[Federal Register Volume 85, Number 21 (Friday, January 31, 2020)]
[Notices]
[Pages 5730-5742]
[FR Doc No: 2020-01783]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88046; File No. SR-NASDAQ-2020-005]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding Certain Changes to Investments of the First Trust TCW
Opportunistic Fixed Income ETF

January 27, 2020.
    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 January 15, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes certain changes regarding investments of the
First Trust TCW Opportunistic Fixed Income ETF, shares of which are
currently listed and traded on the Exchange under Nasdaq Rule 5735
(``Managed Fund Shares'').
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes certain changes, described below under
``Application of Generic Listing Requirements'', regarding investments
of the First Trust TCW Opportunistic Fixed Income ETF (``Fund''),
shares (``Shares'') of which are currently listed and traded on the
Exchange under Nasdaq Rule 5735, which governs the listing and trading
of Managed Fund Shares \3\ on the Exchange. Shares of the Fund
commenced trading on the Exchange on February 15, 2017 in accordance
with the generic listing standards in Nasdaq Rule 5735.
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    \3\ 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) (``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.
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    The Shares are offered by First Trust Exchange-Traded Fund VIII
(the ``Trust''), which is registered with the Securities and Exchange
Commission (``SEC'' or ``Commission'') as an open-end management
investment company.\4\ The Fund is a series of the Trust.
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    \4\ The Trust is registered under the 1940 Act. On December 30,
2019, the Trust filed with the Commission its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a), and
under the 1940 Act relating to the Fund (File Nos. 333-210186 and
811-23147) (``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, 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).

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    First Trust Advisors L.P. is the investment adviser (``First
Trust'' or ``Adviser'') to the Fund. TCW Investment Management Company
LLC (``TCW'' or the ``Sub-Adviser''), serves as the Fund's investment
sub-adviser. First Trust Portfolios L.P. is the distributor
(``Distributor'') for the Fund's Shares. The Bank of New York Mellon
acts as the administrator, custodian and transfer agent (``Custodian''
or ``Transfer Agent'') for the Fund.
    Paragraph (g) of Nasdaq 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
and maintain 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.\5\ 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
nonpublic information regarding the open-end fund's portfolio. The
Adviser and Sub-Adviser are not registered as broker-dealers. The
Adviser is affiliated with First Trust Portfolios L.P., a broker-
dealer, and has implemented and will maintain a fire wall with respect
to its broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolio. The Sub-
Adviser is affiliated with multiple broker-dealers and has implemented
and will maintain a fire wall with respect to its broker-dealer
affiliates regarding access to information concerning the composition
and/or changes to the portfolio. In the event (a) the Adviser or the
Sub-Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer, it
will implement and maintain a fire wall with respect to relevant
personnel and any broker-dealer affiliate 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.
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    \5\ 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 Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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First Trust TCW Opportunistic Fixed Income ETF
Principal Investments
    According to the Registration Statement, the investment objective
of the Fund is to seek to maximize long-term total return. Under normal
market conditions,\6\ the Fund intends to invest at least 80% of its
net assets (including investment borrowings) in a portfolio of ``Fixed
Income Securities'' (described below).
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    \6\ The term ``normal market conditions'' is defined in Nasdaq
Rule 5735(c)(5). On a temporary basis, including for defensive
purposes, during the initial invest-up period (i.e., the six-week
period following the commencement of trading of Shares on the
Exchange) and during periods of high cash inflows or outflows (i.e.,
rolling periods of seven calendar days during which inflows or
outflows of cash, in the aggregate, exceed 10% of the Fund's net
assets as of the opening of business on the first day of such
periods), 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 and/or the Sub-Adviser believes securities
in which the Fund normally invests have elevated risks due to
market, political or economic factors and in other extraordinary
circumstances.
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    In managing the Fund's portfolio, the Sub-Adviser intends to
attempt to focus the Fund's portfolio holdings in areas of the fixed
income market (based on quality, sector, coupon or maturity) that the
Sub-Adviser believes to be relatively undervalued. Pursuant to this
investment strategy, the Fund may invest in the following Fixed Income
Securities, which may be represented by derivatives relating to such
securities, as discussed below:
     Securities issued or guaranteed by the U.S. government or
its agencies, instrumentalities or U.S. government-sponsored entities
(``U.S. government securities'');
     Treasury Inflation Protected Securities (``TIPS'');
     the following non-agency, non-government-sponsored entity
(``GSE'') and privately-issued mortgage-related and other asset-backed
securities: Residential mortgage-backed securities (``RMBS''),
commercial mortgage-backed securities (``CMBS''), asset-backed
securities (``ABS''), and collateralized loan obligations (``CLOs''
and, together with such RMBS, CMBS and ABS ``Private ABS/MBS''); \7\
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    \7\ For avoidance of doubt, ``Private ABS/MBS'' as referenced
herein are non-agency, non-GSE and privately-issued mortgage-related
and other asset-backed securities as stated in Nasdaq Rule
5735(b)(1)(B)(v).
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     Agency RMBS, agency CMBS, and agency ABS;
     domestic corporate bonds;
     Fixed Income Securities issued by non-U.S. corporations
and non-U.S. governments;
     bank loans, including first lien senior secured floating
rate bank loans (``Senior Loans''), secured and unsecured loans, second
lien or more junior loans, and bridge loans;
     fixed income convertible securities;
     fixed income preferred securities; and
     municipal bonds.
    The Fund may invest in agency RMBS and CMBS by investing in to-be-
announced transactions (``TBA Transactions'').
    The Fund may hold cash and cash equivalents.\8\ In addition, the
Fund may hold the following short-term instruments with maturities of
three months or more: Certificates of deposit; bankers' acceptances;
repurchase agreements and reverse repurchase agreements; bank time
deposits; and commercial paper.
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    \8\ For purposes of this filing, cash equivalents are the short-
term instruments with maturities of less than 3 months enumerated in
Nasdaq Rule 5735(b)(1)(C).
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    The Fund may enter into short sales of any securities in which the
Fund may invest.
    The Fund may utilize exchange-listed and over-the-counter (``OTC'')
traded derivatives instruments for duration/yield curve management and/
or hedging purposes, for risk management purposes or as part of its
investment strategies. The Fund will use derivative instruments
primarily to hedge interest rate risk, actively manage interest rate
exposure, hedge foreign currency risk and actively manage foreign
currency exposure. The Fund may also use derivative instruments to
enhance returns, as a substitute for, or to gain

exposure to, a position in an underlying asset, to reduce transaction
costs, to maintain full market exposure, to manage cash flows or to
preserve capital. Derivatives may also be used to hedge risks
associated with the Fund's other portfolio investments. The Fund will
not use derivative instruments to gain exposure to Private ABS/MBS, and
derivative instruments linked to such securities will be used for
hedging purposes only. Derivatives that the Fund may enter into are the
following: Futures on interest rates, currencies, Fixed Income
Securities and fixed income indices; exchange-traded and OTC options on
interest rates, currencies, Fixed Income Securities and fixed income
indices; swap agreements on interest rates, currencies, Fixed Income
Securities and fixed income indices; credit default swaps (``CDX'');
and currency forward contracts.
Other Investments
    While the Fund, under normal market conditions, invests at least
80% of its net assets in the Principal Investments described above, the
Fund may invest its remaining assets in the following ``Non-Principal
Investments.''
    The Fund may invest in exchange-traded common stock, exchange-
traded preferred stock, and exchange-traded real estate investment
trusts (``REITs'').
    The Fund may invest in the securities of other investment companies
registered under the 1940 Act, including money market funds, exchange-
traded funds (``ETFs''), open-end funds (other than money market funds
and other ETFs), and U.S. exchange-traded closed-end funds.\9\
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    \9\ For purposes of this filing, the term ``ETFs'' are Index
Fund Shares (as described in Nasdaq Rule 5705(b)); Portfolio
Depository Receipts (as described in Nasdaq Rule 5705(a)); and
Managed Fund Shares (as described in Nasdaq Rule 5735). All ETFs
will be listed and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse ETFs, the Fund will
not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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     The Fund may hold exchange-traded notes (``ETNs'').\10\
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    \10\ For purposes of this filing, ETNs are Linked Securities (as
described in Nasdaq Rule 5710). While the Fund may invest in inverse
ETNs, the Fund will not invest in leveraged or inverse leveraged
ETNs (e.g., 2X or -3X).
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     The Fund may hold exchange-traded or OTC ``Work Out
Securities.'' \11\
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    \11\ For purposes of this filing, Work Out Securities are U.S.
or foreign equity securities of any type acquired in connection with
restructurings related to issuers of Fixed Income Securities held by
the Fund. Work Out Securities are generally traded OTC, but may be
traded on a U.S. or foreign exchange.
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     The Fund may hold exchange-traded or OTC equity securities
issued upon conversion of fixed income convertible securities.
Investment Restrictions
    The Fund may not invest more than 2% of its total assets in any one
Fixed Income Security (excluding U.S. government securities and TIPS)
on a per CUSIP basis. The Fund's holdings in derivative instruments for
hedging purposes would be excluded from the determination of compliance
with this 2% limitation. The total gross notional value of the Fund's
holdings in derivative instruments used to gain exposure to a specific
asset is limited to 2% of the Fund's total assets.
    The Fund may invest up to 50% of its total assets in the aggregate
in Private ABS/MBS, provided that the Fund (1) may not invest more than
30% of its total assets in non-agency RMBS; (2) may not invest more
than 25% of its total assets in non-agency CMBS and CLOs; and (3) may
not invest more than 25% of its total assets in non-agency ABS.
    With respect to the Fund's investments in up to 30% of its total
assets in Private ABS/MBS that exceed the 20% of the weight of the
Fund's portfolio \12\ that may be invested in Private ABS/MBS under
Nasdaq Rule 5735(b)(1)(B)(v),\13\ the following restrictions will
apply:
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    \12\ See Securities Exchange Act Release No. 86399 (July 17,
2019), 84 FR 35446 (July 23, 2019) (SR-NASDAQ-2019-054) (approving
an amendment to Nasdaq Rule 5735(b)(1)(B)(v) to delete the reference
to the ``fixed income portion of the'' portfolio, such that non-
agency, non-GSE, and privately-issued mortgage-related and other
asset-backed securities components of a portfolio may not account,
in the aggregate, for more than 20% of the weight of the whole
portfolio).
    \13\ Nasdaq Rule 5735(b)(1)(B)(v) provides that non-agency, non-
GSE and privately-issued mortgage-related and other asset-backed
securities components of a portfolio shall not account, in the
aggregate, for more than 20% of the weight of the portfolio.
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     Non-agency RMBS shall have a weighted average loan age of
84 months or more;
     Non-agency CMBS and CLOs shall have a weighted average
loan age of 60 months or more; and
     Non-agency ABS shall have a weighted average loan age of
12 months or more.\14\
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    \14\ Information relating to weighted average loan age for non-
agency RMBS, non-agency CMBS, CLOs and non-agency ABS is widely
available from major market data vendors such as Bloomberg.
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    The Exchange proposes that up to 25% of the Fund's assets may be
invested in OTC derivatives that are used to reduce currency, interest
rate or credit risk arising from the Fund's investments (that is,
``hedge''). The Fund's investments in OTC derivatives other than OTC
derivatives used to hedge the Fund's portfolio against currency,
interest rate or credit risk will be limited to 20% of the assets in
the Fund's portfolio. For purposes of these percentage limitations on
OTC derivatives, the weight of such OTC derivatives will be calculated
as the aggregate gross notional value of such OTC derivatives.
    The Fund's holdings of bank loans will not exceed 15% of the Fund's
total assets, and the Fund's holdings of bank loans other than Senior
Loans will not exceed 5% of the Fund's total assets.
    The Fund's holdings in fixed income convertible securities and in
equity securities issued upon conversion of such convertible securities
will not exceed 10% of the Fund's total assets.
    The Fund's holdings in Work Out Securities will not exceed 5% of
the Fund's total assets.
    The Fund will not invest in securities or other financial
instruments that have not been described in this proposed rule change.
Other Restrictions
    The Fund's investments, including derivatives, will be consistent
with the Fund's investment objective and will not be used to enhance
leverage (although certain derivatives and other investments may result
in leverage). That is, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (e.g., 2X or -3X)
of the Fund's primary broad-based securities benchmark index (as
defined in Form N-1A).\15\
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    \15\ The Fund's broad-based securities benchmark index is the
Bloomberg Barclays U.S. Aggregate Bond Index.
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Use of Derivatives by the Fund
    The Fund may invest in the types of derivatives described in the
``Principal Investments'' section above for the purposes described in
that section. Investments in derivative instruments will be made in
accordance with the Fund's investment objective and policies.
    To limit the potential risk associated with such transactions, the
Fund will enter into offsetting transactions or segregate or
``earmark'' assets determined to be liquid by the Adviser in accordance
with procedures established by the Trust's Board of Trustees (the
``Trust Board''). In addition, the Fund has included appropriate risk
disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that certain transactions of the Fund,
including the Fund's use of derivatives, may give rise to leverage,
causing the Fund to be more volatile than if it had not been leveraged.

Because the markets for certain assets, or the assets themselves, may
be unavailable or cost prohibitive as compared to derivative
instruments, suitable derivative transactions may be an efficient
alternative for the Fund to obtain the desired asset exposure.
Impact on Arbitrage Mechanism
    The Adviser and the Sub-Adviser believe there will be minimal, if
any, impact to the arbitrage mechanism as a result of the Fund's use of
derivatives and Private ABS/MBS. The Adviser and the Sub-Adviser
understand that market makers and participants should be able to value
derivatives and Private ABS/MBS as long as the positions are disclosed
with relevant information. The Adviser and the Sub-Adviser believe that
the price at which Shares of the Fund trade will continue to be
disciplined by arbitrage opportunities created by the ability to
purchase or redeem Shares of the Fund at their net asset value
(``NAV''), which should ensure that Shares of the Fund will not trade
at a material discount or premium in relation to their NAV.
    The Adviser and Sub-Adviser do not believe there will be any
significant impacts to the settlement or operational aspects of the
Fund's arbitrage mechanism due to the use of derivatives and Private
ABS/MBS.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV
\16\ 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. The size of a Creation Unit is subject to change. As described
in the Registration Statement, 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'').\17\ 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 (which may include cash-
in-lieu amounts) 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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    \16\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m.,
Eastern Time (``E.T.'') (the ``NAV Calculation Time''). NAV per
Share will be calculated by dividing the Fund's net assets by the
number of Fund Shares outstanding.
    \17\ It is expected that the Fund will typically issue and
redeem Creation Units on a cash basis; however, at times, the Fund
may issue and redeem Creation Units on an in-kind (or partially in-
kind) (or partially cash) basis.
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    Creations and redemptions must be made by or through an Authorized
Participant that has executed an agreement that has been agreed to by
the Distributor and the Transfer Agent with respect to creations and
redemptions of Creation Units. All standard orders to create Creation
Units must be received by the Transfer Agent no later than the closing
time of the regular trading session on the NYSE (ordinarily 4:00 p.m.,
E.T.) (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 Custodian, through the
National Securities Clearing Corporation (``NSCC''), 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.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the
portfolio for the Fund will not meet all of the ``generic'' listing
requirements of Nasdaq Rule 5735(b)(1) applicable to the listing of
Managed Fund Shares. The Fund's portfolio will meet all such
requirements except for those set forth in Nasdaq Rule
5735(b)(1)(A)(i), (b)(1)(A)(ii), (b)(1)(B)(i), (b)(1)(B)(iv),
(b)(1)(B)(v), and (b)(1)(E), as described below. The Exchange notes
that the proposed rule change set forth in this filing is based on a
very similar proposed rule change that was recently approved by the
Commission with respect to another actively-managed ETF for which the
Adviser serves as investment adviser and the Sub-Adviser serves as
investment sub-adviser.\18\
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    \18\ See Securities Exchange Act Release No. 87410 (October 28,
2019), 84 FR 58750 (November 1, 2019) (SR-NYSEArca-2019-33) (Notice
of Filing of Amendment No. 2 and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment No. 2, Regarding
Changes to Investments of the First Trust TCW Unconstrained Plus
Bond ETF) (the ``Recent Approval'').
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    The Fund will not comply with the requirements set forth in Nasdaq
Rule 5735(b)(1)(A)(i) \19\ and (b)(1)(A)(ii) \20\

with respect to the Fund's investments in equity securities.\21\
Instead, the Exchange proposes that the Fund's investments in equity
securities will meet the requirements of Nasdaq Rule 5735(b)(1)(A) with
the exception of Nasdaq Rule 5735(b)(1)(A)(i)(c) and (d) (with respect
to U.S. Component Stocks) and Nasdaq Rule 5735(b)(1)(A)(ii)(c) and (d)
(with respect to Non-U.S. Component Stocks). Any Fund investment in
exchange-traded common stocks, preferred stocks, REITS, ETFs, ETNs,
exchange-traded equity securities issued upon conversion of fixed
income convertible securities, exchange-traded Work Out Securities and
U.S. exchange-traded closed-end funds would provide for enhanced
diversification of the Fund's portfolio and, in any case, would be Non-
Principal Investments and would not exceed 20% of the Fund's net assets
in the aggregate. With respect to any Fund holdings of exchange-traded
equity securities issued upon conversion of fixed income convertible
securities and exchange-traded Work Out Securities, such securities
will not exceed 10% and 5%, respectively, of the Fund's total assets.
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    \19\ Nasdaq Rule 5735(b)(1)(A)(i) provides that the component
stocks of the equity portion of a portfolio that are U.S. Component
Stocks shall meet the following criteria initially and on a
continuing basis:
    (a) Component stocks (excluding Exchange Traded Derivative
Securities and Linked Securities) that in the aggregate account for
at least 90% of the equity weight of the portfolio (excluding such
Exchange Traded Derivative Securities and Linked Securities) each
shall have a minimum market value of at least $75 million;
    (b) Component stocks (excluding Exchange Traded Derivative
Securities and Linked Securities) that in the aggregate account for
at least 70% of the equity weight of the portfolio (excluding such
Exchange Traded Derivative Securities and Linked Securities) each
shall have a minimum monthly trading volume of 250,000 shares, or
minimum notional volume traded per month of $25,000,000, averaged
over the last six months;
    (c) The most heavily weighted component stock (excluding
Exchange Traded Derivative Securities and Linked Securities) shall
not exceed 30% of the equity weight of the portfolio, and, to the
extent applicable, the five most heavily weighted component stocks
(excluding Exchange Traded Derivative Securities and Linked
Securities) shall not exceed 65% of the equity weight of the
portfolio;
    (d) Where the equity portion of the portfolio does not include
Non-U.S. Component Stocks, the equity portion of the portfolio shall
include a minimum of 13 component stocks; provided, however, that
there shall be no minimum number of component stocks if (i) one or
more series of Exchange Traded Derivative Securities or Linked
Securities constitute, at least in part, components underlying a
series of Managed Fund Shares, or (ii) one or more series of
Exchange Traded Derivative Securities or Linked Securities account
for 100% of the equity weight of the portfolio of a series of
Managed Fund Shares;
    (e) Except as provided herein, equity securities in the
portfolio shall be U.S. Component Stocks listed on a national
securities exchange and shall be NMS Stocks as defined in Rule 600
of Regulation NMS under the Securities Exchange Act of 1934; and
    (f) American Depositary Receipts (``ADRs'') in a portfolio may
be exchange-traded or non-exchange-traded. However, no more than 10%
of the equity weight of a portfolio shall consist of non-exchange-
traded ADRs.
    \20\ Nasdaq Rule 5735(b)(1)(A)(ii) provides that the component
stocks of the equity portion of a portfolio that are Non-U.S.
Component Stocks shall meet the following criteria initially and on
a continuing basis:
    (a) Non-U.S. Component Stocks each shall have a minimum market
value of at least $100 million;
    (b) Non-U.S. Component Stocks each shall have a minimum global
monthly trading volume of 250,000 shares, or minimum global notional
volume traded per month of $25,000,000, averaged over the last six
months;
    (c) The most heavily weighted Non-U.S. Component stock shall not
exceed 25% of the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted Non-U.S. Component Stocks
shall not exceed 60% of the equity weight of the portfolio;
    (d) Where the equity portion of the portfolio includes Non-U.S.
Component Stocks, the equity portion of the portfolio shall include
a minimum of 20 component stocks; provided, however, that there
shall be no minimum number of component stocks if (i) one or more
series of Exchange Traded Derivative Securities or Linked Securities
constitute, at least in part, components underlying a series of
Managed Fund Shares, or (ii) one or more series of Exchange Traded
Derivative Securities or Linked Securities account for 100% of the
equity weight of the portfolio of a series of Managed Fund Shares;
and
    (e) Each Non-U.S. Component Stock shall be listed and traded on
an exchange that has last-sale reporting.
    \21\ For purposes of these exceptions, investments in equity
securities that are OTC Work Out Securities, OTC equity securities
issued upon conversion of fixed income convertible securities, or
non-exchange-traded securities of other open-end investment
companies (e.g., mutual funds) are excluded and are discussed
further below.
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    The Adviser and Sub-Adviser represent that the Fund generally will
not actively invest in equity securities issued upon conversion of
fixed income convertible securities or Work Out Securities, but may, at
times, receive a distribution of such securities in connection with the
Fund's holdings in other securities. Therefore, the Fund's holdings in
equity securities issued upon conversion of fixed income convertible
securities and Work Out Securities generally would not be acquired as
the result of the Fund's voluntary investment decisions. The Adviser
and Sub-Adviser represent that, under these circumstances, application
of the weighting requirements of Nasdaq Rules 5735(b)(1)(A)(i)(c) and
5735(b)(1)(A)(ii)(c) and the minimum number of components requirements
of Nasdaq Rules 5735(b)(1)(A)(i)(d) and 5735(b)(1)(A)(ii)(d) would
impose an unnecessary burden on the Fund's ability to hold such equity
securities.
    The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(B)(i) that components that in the aggregate account for at
least 75% of the fixed income weight of the portfolio each shall have a
minimum original principal amount outstanding of $100 million or more.
Instead, the Exchange proposes that components that in the aggregate
account for at least 50% of the fixed income weight of the portfolio
each shall have a minimum original principal amount outstanding of $50
million or more. As noted above, the Fund may not invest more than 2%
of its total assets in any one Fixed Income Security (excluding U.S.
government securities and TIPS) on a per CUSIP basis. In addition, at
least 50% of the weight of the Fund's portfolio would continue to be
subject to a substantial minimum (i.e., $50 million) original principal
amount outstanding. The Exchange believes this limitation would provide
significant additional diversification to the Fund's investments in
Fixed Income Securities, and reduce concerns that the Fund's
investments in such securities would be readily susceptible to market
manipulation.
    The Fund will not comply with the requirements in Nasdaq Rule
5735(b)(1)(B)(iv) that component securities that in the aggregate
account for at least 90% of the fixed income weight of the portfolio
meet one of the criteria specified in Nasdaq Rule 5735(b)(1)(B)(iv),
because certain Private ABS/MBS cannot satisfy the criteria in Nasdaq
Rule 5735(b)(1)(B)(iv).\22\ Instead, the Exchange proposes that the
Fund's investments in Fixed Income Securities other than Private ABS/
MBS will be required to comply with the requirements of Nasdaq Rule
5735(b)(1)(B)(iv). As noted above, the Fund may not invest more than 2%
of its total assets in any one Fixed Income Security (excluding U.S.
government securities and TIPS) on a per CUSIP basis. The Exchange
believes this limitation would provide additional diversification to
the Fund's investments in Private ABS/MBS, and reduce concerns that the
Fund's investment in such securities would be readily susceptible to
market manipulation.
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    \22\ Nasdaq Rule 5735(b)(1)(B)(iv) provides that component
securities that in the aggregate account for at least 90% of the
fixed income weight of the portfolio must be either: (a) From
issuers that are required to file reports pursuant to Sections 13
and 15(d) of the Act; (b) from issuers that have a worldwide market
value of its outstanding common equity held by non-affiliates of
$700 million or more; (c) from issuers that have outstanding
securities that are notes, bonds debentures, or evidence of
indebtedness having a total remaining principal amount of at least
$1 billion; (d) exempted securities as defined in Section 3(a)(12)
of the Act; or (e) from issuers that are a government of a foreign
country or a political subdivision of a foreign country.
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    The Exchange notes that the Commission has previously approved the
listing of Managed Fund Shares with similar investment objectives and
strategies without imposing requirements that a certain percentage of
such funds' securities meet one of the criteria corresponding to those
set forth in Nasdaq Rule 5735(b)(1)(B)(iv).\23\
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    \23\ See the Recent Approval, supra note 18. In addition, see,
e.g., Exchange Act Release Nos. 67894 (September 20, 2012), 77 FR
59227 (September 26, 2012) (SR-BATS-2012-033) (order approving the
listing and trading of shares of the iShares Short Maturity Bond
Fund); 70342 (September 6, 2013), 78 FR 56256 (September 12, 2013)
(SR-NYSEArca-2013-71) (order approving the listing and trading of
shares of the SPDR SSgA Ultra Short Term Bond ETF, SPDR SSgA
Conservative Ultra Short Term Bond ETF and SPDR SSgA Aggressive
Ultra Short Term Bond ETF).
---------------------------------------------------------------------------

    The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(B)(v) that Private ABS/MBS in the Fund's portfolio account,
in the aggregate, for no more than 20% of the weight of the Fund's
portfolio.\24\ Instead, the Exchange proposes that, in order to enable
the portfolio to be more diversified and provide the Fund with an
opportunity to earn higher returns, the Fund may invest up to 50% of
its total assets in the aggregate in Private ABS/MBS, provided that the
Fund (1) may not invest more than 30% of its total assets in non-agency
RMBS; (2) may not invest more than 25% of its total assets in non-
agency CMBS and CLOs; and (3) may not invest more than 25% of its total
assets in non-agency ABS.\25\
---------------------------------------------------------------------------

    \24\ See note 13, supra.
    \25\ The Exchange notes that substantially the same proposal was
set forth in the Recent Approval.
---------------------------------------------------------------------------

    With respect to the Fund's investments in up to 30% of its total
assets in Private ABS/MBS that exceed the 20% of the weight of the
Fund's portfolio that may be invested in Private ABS/MBS under Nasdaq
Rule 5735(b)(1)(B)(v),\26\ the following restrictions (which are
identical to those set forth in the Recent Approval) will apply:
---------------------------------------------------------------------------

    \26\ See note 13, supra.
---------------------------------------------------------------------------

     Non-agency RMBS shall have a weighted average loan age of
84 months or more;
     Non-agency CMBS and CLOs shall have a weighted average
loan age of 60 months or more; and

     Non-agency ABS shall have a weighted average loan age of
12 months or more.
    In addition, as noted above, the Fund may not invest more than 2%
of its total assets in any one Fixed Income Security (excluding U.S.
government securities and TIPS) on a per CUSIP basis.\27\ The Exchange
believes these limitations would provide additional diversification to
the Fund's Private ABS/MBS investments and reduce concerns that the
Fund's investment in such securities would be readily susceptible to
market manipulation.
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    \27\ As noted above, the Fund's holdings in derivative
instruments for hedging purposes would be excluded from the
determination of compliance with this 2% limitation. The total gross
notional value of the Fund's holdings in derivative instruments used
to gain exposure to a specific asset is limited to 2% of the Fund's
total assets.
---------------------------------------------------------------------------

    The Adviser and Sub-Adviser represent that the RMBS sector can be
an important component of the Fund's investment strategy because of the
potential for attractive risk-adjusted returns relative to other fixed
income sectors and the potential to add significantly to the
diversification in the Fund's portfolio. Similarly, the Private ABS/MBS
sectors also have the potential for attractive risk-adjusted returns
and added portfolio diversification.
    The Fund's portfolio will not comply with the requirements set
forth in Nasdaq Rule 5735(b)(1)(E).\28\ Specifically, the Fund's
investments in OTC derivatives may exceed 20% of Fund assets,
calculated as the aggregate gross notional value of such OTC
derivatives. The Exchange proposes that up to 25% of the Fund's assets
(calculated as the aggregate gross notional value) may be invested in
OTC derivatives that are used to reduce currency, interest rate or
credit risk arising from the Fund's investments (that is, ``hedge'').
The Fund's investments in OTC derivatives other than OTC derivatives
used to hedge the Fund's portfolio against currency, interest rate or
credit risk will be limited to 20% of the assets in the Fund's
portfolio, calculated as the aggregate gross notional value of such OTC
derivatives.
---------------------------------------------------------------------------

    \28\ Nasdaq Rule 5735(b)(1)(E) provides that the portfolio may
hold OTC derivatives, including forwards, options and swaps on
commodities, currencies and financial instruments (e.g., stocks,
fixed income, interest rates, and volatility) or a basket or index
of any of the foregoing; however, on both an initial and continuing
basis, no more than 20% of the assets in the portfolio may be
invested in OTC derivatives. For purposes of calculating this
limitation, a portfolio's investment in OTC derivatives will be
calculated as the aggregate gross notional value of the OTC
derivatives.
---------------------------------------------------------------------------

    The Adviser and Sub-Adviser believe that it is important to provide
the Fund with additional flexibility to manage risk associated with its
investments. Depending on market conditions, it may be critical that
the Fund be able to utilize available OTC derivatives for this purpose
to attempt to reduce impact of currency, interest rate or credit
fluctuations on Fund assets. Therefore, the Exchange believes it is
appropriate to apply a limit of up to 25% of the Fund's assets to the
Fund's investments in OTC derivatives (calculated as the aggregate
gross notional value of such OTC derivatives), including forwards,
options and swaps, that are used for hedging purposes, as described
above.\29\
---------------------------------------------------------------------------

    \29\ In the Recent Approval, supra note 18, the Commission
approved an exception to the applicable generic listing requirements
relating to investments in OTC derivatives that was substantially
the same as that proposed in this filing. See also Securities
Exchange Act Release No. 80657 (May 11, 2017), 82 FR 22702 (May 17,
2017) (SR-NYSEArca-2017-09) (Notice of Filing of Amendment No. 2 and
Order Granting Accelerated Approval of a Proposed Rule Change, as
Modified by Amendment No. 2, Regarding Investments of the Janus
Short Duration Income ETF Listed Under NYSE Arca Equities Rule
8.600).
---------------------------------------------------------------------------

    As noted above, the Fund may hold equity securities that are Work
Out Securities, which generally are traded OTC (but that may be traded
on a U.S. or foreign exchange), exchange-traded or OTC equity
securities issued upon conversion of fixed income convertible
securities, and non-exchange-traded securities of other open-end
investment company (e.g., mutual funds). The Exchange believes that it
is appropriate and in the public interest to approve listing and
trading of Shares of the Fund on the Exchange notwithstanding that the
Fund would not meet the requirements of Nasdaq Rule 5735(b)(1)(A)(i)(a)
through (e) with respect to the Fund's investments in non-exchange-
traded securities of open-end investment companies,\30\ and
notwithstanding that the Fund's holdings of OTC equity securities
issued upon conversion of fixed income convertible securities and OTC
Work Out Securities would not meet the requirements of Nasdaq Rule
5735(b)(1)(A)(i)(a) through (e) and Nasdaq Rule 5735(b)(1)(A)(ii)(a)
through (e). Investments in non-exchange-traded securities of open-end
investment companies will not be principal investments of the Fund.\31\
Such investments, which may include mutual funds that invest, for
example, principally in fixed income securities, would be utilized to
help the Fund meet its investment objective and to equitize cash in the
short term. With respect to any Fund holdings of OTC equity securities
issued upon conversion of fixed income convertible securities and OTC
Work Out Securities, such securities will not exceed 10% and 5%,
respectively, of the Fund's total assets. The Adviser and Sub-Adviser
represent that the Fund generally will not actively invest in OTC
equity securities issued upon conversion of fixed income convertible
securities or OTC Work Out Securities, but may, at times, receive a
distribution of such securities in connection with the Fund's holdings
in other securities. Therefore, the Fund's holdings in equity
securities issued upon conversion of fixed income convertible
securities and Work Out Securities generally would not be acquired as
the result of the Fund's voluntary investment decisions.
---------------------------------------------------------------------------

    \30\ Nasdaq Rule 5735(b)(1)(A) specifies the equity securities
accommodated by the generic criteria in Nasdaq Rule 5735(b)(1)(A),
namely, U.S. Component Stocks (as described in Nasdaq Rule 5705);
Non-U.S. Component Stocks (as described in Nasdaq Rule 5705);
Exchange Traded Derivative Securities (as described in Nasdaq Rule
5735(c)(6)); and Linked Securities (as described in Nasdaq Rule
5710).
    \31\ For purposes of this section of the filing, non-exchange-
traded securities of other registered investment companies do not
include money market funds, which are cash equivalents under Nasdaq
Rule 5735(b)(1)(C) and for which there is no limitation in the
percentage of the portfolio invested in such securities.
---------------------------------------------------------------------------

    With respect to investments in non-exchange-traded investment
company securities, because such securities have a net asset value
based on the value of securities and financial assets the investment
company holds, the Exchange believes it is both unnecessary and
inappropriate to apply to such investment company securities the
criteria in Nasdaq Rule 5735(b)(1)(A)(i).\32\
---------------------------------------------------------------------------

    \32\ The Commission has previously approved proposed rule
changes under Section 19(b) of the Act for series of Managed Fund
Shares that may invest in non-exchange traded investment company
securities. See, e.g., the Recent Approval, supra note 18;
Securities Exchange Act Release No. 78414 (July 26, 2016), 81 FR
50576 (August 1, 2016) (SR-NYSEArca-2016-79) (order approving
listing and trading of shares of the Virtus Japan Alpha ETF under
NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The Exchange notes that Nasdaq Rule 5735(b)(1)(A)(i)(a) through (d)
exclude application of those provisions to certain ``Exchange Traded
Derivative Securities'' that are exchange-traded investment company
securities, including Portfolio Depository Receipts (as described in
Nasdaq Rule 5705(a)), Index Fund Shares (as described in Nasdaq Rule
5705(b)) and Managed Fund Shares (as described in Nasdaq Rule
5735).\33\ In the 2008 NYSEArca

Approval Order, the Commission stated that ``based on the trading
characteristics of Derivative Securities Products, it may be difficult
for component Derivative Securities Products to satisfy certain
quantitative index criteria, such as the minimum market value and
trading volume limitations.'' The Exchange notes that it would be
difficult or impossible to apply to non-exchange-traded investment
company securities the generic quantitative criteria (e.g., market
capitalization, trading volume, or portfolio criteria) in Nasdaq Rule
5735(b)(1)(A)(i)(a) through (d) applicable to U.S. Component Stocks.
For example, the requirement for U.S. Component Stocks in Nasdaq Rule
5735(b)(1)(A)(i)(b) that there be a minimum monthly trading volume of
250,000 shares, or minimum notional volume traded per month of
$25,000,000, averaged over the last six months, is tailored to
exchange-traded securities (e.g., U.S. Component Stocks) and not to
mutual fund shares, which do not trade in the secondary market.
Moreover, application of such criteria would not serve the purpose
served with respect to U.S. Component Stocks, namely, to establish
minimum liquidity and diversification criteria for U.S. Component
Stocks held by series of Managed Fund Shares.
---------------------------------------------------------------------------

    \33\ The Commission initially approved the Exchange's proposed
rule change to provide exclusions for ``Derivative Securities
Products'' (e.g., Index Fund Shares, Portfolio Depository Receipts
and Managed Fund Shares) in Nasdaq Rules 5705(b)(3)(A)(i)(a) through
(d) and 5705(b)(3)(A)(ii)(a) through (d). See Securities Exchange
Act Release No. 69928 (July 3, 2013), 78 FR 41489 (July 10, 2013)
(SR-NASDAQ-2013-094) (Notice of Filing and Immediate Effectiveness
to Conform Rule 5705 Governing Exchange Traded Funds to the Listing
Requirements of Another Market) (the ``2013 Approval''). The 2013
Approval was intended to conform provisions of Nasdaq Rule 5705 to
the comparable provisions of the corresponding NYSE Arca rule, as
amended in 2008. See Securities Exchange Act Release No. 57751 (May
1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, to Amend the Eligibility Criteria for
Components of an Index Underlying Investment Company Units) (``2008
NYSEArca Approval Order''). The Commission subsequently approved
generic criteria applicable to the listing and trading of Managed
Fund Shares, including exclusions for Exchange Traded Derivative
Securities and Linked Securities in Nasdaq Rule 5735(b)(1)(A)(i)(a)
through (d) in Securities Exchange Act Release No. 78918 (September
23, 2016), 81 FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104)
(Order Granting Approval of a Proposed Rule Change To Amend Nasdaq
Rule 5735 To Adopt Generic Listing Standards for Managed Fund
Shares). See also Securities Exchange Release No. 78616 (August 18,
2016), 81 FR 57968 (August 24, 2016) (Notice of Filing of Proposed
Rule Change to Amend Nasdaq Rule 5735 To Adopt Generic Listing
Standards for Managed Fund Shares).
---------------------------------------------------------------------------

    The Exchange notes that the Commission has previously approved
listing and trading of issues of Managed Fund Shares that may invest in
equity securities that are non-exchange-traded securities of other
open-end investment companies notwithstanding that a fund would not
meet requirements corresponding to those of Nasdaq Rule
5735(b)(1)(A)(i)(a) through (e) with respect to such fund's investments
in such securities.\34\ Thus, the Exchange believes that it is
appropriate to permit the Fund to invest in non-exchange-traded open-
end management investment company securities, as described above.
---------------------------------------------------------------------------

    \34\ See, e.g., the Recent Approval, supra note 18; Securities
Exchange Act Release No. 83319 (May 24, 2018) (SR-NYSEArca-2018-15)
(Order Approving a Proposed Rule Change, as Modified by Amendment
No. 1 Thereto, to Continue Listing and Trading Shares of the PGIM
Ultra Short Bond ETF Under NYSE Arca Rule 8.600-E).
---------------------------------------------------------------------------

    Deviations from the generic requirements are necessary for the Fund
to achieve its investment objective in a manner that is cost-effective
and that maximizes investors' returns. Further, the proposed
alternative requirements are narrowly tailored to allow the Fund to
achieve its investment objective in manner that is consistent with the
principles of Section 6(b)(5) of the Act. In addition, the proposed
deviations from the generic requirements and proposed alternative
requirements set forth in this filing are consistent with those set
forth in the Recent Approval. As a result, it is in the public interest
to approve listing and trading of Shares of the Fund on the Exchange
pursuant to the requirements set forth herein.
    The Exchange notes that, other than Nasdaq Rule 5735(b)(1)(A)(i),
(b)(1)(A)(ii), (b)(1)(B)(i), (b)(1)(B)(iv), (b)(1)(B)(v), and
(b)(1)(E), as described above, the Fund's portfolio will meet all other
requirements of Nasdaq Rule 5735.
Availability of Information
    The Fund's website (www.ftportfolios.com) will include the
prospectus for the Fund that may be downloaded. The Fund's website will
include additional quantitative information updated on a daily basis
including, for the Fund, (1) daily trading volume, the prior business
day's reported closing price, NAV and midpoint of the bid/ask spread at
the time of calculation of such NAV (the ``Bid/Ask Price''),\35\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV, and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Regular Market Session on the Exchange, the
Fund will disclose on its website the Disclosed Portfolio as defined in
Nasdaq Rule 5735(c)(2) that forms the basis for the Fund's calculation
of NAV at the end of the business day.\36\
---------------------------------------------------------------------------

    \35\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
    \36\ Under accounting procedures 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.
---------------------------------------------------------------------------

    On a daily basis, the Fund will disclose the information required
under Nasdaq Rule 5735(c)(2) to the extent applicable. The website
information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding Fixed Income Securities, and any other
instrument that may comprise the Fund's basket on a given day.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI'') and Form N-CEN and the Fund's Shareholder Reports
and Form N-CSR. The SAI and the Fund's Shareholder Reports will be
available free upon request from the Trust, and those documents and the
Form N-CSR and Form N-CEN may be viewed on-screen or downloaded from
the Commission's website at www.sec.gov.
    Intra-day and closing price information regarding exchange-traded
options will be available from the exchange on which such instruments
are traded. Intra-day and closing price information regarding Fixed
Income Securities will be available from major market data vendors.
Price information relating to OTC options, forwards and swaps will be
available from major market data vendors. Intra-day price information
for exchange-traded derivative instruments will be available from the
applicable exchange and from major market data vendors. Intra-day and
other price information for the Fixed Income Securities in which the

Fund will invest will be available through subscription services, such
as Bloomberg, Markit and Thomson Reuters, which can be accessed by
Authorized Participants and other market participants. Additionally,
the Trade Reporting and Compliance Engine (``TRACE'') of the Financial
Industry Regulatory Authority (``FINRA'') will be a source of price
information for corporate bonds, and Private ABS/MBS, to the extent
transactions in such securities are reported to TRACE.\37\ Trade price
and other information relating to municipal bonds is available through
the Municipal Securities Rulemaking Board's Electronic Municipal Market
Access (``EMMA'') system. Non-exchange-traded open-end investment
company securities are typically priced once each business day and
their prices will be available through the applicable fund's website or
from major market data vendors. Price information regarding U.S.
government securities, bank loans, Private ABS/MBS, cash equivalents
and short-term instruments with maturities of three months or more
generally may be obtained from brokers and dealers who make markets in
such securities or through nationally recognized pricing services
through subscription agreements. Information relating to weighted
average loan age for Private ABS/MBS is widely available from major
market data vendors such as Bloomberg.
---------------------------------------------------------------------------

    \37\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For Fixed Income Securities that are
not reported to TRACE, (i) intra-day price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
---------------------------------------------------------------------------

    Information regarding market price and trading volume of the
Shares, ETFs, ETNs, common stocks, preferred stocks, REITs, equity
securities issued upon conversion of fixed income convertible
securities, Work Out Securities and closed-end funds 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, ETFs, ETNs,
closed-end funds, REITs, certain common stocks, certain preferred
stocks, certain equity securities issued upon conversion of fixed
income convertible securities, and certain Work Out Securities will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. Exchange-traded options quotation and last sale information for
options cleared via the Options Clearing Corporation (``OCC'') are
available via the Options Price Reporting Authority (``OPRA''). In
addition, the Intraday Indicative Value (``IIV''), as defined in Nasdaq
Rule 5735(c)(3), will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Regular Market
Session.
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 Rule 4120(a)(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. These
may include: (1) The extent to which trading is not occurring in the
securities and/or the other assets constituting the Disclosed Portfolio
of 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 Fund's Shares also will be subject to Nasdaq
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., E.T. The Exchange has appropriate rules
to facilitate transactions in the Shares during all trading sessions.
    With the exception of the requirements of Nasdaq Rule
5735(b)(1)(A)(i), (b)(1)(A)(ii), (b)(1)(B)(i), (b)(1)(B)(iv),
(b)(1)(B)(v), and (b)(1)(E), as described above in ``Application of
Generic Listing Requirements,'' the Shares of the Fund will conform to
the initial and continued listing criteria under Nasdaq Rule 5735.
Consistent with Nasdaq Rule 5735(d)(2)(B)(ii), the Adviser and Sub-
Adviser will implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of the Fund's portfolio.
    The Exchange represents that, for continued listing, the Fund will
be in compliance with Rule 10A-3 \38\ under the Act. 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. The Fund's investments will be consistent with its investment
goal and will not be used to provide multiple returns of a benchmark or
to produce leveraged returns.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will continue to
be subject to the existing trading surveillances, administered by the
Exchange and also by FINRA, on behalf of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange represents that these procedures are
adequate to properly monitor Exchange trading in the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange. \39\
---------------------------------------------------------------------------

    \39\ FINRA conducts cross-market surveillance 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.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, certain
exchange-traded options and certain exchange-traded futures, ETFs,
ETNs, closed-end funds, certain common stocks, certain preferred
stocks, certain REITs, certain equity securities issued upon conversion
of fixed income convertible securities and certain Work Out Securities
with other markets and other entities that are members of the
Intermarket Surveillance Group (``ISG''), and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in such securities and financial instruments from
such markets and

other entities.\40\ In addition, the Exchange may obtain information
regarding trading in such securities and financial instruments from
markets and other entities that are members of ISG or with which the
Exchange has in place a CSSA. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to TRACE. FINRA also
can access data obtained from the Municipal Securities Rulemaking Board
relating to municipal bond trading activity for surveillance purposes
in connection with trading in the Shares.
---------------------------------------------------------------------------

    \40\ 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 (``CSSA'').
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding
(a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
of the Fund on the Exchange.
    The issuer must notify the Exchange of any failure by the Fund to
comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will
monitor for compliance with the continued listing requirements. If the
Fund is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series.
Information Circular
    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
website.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \41\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares are listed and traded on the Exchange pursuant to the initial
and continued listing criteria in Nasdaq Rule 5735. The Exchange has in
place surveillance procedures that are adequate to properly monitor
Exchange trading in the Shares in all trading sessions and to deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange. The Exchange or FINRA, on behalf
of the Exchange, or both, will communicate as needed regarding trading
in the Shares, certain exchange-traded options and certain exchange-
traded futures, ETFs, ETNs, closed-end funds, certain common stocks,
certain preferred stocks, certain REITs, certain equity securities
issued upon conversion of fixed income convertible securities and
certain Work Out Securities with other markets and other entities that
are members of ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
such securities and financial instruments from such markets and other
entities. The Exchange may obtain information regarding trading in such
securities and financial instruments from markets and other entities
that are members of ISG or with which the Exchange has in place a CSSA.
In addition, FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed income securities held by
the Fund reported to TRACE. FINRA also can access data obtained from
the Municipal Securities Rulemaking Board relating to municipal bond
trading activity for surveillance purposes in connection with trading
in the Shares. The Adviser and Sub-Adviser are not registered as
broker-dealers. The Adviser is affiliated with First Trust Portfolios
L.P., a broker-dealer, and has implemented and will maintain a fire
wall with respect to its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the portfolio.
The Sub-Adviser is affiliated with multiple broker-dealers and has
implemented and will maintain a fire wall with respect to its broker-
dealer affiliates regarding access to information concerning the
composition and/or changes to the portfolio.
    The Exchange notes that, other than Nasdaq Rule 5735(b)(1)(A)(i),
(b)(1)(A)(ii), (b)(1)(B)(i), (b)(1)(B)(iv), (b)(1)(B)(v), and
(b)(1)(E), as described above, the Fund's portfolio will meet all other
requirements of Nasdaq Rule 5735. Additionally, the Exchange notes that
the proposed rule change set forth in this filing is based on a very
similar proposed rule change that was recently approved by the
Commission with respect to another actively-managed ETF for which the
Adviser serves as investment adviser and the Sub-Adviser serves as
investment sub-adviser.\42\
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    \42\ See note 18, supra.
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    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. Quotation and last sale
information for the Shares, ETFs, ETNs, closed-end funds, certain
REITs, certain common stocks, certain preferred stocks, certain equity
securities issued upon conversion of

fixed income convertible securities, and certain Work Out Securities
will be available via the CTA high-speed line. Exchange-traded options
quotation and last sale information for options cleared via the OCC are
available via OPRA. The Exchange will inform its members in an
Information Circular of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rule 4120(a)(12), or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. Trading in the Fund's Shares
also 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, NAV, the IIV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
    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
generally will principally hold fixed income securities and that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information from markets and other entities that are members of
ISG or with which the Exchange has in place a CSSA. In addition, as
noted above, investors will have ready access to information regarding
the Fund's holdings, NAV, the IIV, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
    Deviations from the generic requirements, as described above, are
necessary for the Fund to achieve its investment objective in a manner
that is cost-effective and that maximizes investors' returns. Further,
the proposed alternative requirements are narrowly tailored to allow
the Fund to achieve its investment objective in a manner that is
consistent with the principles of Section 6(b)(5) of the Act. In
addition, the proposed deviations from the generic requirements and
proposed alternative requirements set forth in this filing are
consistent with those set forth in the Recent Approval. As a result, it
is in the public interest to approve listing and trading of Shares of
the Fund on the Exchange pursuant to the requirements set forth herein.
    As noted above, the Fund will not comply with the requirements set
forth in Nasdaq Rule 5735(b)(1)(A)(i) and (b)(1)(A)(ii) with respect to
the Fund's investments in equity securities. Instead, the Exchange
proposes that the Fund's investments in equity securities will meet the
requirements of Nasdaq Rule 5735(b)(1)(A) with the exception of Nasdaq
Rule 5735(b)(1)(A)(i)(c) and (d) (with respect to U.S. Component
Stocks) and Nasdaq Rule 5735(b)(1)(A)(ii)(c) and (d) (with respect to
Non-U.S. Component Stocks).\43\ The Exchange believes it is appropriate
and in the public interest to approve listing and trading of Shares of
the Fund notwithstanding that the Fund's holdings in such equity
securities do not comply with the requirements set forth in Nasdaq
Rules 5735(b)(1)(A)(i) and 5735(b)(1)(A)(ii) in that any Fund
investment in exchange-traded common stocks, preferred stocks, REITS,
ETFs, ETNs, U.S. exchange-traded closed-end funds, exchange-traded
equity securities issued upon conversion of fixed income convertible
securities, and exchange-traded Work Out Securities would provide for
enhanced diversification of the Fund's portfolio. Such securities would
be Non-Principal Investments, not exceeding 20% of the Fund's net
assets in the aggregate.
---------------------------------------------------------------------------

    \43\ See notes 19 and 20, supra. See also note 21, supra.
---------------------------------------------------------------------------

    The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(B)(i) that components that in the aggregate account for at
least 75% of the fixed income weight of the portfolio each shall have a
minimum original principal amount outstanding of $100 million or more.
Instead, the Exchange proposes that components that in the aggregate
account for at least 50% of the fixed income weight of the portfolio
each shall have a minimum original principal amount outstanding of $50
million or more. As noted above, the Fund may not invest more than 2%
of its total assets in any one Fixed Income Security (excluding U.S.
government securities and TIPS) on a per CUSIP basis. In addition, at
least 50% of the weight of the Fund's portfolio would continue to be
subject to a substantial minimum (i.e., $50 million) original principal
amount outstanding. The Exchange believes this limitation would provide
significant additional diversification to the Fund's investments in
Fixed Income Securities, and reduce concerns that the Fund's
investments in such securities would be readily susceptible to market
manipulation.
    The Exchange proposes that Private ABS/MBS will not be required to
comply with the requirements of Nasdaq Rule 5735(b)(1)(B)(iv) because
certain Private ABS/MBS cannot satisfy the criteria in Nasdaq Rule
5735(b)(1)(B)(iv). Instead, the Exchange proposes that the Fund's
investments in Fixed Income Securities other than Private ABS/MBS will
be required to comply with the requirements of Nasdaq Rule
5735(b)(1)(B)(iv). The Exchange believes that this is appropriate
because Nasdaq Rule 5735(b)(1)(B)(iv) does not appear to be designed
for structured finance vehicles such as Private ABS/MBS. As noted
above, the Fund may not invest more than 2% of its total assets in any
one Fixed Income Security (excluding U.S. government securities and
TIPS) on a per CUSIP basis. The Exchange believes this limitation would
provide additional diversification to the Fund's investments in Private
ABS/MBS, and reduce concerns that the Fund's investment in such
securities would be readily susceptible to market manipulation.
    As noted above, the Fund will not comply with the requirement in
Nasdaq Rule 5735(b)(1)(B)(v) that Private ABS/MBS in the Fund's
portfolio account, in the aggregate, for no more than 20% of the weight
of the Fund's portfolio. Instead, the Exchange proposes that, in order
to enable the portfolio to be more diversified and provide the Fund
with an opportunity to earn higher returns, the Fund may invest up to
50% of its total assets in the aggregate in Private ABS/MBS, provided
that the Fund (1) may not invest more than 25% of its total assets in
non-agency ABS; (2) may not invest more than 30% of its total assets in
non-agency RMBS; and (3) may not invest more than 25% of its total
assets in non-agency CMBS and CLOs. With respect to the Fund's
investments in up to 30% of its total assets in Private ABS/MBS that
exceed the 20% of the weight of the Fund's portfolio that may be
invested in Private ABS/MBS under Nasdaq Rule 5735(b)(1)(B)(v), the
Fund's holdings in Private ABS/MBS will be subject to minimum weighted
average loan age restrictions described above.\44\ In addition, as
noted above, the Fund may not invest more than 2% of its total assets
in any one Fixed Income Security (excluding U.S. government securities
and TIPS) on a per CUSIP basis.\45\ The Exchange believes these

limitations would provide additional diversification to the Fund's
Private ABS/MBS investments and reduce concerns that the Fund's
investment in such securities would be readily susceptible to market
manipulation.
---------------------------------------------------------------------------

    \44\ See note 13 [sic] and accompanying text, supra.
    \45\ See note 27, supra.
---------------------------------------------------------------------------

    The Exchange believes it is appropriate and in the public interest
to approve listing and trading of Shares of the Fund notwithstanding
that the Fund's holdings in such Private ABS/MBS do not comply with the
requirements set forth in Nasdaq Rule 5735(b)(1)(B)(v) in that the
Fund's investment in Private ABS/MBS is expected to provide the Fund
with benefits associated with increased diversification, as Private
ABS/MBS investments tend to be less correlated to interest rates than
many other fixed income securities. The Fund's investment in Private
ABS/MBS will be subject to the Fund's liquidity procedures as adopted
by the Trust Board, and the Adviser and Sub-Adviser do not expect that
investments in Private ABS/MBS of up to 50% of the total assets of the
Fund will have any material impact on the liquidity of the Fund's
investments.
    The Adviser and Sub-Adviser represent that the RMBS sector can be
an important component of the Fund's investment strategy because of the
potential for attractive risk-adjusted returns relative to other fixed
income sectors and the potential to add significantly to the
diversification in the Fund's portfolio. Similarly, the Private ABS/MBS
sectors also have the potential for attractive risk-adjusted returns
and added portfolio diversification.
    The Exchange believes the loan age parameters described above are
appropriate for the corresponding Private ABS/MBS; the 84, 60 and 12
month time frames take into account that the longer Private ABS/MBS
continue to trade, the more price discovery has occurred in the market
and the more opportunity there has been for market participants to
perform due diligence in understanding and evaluating the underlying
loans for such securities.
    With respect to non-agency RMBS, a weighted average loan age of 84
months accommodates investment in well-seasoned securities that are
continuing to trade with resilient pricing notwithstanding events
during the market crisis of 2008-2010, during which loan defaults
drastically impacted pricing in non-agency RMBS. Pricing in such
securities is generally more reliable than RMBS with a lower loan age
in that pricing is no longer reliant on market expectations but on
actual post-crisis loan performance.
    With respect to non-agency CMBS, a weighted average loan age of 60
months would include securities for which there is a known track record
regarding cash flows and default rates for loans underlying real estate
and other assets underlying CMBS. A five year loan age facilitates
pricing based on actual loan performance rather than default
projections. Similarly, for non-agency CLOs, a weighted average loan
age of 60 months provides the opportunity for market participants to
evaluate data regarding the bank loans underlying the CLOs and to
assess how the loans are actually being used--for example, to implement
corporate strategy or for capital usage--rather than relying on pro
forma statements regarding the loans.
    With respect to non-agency ABS, a weighted average loan age of 12
months provides an appropriately limited time frame for market
participants to assess the likely trajectory of expected defaults (for
example, for sub-prime auto loans). The loans underlying non-agency ABS
are typically of much shorter duration than other Private ABS/MBS.
Because such loans are more likely to default within a short time after
issuance, a one-year minimum loan age can be expected to provide a
sufficient time frame for market participants to assess the reliability
of loan pricing for loans underlying non-agency ABS.
    As noted above, the Fund's portfolio will not comply with the
requirements set forth in Nasdaq Rule 5735(b)(1)(E). The Exchange
proposes that up to 25% of the Fund's assets (calculated as the
aggregate gross notional value) may be invested in OTC derivatives that
are used to reduce currency, interest rate or credit risk arising from
the Fund's investments (that is, ``hedge''), and that the Fund's
investments in OTC derivatives other than OTC derivatives used to hedge
the Fund's portfolio against currency, interest rate or credit risk
will be limited to 20% of the assets in the Fund's portfolio,
calculated as the aggregate gross notional value of such OTC
derivatives. As noted above, the Fund will not use derivative
instruments to gain exposure to Private ABS/MBS, and derivative
instruments linked to such securities will be used for hedging purposes
only.
    The Exchange believes it is appropriate and in the public interest
to approve listing and trading of Shares of the Fund notwithstanding
that the Fund's holdings in OTC derivatives do not comply with the
requirements set forth in Nasdaq Rule 5735(b)(1)(E) in that, depending
on market conditions, it may be critical that the Fund be able to
utilize available OTC derivatives to attempt to reduce impact of
currency, interest rate or credit fluctuations on Fund assets.
Therefore, the Exchange believes it is appropriate to apply a limit of
up to 25% of the Fund's assets to the Fund's investments in OTC
derivatives (calculated as the aggregate gross notional value of such
OTC derivatives), including forwards, options and swaps, that are used
for hedging purposes, as described above.
    The Adviser and Sub-Adviser represent that OTC derivatives can be
tailored to hedge the specific risk arising from the Fund's investments
and frequently may be a more efficient hedging vehicle than listed
derivatives. For example, the Fund could obtain an OTC foreign currency
derivative in a notional amount that exactly matches the notional
amount of the Fund's investments. If the Fund were limited to investing
up to 20% of assets in OTC derivatives, the Fund might have to ``over
hedge'' or ``under hedge'' if round lot sizes in listed derivatives
were not available. In addition, for example, an OTC CDX option can be
structured to provide protection tailored to the Fund's credit exposure
and can be a more efficient way to hedge credit risk with respect to
specific exposures than listed derivatives. Similarly, OTC interest
rate derivatives can be more effective hedges of interest rate exposure
because they can be customized to match the basis risk arising from the
term of the investments held by the Fund.
    Because the Fund, in furtherance of its investment objective, may
invest a substantial percentage of its investments in foreign currency
denominated Fixed Income Securities, the 20% limit in Nasdaq Rule
5735(b)(1)(E) could result in the Fund being unable to fully pursue its
investment objective while attempting to sufficiently mitigate
investment risks. The inability of the Fund to adequately hedge its
holdings would effectively limit the Fund's ability to invest in
certain instruments, or could expose the Fund to additional investment
risk. For example, if the Fund's assets (on a gross notional value
basis) were $100 million and no listed derivative were suitable to
hedge the Fund's risk, under the generic standards the Fund would be
limited to holding up to $20 million gross notional value in OTC
derivatives ($100 million * 20%). Accordingly, the maximum amount the
Fund would be able to invest in foreign currency denominated Fixed
Income Securities while remaining adequately hedged would be $20
million. The Fund then would hold

$60 million in assets that could not be hedged, other than with listed
derivatives, which, as noted above, might not be sufficiently tailored
to the specific instruments to be hedged.
    In addition, by applying the 20% limitation in Nasdaq Rule
5735(b)(1)(E), the Fund would be less able to protect its holdings from
more than one risk simultaneously. For example, if the Fund's assets
(on a gross notional basis) were $100 million and the Fund held $20
million in foreign currency denominated Fixed Income Instruments with
two types of risks (e.g., currency and credit risk) which could not be
hedged using listed derivatives, the Fund would be faced with the
choice of either holding $20 million aggregate gross notional value in
OTC derivatives to mitigate one of the risks while passing the other
risk to its shareholders, or, for example, holding $10 million
aggregate gross notional value in OTC derivatives on each of the risks
while passing the remaining portion of each risk to the Fund's
shareholders.
    The Adviser and Sub-Adviser believe that it is in the best
interests of the Fund's shareholders for the Fund to be allowed to
reduce the currency, interest rate or credit risk arising from the
Fund's investments using the most efficient financial instrument. While
certain risks can be hedged via listed derivatives, OTC derivatives
(such as forwards, options and swaps) can be customized to hedge
against precise risks. Accordingly, the Adviser and Sub-Adviser believe
that OTC derivatives may frequently be a more efficient hedging vehicle
than listed derivatives. Therefore, the Exchange believes that
increasing the percentage limit in Nasdaq Rule 5735(b)(1)(E), as
described above, to the Fund's investments in OTC derivatives,
including forwards, options and swaps, that are used specifically for
hedging purposes would help protect investors and the public interest.
    As noted above, the Fund's portfolio will not meet the requirements
of Nasdaq Rule 5735(b)(1)(A)(i)(a) through (e) with respect to the
Fund's investments in non-exchange-traded securities of open-end
investment companies, and, with respect to the Fund's holdings of OTC
equity securities issued upon conversion of fixed income convertible
securities and OTC Work Out Securities, will not meet the requirements
of Nasdaq Rule 5735(b)(1)(A)(i)(a) through (e) and Nasdaq Rule
5735(b)(1)(A)(ii)(a) through (e). The Exchange believes that it is
appropriate and in the public interest to approve listing and trading
of Shares of the Fund on the Exchange notwithstanding that the Fund
would not meet the requirements of Nasdaq Rule 5735(b)(1)(A)(i)(a)
through (e) with respect to the Fund's investments in non-exchange-
traded securities of open-end investment companies,and notwithstanding
that the Fund's holdings of OTC equity securities issued upon
conversion of fixed income convertible securities and OTC Work Out
Securities would not meet the requirements of Nasdaq Rule
5735(b)(1)(A)(i)(a) through (e) and Nasdaq Rule 5735(b)(1)(A)(ii)(a)
through (e). Investments in non-exchange-traded securities of open-end
investment companies will not be principal investments of the Fund.\46\
Such investments, which may include mutual funds that invest, for
example, principally in fixed income securities, would be utilized to
help the Fund meet its investment objective and to equitize cash in the
short term.
---------------------------------------------------------------------------

    \46\ See note 31, supra.
---------------------------------------------------------------------------

    With respect to any Fund holdings of exchange-traded or OTC equity
securities issued upon conversion of fixed income convertible
securities and Work Out Securities, such securities will not exceed 10%
and 5%, respectively, of the Fund's total assets. The Adviser and Sub-
Adviser represent that the Fund generally will not actively invest in
equity securities issued upon conversion of fixed income convertible
securities or Work Out Securities, but may, at times, receive a
distribution of such securities in connection with the Fund's holdings
in other securities. Therefore, the Fund's holdings in equity
securities issued upon conversion of fixed income convertible
securities and Work Out Securities generally would not be acquired as
the result of the Fund's voluntary investment decisions.
    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
shares 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.

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 notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that
generally will principally hold fixed income securities and 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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \47\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\48\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \48\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2020-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2020-005. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-005 and should be submitted
on or before February 21, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01783 Filed 1-30-20; 8:45 am]
 BILLING CODE 8011-01-P