[Federal Register Volume 81, Number 164 (Wednesday, August 24, 2016)]
[Notices]
[Pages 57968-57977]
[FR Doc No: 2016-20210]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78616; File No. SR-NASDAQ-2016-104]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5735 To
Adopt Generic Listing Standards for Managed Fund Shares

August 18, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 16, 2016, 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 to amend Nasdaq Rule 5735 to adopt generic
listing standards for Managed Fund Shares.
    The text of the proposed rule change is available on the Exchange's
Web site 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 to amend Nasdaq Rule 5735 to adopt generic
listing standards for Managed Fund Shares, as well as to make
additional changes as described below. Under the Exchange's current
rules, a proposed rule change must be filed with the Commission for the
listing and trading of each new series of Managed Fund Shares. The
Exchange believes that it is appropriate to codify certain rules within
Rule 5735 that would generally eliminate the need for such proposed
rule changes, which would create greater efficiency and promote uniform
standards in the listing process.\3\
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    \3\ Except as noted below, this proposed rule change is
substantively identical to changes approved by the Commission to
NYSE Arca Equities Rule 8.600. See Securities Exchange Act Release
No. 78397 (July 22, 2016) (SR-NYSEArca-2015-110) (order approving
generic listing standards for Managed Fund Shares listed per NYSE
Arca Equities Rule 8.600). The definition of ``Exchange Traded
Derivative Securities'' provided in proposed Rule 5735(c)(6) is
similar to, but more narrow than, the definition of ``Derivative
Securities Product'' used in NYSE Arca Rule 8.600 because the
proposed definition of Exchange Traded Derivative Securities does
not include an Exchange rule comparable to NYSE Arca Equities Rule
8.400 (Paired Trust Shares). In addition, non-substantive changes
are made in order to conform the proposal to the structure of the
Exchange's current rules. See also Securities Exchange Act Release
No. 78396 (July 22, 2016) (SR-BATS-2015-100) (order approving
generic BATS listing standards for Managed Fund Shares).
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Background
    Rule 5735 sets forth certain rules related to the listing and
trading of Managed Fund Shares.\4\ Under Rule 5735(c)(1), the term
``Managed Fund Share'' means a security that:
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    \4\ See Securities Exchange Act Release No. 57962 (June 13,
2008), 73 FR 35175 (June 20, 2008) (SR-NASDAQ-2008-039) (order
approving Nasdaq Rule 4420(o) and listing and trading of shares of
certain issues of Managed Fund Shares) (the ``Approval Order''). The
Approval Order approved, among other things, the rules permitting
the listing and trading of Managed Fund Shares. Rule 4420(o) was
subsequently relocated to Rule 5735. See Securities Exchange Act
Release No. 59663 (March 31, 2009), 74 FR 15552 (April 6, 2009) (SR-
NASDAQ-2009-018).
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    (a) Represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management investment
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser (hereafter
``Adviser'') consistent with the Investment Company's investment
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for
a deposit of a specified portfolio of securities and/or a cash amount
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be
redeemed at a holder's request, which holder will be paid a specified
portfolio of securities and/or cash with a value equal to the next
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an
actively-managed open-end Investment Company (i.e., an actively-managed
exchange-traded fund (``ETF'')). Because Managed Fund Shares are
actively-managed, they do not seek to replicate the performance of a
specified passive index of securities. Instead, they generally use an
active investment strategy to seek to meet their investment objectives.
In contrast, an open-end Investment Company that issues Index Fund
Shares, listed and traded on the Exchange pursuant to Nasdaq Rule
5705(b), seeks to provide investment results that generally correspond
to the price and yield performance of a specific foreign or domestic
stock index, fixed income securities index, or combination thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 5735
(including pursuant to unlisted trading privileges) are subject to the
full panoply of Exchange rules and procedures that currently govern the
trading of equity securities on the Exchange.\5\
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    \5\ See Approval Order, note 4 above, at 35177.
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    In addition, Rule 5735(d) currently provides for the criteria that
Managed Fund Shares must satisfy for initial and continued listing on
the Exchange, including, for example, that a minimum number of Managed
Fund Shares are required to be outstanding at the time of commencement
of trading on the Exchange. However, the current process for listing
and trading new series of Managed Fund Shares on the Exchange requires
that the Exchange submit a proposed rule change with the Commission. In
this regard, Rule 5735(b)(1) specifies that the Exchange will file
separate proposals under Section 19(b) of the Act (hereafter, a
``proposed rule change'') before listing and trading shares of an issue
of Managed Fund Shares.

Proposed Changes to Rule 5735
    The Exchange proposes to amend Rule 5735(b)(1) to specify that the
Exchange may approve Managed Fund Shares for listing and/or trading
(including pursuant to unlisted trading privileges) pursuant to SEC
Rule 19b-4(e) under the Act, which pertains to derivative securities
products (``SEC Rule 19b-4(e)'').\6\ SEC Rule 19b-4(e)(1) provides that
the listing and trading of a new derivative securities product by a
self-regulatory organization (``SRO'') is not deemed a proposed rule
change, pursuant to paragraph (c)(1) of Rule 19b-4,\7\ if the
Commission has approved, pursuant to section 19(b) of the Act, the
SRO's trading rules, procedures, and listing standards for the product
class that would include the new derivative securities product and the
SRO has a surveillance program for the product class. This is the
current method pursuant to which ``passive'' ETFs are listed under
Nasdaq Rule 5705.
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    \6\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e),
the term ``new derivative securities product'' means any type of
option, warrant, hybrid securities product, or any other security,
other than a single equity option or a security futures product,
whose value is based, in whole or in part, upon the performance of,
or interest in, an underlying instrument.
    \7\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO
shall be deemed to be a proposed rule change unless it is reasonably
and fairly implied by an existing rule of the SRO.
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    The Exchange would also specify within Rule 5735(b)(1) that
components of Managed Fund Shares listed pursuant to SEC Rule 19b-4(e)
must satisfy, upon initial listing and on a continual basis, certain
specific criteria, which the Exchange would include within Rule
5735(b)(1), as described in greater detail below. As proposed, the
Exchange would continue to file separate proposed rule changes before
the listing and trading of Managed Fund Shares with components that do
not satisfy the additional criteria described below or components other
than those specified below. For example, if the components of a Managed
Fund Share exceeded one of the applicable thresholds, the Exchange
would file a separate proposed rule change before listing and trading
such Managed Fund Share. Similarly, if the components of a Managed Fund
Share included a security or asset that is not specified below, the
Exchange would file a separate proposed rule change.
    The Exchange would also add to Rule 5735(c) to provide that the Web
site for each series of Managed Fund Shares shall disclose certain
information regarding the Disclosed Portfolio, to the extent
applicable. The required information includes the following, to the
extent applicable: Ticker symbol, CUSIP or other identifier, a
description of the holding, identity of the asset upon which the
derivative is based, the strike price for any options, the quantity of
each security or other asset held as measured by select metrics,
maturity date, coupon rate, effective date, market value, and
percentage weight of the holding in the portfolio.\8\
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    \8\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included disclosure requirements
with respect to each portfolio holding, as applicable to the type of
holding. See, e.g., Securities Exchange Act Release No. 77688 (April
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (the
``Elkhorn Dorsey Wright Commodity Rotation Portfolio of Elkhorn ETF
Trust Approval''), generally and at 14147. See also Securities
Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30,
2014) (SR-NYSEArca-2013-122) (the ``PIMCO Total Return Use of
Derivatives Approval''), generally and at 44227.
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    In addition, the Exchange would amend Rule 5735(d) to specify that
all Managed Fund Shares must have a stated investment objective, which
must be adhered to under normal market conditions.\9\
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    \9\ The Exchange would also add a new defined term under Rule
5735(c)(5) to specify that the term ``normal market conditions''
includes, but is not limited to, the absence of trading halts in the
applicable financial markets generally; operational issues (e.g.,
systems failure) causing dissemination of inaccurate market
information; or force majeure type events such as a natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
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    Finally, the Exchange would also amend the continued listing
requirement in Rule 5735(d)(2)(A) by changing the requirement that an
Intraday Indicative Value for Managed Fund Shares be widely
disseminated by one or more major market data vendors at least every 15
seconds during the time when the Managed Fund Shares trade on the
Exchange to a requirement that an Intraday Indicative Value be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Regular Market Session (as defined in Nasdaq Rule
4120(b)).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed
Fund Shares to qualify for listing and trading pursuant to SEC Rule
19b-4(e). These standards would be grouped according to security or
asset type. The Exchange notes that the standards proposed for a
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S.
Component Stocks, Exchange Traded Derivative Securities, and Linked
Securities are based in large part on the existing equity security
standards applicable to Index Fund Shares in Rule 5705(b)(3).
    The standards proposed for a Managed Fund Share portfolio that
holds fixed income securities are based in large part on the existing
fixed income security standards applicable to Index Fund Shares in Rule
5705(b)(4). Many of the standards proposed for other types of holdings
in a Managed Fund Share portfolio are based on previous proposed rule
changes for specific series of Managed Fund Shares.\10\
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    \10\ See, e.g., Securities Exchange Act Release No. 77688 (April
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (order
approving listing and trading of Elkhorn Dorsey Wright Commodity
Rotation Portfolio of Elkhorn ETF Trust). See also Securities
Exchange Act Release Nos. 72728 (July 31, 2014) 79 FR 45852 (August
6, 2014) (SR-NASDAQ-2014-059) (order approving listing and trading
of Global X Commodities Strategy ETF); 72506 (July 1, 2014), 79 FR
38631 (July 8, 2014) (SR-NASDAQ-2014-050) (order approving listing
and trading of First Trust Strategic Income ETF); 69464 (April 26,
2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order
approving listing and trading of First Trust Senior Loan Fund); and
66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-
2012-004) (order approving listing and trading of WisdomTree
Emerging Markets Corporate Bond Fund). See also Securities Exchange
Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9,
2012) (SR-NYSEArca-2011-95) (the ``PIMCO Total Return Approval'');
69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-
2013-08) (the ``SPDR Blackstone/GSO Senior Loan Approval''); 68870
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (the ``First Trust Preferred Securities and Income
Approval''); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR-
NYSEArca-2013-33) (the ``International Bear Approval''); 61697
(March 12, 2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-2010-04)
(the ``WisdomTree Real Return Approval''); and 67054 (May 24, 2012),
77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-25) (the ``WisdomTree
Brazil Bond Approval''). Certain standards proposed herein for
Managed Fund Shares are also based on previous proposed rule changes
for specific series of Index Fund Shares for which Commission
approval for listing was required due to the Index Fund Shares not
satisfying certain standards of Rule 5705(b)(3) and 5705(b)(4). On
NYSE Arca, similar products under NYSE Commentary .01 and .02 to
NYSE Arca Equities Rule 5.2(j)(3) are called Investment Company
Units. See, e.g., Securities Exchange Act Release No. 69373 (April
15, 2013), 78 FR 23601 (April 19, 2013) (SR-NYSEArca-2012-108) (the
``NYSE Arca U.S. Equity Synthetic Reverse Convertible Index Fund
Approval'').
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    Proposed Rule 5735(b)(1)(A) would describe the standards for a
Managed Fund Share portfolio that holds equity securities, which are
defined to be U.S. Component Stocks,\11\ Non-U.S. Component Stocks,\12\
Exchange Traded

Derivative Securities,\13\ and Linked Securities \14\ listed on a
national securities exchange. For Exchange Traded Derivative Securities
and Linked Securities, no more than 25% of the equity weight of the
portfolio could include leveraged and/or inverse leveraged Exchange
Traded Derivative Securities or Linked Securities. In addition,
proposed rule 5735(b)(1)(A) would provide that, to the extent that a
portfolio includes convertible securities, the equity security into
which such security is converted would be required to meet the criteria
of 5735(b)(1)(A) after converting.
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    \11\ For the purposes of Rule 5735(b)(1) and this proposal, the
term ``U.S. Component Stocks'' would have the same meaning as
defined in Rule 5705(b)(1)(D).
    \12\ For the purposes of Rule 5735(b)(1) and this proposal, the
term ``Non-U.S. Component Stocks'' would have the same meaning as
defined in Rule 5705(b)(1)(E).
    \13\ For the purposes of Rule 5735(b)(1)(A) and this proposal,
proposed Rule 5735(c)(6) would define the term ``Exchange Traded
Derivative Securities'' to mean the securities described in Nasdaq
Rules 5705(a) (Portfolio Depository Receipts); 5705(b) (Index Fund
Shares); 5720 (Trust Issued Receipts); 5711(d) (Commodity-Based
Trust Shares); 5711(e) (Currency Trust Shares); 5711(f), (Commodity
Index Trust Shares); 5711(g) (Commodity Futures Trust Shares);
5711(h) (Partnership Units); 5711(i) (Trust Units); 5735 (Managed
Fund Shares); and 5711(j) (Managed Trust Securities). This proposed
definition is more narrow than the term ``Derivative Securities
Product,'' as defined in Nasdaq Rule 4120(b)(4)(A) and used in Rule
5705(b), because it excludes certain securities including
NextShares. It is also more narrow than the term ``Derivative
Securities Product'' as defined in commentary .01(a) to NYSE Arca
Rule 8.600 because it excludes Paired Trust Shares.
    \14\ Linked Securities are securities that qualify for Exchange
listing and trading under Rule 5710. The securities described in
Rules 5705, 5710, and 5735(c)(6), as referenced above, would include
securities listed on another national securities exchange pursuant
to substantially equivalent listing rules.
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    As proposed in Rule 5735(b)(1)(A)(i), 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:
    (1) 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 must
have a minimum market value of at least $75 million; \15\
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    \15\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(i)a., except for the
omission of the reference to ``index,'' which is not applicable, the
substitution of a more narrow exclusion for ``Exchange Traded
Derivative Securities'' instead of for ``Derivative Securities
Products,'' and the addition of the reference to Linked Securities.
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    (2) 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 must
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; \16\
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    \16\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(i)b., except for the
omission of the reference to ``index,'' which is not applicable, the
substitution of a more narrow exclusion for ``Exchange Traded
Derivative Securities'' instead of for ``Derivative Securities
Products,'' and the addition of the reference to Linked Securities.
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    (3) The most heavily weighted component stock (excluding Exchange
Traded Derivative Securities and Linked Securities) must 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) must not exceed 65%
of the equity weight of the portfolio; \17\
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    \17\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(i)c., except for the
omission of the reference to ``index,'' which is not applicable, the
substitution of a more narrow exclusion for ``Exchange Traded
Derivative Securities'' instead of for ``Derivative Securities
Products,'' and the addition of the reference to Linked Securities.
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    (4) 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 (a) 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 (b) 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; \18\
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    \18\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(i)d., except for the
omission of the reference to ``index,'' which is not applicable, the
addition of the reference to Linked Securities, the substitution of
a more narrow exclusion for ``Exchange Traded Derivative
Securities'' instead of for ``Derivative Securities Products,'' and
the reference to the 100% limit applying to the ``equity portion''
of the portfolio.
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    (5) Except as provided in proposed Rule 5735(b)(1)(A), equity
securities in the portfolio must be U.S. Component Stocks listed on a
national securities exchange and must be NMS Stocks as defined in Rule
600 of Regulation NMS; \19\ and
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    \19\ 17 CFR 240.600. This proposed text is substantively
identical to the corresponding text of Rule 5705(b)(3)(A)(i)e.,
except for the addition of ``equity'' to make clear that the
standard applies to ``equity securities,'' the exclusion of
unsponsored ADRs, and the omission of the reference to ``index,''
which is not applicable.
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    (6) American Depositary Receipts (``ADRs'') may be exchange-traded
or non-exchange-traded. However no more than 10% of the equity weight
of the portfolio shall consist of non-exchange-traded ADRs.\20\
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    \20\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Shareholdings to include not more than 10% of net
assets in unsponsored ADRs (which are not exchange-listed). See,
e.g., Securities Exchange Act Release No. 73480 (October 31, 2014),
79 FR 66022 (November 6, 2014) (SR-NASDAQ-2014-090) (order approving
the Listing and Trading of Shares of the Validea Market Legends
ETFs). See also Securities Exchange Act Release No. 71067 (December
12, 2013), 78 FR 76669 (December 18, 2013) (order approving listing
and trading of shares of the SPDR MFS Systematic Core Equity ETF,
SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value
Equity ETF under NYSE Arca Equities Rule 8.600).
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    As proposed in Rule 5735(b)(1)(A)(ii), 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:
    (1) Non-U.S. Component Stocks each shall have a minimum market
value of at least $100 million; \21\
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    \21\ The proposed text is identical to the corresponding
representations from the First Trust Approval Order and the SSgA
Global Managed Volatility Release, as noted in footnote 28, below.
The proposed text is also substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(ii)a., except for the
omission of the reference to ``index,'' which is not applicable, and
that each Non-U.S. Component Stock must have a minimum market value
of at least $100 million instead of the 90% required under Rule
5705(b)(3)(A)(ii)a.
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    (2) 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; \22\
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    \22\ The proposed text is identical to the corresponding
representations from the First Trust Approval Order and the SSgA
Global Managed Volatility Release, as noted in footnote 28, below.
This proposed text also is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(ii)b., except for the
omission of the reference to ``index,'' which is not applicable.
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    (3) 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; \23\
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    \23\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(ii)c., except for the
omission of the reference to ``index,'' which is not applicable.
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    (4) 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 \24\; and
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    \24\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(3)(A)(ii)d., except for the
omission of the reference to ``index,'' which is not applicable, the
substitution of a more narrow exclusion for ``Exchange Traded
Derivative Securities'' instead of for ``Derivative Securities
Products,'' the addition of the reference to Linked Securities, the
reference to the equity portion of the portfolio including Non-U.S.
Component Stocks, and the reference to the 100% limitation applying
to the ``equity weight'' of the portfolio, which is included because
the proposed standards in Rule 5735(b) permit the inclusion of non-
equity securities, whereas Rule 5705 applies only to equity
securities.
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    (5) Each Non-U.S. Component Stock shall be listed and traded on an
exchange that has last-sale reporting.\25\
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    \25\ This proposed text is substantively identical to Rule
5705(b)(3)(A)(ii)e. as it relates to Non-U.S. Component Stocks.
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    The Exchange notes that it is not proposing to require that any of
the equity portion of the equity portfolio composed of Non-U.S.
Component Stocks be listed on markets that are either a member of the
Intermarket Surveillance Group (``ISG'') or a market with which the
Exchange has a comprehensive surveillance sharing agreement
(``CSSA'').\26\ However, as further detailed below, the regulatory
staff of the Exchange, or the Financial Industry Regulatory Authority,
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed
regarding trading in Managed Fund Shares with other markets that are
members of the ISG, including U.S. securities exchanges on which the
components are traded.
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    \26\ ISG is comprised of an international group of exchanges,
market centers, and market regulators that perform front-line market
surveillance in their respective jurisdictions. See
www.isgportal.org. A list of ISG members is available at
www.isgportal.org.
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    The Exchange notes that the generic listing standards for Index
Fund Shares based on foreign indexes in Rule 5705 do not include
specific ISG or CSSA requirements.\27\ In addition, the Commission has
approved listing and trading on the Exchange of shares of an issue of
Managed Fund Shares under Rule 5735 where non-U.S. equity securities in
such issue's portfolio meet specified criteria and where there is no
requirement that such non-U.S. equity securities are traded in markets
that are members of ISG or with which the Exchange has in place a
CSSA.\28\
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    \27\ Under Rule 5705(b)(3), Index Fund Shares with components
that include Non-U.S. Component Stocks can hold a portfolio that is
entirely composed of Non-U.S. Component Stocks that are listed on
markets that are neither members of ISG, nor with which the Exchange
has in place a CSSA.
    \28\ See, e.g., Securities Exchange Act Release No. 77548 (April
6, 2016), 81 FR 21626 (April 12, 2016) (SR-NASDAQ-2015-161) (order
approving listing and trading of the Shares of the First Trust
RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia
Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF,
and First Trust RiverFront Dynamic Developed International ETF of
First Trust Exchange-Traded Fund III) (the ``First Trust Approval
Order''). See also Securities Exchange Act Release No. 75023 (May
21, 2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order
approving listing and trading on the Exchange of shares of the SPDR
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule
8.600) (``SSgA Global Managed Volatility Release'').
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    Proposed Rule 5735(b)(1)(B) would describe the standards for a
Managed Fund Share portfolio that holds fixed income securities, which
are debt securities \29\ that are notes, bonds, debentures, or evidence
of indebtedness that include, but are not limited to, U.S. Department
of Treasury securities (``Treasury Securities''), government-sponsored
entity securities (``GSE Securities''), municipal securities, trust
preferred securities, supranational debt and debt of a foreign country
or a subdivision thereof, investment grade and high yield corporate
debt, bank loans, mortgage and asset backed securities, and commercial
paper.
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    \29\ Debt securities include a variety of fixed income
obligations, including, but not limited to, corporate debt
securities, government securities, municipal securities, convertible
securities, and mortgage-backed securities. Debt securities include
investment-grade securities, non-investment-grade securities, and
unrated securities. Debt securities also include variable and
floating rate securities.
---------------------------------------------------------------------------

    In addition, to the extent that a portfolio includes convertible
securities, the fixed income security into which such security is
converted would be required to meet the criteria of Rule 5735(b)(1)(B)
after converting.
    The components of the fixed income portion of the portfolio must
meet the following criteria initially and on a continuing basis:
    (1) 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; \30\
---------------------------------------------------------------------------

    \30\ This text of proposed Rule 5735(b)(1)(B)(i) is based on the
corresponding text of Rule 5705(b)(4)(A)(ii).
---------------------------------------------------------------------------

    (2) No component fixed-income security (excluding Treasury
Securities and GSE Securities) could represent more than 30% of the
fixed income weight of the portfolio, and the five most heavily
weighted component fixed income securities in the portfolio (excluding
Treasury Securities and GSE Securities) must not in the aggregate
account for more than 65% of the fixed income weight of the portfolio;
\31\
---------------------------------------------------------------------------

    \31\ This proposed text is substantively identical to the
corresponding text of 5705(b)(4)(A)(iv), except for the omission of
the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) that
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum
number of non-affiliated issuers required for fixed income securities
if at least 70% of the weight of the portfolio consists of equity
securities as described in proposed Rule 5735(b)(1)(A).\32\
---------------------------------------------------------------------------

    \32\ This proposed text is substantively identical to the
corresponding text of Rule 5705(b)(4)(A)(v), except for the omission
of the reference to ``index,'' which is not applicable, the
exclusion of the text ``consisting entirely of exempted securities''
and the provision that there shall be no minimum number of non-
affiliated issuers required for fixed income securities if at least
70% of the weight of the portfolio consists of equity securities as
described in proposed Rule 5735(b)(1)(A).
---------------------------------------------------------------------------

    (4) Component securities that in 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 \33\; (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; and
---------------------------------------------------------------------------

    \33\ With respect to subparagraphs (b) and (c) above, the
special purpose vehicle (``SPV'') that issues the fixed income
security (e.g., an asset-backed or mortgage-backed security) would
itself be required to satisfy the $700 million and $1 billion
criteria, respectively, and not the entity that controls, owns or is
affiliated with the SPV.
---------------------------------------------------------------------------

    (5) 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 fixed
income portion of the portfolio.\34\
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    \34\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include up to 20% of net assets in
non-agency, non-GSE and privately-issued mortgage-related and other
asset-backed securities. See, e.g., Securities Exchange Act Release
No. 74742 (April 16, 2015) 80 FR 22584 (April 22, 2015) (SR-NASDAQ-
2015-011) (order approving the listing and trading of shares of the
First Trust Strategic Floating Rate ETF of First Trust Exchange-
Traded Fund IV. See also, Securities Exchange Act Release No. 75566
(July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-NYSEArca-2015-42)
(order approving listing and trading of shares of Newfleet Multi-
Sector Unconstrained Bond ETF under Rule 8.600).

---------------------------------------------------------------------------

    Proposed Rule 5735(b)(1)(C) would describe the standards for a
Managed Fund Share portfolio that holds cash and cash equivalents.\35\
Specifically, the portfolio may hold short-term instruments with
maturities of less than 3 months. There would be no limitation to the
percentage of the portfolio invested in such holdings. Short-term
instruments would include the following: \36\
---------------------------------------------------------------------------

    \35\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include cash and cash equivalents.
See, e.g., note 10 above regarding approval of NYSE Arca's SPDR
Blackstone/GSO Senior Loan, at 19768-69; and First Trust Preferred
Securities and Income Approval, at 76150.
    \36\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly specified short-term instruments
with respect to their inclusion in Managed Fund Share holdings. See,
e.g., note 10 above, regarding NYSE Arca's First Trust Preferred
Securities and Income Approval, at 76150-51.
---------------------------------------------------------------------------

    (1) U.S. Government securities, including bills, notes, and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities;
    (2) certificates of deposit issued against funds deposited in a
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks
or savings and loan associations for a stated period of time at a fixed
rate of interest;
    (6) commercial paper, which are short-term unsecured promissory
notes; and
    (7) money market funds.
    Proposed Rule 5735(b)(1)(D) would describe the standards for a
Managed Fund Share portfolio that holds listed derivatives, including
futures, 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.\37\ There
would be no limitation to the percentage of the portfolio invested in
such holdings, subject to the following requirements:
---------------------------------------------------------------------------

    \37\ Proposed rule changes for previously-listed series of
Managed Fund Shares have similarly included the ability for such
Managed Fund Share holdings to include listed derivatives. See,
e.g., note 10 above, regarding NYSE Arca's WisdomTree Real Return
Approval, at 13617; and WisdomTree Brazil Bond Approval, at 32163.
---------------------------------------------------------------------------

    (1) In the aggregate, at least 90% of the weight of such holdings
invested in futures, exchange-traded options, and listed swaps shall,
on both an initial and continuing basis, consist of futures, options,
and swaps for which the Exchange may obtain information via the ISG
from other members or affiliates of the ISG or for which the principal
market is a market with which the Exchange has a comprehensive
surveillance sharing agreement (For purposes of calculating this
limitation, a portfolio's investment in listed derivatives will be
calculated as the aggregate gross notional value of the listed
derivatives.); and
    (2) the aggregate gross notional value of listed derivatives based
on any five or fewer underlying reference assets shall not exceed 65%
of the weight of the portfolio (including gross notional exposures),
and the aggregate gross notional value of listed derivatives based on
any single underlying reference asset shall not exceed 30% of the
weight of the portfolio (including gross notional exposures).
    Proposed Rule 5735(b)(1)(E) would describe the standards for a
Managed Fund Share portfolio that holds over the counter (``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.\38\ Proposed Rule 5735(b)(1)(E) would provide that, 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.
---------------------------------------------------------------------------

    \38\ A proposed rule change for series of Index Fund Shares
previously listed and traded on the Exchange pursuant to Rule 5705
similarly included the ability for such Index Fund Shares' holdings
to include OTC derivatives, specifically OTC down-and-in put
options, which are not NMS Stocks as defined in Rule 600 of
Regulation NMS and therefore do not satisfy the requirements of Rule
5705. See, e.g., note 10 above, regarding NYSE Arca U.S. Equity
Synthetic Reverse Convertible Index Fund Approval, at 23602.
---------------------------------------------------------------------------

    Proposed Rule 5735(b)(1)(F) would provide that, to the extent that
listed or OTC derivatives are used to gain exposure to individual
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, the aggregate gross notional value of such
exposure shall meet the criteria set forth in Rules 5735(b)(1)(A) and
(B) (including gross notional exposures), respectively.
    The following examples illustrate how certain of the proposed
generic criteria of Rule 5735 would be applied:
    1. An actively managed ETF holds non-agency MBS that represent 15%
of the weight of the fixed income portion of the portfolio. The fixed
income portion of the portfolio meets all the requirements of Rule
5735(b)(1)(B). The ETF also holds an OTC swap on a non-agency MBS Index
that represents 10% of the fixed income weight of the portfolio
calculated on a notional value basis. Separately, the OTC swap and
fixed income portion of the portfolio would meet the requirements of
Rule 5735(b)(1). However, when the 15% weight in non-agency MBS and the
10% weight in the non-agency MBS Index OTC swap are combined, as
required by proposed 5735(b)(1)(F), the 25% total weight would exceed
the 20% limit for non-agency GSE and privately-issued mortgage-related
securities in 5735(b)(1)(B)(v). The portfolio, therefore, would not
meet the proposed generic criteria of Rule 5735.
    2. An actively managed ETF holds a portfolio of non-U.S. equity
securities, S&P 500 Index and gold futures. S&P 500 Index futures and
the gold futures held by the fund are listed on an ISG member exchange.
The equity portion of the portfolio consists of developed and emerging
markets equity securities with a current aggregate market value of $15
million and all components meet the requirements under Rule
5735(b)(1)(A)(ii). The gold futures contract trading unit size is 100
troy ounces and an ounce of gold is currently worth $1200. The fund
holds 500 gold futures contracts with a notional value of $60 million
(500*100*$1200). One S&P 500 contract represents 250 units of the S&P
500 Index and the S&P 500 Index is trading at $2,000. The portfolio
holds 50 contracts, so the notional value of the S&P 500 Index futures
position is $25 million (50*250*$2000). The S&P 500 Index futures meet
the requirement under Rule 5735(b)(1)(F), that is, the S&P 500 Index
meets the criteria in Rule 5735(b)(1)(A). The weights of the components
are as follows; equity securities represent 15% of the portfolio, gold
futures represent 60% of the portfolio and S&P 500 Index futures
represent 25% of the portfolio. The gold futures represent 60% of the
portfolio and exceeds the 30% concentration limitation on any single
underlying reference asset as outlined in proposed Rule
5735(b)(1)(D)(ii). The portfolio, therefore, would not meet the
proposed generic criteria of Rule 5735.

    3. An actively managed ETF holds a portfolio of equity securities
and call option contracts on company XYZ. The equity portion of the
portfolio meets the requirements under Rule 5735(b)(1)(A). Company XYZ
represents 20% of the weight of the equity portion of the portfolio.
The equity portion of the fund has a market value of $100 million and
the market value of the fund's holdings in company XYZ has a market
value of $20 million. The fund also holds 10,000 call option contracts
on company XYZ which has a current market price of $50 a share and,
therefore, a notional value of $50 million (50*100*10,000) (that is,
the $50 market price per share times the multiplier of 100 times 10,000
contracts). The option contracts are traded on an ISG member exchange.
The total exposure to company XYZ is therefore $70 million and
represents 46.7% ($70 million/$150 million=46.7%) of the portfolio.
This fund would not meet the requirements of Rule 5735 because the
exposure to XYZ at 46.7% exceeds the 30% concentration limitation of
proposed Rule 5735(b)(1)(D)(ii).
    The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Managed Fund
Shares. Additionally, the Exchange believes that the proposed portfolio
standards for listing and trading Managed Fund Shares, many of which
track existing Exchange rules relating to Index Fund Shares, are
reasonably designed to promote a fair and orderly market for such
Managed Fund Shares.\39\ These proposed standards would also work in
conjunction with the existing initial and continued listing criteria
related to surveillance procedures and trading guidelines.
---------------------------------------------------------------------------

    \39\ See note 4 above, Approval Order, at 35177.
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that: \40\
---------------------------------------------------------------------------

    \40\ The Exchange made similar representations in the Approval
Order. See id. at 35177--35178.
---------------------------------------------------------------------------

    (1) The Managed Fund Shares will continue to conform to the initial
and continued listing criteria under Rule 5735;
    (2) the Exchange's surveillance procedures are adequate to continue
to properly monitor the trading of the Managed Fund Shares in all
trading sessions and to deter and detect violations of Exchange rules.
Specifically, the Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, which will include
Managed Fund Shares, to monitor trading in the Managed Fund Shares;
    (3) prior to the commencement of trading of a particular series of
Managed Fund Shares, the Exchange will inform its members in an
information circular (``Circular'') of the special characteristics and
risks associated with trading the Managed Fund Shares, including
procedures for purchases and redemptions of Managed Fund Shares,
suitability requirements under Rules 2090A and 2111A, the risks
involved in trading the Managed Fund Shares during the Pre-Market and
Post-Market Sessions when an updated Portfolio Indicative Value will
not be calculated or publicly disseminated, information regarding the
Portfolio Indicative Value and the Disclosed Portfolio, prospectus
delivery requirements, and other trading information. In addition, the
Circular will disclose that the Managed Fund Shares are subject to
various fees and expenses, as described in the applicable registration
statement, and will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. Finally,
the Circular will disclose that the net asset value for the Managed
Fund Shares will be calculated after 4 p.m., ET, each trading day; and
    (4) the issuer of a series of Managed Fund Shares will be required
to comply with Rule 10A-3 under the Act for the initial and continued
listing of Managed Fund Shares, as provided under the Nasdaq Rule 5600
Series.
    The Exchange, on a periodic basis and no less than annually, will
review issues of Managed Fund Shares generically listed pursuant to
Rule 5735, and will provide a report to the Regulatory Oversight
Committee of the Exchange's Board of Directors regarding the Exchange's
findings. In addition, the Exchange will provide the Commission staff
with a report each calendar quarter that includes the following
information for issues of Managed Fund Shares listed during such
calendar quarter under Rule 5735(b)(1): (1) Trading symbol and date of
listing on the Exchange; (2) the number of active authorized
participants and a description of any failure of an issue of Managed
Fund Shares or of an authorized participant to deliver shares, cash, or
cash and financial instruments in connection with creation or
redemption orders; and (3) a description of any failure of an issue of
Managed Fund Shares to comply with Nasdaq Rule 5735.
    Prior to listing pursuant to proposed amended Rule 5735(b)(1), an
issuer would be required to represent to the Exchange that it will
advise the Exchange of any failure by a series of Managed Fund Shares
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 Rule 5800
Series.
    The Exchange notes that the proposed change is not otherwise
intended to address any other issues and that the Exchange is not aware
of any problems that members or issuers would have in complying with
the proposed change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\41\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\42\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b).
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 because it would facilitate the listing and trading of
additional Managed Fund Shares, which would enhance competition among
market participants, to the benefit of investors and the marketplace.
    Specifically, after more than six years under the current process,
whereby the Exchange is required to file a proposed rule change with
the Commission for the listing and trading of each new series of
Managed Fund Shares, the Exchange believes that it is appropriate to
codify certain rules within Rule 5735 that would generally eliminate
the need for separate proposed rule changes.
    The Exchange believes that this would facilitate the listing and
trading of additional types of Managed Fund Shares that have investment
portfolios that are similar to investment portfolios for Index Fund
Shares, which have been approved for listing and trading, thereby
creating greater efficiencies in the listing process for the Exchange
and the Commission.
    In this regard, the Exchange notes that the standards proposed for
Managed Fund Share portfolios that include U.S. Component Stocks, Non-
U.S. Component Stocks, Exchange Traded

Derivative Securities, and Linked Securities are based in large part on
the existing equity security standards applicable to Index Fund Shares
in Rule 5705(b)(3) and that the standards proposed for Managed Fund
Share portfolios that include fixed income securities are based in
large part on the existing fixed income standards applicable to Index
Fund Shares in Rule 5705(b)(4). Additionally, many of the standards
proposed for other types of holdings of series of Managed Fund Shares
are based on previous proposed rule changes for specific series of
Managed Fund Shares.\43\
---------------------------------------------------------------------------

    \43\ See note 10 above.
---------------------------------------------------------------------------

    With respect to the proposed addition to the criteria of Rule
5735(c) to provide that the Web site for each series of Managed Fund
Shares shall disclose certain information regarding the Disclosed
Portfolio, to the extent applicable, the Exchange notes that proposed
rule changes approved by the Commission for previously-listed series of
Managed Fund Shares have similarly included disclosure requirements
with respect to each portfolio holding, as applicable to the type of
holding.\44\
---------------------------------------------------------------------------

    \44\ See note 8 above.
---------------------------------------------------------------------------

    With respect to the proposed definition of the term ``normal market
conditions'' in proposed Rule 5735(c)(5), such definition is similar to
the definition of normal market conditions approved by the Commission
for other issues of Managed Fund Shares.\45\ In addition, proposed Rule
5735(d)(1)(C), would specify that a series of Managed Fund Shares would
be required to adhere to its stated investment objective during normal
market conditions.
---------------------------------------------------------------------------

    \45\ See, e.g., Securities Exchange Act Release No. 73140
(September 18, 2014) 79 FR 57144 (September 24, 2014) (SR-NASDAQ-
2014-073) (order approving listing and trading of the First Trust
Emerging Markets Local Currency Bond ETF of First Trust Exchange-
Traded Fund III. See also, Securities Exchange Act Release No. 74338
(February 20, 2015), 80 FR 10556 (February 26, 2015) (SR-NYSEArca-
2014-143) (order approving listing and trading of shares of the SPDR
Doubletree Total Return Tactical ETF under NYSE Arca Equities Rule
8.600).
---------------------------------------------------------------------------

    With respect to the proposed amendment to the continued listing
requirement in Rule 5735(d)(2)(A) to require dissemination of a
Portfolio Indicative Value at least every 15 seconds during the Regular
Market Session (as defined in Rule 4120(b)), such requirement conforms
to the requirement applicable to the dissemination of the Intraday
Indicative Value for Index Fund Shares in Rule 5705(b)(3)(C). In
addition, such dissemination is consistent with representations made in
proposed rule changes for issues of Managed Fund Shares previously
approved by the Commission.\46\
---------------------------------------------------------------------------

    \46\ See, e.g., Approval Order, note 4 above; and International
Bear Approval, note 10 above.
---------------------------------------------------------------------------

    With respect to the proposed requirement in Rule 5735(b)(1)(A) that
no more than 25% of the equity weight of the portfolio shall consist of
leveraged and/or inverse leveraged Exchange Traded Derivative
Securities or Linked Securities, such requirement would assure that
only a relatively small proportion of a fund's investments could
consist of such leveraged and/or inverse securities. In addition, such
limitation would apply to both U.S. Component Stocks and Non-U.S.
Component Stocks comprising the equity portion of a portfolio.
    With respect to the proposed provision in Rule 5735(b)(1)(A) that,
to the extent a portfolio includes a convertible security, the equity
security into which such security is converted must meet the criteria
in Rule 5735(b)(1)(A) after converting, such requirement would assure
that the equity securities into which a convertible security could be
converted meet the liquidity and other criteria in Rule 5735(b)(1)(A)
applicable to such equity securities.
    With respect to the proposed exclusion of Exchange Traded
Derivatives Securities and Linked Securities from the requirements of
proposed Rule 5735(b)(1)(A), the Exchange believes it is appropriate to
exclude Linked Securities as well as Exchange Traded Derivative
Securities from certain component stock eligibility criteria for
Managed Fund Shares in so far as Exchange Traded Derivative Securities
and Linked Securities are themselves subject to specific quantitative
listing and continued listing requirements of a national securities
exchange on which such securities are listed. Exchange Traded
Derivative Securities and Linked Securities that are components of a
fund's portfolio would have been listed and traded on a national
securities exchange pursuant to a proposed rule change approved by the
Commission pursuant to Section 19(b)(2) of the Act \47\ or submitted by
a national securities exchange pursuant to Section 19(b)(3)(A) of the
Act \48\ or would have been listed by a national securities exchange
pursuant to the requirements of Rule 19b-4(e) under the Act.\49\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(2).
    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

    The Exchange also notes that Exchange Traded Derivative Securities
and Linked Securities are derivatively priced, and, therefore, the
Exchange believes that it would not be necessary to apply the proposed
generic quantitative criteria (e.g., market capitalization, trading
volume, or portfolio component weighting) applicable to equity
securities other than Exchange Traded Derivative Securities or Linked
Securities (e.g., common stocks) to such products.\50\
---------------------------------------------------------------------------

    \50\ See, e.g., Securities Exchange Act Release Nos. 57561
(March 26, 2008), 73 FR 17390 (April 1, 2008) (SR-NYSEArca-2008-29)
(notice of filing of proposed rule change to amend eligibility
criteria for components of an index underlying Investment Company
Units); 57751 (May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-
2008-29) (order approving proposed rule change to amend eligibility
criteria for components of an index underlying Investment Company
Units).
---------------------------------------------------------------------------

    With respect to the proposed criteria applicable to U.S. Component
Stocks, the Exchange notes that such criteria are similar to those in
Rule 5705(b)(3) relating to criteria applicable to an index or
portfolio of U.S. Component Stocks. In addition, Non-U.S. Component
Stocks also will be required to meet criteria similar to certain
generic listing standards in Rule 5705(b)(3) relating to criteria
applicable to an index or portfolio of U.S. Component Stocks and Non-
U.S. Component Stocks underlying a series of Index Fund Shares to be
listed and traded on the Exchange pursuant to Rule 19b-4(e) under the
Act.
    With respect to the proposed requirement in Rule 5735(b)(1)(A)(i)f.
that no more than 10% of the equity weight of the portfolio shall
consist of non-exchange-traded ADRs, the Exchange notes that such
requirement will ensure that non-exchange-traded ADRs, which are traded
OTC and which generally have less market transparency than exchange-
traded ADRs, could account for only a small percentage of the equity
weight of a portfolio. Further, the requirement is consistent with
representations made in proposed rule changes for issues of Managed
Fund Shares previously approved by the Commission.\51\
---------------------------------------------------------------------------

    \51\ See note 20 above.
---------------------------------------------------------------------------

    With respect to the proposed provision in Rule 5735(b)(1)(B) that,
to the extent a portfolio includes convertible securities, the fixed
income security into which such security is converted must meet the
criteria in paragraph (B) of Rule 5735(b)(1) after converting, such
requirement would assure that the fixed income securities into which a
convertible security could be converted meet the liquidity and other
criteria in Rule 5735(b)(1)(B) applicable to fixed income securities.

    As proposed, pursuant to Rule 5735(b)(1)(B)(iii), an underlying
portfolio (excluding exempted securities) that includes fixed income
securities must include a minimum of 13 non-affiliated issuers, but
there would be no minimum number of non-affiliated issuers required for
fixed income securities if at least 70% of the weight of the portfolio
consists of equity securities, as described in Rule 5735(b)(1)(A). The
Exchange notes that, when evaluated in conjunction with proposed Rule
5735(b)(1)(B)(ii), the proposed rule is consistent with Rules
5705(b)(4)(A)(iv) and 5705(b)(4)(A)(v) in that it provides for a
maximum weighting of a fixed income security in the fixed income
portion of the portfolio of a fund that is comparable to the existing
rules applicable to Index Fund Shares based on fixed income indexes.
    With respect to the proposed requirement in Rule 5735(b)(1)(B)(v)
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 fixed
income portion of the portfolio, the Exchange notes that such
requirement is consistent with representations made in proposed rule
changes for issues of Managed Fund Shares previously approved by the
Commission.\52\
---------------------------------------------------------------------------

    \52\ See note 34 above.
---------------------------------------------------------------------------

    With respect to the proposed amendment to Rule 5735(b)(1)(C)
relating to cash and cash equivalents, while there is no limitation on
the amount of cash and cash equivalents that can make up the portfolio,
such instruments are short-term, highly liquid, and of high credit
quality, making them less susceptible than other asset classes both to
price manipulation and volatility. Further, the requirement is
consistent with representations made in proposed rule changes for
issues of Managed Fund Shares previously approved by the
Commission.\53\
---------------------------------------------------------------------------

    \53\ See note 35 above.
---------------------------------------------------------------------------

    With respect to proposed Rule 5735(b)(1)(D)(i) relating to listed
derivatives, the Exchange believes that it is appropriate that there be
no limit to the percentage of a portfolio invested in such holdings,
provided that, in the aggregate, at least 90% of the weight of such
holdings invested in futures, exchange-traded options, and listed swaps
would consist of futures, options, and swaps for which the Exchange may
obtain information via ISG from other members or affiliates or for
which the principal market is a market with which the Exchange has a
CSSA. Such a requirement would facilitate information sharing among
market participants trading shares of a series of Managed Fund Shares
as well as futures and options that such series may hold. In addition,
listed swaps would be centrally cleared, reducing counterparty risk and
thereby furthering investor protection.\54\
---------------------------------------------------------------------------

    \54\ The Commission has noted that ``[c]entral clearing
mitigates counterparty risk among dealers and other institutions by
shifting that risk from individual counterparties to [central
counterparties (``CCPs'')], thereby protecting CCPs from each
other's potential failures.'' See Securities Exchange Act Release
No. 67286 (June 28, 2012) (File No. S7-44-10) (Process for
Submissions for Review of Security-Based Swaps for Mandatory
Clearing and Notice Filing Requirements for Clearing Agencies).
---------------------------------------------------------------------------

    With respect to proposed Rule 5735(b)(1)(D)(ii), requiring
percentage caps on the aggregate gross notional value of listed
derivatives based on any five or fewer underlying reference assets or
based on any single underlying reference asset, the Exchange believes
such requirements will help ensure that listed derivatives utilized by
a fund are adequately diversified and not unduly concentrated.
    With respect to proposed Rule 5735(b)(1)(E) relating to OTC
derivatives, the Exchange believes that the limitation to 20% of a
fund's assets would assure that the preponderance of fund investments
would not be in derivatives that are not listed and centrally cleared.
The Exchange believes that such a limitation is sufficient to mitigate
the risks associated with price manipulation because a 20% cap on OTC
derivatives will ensure that any series of Managed Fund Shares will be
sufficiently broad-based in scope to minimize potential manipulation
associated with OTC derivatives and because the remaining 80% of the
portfolio will consist of instruments subject to numerous restrictions
designed to prevent manipulation, including equity securities (which,
as proposed, would be subject to market cap, trading volume, and
diversity requirements, among others), fixed income securities (which,
as proposed, would be subject to principal amount outstanding,
diversity, and issuer requirements, among others), cash and cash
equivalents (which, as proposed, would be limited to short-term, highly
liquid, and high credit quality instruments), and/or listed derivatives
(which would be subject to the limitations in proposed Rule
5735(b)(1)(D)).
    The Exchange notes that a fund's investments in derivative
instruments would be subject to limits on leverage imposed by the 1940
Act. Section 18(f) of the 1940 Act and related Commission guidance
limit the amount of leverage an investment company can obtain. A fund's
investments would be consistent with its investment objective and would
not be used to enhance leverage. To limit the potential risk associated
with a fund's use of derivatives, a fund will segregate or ``earmark''
assets determined to be liquid by a fund in accordance with the 1940
Act (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under derivative
instruments.
    With respect to proposed Rule 5735(b)(1)(F) relating to a fund's
use of listed or OTC derivatives to gain exposure to individual
equities and/or fixed income securities, or to indexes of equities and/
or indexes of fixed income securities, the Exchange notes that the
aggregate gross notional value of such exposure would be required to
meet the numerical and other criteria set forth in proposed Rules
5735(b)(1)(A) and 5735(b)(1)(B) (including gross notional exposures),
respectively.
    Quotation and other market information relating to listed futures
and options is available from the exchanges listing such instruments as
well as from market data vendors. With respect to centrally-cleared
swaps \55\ and non-centrally-cleared swaps regulated by the CFTC,\56\
the Dodd-Frank Act mandates that swap information be reported to swap
data repositories (``SDRs'').\57\ SDRs provide a central facility for
swap data reporting and recordkeeping and are required to comply with
data standards set by the CFTC, including real-time public reporting of
swap transaction data to a derivatives clearing organization or
SEF.\58\ SDRs require real-time reporting of all OTC and centrally
cleared derivatives, including public reporting of the swap price and
size. The parties responsible for reporting swaps information are CFTC-
registered swap dealers (``RSDs''), major swap participants, and swap
execution facilities (``SEFs''). If swap counterparties do not fall
into the above

categories, then one of the parties to the swap must report the trade
to the SDR. Cleared swaps regulated by the CFTC must be executed on a
Designated Contract Market (``DCM'') or SEF. Such cleared swaps have
the same reporting requirements as futures, including end-of-day price,
volume, and open interest. CFTC swaps reporting requirements require
public dissemination of, among other items, product ID (if available);
asset class; underlying reference asset, reference issuer, or reference
index; termination date; date and time of execution; price, including
currency; notional amounts, including currency; whether direct or
indirect counterparties include an RSD; whether cleared or uncleared;
and platform ID of where the contract was executed (if applicable).
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    \55\ There are currently five categories of swaps eligible for
central clearing: Interest rate swaps; credit default swaps; foreign
exchange swaps; equity swaps; and commodity swaps. The following
entities provide central clearing for OTC derivatives: ICE Clear
Credit (US); ICE Clear (EU); CME Group; LCH.Clearnet; and Eurex.
    \56\ Pursuant to the Dodd-Frank Act, OTC and centrally-cleared
swaps are regulated by the CFTC with the exception of security-based
swaps, which are regulated by the Commission.
    \57\ The following entities are provisionally registered with
the CFTC as SDRs: BSDR LLC., Chicago Mercantile Exchange, Inc., DTCC
Data Repository, and ICE Trade Vault.
    \58\ Approximately eighteen entities are currently registered
with the CFTC as SEFs.
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    With respect to security-based swaps regulated by the Commission,
the Commission has adopted Regulation SBSR under the Act implementing
requirements for regulatory reporting and public dissemination of
security-based swap transactions set forth in Title VII of the Dodd-
Frank Act. Regulation SBSR provides for the reporting of security-based
swap information to registered security-based swap data repositories
(``Registered SDRs'') or the Commission, and the public dissemination
of security-based swap transaction, volume, and pricing information by
Registered SDRs.\59\
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    \59\ See Securities Exchange Act Release No. 74244 (February 11,
2015), 80 FR 14564 (March 19, 2015) (Regulation SBSR--Reporting and
Dissemination of Security-Based Swap Information).
---------------------------------------------------------------------------

    Price information relating to forwards and OTC options will be
available from major market data vendors.
    A fund's investments will not be used to seek performance that is
the multiple or inverse multiple (i.e., 2Xs and 3Xs) of a fund's broad-
based securities market index (as defined in Form N-1A).\60\ In
addition, the Exchange notes that, under proposed Rule 5735(b)(1)(A),
for Exchange Traded Derivative Securities and Linked Securities, no
more than 25% of the equity weight of a fund's portfolio could include
leveraged and/or inverse leveraged Exchange Traded Derivative
Securities or Linked Securities.
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    \60\ See, e.g., Securities Exchange Act Release No. 74842 (April
29, 2015), 86 FR 25723 (May 5, 2015) (SR-NYSEArca-2014-89) (order
approving listing and trading of shares of eight PIMCO exchange-
traded funds).
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    The proposed rule change is also designed to protect investors and
the public interest because Managed Fund Shares listed and traded
pursuant to Rule 5735, including pursuant to the proposed new portfolio
standards, would continue to be subject to the full panoply of Exchange
rules and procedures that currently govern the trading of equity
securities on the Exchange.\61\
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    \61\ See note 4 above, Approval Order, at 35177.
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    The proposed rule change is also designed to protect investors and
the public interest as well as to promote just and equitable principles
of trade in that any Non-U.S. Component Stocks will each meet the
following criteria initially and on a continuing basis: (1) Have a
minimum market value of at least $100 million; (2) have a minimum
global monthly trading volume of 250,000 shares, or minimum global
notional volume traded per month of $25,000,000, averaged over the last
six months; (3) 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; and
(4) each Non-U.S. Component Stock shall be listed and traded on an
exchange that has last-sale reporting.
    The Exchange believes that such quantitative criteria are
sufficient to mitigate any concerns that may arise on the basis of a
series of Managed Fund Shares potentially holding 100% of its assets in
Non-U.S. Component Stocks that are neither listed on members of ISG nor
exchanges with which the Exchange has in place a CSSA because, as
stated above, such criteria are either the same or more stringent than
the portfolio requirements for Index Fund Shares that hold Non-U.S.
Component Stocks and there are no such requirements related to such
securities being listed on an exchange that is a member of ISG or with
which the Exchange has in place a CSSA.
    Further, the Exchange has not encountered and is not aware of any
instances of manipulation or other negative impact in any series of
Index Fund Shares that has occurred by virtue of the Index Fund Shares
holding such Non-U.S. Component Stocks. Therefore, the Exchange
believes that there should be no difference in the portfolio
requirements for Managed Fund Shares and Index Fund Shares as it
relates to holding Non-U.S. Component Stocks that are not listed on an
exchange that is a member of ISG or with which the Exchange has in
place a CSSA.
    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because the
Managed Fund Shares will be listed and traded on the Exchange pursuant
to the initial and continued listing criteria in Rule 5735. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Managed Fund Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. FINRA, on behalf of the Exchange,
or the regulatory staff of the Exchange, will communicate as needed
regarding trading in Managed Fund Shares with other markets that are
members of the ISG, including all U.S. securities exchanges and futures
exchanges on which the components are traded.
    In addition, the Exchange may obtain information regarding trading
in Managed Fund Shares from other markets that are members of the ISG,
including all U.S. securities exchanges and futures exchanges on which
the components are traded, or with which the Exchange has in place a
CSSA.
    The Exchange also believes that the proposed rule change would
fulfill the intended objective of Rule 19b-4(e) under the Act by
allowing Managed Fund Shares that satisfy the proposed listing
standards to be listed and traded without separate Commission approval.
However, as proposed, the Exchange would continue to file separate
proposed rule changes before the listing and trading of Managed Fund
Shares that do not satisfy the additional criteria described above.
    The Exchange, on a periodic basis and no less than annually, will
review issues of Managed Fund Shares listed pursuant to Rule
5735(b)(1), and will provide a report to the Regulatory Oversight
Committee of the Exchange's Board of Directors regarding the Exchange's
findings. In addition, the Exchange will provide the Commission staff
with a report each calendar quarter that includes the following
information for issues of Managed Fund Shares listed during such
calendar quarter under Rule 5735(b)(1): (1) Trading symbol and date of
listing on the Exchange; (2) the number of active authorized
participants and a description of any failure of an issue of Managed
Fund Shares listed pursuant to Rule 5735(b)(1) or of an authorized
participant to deliver shares, cash, or cash and financial instruments
in connection with creation or redemption orders; and (3) a description
of any failure of an issue of Managed Fund Shares to comply with Rule
5735.
    Prior to listing pursuant to proposed amended Rule 5735(b)(1), an
issuer would be required to represent to the Exchange that it will
advise the Exchange of any failure by a series of

Managed Fund Shares 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 Rule 5800 Series.
    For these reasons, the Exchange believes that the proposal is
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\62\ 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. Instead, the Exchange believes that the
proposed rule change would facilitate the listing and trading of
additional types of Managed Fund Shares and result in a significantly
more efficient process surrounding the listing and trading of Managed
Fund Shares, which will enhance competition among market participants,
to the benefit of investors and the marketplace. The Exchange believes
that this would reduce the time frame for bringing Managed Fund Shares
to market, thereby reducing the burdens on issuers and other market
participants and promoting competition. In turn, the Exchange believes
that the proposed change would make the process for listing Managed
Fund Shares more competitive by applying uniform listing standards with
respect to Managed Fund Shares.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2016-104 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-2016-104. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2016-104 and should
be submitted on or before September 14, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20210 Filed 8-23-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 113 (Wednesday, June 14, 2017)]
[Notices]
[Pages 27261-27263]
[FR Doc No: 2017-12323]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2014-E-2370]

Determination of Regulatory Review Period for Purposes of Patent
Extension; HETLIOZ

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) has determined the
regulatory review period for HETLIOZ and is publishing this notice of
that determination as required by law. FDA has made the determination
because of the submission of an application to the Director of the U.S.
Patent and Trademark Office (USPTO), Department of Commerce, for the
extension of a patent which claims that human drug product.

DATES: Anyone with knowledge that any of the dates as published (in the
SUPPLEMENTARY INFORMATION section) are incorrect may submit either
electronic or written comments and ask for a redetermination by August
14, 2017. Furthermore, any interested person may petition FDA for a
determination regarding whether the applicant for extension acted with
due diligence during the regulatory review period by December 11, 2017.
See ``Petitions'' in the SUPPLEMENTARY INFORMATION section for more
information.

ADDRESSES: You may submit comments as follows: Please note that late,
untimely filed comments will not be considered. Electronic comments
must be submitted on or before August 14, 2017. The https://www.regulations.gov electronic filing system will accept comments until
midnight Eastern Time at the end of August 14, 2017. Comments received
by mail/hand delivery/courier (for written/paper submissions) will be
considered timely if they are postmarked or the delivery service
acceptance receipt is on or before that date.

Electronic Submissions

    Submit electronic comments in the following way:
     Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Comments submitted
electronically, including attachments, to https://www.regulations.gov
will be posted to the docket unchanged. Because your comment will be
made public, you are solely responsible for ensuring that your comment
does not include any confidential information that you or a third party
may not wish to be posted, such as medical information, your or anyone
else's Social Security number, or confidential business information,
such as a manufacturing process. Please note that if you include your
name, contact information, or other information that identifies you in
the body of your comments, that information will be posted on https://www.regulations.gov.
     If you want to submit a comment with confidential
information that you do not wish to be made available to the public,
submit the comment as a written/paper submission and in the manner
detailed (see ``Written/Paper Submissions'' and ``Instructions'').

Written/Paper Submissions

    Submit written/paper submissions as follows:
     Mail/Hand delivery/Courier (for written/paper
submissions): Division of Dockets Management (HFA-305), Food and Drug
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.

     For written/paper comments submitted to the Division of
Dockets Management, FDA will post your comment, as well as any
attachments, except for information submitted, marked and identified,
as confidential, if submitted as detailed in ``Instructions.''
    Instructions: All submissions received must include the Docket No.
FDA-2014-E-2370 for ``Determination of Regulatory Review Period for
Purposes of Patent Extension; HETLIOZ.'' Received comments will be
placed in the docket and, except for those submitted as ``Confidential
Submissions,'' publicly viewable at https://www.regulations.gov or at
the Division of Dockets Management between 9 a.m. and 4 p.m., Monday
through Friday.
     Confidential Submissions--To submit a comment with
confidential information that you do not wish to be made publicly
available, submit your comments only as a written/paper submission. You
should submit two copies total. One copy will include the information
you claim to be confidential with a heading or cover note that states
``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will
review this copy, including the claimed confidential information, in
its consideration of comments. The second copy, which will have the
claimed confidential information redacted/blacked out, will be
available for public viewing and posted on https://www.regulations.gov.
Submit both copies to the Division of Dockets Management. If you do not
wish your name and contact information to be made publicly available,
you can provide this information on the cover sheet and not in the body
of your comments and you must identify this information as
``confidential.'' Any information marked as ``confidential'' will not
be disclosed except in accordance with 21 CFR 10.20 and other
applicable disclosure law. For more information about FDA's posting of
comments to public dockets, see 80 FR 56469, September 18, 2015, or
access the information at: https://www.gpo.gov/fdsys/pkg/FR-2015-09-18/pdf/2015-23389.pdf.
    Docket: For access to the docket to read background documents or
the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in
the heading of this document, into the ``Search'' box and follow the
prompts and/or go to the Division of Dockets Management, 5630 Fishers
Lane, Rm. 1061, Rockville, MD 20852.

FOR FURTHER INFORMATION CONTACT: Beverly Friedman, Office of Regulatory
Policy, Food and Drug Administration, 10903 New Hampshire Ave. Bldg.
51, Rm. 6250, Silver Spring, MD 20993,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

I. Background

    The Drug Price Competition and Patent Term Restoration Act of 1984
(Pub. L. 98-417) and the Generic Animal Drug and Patent Term
Restoration Act (Pub. L. 100-670) generally provide that a patent may
be extended for a period of up to 5 years so long as the patented item
(human drug product, animal drug product, medical device, food
additive, or color additive) was subject to regulatory review by FDA
before the item was marketed. Under these acts, a product's regulatory
review period forms the basis for determining the amount of extension
an applicant may receive.
    A regulatory review period consists of two periods of time: A
testing phase and an approval phase. For human drug products, the
testing phase begins when the exemption to permit the clinical
investigations of the drug becomes effective and runs until the
approval phase begins. The approval phase starts with the initial
submission of an application to market the human drug product and
continues until FDA grants permission to market the drug product.
Although only a portion of a regulatory review period may count toward
the actual amount of extension that the Director of USPTO may award
(for example, half the testing phase must be subtracted as well as any
time that may have occurred before the patent was issued), FDA's
determination of the length of a regulatory review period for a human
drug product will include all of the testing phase and approval phase
as specified in 35 U.S.C. 156(g)(1)(B).
    FDA has approved for marketing the human drug product HETLIOZ
(tasimelteon). HETLIOZ is indicated for treatment of Non-24-Hour Sleep-
Wake Disorder. Subsequent to this approval, the USPTO received a patent
term restoration application for HETLIOZ (U.S. Patent No. 5,856,529)
from Vanda Pharmaceuticals, Inc., and the USPTO requested FDA's
assistance in determining this patent's eligibility for patent term
restoration. In a letter dated October 20, 2015, FDA advised the USPTO
that this human drug product had undergone a regulatory review period
and that the approval of HETLIOZ represented the first permitted
commercial marketing or use of the product. Thereafter, the USPTO
requested that FDA determine the product's regulatory review period.

II. Determination of Regulatory Review Period

    FDA has determined that the applicable regulatory review period for
HETLIOZ is 5,802 days. Of this time, 5,556 days occurred during the
testing phase of the regulatory review period, while 246 days occurred
during the approval phase. These periods of time were derived from the
following dates:
    1. The date an exemption under section 505(i) of the Federal Food,
Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 355(i)) became
effective: March 16, 1998. FDA has verified the Vanda Pharmaceuticals,
Inc. claim that March 16, 1998, is the date the investigational new
drug application (IND) became effective.
    2. The date the application was initially submitted with respect to
the human drug product under section 505(b) of the FD&C Act: May 31,
2013. FDA has verified the applicant's claim that the new drug
application (NDA) for HETLIOZ (NDA 205677) was initially submitted on
May 31, 2013.
    3. The date the application was approved: January 31, 2014. FDA has
verified the applicant's claim that NDA 205677 was approved on January
31, 2014.
    This determination of the regulatory review period establishes the
maximum potential length of a patent extension. However, the USPTO
applies several statutory limitations in its calculations of the actual
period for patent extension. In its application for patent extension,
this applicant seeks 5 years of patent term extension.

III. Petitions

    Anyone with knowledge that any of the dates as published are
incorrect may submit either electronic or written comments and ask for
a redetermination (see DATES). Furthermore, any interested person may
petition FDA for a determination regarding whether the applicant for
extension acted with due diligence during the regulatory review period.
To meet its burden, the petition must be timely (see ADDRESSES) and
contain sufficient facts to merit an FDA investigation. (See H. Rept.
857, part 1, 98th Cong., 2d sess., pp. 41-42, 1984.) Petitions should
be in the format specified in 21 CFR 10.30.
    Submit petitions electronically to https://www.regulations.gov at
Docket No. FDA-2013-S-0610. Submit written petitions (two copies are
required) to the Division of Dockets Management (HFA-305), Food and
Drug Administration,

5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.

    Dated: June 9, 2017.
Anna K. Abram,
Deputy Commissioner for Policy, Planning, Legislation, and Analysis.
[FR Doc. 2017-12323 Filed 6-13-17; 8:45 am]
 BILLING CODE 4164-01-P