Document ID: SEC-2015-0688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2015-04-21T04:00Z

[Federal Register Volume 80, Number 76 (Tuesday, April 21, 2015)]
[Notices]
[Pages 22249-22251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-09064]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74728; File No. SR-NASDAQ-2015-013]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change To List and Trade Shares of the 
AlphaMark Actively Managed Small Cap ETF of ETF Series Solutions

April 15, 2015.

I. Introduction

    On February 17, 2015, The NASDAQ Stock Market LLC (the ``Exchange'' 
or ``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to list and trade the shares 
(``Shares'') of the AlphaMark Actively Managed Small Cap ETF (the 
``Fund'') of ETF Series Solutions (the ``Trust'') under Nasdaq Rule 
5735. The proposed rule change was published for comment in the Federal 
Register on March 3, 2015.\4\ The Commission received no comments on 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 74377 (February 25, 
2015), 80 FR 11502 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under Nasdaq 
Rule 5735, which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Fund will be an actively-managed exchange-traded 
fund (``ETF''). The Shares will be offered by the Trust.\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\ The Fund is a series of the Trust.
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    \5\ The Trust has obtained an order from the Commission granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 31469 (February 24, 2015) (File 
No. 812-14402).
    \6\ See Post- Effective Amendment No. 43 to the Registration 
Statement on Form N-1A for the Trust, dated February 4, 2015 (File 
Nos. 333-179562 and 811-22668).
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    AlphaMark Advisors, LLC will be the investment adviser 
(``Adviser'') to the Fund. Quasar Distributors, LLC (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. U.S. Bancorp Fund Services, LLC will act as the 
administrator, accounting agent, and transfer agent to the Fund. U.S. 
Bank National Association will act as the custodian to the Fund. The 
Exchange states that the Adviser is not a broker-dealer, and is not 
affiliated with any broker-dealer.\7\ The Exchange has made the 
following representations and statements regarding the Fund.\8\
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    \7\ See Notice, supra note 4, 80 FR at 11503. In addition, the 
Exchange states that, in the event (a) the Adviser becomes 
affiliated with a broker-dealer or registers as a broker-dealer, or 
(b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, it will implement a fire 
wall with respect to its relevant personnel and/or such broker-
dealer affiliate, as applicable, regarding access to information 
concerning the composition and/or changes to the portfolio and will 
be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding such 
portfolio. According to the Exchange, the Adviser has no present 
intent or arrangement to become affiliated with any broker-dealer, 
and the Fund does not currently intend to use a sub-adviser. Id.
    \8\ Additional information regarding, among other things, the 
Fund, the Shares, the Fund's investment objectives, the Fund's 
strategies, the Fund's holdings, risks, fees and expenses associated 
with the Shares, creations and redemptions of Shares, availability 
of information, trading rules and halts, and surveillance procedures 
can be found in the Notice and the Registration Statement. See 
Notice, supra note 4, and Registration Statement, supra note 6, 
respectively.
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Principal Investments

    The Fund's primary investment objective is to seek long-term growth 
of capital. The Fund will pursue its objectives by investing 
primarily--i.e., at least 80% of its assets under normal market 
conditions \9\--in a portfolio of equity securities of small cap 
companies listed on a U.S. exchange.
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    \9\ 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.
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    The Fund defines ``equity securities'' to include common and 
preferred stock, American Depositary Receipts (``ADRs''), real estate 
investment trusts, and ETFs that under normal circumstances invest at 
least 80% of their net assets in equity securities of small cap 
companies (``Small Cap ETFs''). The Fund may invest up to 30% of its 
net assets in foreign equity securities of small cap companies traded 
on a U.S. exchange as ADRs, which may include companies in emerging 
markets. The Adviser expects that there will generally be between 25 
and 40 stocks in the Fund's portfolio.
    The Fund is non-diversified, and therefore may invest a larger 
percentage of its assets in the securities of a single

[[Page 22250]]

company than diversified funds. The Fund's investment in various 
sectors may change significantly over time. The Fund's investment in 
foreign equity securities will be in the form of ADRs and may include 
ADRs representing companies in emerging markets. With respect to its 
investments as part of its principal investment strategies in exchange-
listed securities, the Fund will invest in such securities that trade 
in markets that are members of the Intermarket Surveillance Group 
(``ISG'').\10\
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    \10\ See Notice, supra note 4, 80 FR at 11504.
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Other Investments

    Although the Fund under normal circumstances will invest at least 
80% of its assets in U.S. exchange-listed equity securities, the Fund 
may invest the remaining assets in: Equity securities traded over-the-
counter; \11\ money market instruments; securities of open-end mutual 
funds, money market mutual funds, and ETFs other than Small Cap ETFs; 
and non-exchange-listed ADRs.
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    \11\ The Exchange states that not more than 10% of the net 
assets of the Fund, in the aggregate, will be invested in unlisted 
equity securities or equity securities not listed on an exchange 
that is a member of the ISG or a party to a comprehensive 
surveillance sharing agreement with the Exchange. See id. at 11504, 
n.12.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposed rule change is consistent with section 6(b)(5) of the Exchange 
Act,\13\ which requires, among other things, that the Exchange's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \12\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with section 11A(a)(1)(C)(iii) of the 
Exchange Act,\14\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via Nasdaq proprietary 
quote and trade services and via the Consolidated Tape Association 
(``CTA'') plans for the Shares. Information regarding market price and 
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 any underlying exchange-traded products will also be 
available via the quote and trade services of their respective primary 
exchanges, as well as in accordance with the Unlisted Trading 
Privileges and the CTA plans, as applicable.
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    \14\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Intraday, executable price quotations on the securities and other 
assets held by the Fund (other than investment company securities that 
are not exchange-listed) will be available from major broker-dealer 
firms and through subscription or free services that can be accessed by 
authorized participants and other investors. Intraday price information 
for exchange-traded securities will be publicly available from the Web 
sites of the exchanges on which they trade, on public financial Web 
sites, and through subscription services. Intraday price information 
regarding over-the-counter equities (including certain investment 
company securities) and money market instruments, will be available 
through subscription services.
    The Commission also believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. On each business day, before commencement of trading in Shares 
in the Regular Market Session \15\ on the Exchange, the Fund will 
disclose on its Web site the identities and quantities of the portfolio 
of securities and other assets (the ``Disclosed Portfolio'') held by 
the Fund that will form the basis for the Fund's calculation of NAV at 
the end of the business day. The Web site information will be publicly 
available at no charge. The NAV of the 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, generally 4:00 p.m., Eastern 
Time. 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.\16\ The intraday indicative value, 
available on the NASDAQ OMX Information LLC proprietary index data 
service,\17\ will be based upon the current value for the components of 
the Disclosed Portfolio and will be updated and widely disseminated and 
broadly displayed at least every 15 seconds during the Regular Market 
Session.\18\ The Web site for the Fund will include the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information.\19\
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    \15\ 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).
    \16\ See Notice, supra note 4, 80 FR at 11507.
    \17\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service. The 
Exchange represents that GIDS offers real-time updates, daily 
summary messages, and access to widely followed indexes and Intraday 
Indicative Values for ETFs, and that GIDS provides investment 
professionals with the daily information needed to track or trade 
NASDAQ OMX indexes, listed ETFs, or third-party partner indexes and 
ETFs.
    \18\ See id. at 11506.
    \19\ See id. at 11509.
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    The Exchange represents that it may consider all relevant factors 
in exercising its discretion to halt or suspend trading in the Shares 
of the Fund. Nasdaq will halt or pause trading in the Shares under the 
conditions specified in Nasdaq Rules 4120 and 4121, including the 
trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading also 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable.\20\ 
Trading in the Shares also will be subject to Rule 5735(d)(2)(D), which 
sets forth circumstances under which Shares of the Fund may be halted.
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    \20\ These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
constituting the Disclosed Portfolio of the Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. See id. at 
11507.
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    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public

[[Page 22251]]

information by its employees.\21\ The Exchange states that the Adviser 
is not a broker-dealer, and is not affiliated with any broker-dealer. 
In addition, the Exchange states that in the event (a) the Adviser 
becomes affiliated with a broker-dealer or registers as a broker-
dealer, or (b) any new adviser or sub-adviser is a registered broker-
dealer or becomes affiliated with a broker-dealer, it will implement a 
fire wall with respect to its relevant personnel and/or such broker-
dealer affiliate, as applicable, regarding access to information 
concerning the composition and/or changes to the portfolio and will be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding such portfolio.\22\
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    \21\ See id. at 11508.
    \22\ See supra note 7.
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    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and other exchange-traded securities 
with other markets and other entities that are ISG members, and FINRA, 
on behalf of the Exchange, may obtain trading information regarding 
trading in the Shares and other exchange-traded securities from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and other exchange-traded 
securities from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\23\
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    \23\ For a list of the current members of ISG, see 
www.isgportal.org.
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    The Commission notes that the Fund and the Shares must comply with 
the requirements of Nasdaq Rule 5735 to be listed and traded on the 
Exchange. 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. In support of this 
proposal, the Exchange represented that:
    (1) The Shares will be subject to Nasdaq Rule 5735, which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) 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, and 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.
    (3) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) the dissemination of 
information regarding the Intraday Indicative Value through major index 
service providers such as NASDAQ OMX proprietary index data services or 
other major market proprietary index services; (d) 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; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (f) trading 
information; and (g) the dissemination of the Disclosed Portfolio 
through the Fund's Web site.
    (5) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 \24\ under the Act.
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    \24\ See 17 CFR 240.10A-3.
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    (6) The Fund may invest up to 30% of its net assets in foreign 
equity securities of small cap companies traded on a U.S. exchange as 
ADRs, which may include companies in emerging markets.
    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment).
    (8) The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other registered investment companies.
    (9) Not more than 10% of the net assets of the Fund, in the 
aggregate, will be invested in unlisted equity securities or equity 
securities not listed on an exchange that is a member of the ISG or a 
party to a comprehensive surveillance sharing agreement with the 
Exchange.
    (10) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice. For 
the foregoing reasons, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act \25\ and the rules 
and regulations thereunder applicable to a national securities 
exchange.
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    \25\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Exchange Act,\26\ that the proposed rule change (SR-NASDAQ-2015-013) 
be, and it hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-09064 Filed 4-20-15; 8:45 am]
 BILLING CODE 8011-01-P