Document ID: SEC-2016-0371-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-03-02T05:00Z

[Federal Register Volume 81, Number 41 (Wednesday, March 2, 2016)]
[Notices]
[Pages 10925-10933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04503]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77233; File No. SR-NASDAQ-2016-021]

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 Alternative Absolute Return 
Strategy ETF of First Trust Exchange-Traded Fund VII

February 25, 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 February 16, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by Nasdaq. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the First Trust 
Alternative Absolute Return Strategy ETF (the ``Fund'') of First Trust 
Exchange-Traded Fund VII (the ``Trust'') under Nasdaq Rule 5735 
(``Managed Fund Shares'').\3\ The shares of the 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. 71913 (April 9, 2014), 79 FR 21333 (April 15, 2014) 
(SR-NASDAQ-2014-019) (order approving listing and trading of First 
Trust Managed Municipal 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.

[[Page 10926]]

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The 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 
November 6, 2012.\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 will be a 
series of the Trust. As part of its investment strategy, the Fund will 
invest in a wholly-owned subsidiary controlled by the Fund and 
organized under the laws of the Cayman Islands (referred to herein as 
the ``First Trust Subsidiary'').
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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. 30029 (April 10, 2012) (File No. 
812-13795) (the ``Exemptive Relief''). In addition, on December 6, 
2012, the staff of the Commission's Division of Investment 
Management (``Division'') issued a no-action letter (``No-Action 
Letter'') relating to the use of derivatives by actively-managed 
ETFs. See No-Action Letter dated December 6, 2012 from Elizabeth G. 
Osterman, Associate Director, Office of Exemptive Applications, 
Division of Investment Management. The No-Action Letter stated that 
the Division would not recommend enforcement action to the 
Commission under applicable provisions of and rules under the 1940 
Act if actively-managed ETFs operating in reliance on specified 
orders (which include the Exemptive Relief) invest in options 
contracts, futures contracts or swap agreements provided that they 
comply with certain representations stated in the No-Action Letter.
    \6\ See Post-Effective Amendment No. 6 to Registration Statement 
on Form N-1A for the Trust, dated January 28, 2016 (File Nos. 333-
184918 and 811-22767). The descriptions of the Fund 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 Fund. First Trust Portfolios L.P. (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. Brown Brothers Harriman & Co. (``BBH'') will act as 
the administrator, accounting agent, custodian and transfer agent to 
the Fund.
    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. The Adviser is not a broker-dealer, although it is affiliated 
with the Distributor, which is a broker-dealer. The Adviser has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio. In addition, personnel who make decisions on 
the Fund's portfolio composition will be subject to procedures designed 
to prevent the use and dissemination of material non-public information 
regarding the Fund's portfolio. In the event (a) the Adviser or any 
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 the 
portfolio and will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
portfolio. The Fund does not currently intend to use a sub-adviser.
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    \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 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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    The Fund intends to qualify each year as a regulated investment 
company (``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.
First Trust Alternative Absolute Return Strategy ETF
    The Fund will be an actively-managed ETF that will seek to achieve 
long-term total return by using a long/short commodities strategy. 
Under normal market conditions,\8\ the Fund will invest in a 
combination of securities,

[[Page 10927]]

exchange-traded commodity futures contracts, and other instruments, 
either directly or through the First Trust Subsidiary as follows. The 
Fund will invest in: (1) The First Trust Subsidiary; (2) short-term 
high-quality U.S. government and agency securities; \9\ (3) short-term 
repurchase agreements; \10\ (4) money market instruments; \11\ and (5) 
cash. The First Trust Subsidiary may also invest in the instruments 
described in the foregoing clauses (2) through (5) (collectively, 
``Other Investments''). Other Investments (except for cash and money 
market mutual funds) will each have a maturity of five years or less. 
The Fund (and, as applicable, the First Trust Subsidiary) will use the 
Other Investments for investment purposes, to provide liquidity, and/or 
to collateralize the First Trust Subsidiary's investments in exchange-
traded commodity futures contracts (``Commodities'').
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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, commodities or 
futures 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, the 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, the Fund may not be able 
to achieve its investment objective. The Fund may adopt a defensive 
strategy when the Adviser believes securities and/or other 
instruments in which the Fund normally invests have elevated risks 
due to political or economic factors and in other extraordinary 
circumstances.
    \9\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \10\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser to 
present minimal credit risks in accordance with criteria approved by 
the Trust's Board of Trustees (the ``Trust Board''). The Adviser 
will review and monitor the creditworthiness of such institutions. 
The 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.
    \11\ For the Fund's purposes, money market instruments will 
include: (i) Short-term, high-quality securities issued or 
guaranteed by non-U.S. governments, agencies and instrumentalities; 
(ii) non-convertible high-quality corporate debt securities with 
remaining maturities of not more than 397 days; (iii) money market 
mutual funds; (iv) commercial paper; and (v) certificates of 
deposit, bank time deposits, bankers' acceptances and short-term 
negotiable obligations of U.S. and non-U.S. banks and financial 
institutions.
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    The Fund expects to exclusively gain exposure to Commodities 
indirectly by investing directly in the First Trust Subsidiary. The 
Fund's investment in the First Trust Subsidiary may not exceed 25% of 
the Fund's total assets. The Fund will not invest directly in 
Commodities, and neither the Fund nor the First Trust Subsidiary will 
invest directly in physical commodities.
The First Trust Subsidiary
    The First Trust Subsidiary will be advised by the Adviser.\12\ The 
First Trust Subsidiary will not be registered under the 1940 Act. As an 
investor in the First Trust Subsidiary, the Fund, as the First Trust 
Subsidiary's sole shareholder, will not have the protections offered to 
investors in registered investment companies. However, because the Fund 
will wholly own and control the First Trust Subsidiary, and the Fund 
and the First Trust Subsidiary will be managed by the Adviser, the 
First Trust Subsidiary will not take action contrary to the interest of 
the Fund or the Fund's shareholders. The Trust Board will have 
oversight responsibility for the investment activities of the Fund, 
including its expected investment in the First Trust Subsidiary, and 
the Fund's role as the sole shareholder of the First Trust Subsidiary. 
The Adviser will receive no additional compensation for managing the 
assets of the First Trust Subsidiary.
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    \12\ The First Trust Subsidiary will also enter into separate 
contracts for the provision of custody, transfer agency, and 
accounting agent services with the same or with affiliates of the 
same service providers that provide those services to the Fund.
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    The Fund's investment in the First Trust Subsidiary will be 
designed to provide the Fund with exposure to commodity markets within 
the limits of current federal income tax laws applicable to investment 
companies such as the Fund, which limit the ability of investment 
companies to invest directly in the derivative instruments.
    The First Trust Subsidiary will have the same investment objective 
as the Fund, but unlike the Fund, it may invest without limitation in 
Commodities. Eligible Commodities will be selected based on liquidity 
as measured by open interest (generally, the number of contracts that 
are outstanding at a particular time) and volume. The list of 
Commodities considered for inclusion can and will change over time. 
Through its investment process, the Adviser will seek to maximize the 
total return of a long/short commodity portfolio \13\ while managing 
overall portfolio risk, sector risk, liquidity risk, margin risk, and 
position size risk. As indicated above, in addition to Commodities, the 
First Trust Subsidiary may invest in Other Investments.
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    \13\ To be ``long'' means to hold or be exposed to a security or 
instrument with the expectation that its value will increase over 
time. To be ``short'' means to sell or be exposed to a security or 
instrument with the expectation that it will fall in value. The 
Fund, through the First Trust Subsidiary, will benefit if it has a 
long position in a Commodity that increases in value or a short 
position in a Commodity that decreases in value.
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    The First Trust Subsidiary will initially consider investing in 
Commodities set forth in the following table. The table also provides 
each instrument's trading hours, exchange and ticker symbol. The table 
is subject to change.
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    \14\ The exchange codes listed are Bloomberg shorthand codes for 
the corresponding exchanges. The New York Board of Trade is 
currently owned by the ICE Futures Exchange; Bloomberg continues to 
use NYB as its shorthand code for certain contracts formerly traded 
on the New York Board of Trade.

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                                                                                                Contract ticker
                                      Bloomberg                                 Trading hours       (generic
            Commodity             exchange code\14\        Exchange name           (E.T.)          Bloomberg
                                                                                                    ticker)
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Cattle, Live/Choice Average.....  CME..............  Chicago Mercantile           18:00-17:00  LC.
                                                      Exchange.
Cocoa...........................  NYB..............  ICE Futures Exchange....     04:00-14:00  CC.
Cotton/1-1/16''.................  NYB..............  ICE Futures Exchange....     21:00-14:30  CT.
Feeder Cattle...................  CME..............  Chicago Mercantile           18:00-17:00  FC.
                                                      Exchange.
Coffee `C'/Colombian............  NYB..............  ICE Futures Exchange....     03:30-14:00  KC.
Soybeans/No. 2 Yellow...........  CBT..............  Chicago Board of Trade..     20:00-14:15  S.
Soybean Meal/48% Protein........  CBT..............  Chicago Board of Trade..     20:00-14:15  SM.
Soybean Oil/Crude...............  CBT..............  Chicago Board of Trade..     20:00-14:15  BO.
Corn/No. 2 Yellow...............  CBT..............  Chicago Board of Trade..     20:00-14:15  C.
Wheat/No. 2 Hard Winter.........  CBT..............  Chicago Board of Trade..     20:00-14:15  KW.
Wheat/No. 2 Soft Red............  CBT..............  Chicago Board of Trade..     20:00-14:15  W.
Sugar #11/World Raw.............  NYB..............  ICE Futures Exchange....     02:30-14:00  SB.
Hogs, Lean/Average Iowa/S Minn..  CME..............  Chicago Mercantile           18:00-17:00  LH.
                                                      Exchange.
Crude Oil, WTI/Global Spot......  NYM..............  New York Mercantile          18:00-17:15  CL.
                                                      Exchange.
Crude Oil, Brent/Global Spot....  ICE..............  ICE Futures Exchange....     20:00-18:00  CO.

[[Page 10928]]

 
NY Harb ULSD....................  NYM..............  New York Mercantile          18:00-17:15  HO.
                                                      Exchange.
Gas[dash]Oil[dash]Petroleum.....  ICE..............  ICE Futures Exchange....     20:00-18:00  QS.
Natural Gas, Henry Hub..........  NYM..............  New York Mercantile          18:00-17:15  NG.
                                                      Exchange.
Gasoline, Blendstock (RBOB).....  NYM..............  New York Mercantile          18:00-17:15  XB.
                                                      Exchange.
Gold............................  CMX..............  Commodity Exchange......     18:00-17:15  GC.
Silver..........................  CMX..............  Commodity Exchange......     18:00-17:15  SI.
Platinum........................  NYM..............  New York Mercantile          18:00-17:15  PL.
                                                      Exchange.
Copper High Grade/Scrap No. 2     CMX..............  Commodity Exchange......     18:00-17:15  HG.
 Wire.
Aluminum, LME Primary 3 Month     LME..............  London Metal Exchange...     15:00-14:45  LA.
 Rolling Forward.
Lead, LME Primary 3 Month         LME..............  London Metal Exchange...     15:00-14:45  LL.
 Rolling Forward.
Nickel, LME Primary 3 Month       LME..............  London Metal Exchange...     15:00-14:45  LN.
 Rolling Forward.
Tin, LME Primary 3 Month Rolling  LME..............  London Metal Exchange...     15:00-14:45  LT.
 Forward.
Zinc, LME Primary 3 Month         LME..............  London Metal Exchange...     15:00-14:45  LX.
 Rolling Forward.
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    As the exchanges referenced above list additional Commodities, as 
currently listed Commodities on those exchanges that are not included 
above meet the Adviser's selection criteria, or as other exchanges list 
Commodities that meet the Adviser's selection criteria, the Adviser 
will include those Commodities in the list of possible investments of 
the First Trust Subsidiary. The list of Commodities and commodities 
markets considered for investment can and will change over time.
    With respect to the Commodities held indirectly through the First 
Trust Subsidiary, not more than 10% of the weight \15\ of such 
instruments (in the aggregate) shall consist of instruments whose 
principal trading market (a) is not a member of the Intermarket 
Surveillance Group (``ISG'') or (b) is a market with which the Exchange 
does not have a comprehensive surveillance sharing agreement.
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    \15\ To be calculated as the value of the Commodity divided by 
the total absolute notional value of the First Trust Subsidiary's 
Commodities.
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Commodities Regulation
    The Commodity Futures Trading Commission (``CFTC'') has adopted 
substantial amendments to CFTC Rule 4.5 relating to the permissible 
exemptions and conditions for reliance on exemptions from registration 
as a commodity pool operator. As a result of the instruments that will 
be indirectly held by the Fund, the Fund and the First Trust Subsidiary 
will be subject to regulation by the CFTC and National Futures 
Association (``NFA'') as well as additional disclosure, reporting and 
recordkeeping rules imposed upon commodity pools. The Adviser has 
previously registered as a commodity pool operator \16\ and is also a 
member of the NFA.
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    \16\ As defined in Section 1a(11) of the Commodity Exchange Act.
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Investment Restrictions
    The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any one industry. This restriction 
will not apply to (a) obligations issued or guaranteed by the U.S. 
government, its agencies or instrumentalities, or (b) securities of 
other investment companies.\17\
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    \17\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The First Trust Subsidiary's shares will be offered only to the 
Fund and the Fund will not sell shares of the First Trust Subsidiary to 
other investors. The Fund and the First Trust Subsidiary will not 
invest in any non-U.S. equity securities (other than shares of the 
First Trust Subsidiary).
    The 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.\18\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid 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.\19\
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    \18\ In reaching liquidity decisions, the 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).
    \19\ 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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Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \20\ 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,

[[Page 10929]]

are not expected to consist of less than 50,000 Shares. As described in 
the Registration Statement and consistent with the Exemptive Relief, 
the Fund will issue and redeem Creation Units in exchange for an in-
kind portfolio of instruments and/or cash in lieu of such instruments 
(the ``Creation Basket'').\21\ In addition, if 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 instruments 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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    \20\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on Nasdaq, generally 4:00 p.m., Eastern Time (the ``NAV Calculation 
Time''). NAV per Share will be calculated by dividing the Fund's net 
assets by the number of Fund Shares outstanding. For more 
information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see the Registration Statement.
    \21\ Subject to, and in accordance with, the provisions of the 
Exemptive Relief, it is expected that the Fund will typically issue 
and redeem Creation Units on a cash basis; however, at times, it may 
issue and redeem Creation Units (at least in part) on an in-kind 
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 Nasdaq (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 the Fund through the 
transfer agent and only on a business day.
    The Fund's 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 instruments 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
    The Fund's NAV will be determined as of the close of regular 
trading on Nasdaq on each day Nasdaq is open for trading. If Nasdaq 
closes early on a valuation day, the NAV will be determined as of that 
time. NAV per Share will be calculated for the Fund by taking the value 
of the 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 Fund's and the First Trust Subsidiary's 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'').\22\ If, 
however, valuations for any of the Fund's investments cannot be readily 
obtained as provided in the preceding manner, or the Pricing Committee 
of the Adviser (the ``Pricing Committee'') \23\ 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 investments of the Fund and the First Trust 
Subsidiary 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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    \22\ 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.
    \23\ The Pricing Committee will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the Fund's portfolio.
---------------------------------------------------------------------------

    Certain securities in which the Fund and the First Trust Subsidiary 
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: Except as provided below, 
money market instruments (other than money market mutual funds, 
certificates of deposit and bank time deposits) and U.S. government and 
agency securities (collectively ``Fixed-Income Instruments''). 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.
    Fixed-Income 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.

[[Page 10930]]

Money market mutual funds will typically be valued at their net asset 
values as reported by such funds to Pricing Services. Commodities will 
typically be valued at the closing price in the market where such 
instruments are principally traded.
    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 Fund's 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 Fund's 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 Fund 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 the 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'') \24\ 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 \25\ on the 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities, Commodities and other assets 
(the ``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held 
by the Fund and the First Trust Subsidiary that will form the basis for 
the Fund's calculation of NAV at the end of the business day.\26\ The 
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, the Fund will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding of the Fund and the First Trust Subsidiary, 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, commodity, 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 portfolio. The Web site information 
will be publicly available at no charge.
---------------------------------------------------------------------------

    \24\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \25\ 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).
    \26\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's Disclosed Portfolio (including 
the First Trust Subsidiary's portfolio), will be disseminated. 
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service \27\ 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 instruments' 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 the Fund, which is calculated only once 
a day.
---------------------------------------------------------------------------

    \27\ 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.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the 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.
    Pricing information for Fixed-Income Instruments, certificates of 
deposit, bank time deposits and repurchase agreements will be available 
from major broker-dealer firms and/or major market data vendors and/or 
Pricing Services. Pricing information for Commodities will be available 
from the applicable listing exchange and from major market data 
vendors. Money market mutual funds are typically priced once each 
business day and their prices will be available through the applicable 
fund's Web site or from major market data vendors.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes will be 
included in the Registration Statement.
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, the Fund must be in compliance

[[Page 10931]]

with Rule 10A-3 \28\ 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.
---------------------------------------------------------------------------

    \28\ 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 the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading 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, Commodities and/or the other assets constituting the 
Disclosed Portfolio of the Fund and the First Trust Subsidiary; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to Rule 5735(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m. 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.\29\ 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.
---------------------------------------------------------------------------

    \29\ 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 the Commodities with other markets 
and other entities that are members of ISG,\30\ and FINRA may obtain 
trading information regarding trading in the Shares and in the 
Commodities held by the First Trust Subsidiary from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and in the Commodities held by the 
First Trust Subsidiary 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 and the First Trust Subsidiary reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \30\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    In addition, with respect to the Commodities held indirectly 
through the First Trust Subsidiary, not more than 10% of the weight 
\31\ of such instruments (in the aggregate) shall consist of 
instruments whose principal trading market (a) is not a member of ISG 
or (b) is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \31\ To be calculated as the value of the Commodity divided by 
the total absolute notional value of the First Trust Subsidiary's 
Commodities.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Market and Post-Market Sessions when an updated Intraday Indicative 
Value will not be calculated or publicly disseminated; (5) the 
requirement that members 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 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 of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the 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 
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 also 
FINRA on behalf

[[Page 10932]]

of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws. The Adviser is not a 
broker-dealer, but it is affiliated with the Distributor, a broker-
dealer, and is required to implement a ``fire wall'' with respect to 
such broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to the 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 the Commodities with other markets 
and other entities that are members of ISG, and FINRA may obtain 
trading information regarding trading in the Shares and the Commodities 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and in the 
Commodities held by the First Trust Subsidiary 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 and the First Trust 
Subsidiary reported to FINRA's TRACE. In addition, with respect to the 
Commodities held indirectly through the First Trust Subsidiary, not 
more than 10% of the weight \32\ of such instruments (in the aggregate) 
shall consist of instruments whose principal trading market (a) is not 
a member of ISG or (b) is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement. The Fund will 
invest up to 25% of its total assets in the First Trust Subsidiary.
---------------------------------------------------------------------------

    \32\ To be calculated as the value of the Commodity divided by 
the total absolute notional value of the First Trust Subsidiary's 
Commodities.
---------------------------------------------------------------------------

    The 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. The Fund will not invest directly in 
Commodities and the Fund expects to exclusively gain exposure to these 
investments by investing in the First Trust Subsidiary. The Fund and 
the First Trust Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the First Trust Subsidiary).
    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 Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service will be widely disseminated by one or 
more major market data vendors 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, the Fund will disclose on its Web site the Disclosed 
Portfolio of the Fund and the First Trust Subsidiary 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. Pricing information for Fixed-Income Instruments, 
certificates of deposit, bank time deposits and repurchase agreements 
will be available from major broker-dealer firms and/or major market 
data vendors and/or Pricing Services. Pricing information for 
Commodities will be available from the applicable listing exchange and 
from major market data vendors. Money market mutual funds are typically 
priced once each business day and their prices will be available 
through the applicable fund's Web site or from major market data 
vendors. The Fund's Web site will include a form of the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Fund will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121 or because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The Fund's and the First Trust Subsidiary'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 Fund's 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 
an additional type of actively-managed exchange-traded product 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 the Commodities, with other markets and other entities that are 
members of ISG, and FINRA may obtain trading information regarding 
trading in the Shares and the Commodities from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in such instruments 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 and the First Trust Subsidiary reported to 
FINRA's TRACE. Furthermore, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.

[[Page 10933]]

    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 that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

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

    Written comments were neither solicited nor received.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-021 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-NASDAQ-2016-021. 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of Nasdaq. 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-2016-021 and should be submitted 
on or before March 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04503 Filed 3-1-16; 8:45 am]
 BILLING CODE 8011-01-P