Fund's net assets that are 
invested (in the aggregate) in exchange-listed equity index futures 
contracts will be invested in instruments that trade in markets that 
are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
    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 for each Fund 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 deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular for each Fund will reference 
that such Fund is subject to various fees and expenses described in the 
Registration Statement. The Information Circular for each Fund will 
also disclose the trading hours of the Shares of such Fund and the 
applicable NAV Calculation Time for the Shares. The Information 
Circular for each Fund will disclose that information about the Shares 
of such Fund will be publicly available on such Fund's Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the 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

[[Page 985]]

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.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange 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 detect violations of 
Exchange rules and applicable federal securities laws.
    Neither the Adviser nor the Sub-Adviser is a broker-dealer, but 
each is affiliated with a broker-dealer, and is required to implement a 
``fire wall'' with respect to its respective broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to each Fund's portfolio. In addition, paragraph (g) of Nasdaq 
Rule 5735 further requires that personnel who make decisions on the 
open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the open-end fund's portfolio.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and certain of the Equity Securities 
and exchange-listed equity index futures contracts held by the Funds 
with other markets and other entities that are members of ISG, and 
FINRA may obtain trading information regarding trading in the Shares 
and such securities and instruments held by the Funds from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain of the Equity Securities 
and exchange-listed equity index futures contracts held by the Funds 
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 Funds 
reported to FINRA's TRACE. For each Fund, at least 90% of such Fund's 
net assets that are invested (in the aggregate) in exchange-listed 
equity index futures contracts will be invested in instruments that 
trade in markets that are members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. Under 
normal market conditions, each Fund will invest in at least 20 Equity 
Securities. Moreover, each Fund will satisfy the ISG Criteria and/or 
the Alternative Criteria.
    The investment objective of each Fund will be to provide capital 
appreciation. Under normal market conditions, each Fund will seek to 
achieve its investment objective by investing at least 80% of its net 
assets (including investment borrowings) in Principal Fund Equity 
Securities, Forward Contracts and currency transactions entered into on 
a spot (i.e., cash) basis. Each Fund may also invest up to 5% of its 
net assets in exchange-listed equity index futures contracts. Each 
Fund's transactions in Forward Contracts and exchange-listed equity 
index futures contracts will be consistent with its investment 
objective and the 1940 Act and will not be used to seek to achieve a 
multiple or inverse multiple of an index. Each Fund will comply with 
the regulatory requirements of the Commission with respect to coverage 
in connection with its transactions in Forward Contracts and exchange-
listed equity index futures contracts. If the applicable guidelines 
prescribed under the 1940 Act so require, a Fund will earmark cash, 
U.S. government securities and/or other liquid assets permitted by the 
Commission in the amount prescribed. Also, each Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), deemed illiquid by the Adviser 
and/or the Sub-Adviser. Each 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 assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Funds 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 and broadly displayed at least every 15 
seconds during the Regular Market Session. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, each Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Information regarding market price and 
trading volume of the Shares 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 CTA plans for the Shares. Quotation and last sale information 
for the Equity Securities (to the extent traded on a U.S. exchange) 
will be available from the exchanges on which they are traded as well 
as in accordance with any applicable CTA plans.
    Pricing information for Short-Term Debt Instruments, repurchase 
agreements, Forward Contracts, bank time deposits, certificates of 
deposit and currency spot transactions will be available from major 
broker-dealer firms and/or major market data vendors and/or Pricing 
Services. Pricing information for exchange-listed equity index futures 
contracts and non-U.S. Equity Securities will be available from the 
applicable listing exchange and from major market data vendors.
    Each Fund's Web site will include a form of the prospectus for such 
Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Funds 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 Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of a Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding each 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.

[[Page 986]]

    Each Fund's investments will be valued daily. Investments traded on 
an exchange (i.e., a regulated market), will generally be valued at 
market value prices that represent last sale or official closing 
prices. Non-exchange traded investments will generally be valued using 
prices obtained from a Pricing Service. If, however, valuations for any 
of the Funds' investments cannot be readily obtained as provided in the 
preceding manner, or the Pricing Committee questions the accuracy or 
reliability of valuations that are so obtained, such investments will 
be valued at fair value, as determined by the Pricing Committee, in 
accordance with the Valuation Procedures and in accordance with 
provisions of the 1940 Act.
    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 
additional types of actively managed exchange-traded products that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and certain of the Equity Securities and exchange-listed equity index 
futures contracts held by the Funds with other markets and other 
entities that are members of ISG, and FINRA may obtain trading 
information regarding trading in the Shares and such securities and 
instruments held by the Funds from such markets and other entities.
    In addition, the Exchange may obtain information regarding trading 
in the Shares and certain of the Equity Securities and exchange-listed 
equity index futures contracts held by the Funds 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 Funds reported to FINRA's 
TRACE. Furthermore, as noted above, investors will have ready access to 
information regarding the Funds' holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares. For each Fund, at least 90% of such Fund's net assets 
that are invested (in the aggregate) in exchange-listed equity index 
futures contracts will be invested in instruments that trade in markets 
that are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange. Under normal market conditions, 
each Fund will invest in at least 20 Equity Securities. Moreover, each 
Fund will satisfy the ISG Criteria and/or the Alternative Criteria.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund [sic] 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 (i) as the Commission may 
designate up to 90 days of such date 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 shall: (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-2015-161 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-2015-161. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will 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-2015-161 and should 
be submitted on or before January 29, 2016.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-103 Filed 1-7-16; 8:45 am]
 BILLING CODE 8011-01-P