Document ID: SEC-2015-1558-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2015-09-23T04:00Z

[Federal Register Volume 80, Number 184 (Wednesday, September 23, 2015)]
[Notices]
[Pages 57414-57418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24060]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75936; File No. SR-NASDAQ-2015-085])

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the PowerShares High Income Downside Hedged 
Portfolio, a Series of the PowerShares Actively Managed Exchange-Traded 
Fund Trust

September 17, 2015.

I. Introduction

    On July 28, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade common shares of beneficial 
interest (``Shares'') of the PowerShares High Income Downside Hedged 
Portfolio (``Fund''), under Nasdaq Rule 5735. The proposed rule change 
was published for comment in the Federal Register on August 5, 2015.\3\ 
The Commission received no comments on the proposal. This order grants 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75555 (Jul. 30, 
2015), 80 FR 46631 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Fund 
under Rule 5735, which governs the listing and trading of Managed Fund 
Shares on the Exchange. The Shares will be offered by the Fund, which 
will be an actively managed exchange-traded fund (``ETF'') and a series 
of the PowerShares Actively Managed Exchange-Traded Fund Trust 
(``Trust''). The Trust was established as a Delaware statutory trust on 
November 6, 2007.\4\ Invesco PowerShares Capital Management LLC will 
serve as the investment adviser to the Fund (``Adviser'').\5\ Invesco 
Distributors, Inc. will serve as the principal underwriter and 
distributor of the Fund's Shares (``Distributor''). The Bank of New 
York Mellon will act as the administrator, accounting agent, custodian, 
and transfer agent for the Fund. The Exchange has made the following 
representations and statements in describing the Fund and its 
investment strategy, including the Fund's portfolio holdings and 
investment restrictions.\6\
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    \4\ The Trust is registered with the Commission as an open-end 
management investment company and has filed a post-effective 
amendment to its registration statement on Form N-1A (``Registration 
Statement'') with the Commission to register the Fund and its Shares 
under the Investment Company Act of 1940 (``1940 Act'') and the 
Securities Act of 1933. See Registration Statement for the Trust, 
filed on April 13, 2015 (File Nos. 333-147622 and 811-22148). In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 28171 (Feb. 27, 2008) (File No. 812-13386).
    \5\ The Exchange represents that the Adviser is itself not a 
broker-dealer, but it is affiliated with the Distributor, which is a 
broker-dealer. The Adviser has therefore implemented a fire wall 
between itself and the Distributor with respect to access to 
information concerning the composition of or changes to the Fund's 
portfolio. The Exchange further represents that in the event (a) the 
Adviser becomes newly affiliated with a different broker-dealer (or 
becomes a registered broker-dealer), or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes 
affiliated with a broker-dealer, the Advisor will implement a fire 
wall with respect to its relevant personnel or broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition of or changes to the Fund's portfolio and will be 
subject to procedures designed to prevent the use and dissemination 
of material, non-public information regarding the portfolio. The 
Exchange states that the Fund does not currently intend to use a 
sub-adviser.
    \6\ The Commission notes that additional information regarding 
the Fund, the Trust, and the Shares, including investment 
strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, calculation of net asset 
value (``NAV''), distributions, and taxes, among other things, can 
be found in the Notice and the Registration Statement, as 
applicable. See Notice and Registration Statement, supra notes 3 and 
4, respectively.
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A. The Exchange's Description of the Fund's Investment Objective

    According to the Exchange, the Fund will be an actively managed ETF 
that will seek to achieve high income and positive total returns. The 
Fund will seek to achieve its investment objective by using a 
quantitative, rules-based investment methodology designed to provide 
returns that exceed the performance of the S&P High Income VEQTOR Index 
(``Benchmark''). The Fund will seek to gain exposure to the securities 
contained in the equity component of the Benchmark and CBOE Volatility 
Index (``VIX Index'') related instruments (``VIX Index Related 
Instruments'').\7\
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    \7\ The Exchange defines ``VIX Index Related Instruments'' as 
ETFs and exchange-traded notes (``ETNs'') that provide exposure to 
the VIX Index, as well as VIX Index futures contracts and options on 
those futures contracts.
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    The Exchange represents that the Benchmark is composed of two types 
of components: An equity component, represented by the constituents of 
the S&P High Income Equity Composite Index (``Equity Component 
Index''), and a volatility component, represented by the S&P 500 VIX 
Short Term Futures Index (``VIX Futures Index''). The Benchmark 
allocates its constituents between the two components in any given 
amount from time to time based on the level of volatility in the 
market.
    The Exchange represents that the Equity Component Index is composed 
of 150 high-yield securities that meet certain size, liquidity, and 
listing exchange criteria as determined by S&P. This component 
comprises the following four sub-components: (i) Preferred stocks; (ii) 
units of master limited partnerships (``MLPs''); (iii) real estate 
investment trusts (``REITs''); and (iv) a portfolio of global 
securities engaged in the real estate industry (``global property 
securities'') and global securities that pay high dividends (``global 
dividend securities,'' and together with global property securities, 
collectively ``Global Equities'').
    The Exchange states that the VIX Index is a theoretical calculation 
and cannot be traded. The VIX Index is a benchmark index designed to 
measure the market price of volatility in large cap U.S. stocks over 30 
days in the future, and is calculated based on the prices of certain 
put and call options on the S&P 500[supreg] Index. The VIX Index 
measures the premium paid by investors for certain options linked to 
the S&P 500[supreg] Index. During periods of market instability, the 
implied level of volatility of the S&P 500[supreg] Index typically 
increases, and, consequently, the prices of options linked to the S&P 
500[supreg] Index typically increase (assuming all other relevant 
factors remain constant or have negligible changes). This, in turn, 
causes the level of the VIX Index to increase. The VIX Index 
historically has had negative correlations to the S&P 500[supreg] 
Index.
    The VIX Futures Index utilizes the prices of the first- and second-
month futures contracts based on the VIX

[[Page 57415]]

Index, replicating a position that rolls the nearest-month VIX futures 
contracts to the next-month VIX futures contracts on a daily basis in 
equal fractional amounts. The Benchmark's allocation to its volatility 
component serves as an implied volatility hedge, as volatility 
historically tends to correlate negatively to the performance of the 
equity markets (i.e., rapid declines in the performance of the equity 
markets generally are associated with particularly high volatility in 
those markets).
    On any day the New York Stock Exchange (``NYSE'') is open for 
business (``Business Day''), the Benchmark allocates its equity and 
volatility components based on a combination of realized volatility and 
implied volatility trend decision variables. The allocation to the VIX 
Futures Index generally increases when realized volatility and implied 
volatility are higher, and decreases when realized volatility and 
implied volatility are lower. While allocations are reviewed daily, 
they may change on a less frequent basis.

B. The Exchange's Description of the Fund's Principal Investments

    According to the Exchange, the Fund's investment strategy is 
similar to the rules-based allocation methodology of its Benchmark. 
Therefore, the allocation among the Fund's investments generally will 
tend to approximate the allocation between the equity and volatility 
components of the Benchmark. However, the Fund seeks returns that 
exceed the returns of the Benchmark; accordingly, the Fund can have a 
higher or lower exposure to either component (or any respective sub-
component) of the Benchmark at any time.\8\
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    \8\ The Fund will be ``non-diversified'' under the 1940 Act and 
therefore may invest more of its assets in fewer issuers than 
``diversified'' funds. The diversification standard is set forth in 
Section 5(b)(1) of the 1940 Act.
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    The Exchange represents that, in pursuing its investment objective, 
under normal market conditions,\9\ the Fund will invest substantially 
all of its assets in (i) an equity sleeve that generally corresponds to 
the Equity Component Index, represented by a combination of 150 high-
yield securities that includes preferred stocks, MLPs, REITs, and 
Global Equities, each of which will be listed either on a U.S. 
securities exchange or a member exchange of the Intermarket 
Surveillance Group (``ISG''); \10\ and (ii) a volatility sleeve, 
represented by the VIX Index Related Instruments. During periods of low 
volatility, a greater portion of the Fund's assets will be invested in 
equity securities, and during periods of increased volatility, a 
greater portion of the Fund's assets will be invested in VIX Index 
Related Instruments. Any U.S. security invested by the Fund must be 
listed on a national securities exchange, and any non-U.S. security 
must be listed on a member exchange of the ISG.
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    \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. In periods of 
extreme market disturbance, the Fund may take temporary defensive 
positions, by overweighting its portfolio in cash or cash-like 
instruments; however, to the extent possible, the Adviser would 
continue to seek to achieve the Fund's investment objective.
    \10\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio (as defined herein) for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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    Further, in addition to the ETFs and ETNs that provide exposure to 
the VIX Index, the Fund may invest in ETFs and ETNs that are listed on 
U.S. securities exchanges that provide exposure to the components of 
the Equity Component Index.

B. The Exchange's Description of the Fund's Other Investments

    According to the Exchange, the Fund may invest its remaining assets 
in U.S. government securities, high-quality money market instruments, 
cash, and cash equivalents to provide liquidity and to collateralize 
its investments in derivative instruments. These instruments in which 
the Fund may invest include: (i) Short-term obligations issued by the 
U.S. Government; \11\ (ii) short-term negotiable obligations of 
commercial banks, fixed time deposits, and bankers' acceptances of U.S. 
and foreign banks and similar institutions; \12\ (iii) commercial paper 
rated at the date of purchase ``Prime-1'' by Moody's Investors Service, 
Inc. or ``A-1+'' or ``A-1'' by S&P or, if unrated, of comparable 
quality, as the Adviser of the Fund determines; and (iv) money market 
mutual funds, including affiliated money market funds.
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    \11\ The Fund may invest in U.S. government obligations. 
Obligations issued or guaranteed by the U.S. Government or its 
agencies or instrumentalities include bills, notes, and bonds issued 
by the U.S. Treasury, as well as ``stripped'' or ``zero coupon'' 
U.S. Treasury obligations representing future interest or principal 
payments on U.S. Treasury notes or bonds.
    \12\ Time deposits are non-negotiable deposits maintained in 
banking institutions for specified periods of time at stated 
interest rates. Banker's acceptances are time drafts drawn on 
commercial banks by borrowers, usually in connection with 
international transactions.
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    The Fund also may enter into repurchase agreements. These 
agreements may be made with respect to any of the portfolio securities 
in which the Fund is authorized to invest. Repurchase agreements may be 
characterized as loans secured by the underlying securities. The Fund 
may enter into repurchase agreements with (i) member banks of the 
Federal Reserve System having total assets in excess of $500 million, 
and (ii) securities dealers (``Qualified Institutions''). The Adviser 
will monitor the continued creditworthiness of Qualified Institutions.
    In addition, the Fund may enter into reverse repurchase agreements, 
which involve the sale of securities with an agreement to repurchase 
the securities at an agreed-upon price, date, and interest payment and 
have the characteristics of borrowing. The securities purchased with 
the funds obtained from the agreement and securities collateralizing 
the agreement will have maturity dates no later than the repayment 
date.
    The Fund may purchase exchange-listed warrants. The Fund does not 
expect to enter into swap agreements, including credit default swaps, 
but may do so if such investments are in the best interests of the 
Fund's shareholders.

C. The Exchange's Description of the Fund's Investment Restrictions

    According to the Exchange, the Fund may not concentrate its 
investments (i.e., invest more than 25% of the value of its net assets) 
in securities of issuers in any one industry or group of industries. 
This restriction will not apply to obligations issued or guaranteed by 
the U.S. government or its agencies or instrumentalities. The Fund's 
investment in securities of other investment companies (including money 
market funds) may exceed the limits permitted under the 1940 Act, in 
accordance with certain terms and conditions set forth in a Commission 
exemptive order issued to the Trust pursuant to Section 12(d)(1)(J) of 
the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment), including Rule 144A securities. The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in

[[Page 57416]]

order to maintain adequate liquidity if, through a change in values, 
net assets, or other circumstances, more than 15% of the Fund's net 
assets are held in illiquid securities or other illiquid assets. 
Illiquid securities and other illiquid assets include those subject to 
contractual or other restrictions on resale and other instruments or 
assets that lack readily available markets as determined in accordance 
with Commission staff guidance.
    The Fund intends to qualify for and to elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.
    As a result of the instruments that the Fund will hold, the Fund 
will be subject to regulation by the Commodity Futures Trading 
Commission and the National Futures Association (``NFA'') as a 
commodity pool, and thus must comply with additional disclosure, 
reporting, and recordkeeping rules imposed upon commodity pools.\13\
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    \13\ The Exchange represents that the Adviser has previously 
registered as a commodity pool operator and commodity trading 
advisor and also is a member of the NFA.
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    The Exchange represents that the Fund's investments will be 
consistent with the Fund's investment objective. Additionally, the Fund 
may engage in frequent and active trading of portfolio securities to 
achieve its investment objective. The Fund may utilize instruments or 
investment techniques that have a leveraging effect on the Fund. This 
effective leverage occurs when the Fund's market exposure exceeds the 
amounts actually invested. Any instance of effective leverage will be 
covered in accordance with guidance promulgated by the Commission and 
its staff. The Exchange represents that the Fund does not currently 
intend to engage in any form of borrowing for investment purposes, and 
will not be operated as a ``leveraged ETF,'' i.e., it will not be 
operated in a manner designed to seek a multiple of the performance of 
an underlying reference index.
    The Exchange represents that the Fund will not use futures for 
speculative purposes, nor will the Fund invest in OTC equities or enter 
into futures contracts that are not traded on a U.S. exchange.

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.\14\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\15\ which requires, among other things, that the Exchange's rules 
be designed 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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    \14\ 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).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission also 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,\16\ which sets forth the finding of Congress 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, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association plans 
for the Shares. In addition, the Intraday Indicative Value, available 
on the NASDAQ OMX Information LLC proprietary index data service, will 
be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Market Session. On 
each Business Day, before commencement of trading in Shares in the 
Regular Market Session on the Exchange, the Fund will disclose on its 
Web site the ``Disclosed Portfolio'' of the Fund that will form the 
basis for the Fund's calculation of NAV at the end of the Business 
Day.\17\ In addition, to the extent the Fund permits full or partial 
creations in-kind, a basket composition file, which will include the 
security names and share quantities to deliver (along with requisite 
cash in lieu) in exchange for Shares, together with estimates and 
actual Cash Components, will be publicly disseminated daily prior to 
the opening of the Exchange via the NSCC and at www.pstrader.net. The 
basket will represent the equity component of the Shares of the Fund.
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    \16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \17\ In addition to disclosing the identities and quantities of 
the portfolio of securities and other assets in the Disclosed 
Portfolio, the Fund also will disclose on a daily basis on its Web 
site the following information, as applicable to the type of 
holding: Ticker symbol, CUSIP number, or other identifier, if any; a 
description of the holding (including the type of holding) and the 
identity of the security or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value, or number 
of shares, contracts or units); maturity date, if any; coupon rate, 
if any; effective date, if any; market value of the holding; and 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
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    The Fund's administrator will calculate the Fund's NAV per Share as 
of the close of regular trading (normally 4:00 p.m., Eastern time 
(``E.T.'')) on each Business Day.\18\ Information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services. Information regarding the previous day's 
closing price and trading volume for the Shares will be published daily 
in the financial section of newspapers. The Exchange represents that 
quotation and last-sale information for any U.S. exchange-traded 
instruments will be available via the quote and trade service of their 
respective primary exchanges, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association 
plans. Quotation and last-sale information for any non-U.S. exchange-
listed securities will be available from the foreign exchanges on which 
those securities trade as well as from major market data vendors. 
Pricing information for any futures contracts or options will be 
available via the quote

[[Page 57417]]

and trade service of their respective primary exchanges. Pricing 
information related to U.S. government securities, money market mutual 
funds, commercial paper, repurchase and reverse repurchase agreements, 
and other short-term investments held by the Fund will be available 
through publicly available quotation services, such as Bloomberg, 
Markit, and Thomson Reuters.
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    \18\ The NAV per Share will be calculated for the Fund by 
deducting all of the Fund's liabilities from the total value of its 
assets and dividing the result by the number of Shares outstanding, 
rounding to the nearest cent. According to the Exchange, securities 
and other assets for which market quotations are readily available 
will be valued at market value. Securities listed or traded on an 
exchange (including high yield Global Equities, preferred stocks, 
MLPs, REITs and warrants) will be valued at the last sale price or 
official closing price that day as of the close of the exchange on 
which those securities primarily trade. Shares of open-end 
registered investment companies (i.e., mutual funds) will be valued 
at net asset value; shares of exchange-traded investment companies 
(i.e., ETFs) and ETNs will be valued at the last sale price or 
official closing price on the exchange on which they primarily 
trade. Futures contracts are valued as of the final settlement price 
on the exchange on which they trade. Options will be valued at the 
closing price (and, if no closing price is available, at the mean of 
the last bid/ask quotations) from the exchange where those 
instruments principally trade. U.S. government securities will be 
valued at the mean price provided by a third party vendor. Illiquid 
securities, as well as cash and cash equivalents, money market 
funds, repurchase agreements (including reverse repurchase 
agreements), and other short-term obligations (including corporate 
commercial paper, negotiable short-term obligations of commercial 
banks, fixed time deposits, bankers acceptances, and similar 
securities) will each be valued in accordance with the Trust's 
valuation policies and procedures, which have been approved by the 
Trust's Board.
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    The Commission further 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. 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.
    Nasdaq will halt trading in the Shares under the conditions 
specified in Nasdaq Rules 4120 and 4121, including the trading pauses 
under Nasdaq Rules 4120(a)(11) and (12). Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.\19\ These may 
include: (1) The extent to which trading is not occurring in the 
securities or the financial instruments constituting the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
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    \19\ 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.
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    The Exchange represents that it also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.
    The Exchange represents that the Adviser is not a registered 
broker-dealer but is affiliated with the Distributor, a broker-dealer. 
The Adviser has implemented a ``fire wall'' between itself and the 
Distributor with respect to the access of information concerning the 
composition of or changes to the Fund's portfolio.\20\ 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. The Exchange represents that 
trading in the Shares will be subject to the existing trading 
surveillances, administered by both Nasdaq and FINRA, on behalf of the 
Exchange, which are designed to deter and detect violations of Exchange 
rules and applicable federal securities laws and are adequate to 
properly monitor trading in the Shares in all trading sessions.\21\
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    \20\ See supra note 5. The Exchange represents that an 
investment adviser to an open-end fund is required to be registered 
under the Investment Advisers Act of 1940 (``Advisers Act''). As a 
result, the Adviser and its related personnel are subject to the 
provisions of Rule 204A-1 under the Advisers Act relating to codes 
of ethics. This Rule requires investment advisers to adopt a code of 
ethics that reflects the fiduciary nature of the relationship to 
clients as well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non-public information by an investment adviser must be 
consistent with the Advisers Act and Rule 204A-1 thereunder. In 
addition, Rule 206(4)-7 under the Advisers Act makes it unlawful for 
an investment adviser to provide investment advice to clients unless 
such investment adviser has (i) adopted and implemented written 
policies and procedures reasonably designed to prevent violation, by 
the investment adviser and its supervised persons, of the Advisers 
Act and the Commission rules adopted thereunder; (ii) implemented, 
at a minimum, an annual review regarding the adequacy of the 
policies and procedures established pursuant to subparagraph (i) 
above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
    \21\ The Exchange states that 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.
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    The Exchange represents that it deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities.
    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will conform to the initial and continued listing 
criteria applicable to Managed Fund Shares, as set forth under Rule 
5735.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions. Trading in the Shares will 
be subject to the existing trading surveillances, which are 
administered by both Nasdaq and FINRA, on behalf of the Exchange, and 
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) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and other exchange-traded securities 
(including the equity component securities, ETFs, ETNs, and warrants) 
and instruments (including futures contracts and options) held by the 
Fund with other markets and other entities that are members of the 
ISG,\22\ and FINRA may obtain trading information regarding trading in 
the Shares and other exchange-traded securities (including the equity 
component securities, ETFs, ETNs, and warrants) and instruments 
(including futures contracts and options) held by the Fund from those 
markets and entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and other exchange-traded securities 
(including the equity component securities, ETFs, ETNs, and warrants) 
and instruments (including futures contracts and options) held by the 
Fund from markets and other entities that are members of ISG, which 
includes securities and futures exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
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    \22\ See supra note 10.
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    (4) Each component of the Fund's equity sleeve, which generally 
corresponds to the Equity Component Index and is represented by a 
combination of 150 high-yield securities that includes preferred 
stocks, MLPs, REITs, and Global Equities, will be listed either on a 
U.S. securities exchange or a member exchange of ISG. Further, with 
regard to the Fund's investments in futures contracts and options, 
those instruments shall have their principal trading market be a member 
of ISG or a market with which the Exchange has a comprehensive 
surveillance sharing agreement.
    (5) 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: (i) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (ii) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (iii) how information 
regarding the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (iv) the risks involved in trading the Shares during the 
Pre-Market and Post- Market

[[Page 57418]]

Sessions when an updated Intraday Indicative Value will not be 
calculated or publicly disseminated; (v) the requirement that members 
purchasing Shares from the Fund for resale to investors deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (vi) trading 
information. In addition, the Information Circular will advise members, 
prior to the commencement of trading, of the prospectus delivery 
requirements applicable to the Fund. Members purchasing Shares from the 
Fund for resale to investors will deliver a prospectus to those 
investors. The Information Circular will also discuss any exemptive, 
no-action, or interpretive relief granted by the Commission from any 
rules under the Exchange Act; will reference that the Fund is subject 
to various fees and expenses; and will disclose the trading hours of 
the Shares of the Fund and the applicable NAV calculation time for the 
Shares.
    (6) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 \23\ under the Exchange Act.
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    \23\ See 17 CFR 240.10A-3.
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    (7) The Fund may not concentrate its investments (i.e., invest more 
than 25% of the value of its net assets) in securities of issuers in 
any one industry or group of industries. This restriction will not 
apply to obligations issued or guaranteed by the U.S. government or its 
agencies or instrumentalities.
    (8) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities or other illiquid assets (calculated at 
the time of investment), including Rule 144A securities. The Fund will 
not use futures for speculative purposes, nor will the Fund invest in 
OTC equities or enter into futures contracts that are not traded on a 
U.S. exchange.
    (9) The Fund's investments will be consistent with the Fund's 
investment objective.
    (10) The Fund may utilize instruments or investment techniques that 
have a leveraging effect on the Fund. Any instance of effective 
leverage will be covered in accordance with guidance promulgated by the 
Commission and its staff.
    (11) The Fund does not presently intend to engage in any form of 
borrowing for investment purposes, and it will not be operated as a 
``leveraged ETF''--i.e., it will not be operated in a manner designed 
to seek a multiple of the performance of an underlying reference index.
    (12) 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, and the Exchange's 
description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \24\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \24\ 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,\25\ that the proposed rule change (SR-NASDAQ-2015-085), 
be, and it hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Brent J. Fields,
Secretary.
[FR Doc. 2015-24060 Filed 9-22-15; 8:45 am]
 BILLING CODE 8011-01-P