[Federal Register Volume 86, Number 113 (Tuesday, June 15, 2021)]
[Notices]
[Pages 31759-31764]
[FR Doc No: 2021-12475]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92134; File No. SR-NASDAQ-2021-046]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Pricing Schedule at Equity 7, Section 114(f)

June 9, 2021.
    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 May 27, 2021, 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, II,
and III 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 the Exchange's Pricing Schedule at
Equity 7, Section 114(f) (``Pricing Schedule'').
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 purpose of the proposed rule change is to amend the Exchange's
Pricing Schedule at Equity 7, Section 114(f) applicable to the
Designated Liquidity Provider (``DLP'') \3\ Program. The Exchange
proposes to amend the rebates applicable for DLPs in Nasdaq-listed
securities with monthly incentives that are directly tied to meeting
market quality metrics (``MQMs''). Specifically, the Exchange proposes
to (1) add Exchange Traded Fund Shares listed on Nasdaq pursuant to
Nasdaq Rule 5704, Proxy Portfolio Shares listed on Nasdaq pursuant to
Nasdaq Rule 5750, and Managed Portfolio Shares listed on Nasdaq
pursuant to Nasdaq Rule 5760 to the list of securities that may be
designated as a Qualified Security, as long as it has at least one DLP;
(2) amend Equity 7, Section 114(f)(4) to revise the monthly performance
criteria related to the specific rebates provided under Equity 7,
Section 114(f)(5), as well as to address secondary DLPs (``Secondary
DLPs''); (3) change the current schedule under Equity 7, Section
114(f)(5) from three tiers to five tiers, establish both standard
rebates (``Standard Rebate'') and enhanced rebates (``Enhanced
Rebate''), as well as address Secondary DLPs; and (4) change the
existing Additional Tape C ETP Incentives in Equity 7, Section
114(f)(5)(B), as well as add a new tier to the schedule.
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    \3\ Equity 7, Section 114(f)(2) defines a ``Designated Liquidity
Provider'' or ``DLP'' as a registered Nasdaq market maker for a
Qualified Security (defined below) that has committed to maintain
minimum performance standards. A DLP will be selected by Nasdaq
based on factors including, but not limited to, experience with
making markets in exchange-traded products, adequacy of capital,
willingness to promote Nasdaq as a marketplace, issuer preference,
operational capacity, support personnel, and history of adherence to
Nasdaq rules and securities laws. Nasdaq may limit the number of
DLPs in a security, or modify a previously established limit, upon
prior written notice to members.
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Description of the Changes
    The proposal amends the rebates applicable for DLPs in Nasdaq-
listed securities with monthly incentives that are directly tied to
meeting MQMs.\4\ The Exchange believes that these changes will
encourage DLPs to maintain better market quality in Nasdaq-listed
securities, and, in particular, in lower volume securities where
transaction-based compensation (i.e., rebates) may not be sufficient.
The Exchange currently offers a DLP Program, which applies to
transactions in a Qualified Security \5\ by one of its DLPs associated
with its DLP Program market participant identifier (``MPID'').
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    \4\ The Exchange is also making a technical change in the second
sentence of Equity 7, Section 114(f)(5)(B) to change ``Rebate'' to
``rebate''.
    \5\ Equity 7, Section 114(f)(1) says a security may be
designated as a ``Qualified Security'' if: (a) It is an exchange-
traded product listed on Nasdaq pursuant to Nasdaq Rules 5705, 5710,
5720, 5735, or 5745; and (b) it has at least one DLP.
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Add Exchange Traded Fund Shares, Proxy Portfolio Shares and Managed
Portfolio Shares To List That May Be Designated as a Qualified Security
    The Exchange proposes to amend Equity 7, Section 114(f)(1)(A) to
add Exchange Traded Fund Shares listed on Nasdaq pursuant to Nasdaq
Rule 5704,\6\ Proxy Portfolio Shares listed on Nasdaq pursuant to
Nasdaq Rule 5750 and Managed Portfolio Shares listed on Nasdaq pursuant
to Nasdaq Rule 5760 to the list of securities that may be designated as
a Qualified Security, as long as it has at least one DLP. Nasdaq Rule
5704 (Exchange Traded Fund Shares), Nasdaq Rule 5750 (Proxy Portfolio
Shares) and Nasdaq Rule 5760 (Managed Portfolio Shares) were all fairly
recently adopted and should be added to the existing list that already
includes: Nasdaq Rule 5705--Exchange Traded Funds: Portfolio Depository
Receipts and Index Fund Shares; Nasdaq Rule 5710--Securities Linked to
the Performance of Indexes and Commodities (Including Currencies);
Nasdaq Rule 5720--Trust Issued Receipts; Nasdaq Rule 5735--Managed Fund
Shares; and Nasdaq Rule 5745--

Exchange-Traded Managed Fund Shares (``NextShares''). Both Proxy
Portfolio Shares and Managed Portfolio Shares are semi-transparent
exchange-traded funds (``ETFs'') that also need support from a market
quality perspective just like traditional ETFs. Since these products
are new and incubating, the Exchange believes the DLP changes will be
beneficial to these ETFs as well.
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    \6\ The inclusion of Nasdaq Rule 5704 to the list of securities
that may be designated as a Qualified Security is not a substantive
change, but being added as a clarification because the securities
listed under Nasdaq Rule 5704 are already covered by Nasdaq Rules
5705 and 5735.
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Amend Monthly Performance Criteria for Rebates and Address Secondary
DLPs
    The Exchange also proposes to amend Equity 7, Section 114(f)(4) to
revise the monthly performance criteria related to the specific rebates
provided under Equity 7, Section 114(f)(5). Currently, to qualify for
the basic rebate, which is being renamed the ``Primary DLP Rebate,''
under Equity 7, Section 114(f)(4), a DLP must be at the national best
bid (best offer) (``NBBO'') at least 20% of the time on average in the
assigned exchange-traded product (``ETP''). As amended, a Primary DLP
will need to meet all four of the Standard MQMs in the assigned ETP as
measured by Nasdaq to qualify for the Standard Rebate and all four of
the Enhanced MQMs in the assigned ETP as measured by Nasdaq to qualify
for the Enhanced Rebate. These MQMs are measured on average in the
assigned ETP during regular market hours: \7\ (1) Time at the NBBO will
be 20% for the Standard Rebate and 50% for the Enhanced Rebate; (2)
time within 5 basis points of NBBO will be 50% for the Standard Rebate
and 75% for the Enhanced Rebate; (3) notional depth will be $100,000
(within 150 basis points of NBBO) for the Standard Rebate and $100,000
(within 50 basis points of NBBO) for the Enhanced Rebate; and (4)
average spread will be less than 125 basis points for the Standard
Rebate and less than 25 basis points for the Enhanced Rebate.
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    \7\ Equity 7, Section 114(h)(9) says ``The term ``regular market
hours'' means 9:30 a.m. through 4:00 p.m., or such shorter period as
may be designated by Nasdaq on a day when the securities markets
close early.''
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    Nasdaq is proposing these changes to the DLP Program to modernize
it so that it becomes a program that is more market quality focused
rather than transaction-based. The new MQMs are intended to encourage
DLPs to uphold better quality markets in Nasdaq-listed ETPs and also
ensure a scalable business model to support new and incubating ETPs
that often trade less on a daily basis (i.e., certain rebates will be
on a fixed amount rather than on a per executed share basis).
    Additionally, the Exchange proposes to amend Equity 7, Section
114(f)(4) to address Secondary DLPs. If there are two DLP assignments
for a Nasdaq-listed ETP, the Secondary DLP will be determined by using
the factors in Section 114(f)(2). The Secondary DLP will qualify for
rebates in ETPs if it meets two of the four Enhanced MQMs noted above.
The Exchange believes that allowing two DLPs will work to further
support the market quality in lower average daily volume (``ADV'') ETPs
and increase resiliency in market quality performance. By incentivizing
more than one market maker to meet the increased MQMs, lower ADV ETPs
now have more market makers who are incentivized to provide quote
quality and layering of notional depth, which can be a benefit if the
Primary DLP has an unforeseen quoting or technology issue. Also, by
adding the MQMs, the Primary and Secondary DLP are incentivized to not
only provide quotes at the NBBO but also other important quote quality
metrics around the NBBO.
Amend Rebate Tiers To Include Standard and New Enhanced Rebates and
Update Schedule From Three to Five Tiers, and Address Secondary DLPs
    Currently, the Exchange provides rebates in Equity 7, Section
114(f)(5)(A) that are in lieu of or in addition to, as specified [sic],
other rebates or fees provided under Equity 7, Sections 114 and 118.
The Exchange proposes to change the current schedule of three tiers \8\
to an updated schedule with five tiers and will clarify that the
rebates will only apply to MPIDs where a member is a Primary DLP.
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    \8\ The current three tiers are: (1) $0.0070 per executed share
for ETPs with monthly ADV less than 500,000 in the prior month; (2)
$0.0042 per executed share for ETPs with monthly ADV between 500,000
and 5 million in the prior month; and (3) $0.0036 per executed share
for ETPs with monthly ADV greater than 5 million in the prior month.
Enhanced Rebates are not addressed in the current schedule.
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    The proposed amended schedule contains five tiers based on monthly
ADV and includes both a Standard Rebate and an Enhanced Rebate for
Primary DLPs. Tier 1 will apply to ETPs with monthly ADV greater than 1
million in the prior month with a Standard Rebate of $0.0034 per
executed share and with an Enhanced Rebate of $0.0036 per executed
share. Tier 2 will apply to ETPs with monthly ADV between 250,001 and 1
million in the prior month with a Standard Rebate of $0.0040 per
executed share and with an Enhanced Rebate of $0.0042 per executed
share. Tier 3 will apply to ETPs with monthly ADV between 150,001 and
250,000 in the prior month with a Standard Rebate of $200 per month and
with an Enhanced Rebate of $350 per month. Tier 4 will apply to ETPs
with monthly ADV between 50,001 and 150,000 in the prior month with a
Standard Rebate of $225 per month and with an Enhanced Rebate of $450
per month. Tier 5 will apply to ETPs with monthly ADV less than 50,001
in the prior month with a Standard Rebate of $300 per month and with an
Enhanced Rebate of $500 per month. The Tier 3-5 rebates will be in
addition to any other rebates the Primary DLP qualifies for under
Equity 7, Sections 114 and 118.
    Currently, the Exchange's DLP Program incentivizes DLPs with a
transaction-style rebate with one market quality requirement (time at
inside at least 20%). While this does benefit some ETPs, it may not be
satisfactory for lower volume ETPs, which are often new and incubating
products that need a different support model from the Nasdaq. The
Exchange believes the changes will better position these ETPs for
success and benefit the issuers and market makers by offering a fixed
rebate for meeting more market quality requirements in lower volume
ETPs.
    Nasdaq believes that by allowing a hybrid-style rebate program
(transaction and fixed rebate), the Exchange can better support the
market makers' business model. The Exchange believes that the amended
DLP Program and market quality requirements will serve to better align
the Exchange incentives with a more scalable and reliable model for
DLPs, as well as increase market quality performance in Nasdaq-listed
ETPs. The Exchange decided to retain a per executed share rebate model
for ETPs with an ADV greater than 250,001. Based on issuer and market
maker feedback, it was evident that for more actively traded ETPs this
model may provide greater incentives for DLPs while still holding DLPs
to more stringent MQMs.
    The Exchange also proposes that if there is more than one DLP to an
assigned ETP, then the Secondary DLP receives $150 per month or an
additional $0.0003 per executed share, depending upon the tier, which
will be in addition to any other rebate the Secondary DLP is eligible
for under Equity 7, Sections 114 and 118. The Exchange believes that by
allowing two DLPs (the Secondary DLP will be determined by using the
factors in Equity 7, Section 114(f)(2)) will work to further support
the market quality in lower ADV ETPs and increase resiliency in market
quality performance.

Change Existing Additional Tape C ETP Incentives and Add New Tier
    In addition, the Exchange proposes to change the existing
Additional Tape C ETP Incentives in Equity 7, Section 114(f)(5)(B), as
well as add a new tier. The rebates are provided to an eligible member
for each displayed share that adds liquidity in a Tape C ETP that meets
the criteria of Equity 7, Section 114(f)(1)(A) and will only apply to
the MPID where a member is a DLP.
    The Exchange proposes to amend the Incremental Tape C ETP Rebate
for Tier 1 (applicable to members with a minimum monthly average of 10
assigned ETPs as a DLP) to decrease from $0.0003 per executed share to
$0.0002 per executed share. The Exchange proposes to amend the
Incremental Tape C ETP Rebate for Tier 2 (applicable to members with a
minimum monthly average of 25 assigned ETPs as a DLP) to decrease from
$0.0004 per executed share to $0.0003 per executed share. The Exchange
proposes to amend the Incremental Tape C ETP Rebate for Tier 3
(applicable to members with a minimum monthly average of 50 assigned
ETPs as a DLP) to decrease from $0.0005 per executed share to $0.0004
per executed share. Finally, the Exchange proposes to add a Tier 4 that
will have an Incremental Tape C ETP Rebate of $0.0005 per executed
share applicable to members with a minimum monthly average of 100
assigned ETPs as a DLP. In addition, the Exchange will eliminate the
existing language at the end of the rule.\9\ The Exchange is updating
the Tape C ETP rebate to better reflect the growing number of ETP
listings on Nasdaq. The Exchange is proposing to eliminate the existing
language at the end of Equity 7, Section 114(f)(5)(B) that follows the
Additional Tape C ETP Incentives schedule because the Exchange believes
it was not an effective part of the DLP Program, and that the amended
rebates will be more impactful to ETF issuers and market makers.
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    \9\ The rule language currently says ``If a current DLP has less
than 10 DLP assignments, but increases the number of ETPs for which
it is a DLP by 100%, the DLP will receive an incremental additional
Tape C ETP rebate of $0.0001. A DLP receiving its first assignment
will count as a 100% increase. This incremental rebate is only
available for the first 100% increase and thus is not available for
subsequent increases of 100%.''
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2. Statutory Basis
    The Exchange believes that its proposals are consistent with
Section 6(b) of the Act,\10\ in general, and further the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that
they provide for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using its
facilities and do not unfairly discriminate between customers, issuers,
brokers or dealers. The Exchange also notes that its ETP listing
business operates in a highly-competitive market in which market
participants, which include both DLPs and ETP issuers, can readily
transfer their listings or opt not to participate, respectively, if
they deem fee levels, liquidity incentive programs, or any other factor
at a particular venue to be insufficient or excessive. The proposed
rule change reflects a competitive pricing structure designed to
incentivize issuers to list new products and transfer existing products
to the Exchange and market participants to enroll and participate as
DLPs on the Exchange, which the Exchange believes will enhance market
quality in qualified ETPs listed on the Exchange.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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Add Exchange Traded Fund Shares, Proxy Portfolio Shares and Managed
Portfolio Shares To List That May Be Designated as a Qualified Security
    The Exchange believes that the change to expand the list of
securities that may be designated as a ``Qualified Security'' to
include Exchange Traded Fund Shares under Nasdaq Rule 5704, Proxy
Portfolio Shares under Nasdaq Rule 5750 and Managed Portfolio Shares
under Nasdaq Rule 5760, as long as they have at least one DLP, is
reasonable and would be consistent with the public interest and the
protection of investors because investors will not be harmed and in
fact would benefit from increased clarity and transparency of the
Pricing Schedule. The inclusion of Exchange Traded Fund Shares is not a
substantive change, but being added as a clarification because the
securities listed under Nasdaq Rule 5704 are already covered by Nasdaq
Rules 5705 and 5735 and this simply clarifies that such a security may
be designated as a ``Qualified Security.'' The addition of Proxy
Portfolio Shares and Managed Portfolio Shares to the list of securities
that may be designated as a ``Qualified Security'' is reasonable
because low ADV semi-transparent ETPs also need support from a market
quality perspective just like traditional ETPs. Since these products
are new and incubating, the Exchange believes the DLP changes will be
beneficial to these ETFs as well.
Amend Equity 7, Section 114(f)(4) To Revise the Monthly Performance
Criteria Related to Specific Rebates Provided Under Equity 7, Section
114(f)(5), and To Address Secondary DLPs
    The Exchange believes that amending Equity 7, Section 114(f)(4) to
revise the monthly performance criteria related to the specific rebates
provided under Equity 7, Section 114(f)(5) by better aligning the
behavior required to qualify for rebates with the nature of the rebates
provided is reasonable because the Exchange must from time to time
assess the effectiveness of the incentives it provides to market
participants in return for the beneficial behavior required to receive
the incentive. In this case, the Exchange is amending the program so
that a Primary DLP will need to meet all four of the Standard MQMs in
the assigned ETP as measured by Nasdaq to qualify for the Standard
Rebate and all four of the Enhanced MQMs in the assigned ETP as
measured by Nasdaq to qualify for the Enhanced Rebate. These MQMs are
measured on average in the assigned ETP during regular market hours:
(1) Time at the NBBO will be 20% for the Standard Rebate and 50% for
the Enhanced Rebate; (2) time within 5 basis points of NBBO will be 50%
for the Standard Rebate and 75% for the Enhanced Rebate; (3) notional
depth will be $100,000 (within 150 basis points of NBBO) for the
Standard Rebate and $100,000 (within 50 basis points of NBBO) for the
Enhanced Rebate; and (4) average spread will be less than 125 basis
points for the Standard Rebate and less than 25 basis points for the
Enhanced Rebate.
    The Exchange believes that the proposed eligibility criteria are an
equitable allocation and are not unfairly discriminatory because the
Exchange will apply the same criteria to all DLPs. The Exchange also
believes that the proposed eligibility criteria are an equitable
allocation and are not unfairly discriminatory among Exchange members
because any member may become a market maker and take the steps
necessary to also become a DLP, including meeting the proposed minimum
criteria under Equity 7, Section 114(f)(4).\12\ The DLP Program is
limited to Exchange market makers because of their unique role in the
markets, including their obligation to provide liquidity in the
securities in which they are registered. Thus, the DLP Program is a
further extension of

the market maker's role in providing liquidity in specific securities,
to the benefit of all market participants.
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    \12\ The Exchange will select DLPs based on the factors in
Equity 7, Section 114(f)(2).
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    The Exchange also believes these changes are an equitable
allocation and are not unfairly discriminatory because the Exchange is
proposing these changes to the DLP Program to modernize it so that it
becomes a program that is more market quality focused rather than
transaction-based (i.e., the Exchange will pay fixed amount rebates
that fall within Tiers 3-5). The new MQMs are intended to encourage
DLPs to uphold better quality markets in Nasdaq-listed ETPs and also
ensure a scalable business model to support new and incubating ETPs
that often trade less on a daily basis.
    The Exchange believes that its proposal to amend Equity 7, Section
114(f)(4) to address Secondary DLPs is reasonable because it allows
that if there are two DLP assignments for a Nasdaq-listed ETP (the
Secondary DLP will be determined by using the factors in Section
114(f)(2)) and that the Secondary DLP will qualify for rebates in ETPs
if it meets two of the four Enhanced MQMs as noted above. The Exchange
believes that this proposal is an equitable allocation and is not
unfairly discriminatory because allowing two DLPs will work to further
support the market quality in lower ADV ETPs and increase resiliency in
market quality performance. Additionally, the Exchange believes that by
incentivizing more than one market maker to meet the increased MQMs,
lower ADV ETPs now have more market makers who are incentivized to
provide quote quality and layering of notional depth, which can be a
benefit if the Primary DLP has an unforeseen quoting or technology
issue. Also, by adding the MQMs, the Primary and Secondary DLP are
incentivized to not only provide quotes at the NBBO but also other
important quote quality metrics around the NBBO.
    The Exchange believes that its proposals to add additional MQMs and
rebates are not unfairly discriminatory because these rebates are
available to all qualifying members and reward meaningful quote quality
and liquidity in ETPs. Moreover, these proposals stand to improve the
overall market quality of the Exchange, to the benefit of all market
participants, by allowing a hybrid-style rebate program (transaction
and fixed rebate), the Exchange can better support the market makers'
business model. The Exchange believes that the amended DLP Program and
market quality requirements will serve to better align the Exchange
incentives with a more scalable and reliable model for DLPs, as well as
increase market quality performance in Nasdaq-listed ETPs.
Amend Rebate Tiers To Include Standard and New Enhanced Rebates and
Update Schedule From Three to Five Tiers, and Address Secondary DLPs
    The Exchange believes that its proposal to amend the DLP Program's
rebate tiers to include Standard and new Enhanced Rebates and updating
the Pricing Schedule from three to five tiers, and to clarify that the
rebates will only apply to MPIDs where a member is a Primary DLP, and
that Tier 3-5 rebates will be in addition to any other rebates the
Primary DLP qualifies for under Equity 7, Sections 114 and 118, is
reasonable because it will encourage DLPs to uphold better quality
markets in Nasdaq-listed ETPs through being more market quality focused
rather than transaction-based. Currently, the Exchange's DLP Program
incentivizes DLPs with a transaction-style rebate with one market
quality requirement (time at inside at least 20%). Although this does
benefit some ETPs, it may not be satisfactory for lower volume ETPs,
which are often new and incubating products that need a different
support model from the Exchange.
    The Exchange believes that amending the DLP Program as proposed is
an equitable allocation of rebates and is not unfairly discriminatory
because it will allocate its rebates fairly among its market
participants (i.e., the Exchange will pay higher rebates to DLPs that
meet higher MQMs and will pay DLPs higher fixed rebates for the ETPs
with lower ADVs). It will better position these lower volume ETPs for
success and will benefit issuers and market makers by offering a fixed
rebate for meeting more market quality requirements in lower volume
ETPs.
    Specifically, the Exchange proposes to change the current schedule
under Equity 7, Section 114(f)(5) from three tiers to five tiers.\13\
The proposed five tiers are based on monthly ADV and includes both a
Standard Rebate and an Enhanced Rebate. The Exchange believes this
proposal is an equitable allocation of rebates and is not unfairly
discriminatory because by allowing for a fixed payment in lower ADV
products, it provides for a more reliable business model for DLPs while
adding on quote and market quality requirements and reflects an
equitable allocation of rebates. Additionally, by allowing a hybrid
style rebate program (transaction-based and a fixed rebate), the
Exchange can better support the market makers' business model. The
Exchange believes that the DLP Program, as amended, will better align
incentives with a more scalable and reliable model for DLPs and
increase market quality performance in Nasdaq-listed ETPs.
Additionally, retaining a per executed share rebate model for ETPs with
an ADV greater than 250,001 may provide greater incentives for DLPs
while still holding DLPs to more stringent MQMs.
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    \13\ See supra note 8.
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    The Exchange also believes that its proposal that if there is more
than one DLP to an assigned ETP, then the Secondary DLP receives $150
per month or an additional $0.0003 per executed share, depending upon
the tier, will be in addition to any other rebate the Secondary DLP is
eligible for under Equity 7, Sections 114 and 118 is an equitable
allocation of rebates and is not unfairly discriminatory because
allowing two DLPs (the Secondary DLP will be determined by using the
factors in Section 114(f)(2)) will work to further support the market
quality in lower ADV ETPs and increase resiliency in market quality
performance.
    The Exchange believes that its proposals are not unfairly
discriminatory. As an initial matter, the Exchange believes that
nothing about its tiered pricing model is inherently unfair; instead,
it is a rational pricing model that is well-established and ubiquitous
in today's economy among firms in various industries--from co-branded
rebate cards [sic] to grocery stores to cellular telephone data plans--
that use it to reward the loyalty of their best customers that provide
high levels of business activity and incent other customers to increase
the extent of their business activity. It is also a pricing model that
the Exchange and its competitors have long employed with the assent of
the Commission. It is fair because it incentivizes customer activity
that increases liquidity, enhances price discovery, and improves the
overall quality of the equity markets.
    The Exchange also believes that its amended Pricing Schedule is not
unfairly discriminatory because if successful, it stands to improve the
quality of the Nasdaq market, to the benefit of all market
participants. The Exchange has limited resources with which to apply to
incentives, and it must allocate those limited resources in a manner
that prioritizes areas of greatest need and potential effect.
Change Existing Additional Tape C ETP Incentives and Add New Tier
    The Exchange believes that its proposal to amend the existing

Additional Tape C ETP Incentives in Equity 7, Section 114(f)(5)(B) and
add a new tier is reasonable because it allows an eligible member for
each displayed share that adds liquidity in a Tape C ETP that meets the
criteria of Equity 7, Section 114(f)(1)(A) to receive a rebate and
limits it those MPIDs where a member is a DLP. ETP listings is a highly
competitive market in which ETP issuers and DLPs can opt to not
participate or transfer listings. The additional tier reflects the
growing number of ETPs listed on Nasdaq.
    In addition, the Exchange believes it is reasonable to eliminate
the existing language at the end of the rule because the Exchange
believes it was not an effective part of the DLP Program, and that the
amended rebates will be more impactful to ETF issuers and market
makers. The Exchange also believes that making a technical change in
the second sentence of Equity 7, Section 114(f)(5)(B) to change
``Rebate'' to ``rebate'' is reasonable since it is merely a
clarification that improves the sentence.
    The Exchange believes that amending the DLP Program as proposed is
an equitable allocation of rebates and is not unfairly discriminatory
because it will allocate its rebates fairly among its market
participants (i.e., the Exchange will pay higher rebates for DLPs with
more ETPs assigned). Additionally, it will better position these lower
volume ETPs for success and will benefit issuers and market makers.
    The Exchange also believes that amending the DLP Program as
proposed is an equitable allocation of rebates and is not unfairly
discriminatory because it is intended to encourage DLPs to promote
better market quality and liquidity in qualified Nasdaq-listed ETPs. By
providing increased rebates based on better market quality and their
DLP footprint, the Exchange believes that it will encourage DLPs to
register, quote and trade in more ETPs on Nasdaq. Additionally, the
Exchange believes the updated rebates will incentivize DLPs to register
to support additional ETPs, especially lower ADV products.
    The Exchange also believes that its proposal to amend the existing
Additional Tape C ETP Incentives in Equity 7, Section 114(f)(5)(B) and
add a new tier is not unfairly discriminatory because if successful, it
stands to improve the quality of the Nasdaq market, to the benefit of
all market participants. The Exchange has limited resources with which
to apply to incentives, and it must allocate those limited resources in
a manner that prioritizes areas of greatest need and potential effect.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem rebates or fee levels
at a particular venue to be excessive, or rebate opportunities
available at other venues to be more favorable. In such an environment,
the Exchange must continually adjust its rebates and fees to remain
competitive with other exchanges and with alternative trading systems
that have been exempted from compliance with the statutory standards
applicable to exchanges. Because competitors are free to modify their
own rebates and fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes
that the degree to which rebate and fee changes in this market may
impose any burden on competition is extremely limited.
    In this instance, the Exchange is proposing to modify the
incentives provided to market makers for participation in the DLP
program in an effort to improve the program by providing more targeted
incentives to improve and increase market quality in ETPs that are in
need of such improvement the most. The Exchange uses incentives, such
as the rebates of the DLP program, to incentivize market participants
to improve the market. The Exchange must, from time to time, assess the
effectiveness of incentives and adjust them when they are not as
effective as the Exchange believes they could be. Moreover, the
Exchange is ultimately limited in the amount of rebates it may offer.
The proposed new criteria and incentives are reflective of such an
analysis.
    The Exchange notes that participation in the DLP program is
entirely voluntary and, to the extent that registered market makers
determine that the rebates are not in line with the level of market-
improving behavior the Exchange requires, a DLP may elect to deregister
as such with no penalty. The Exchange notes that it is amending the
MQMs required for a DLP to receive an increased rebate under the
program, and thus there is a risk that a DLP may not qualify for any of
the increased incentives under the amended program if it provides the
same level market participation, but will still qualify for their
regular base rebate.
    The Exchange does not believe that the proposed changes place an
unnecessary burden on competition and, in sum, if the changes proposed
herein are unattractive to market makers, it is likely that the
Exchange will lose participation in the DLP program as a result. As
noted above, the Exchange is continuing to limit eligibility for the
program to Exchange market makers. The Exchange believes that Exchange
market makers are best positioned to provide market improvement in DLP
Program ETPs in light of their unique function in the markets.
Moreover, any Exchange member may elect to take the steps necessary to
become an Exchange market maker and therefore become eligible for the
program if they choose. The Exchange will continue to select DLPs based
on the factors in Equity 7, Section 114(f)(2). Thus, the Exchange does
not believe that the proposal represents a burden on competition among
Exchange members, or that the proposal will impair the ability of
members or competing order execution venues to maintain their
competitive standing in the financial markets.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\14\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or 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-2021-046 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-2021-046. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2021-046 and should be submitted
on or before July 6, 2021.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12475 Filed 6-14-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70468-70472]
[FR Doc No: 2016-24578]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79053; File No. SR-BatsBZX-2016-35]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
Nos. 1, 2, and 3, To List and Trade Shares of the JPMorgan Global Bond
Opportunities ETF of the J.P. Morgan Exchange-Traded Fund Trust Under
BZX Rule 14.11(i), Managed Fund Shares

October 5, 2016.

I. Introduction

    On July 1, 2015, Bats BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to
list and trade shares (``Shares'') of the JPMorgan Global Bond
Opportunities ETF (``Fund'') of the J.P. Morgan Exchange-Traded Fund
Trust (``Trust'') under BZX Rule 14.11(i). The proposed rule change was
published for comment in the Federal Register on July 14, 2016.\4\ On
August 18, 2016, the Commission extended the time period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to approve or
disapprove the proposed rule change to October 12, 2016.\5\ On August
30, 2016, the Exchange filed Amendment No. 1 to the proposed rule
change. On October 3, 2016, the Exchange filed Amendment No. 2 to the
proposed rule change.\6\ On October 4, 2016, the Exchange filed
Amendment No. 3 to the proposed rule change.\7\ The Commission received
no comments on the proposed rule change. This order grants approval of
the proposed rule change, as modified by Amendment Nos. 1, 2, and 3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 78264 (July 8,
2016), 81 FR 45546 (``Notice'').
    \5\ See Securities Exchange Act Release No. 78613 (August 18,
2016), 81 FR 57967 (August 24, 2016).
    \6\ Amendment No. 2 replaced Amendment No. 1, which amended and
replaced the original filing in its entirety. In Amendment No. 2,
the Exchange: (1) clarified the Fund's investments in instruments
that provide exposure to countries other than the U.S.; (2) added
the defined terms ``Bonds'' and ``Non-Bonds'' to describe and
clarify some of the Fund's investments; (3) provided additional
detail regarding restrictions on the Fund's investments in non-
agency asset-backed securities; (4) clarified restrictions on the
Fund's investments in municipal securities; (5) provided additional
clarity regarding the definition of private placements, restricted
securities, and unregistered securities, as well as restrictions on
such holdings; (6) provided additional description of restrictions
on the Fund's structured investments; (7) provided additional
clarification regarding the types of derivatives and foreign
currency transactions in which the Fund may invest; (8) provided
additional detail regarding the Fund's coverage of options; (9)
provided additional detail regarding the commodity-related pooled
investment vehicles that the Fund may hold; and (10) provided
additional clarification regarding the Fund's valuation of
convertible securities, warrants and rights, and custodial receipts.
Because the changes in Amendment No. 2 to the proposed rule change
clarify certain statements in the proposal and do not materially
alter the substance of the proposed rule change or raise any novel
regulatory issues, it is not subject to notice and comment.
    \7\ In Amendment No. 3, which partially amended Amendment No. 2
to the proposed rule change, the Exchange: (i) Added a citation to a
Commission Order in support of proposed restrictions on the Fund's
investments in municipal securities; and (ii) consolidated footnotes
into a single footnote. Amendment No. 3 is not subject to notice and
comment because it is a technical amendment that does not materially
alter the substance of the proposed rule change or raise any novel
regulatory issues.
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under BZX Rule
14.11(i), which governs the listing and trading of Managed Fund Shares
on the Exchange. The Shares will be offered by the Trust. According to
the Exchange, the Trust is registered with the Commission as an open-
end investment company and has filed a registration statement with
respect to the Fund on Form N-1A (``Registration Statement'') with the
Commission.\8\
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    \8\ See Registration Statement on Form N-1A for the Trust, dated
May 26, 2016 (File Nos. 333-191837 and 811-22903). The Exchange
states that the Commission has issued an order granting certain
exemptive relief to the Trust under the Investment Company Act of
1940 (``1940 Act''). See Investment Company Act Release No. 31990
(February 9, 2016) (File No. 812-13761).
---------------------------------------------------------------------------

    J.P. Morgan Investment Management Inc. will be the investment
adviser (``Adviser'') to the Fund. The Adviser will serve as the
administrator for the Fund. SEI Investments Distribution Co. serves as
the distributor for the Trust. JPMorgan Chase Bank, N.A. will act as
the custodian and transfer agent for the Trust. The Exchange states
that the Adviser is not registered as a broker-dealer but that the
Adviser is affiliated with a broker-dealer and has implemented a ``fire
wall'' with respect to such broker-dealer regarding access to

information concerning the composition and/or changes to the Fund's
portfolio.\9\ In the event (a) the Adviser becomes registered as a
broker-dealer or newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to its relevant personnel or broker-dealer affiliate regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.\10\
---------------------------------------------------------------------------

    \9\ See Notice, supra note 4, 80 FR at 45547.
    \10\ See id.
---------------------------------------------------------------------------

    The Exchange has made the following representations and statements
in describing the Funds.\11\
---------------------------------------------------------------------------

    \11\ The Commission notes that additional information regarding
the Trust, the Funds, and the Shares, including investment
strategies, risks, creation and redemption procedures, calculation
of net asset value (``NAV''), fees, distributions, and taxes, among
other things, can be found in the Notice, Amendment No. 2, and
Registration Statement, as applicable. See Notice, supra note 4,
Amendment No. 2, supra note 6, and Registration Statement, supra
note 8.
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Principal Investments for the Fund

    The Fund will seek to provide total return by investing across
sectors in developed and emerging markets located around the world. The
Fund will be an actively-managed fund that does not seek to replicate
the performance of a specified index. Because the Fund will not be
managed to a benchmark, the Adviser will have broad discretion to shift
the Fund's exposure to strategies, sectors, countries or currencies
based on changing market conditions and its view of the best mix of
investment opportunities. In buying and selling investments for the
Fund, the Adviser will allocate the Fund's exposure to strategies,
sectors, countries and currencies based on the Adviser's analysis of
individual investments and broader economic conditions in individual
countries, regions and the world. According to the Exchange, this will
allow the Adviser to take a conservative approach during uncertain
periods and move into higher risk opportunities as market conditions
improve, which may result in the Fund focusing in only a few markets
and sectors.\12\
---------------------------------------------------------------------------

    \12\ See Notice, supra note 4, 80 FR at 45547.
---------------------------------------------------------------------------

    The Fund may invest in instruments that provide exposure to
developed or emerging markets. The Exchange states that emerging
markets currently include most countries in the world except Australia,
Canada, Japan, New Zealand, the U.S., the United Kingdom and most
western European countries and Hong Kong.\13\ In managing the Fund, the
Adviser will seek to diversify the Fund's portfolio by investing in
instruments that provide exposure to at least three countries other
than the U.S. The Fund may invest a substantial part of its assets in
just one country and is not required to allocate its investments in any
set percentages in any particular countries.
---------------------------------------------------------------------------

    \13\ See id.
---------------------------------------------------------------------------

    Although the Fund will have the flexibility to invest without limit
in securities that are rated below investment grade (also known as junk
bonds or high yield securities), or the unrated equivalent, the Fund
generally will invest at least 25% of the Fund's assets in securities
that at the time of purchase are rated investment grade or the unrated
equivalent. The Fund will have flexibility to decrease the percentage
of its assets invested in investment grade securities at any time to
take advantage of higher risk opportunities when market conditions are
improving.
    The Fund currently seeks to maintain a duration of eight years or
less, although the Fund will have the flexibility to maintain a longer
duration under certain market conditions such as significant volatility
in interest rates and spreads. As part of its principal investment
strategy and for temporary defensive purposes, any portion of the
Fund's total assets may be invested in cash and cash equivalents.
    The Fund intends to achieve its investment objective by investing,
under normal circumstances,\14\ at least 80% of its net assets (plus
the amount of borrowings for investment purposes) (``Assets'') in bonds
(a debt security with a maturity of 90 days or more at the time of its
issuance) (``Bonds'') and Non-Bonds, as defined below, subject to
certain limits described below. The Exchange defines Bonds as the
following instruments: Asset-backed securities \15\ (including
mortgages, mortgage dollar rolls, and stripped mortgage-backed
securities); bank obligations; commercial paper; convertible bonds;
corporate debt securities; \16\ inflation-linked debt securities;
inverse floating rate instruments; municipal securities; \17\
obligations of supranational agencies; private placements, restricted
securities, and other unregistered securities; \18\

securities issued in connection with reorganizations and corporate
restructurings; sovereign obligations; structured investments; treasury
receipts; trust preferreds; U.S. Government Agency Securities; U.S.
Government obligations; and zero-coupon, pay-in-kind, and deferred
payment securities. Bonds may have fixed or variable interest rates and
may be of any maturity.
---------------------------------------------------------------------------

    \14\ The term ``under normal circumstances'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
    \15\ The Exchange represents that the Fund will not invest more
than 20% of the Fund's total assets in non-agency ABS. See Notice,
supra note 4, 80 FR at 45547, and Amendment No. 2, supra note 6.
    \16\ According to the Exchange, although the Fund is permitted
to invest without restriction in corporate bonds, the Adviser
expects that, under normal circumstances, the Fund will generally
seek to invest in corporate bond issuances that have at least
$100,000,000 par amount outstanding. The Exchange represents that
component corporate bonds that in the aggregate account for at least
75% of the weight of corporate bonds will have a minimum original
principal outstanding of $100 million or more.
    \17\ The Exchange states that municipal securities held by the
Fund will be rated Baa3/BBB- or higher by at least two of the
following ratings agencies if all three agencies rate the security:
Moody's, S&P and Fitch. If only two of the three agencies rate the
security, the lower rating will be used. If only one of the three
agencies rates a security, the rating must be at least Baa3/BBB-.
The Exchange represents that municipal securities held by the Fund
will have an outstanding par value of at least $7 million and be
issued as part of a transaction of at least $75 million. The
Exchange further represents that the Fund will not invest more than
20% of the Fund's total assets in municipal securities. See Notice,
supra note 4, 80 FR at 45548 n.14, and Amendment No. 2, supra note
6.
    \18\ According to the Exchange, private placement, restricted
securities, and other unregistered securities include only the
following: (1) Commercial obligations issued in reliance on the so-
called ``private placement'' exemption from registration afforded by
Section 4(a)(2) under the Securities Act of 1933, as amended (the
``Securities Act''); or (2) securities that are not registered under
the Securities Act, but which can be offered and sold to ``qualified
institutional buyers'' under Rule 144A under the Securities Act. The
Exchange states that in the aggregate, the Fund may invest up to 20%
of its total assets in the following instruments: (i) Structured
investments; and (ii) private placements, restricted securities, and
other unregistered securities, although this 20% limitation does not
apply to private placements, restricted securities, and other
unregistered securities (collectively, ``Unregistered Securities'')
that satisfy the generic fixed income listing requirements in BZX
Rule 14.11(i)(4)(C)(ii)(d) (the ``Fixed Income Rule'') measured at
the time of purchase. The Exchange represents that the only
Unregistered Securities that will not be subject to the 20%
limitation must be either: (a) From issuers that are required to
file reports pursuant to Sections 13 and 15(d) of the Act; (b) from
issuers that have a worldwide market value of its outstanding common
equity held by non-affiliates of $700 million or more; (c) from
issuers that have outstanding securities that are notes, bonds,
debentures, or evidence of indebtedness having a total remaining
principal amount of at least $1 billion; (d) exempted securities as
defined in Section 3(a)(12) of the Act; or (e) from issuers that are
a government of a foreign country or a political subdivision of a
foreign country. The Exchange states that if, subsequent to purchase
by the Fund, an Unregistered Security that was previously not
subject to this 20% limitation because it met the Fixed Income Rule
at the time of purchase no longer meets the Fixed Income Rule, the
Fund may continue to hold the Unregistered Security and the
Unregistered Security will not cause the Fund to violate the 20%
limitation. However, the Exchange represents that the Unregistered
Security that no longer meets the Fixed Income Rule will be taken
into account for purposes of determining whether purchases of
additional structured investments and Unregistered Securities that
do not meet the Fixed Income Rule will cause the Fund to violate
such limitation. See Notice, supra note 4, 80 FR at 45548 and
Amendment No. 2, supra note 6.
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    The Fund may also invest in the following instruments as part of
its principal investment strategy (``Non-Bonds''): Custodial receipts;
derivatives, including only options,\19\ swaps,\20\ and futures; \21\
exchange traded funds (``ETFs''); \22\ foreign currency transactions;
\23\ investment company securities that are not ETFs; preferred stock;
and short-term funding agreements.
---------------------------------------------------------------------------

    \19\ According to the Exchange, the Fund may invest in OTC and
exchange-traded call and put options, including only the following:
Fixed income securities, currencies, futures, and indexes of fixed
income, currencies, or credit default swaps. The Exchange states
that the Fund will segregate an amount of cash, cash equivalents, or
liquid securities sufficient to cover any obligations arising under
the options as required under Section 18 of the 1940 Act. See
Notice, supra note 4, 80 FR at 45548 n.22 and Amendment No. 2, supra
note 6.
    \20\ The Exchange states that the Fund may invest in only the
following types of swaps: Interest rate swaps, credit default swaps,
currency swaps, and total return swaps on equities, bonds, equity
indexes, bond indexes, commodities, and commodity indexes. The Fund
may also invest in swaptions based on any of the foregoing types of
swaps. See Notice, supra note 4, 80 FR at 45548 n.23 and Amendment
No. 2, supra note 6.
    \21\ According to the Exchange, the Fund may invest in only the
following types of futures: Interest rate futures, bond futures,
equity futures, currency futures, and commodity futures. See
Amendment No. 2, supra note 6.
    \22\ The Exchange represents that all ETFs in which the Fund
invests will be listed and traded in the U.S. on registered
exchanges. The Fund will not invest in inverse or leveraged (e.g.,
2X, -2X, 3X or -3X) ETFs. See Notice, supra note 4, 80 FR at 45548
n.24.
    \23\ According to the Exchange, foreign currency transactions
will be used to hedge against currency risks, for other risk
management purposes, to increase income or gain to the Fund, and/or
for other investment purposes and, in addition to the derivative
strategies described above, may include only the following: Spot and
forward foreign currency transactions (including non-deliverable
forwards and forward rate agreements). The Fund may engage in such
transactions in both U.S. and non-U.S. markets. See Notice, supra
note 4, 80 FR at 45548 n.25 and Amendment No. 2, supra note 6.
---------------------------------------------------------------------------

Other Portfolio Holdings

    While the Adviser, under normal circumstances, will invest at least
80% of the Fund's Assets in Bonds and Non-Bonds, the Adviser may invest
up to 20% of the Fund's Assets in other securities and financial
instruments, as described below.
    The Fund may invest in auction rate securities, which include
auction rate municipal securities and auction rate preferred securities
issued by closed-end investment companies.
    The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to sovereign
entities for new obligations in connection with a debt restructuring.
    The Exchange states that the Fund may invest in commodity-related
pooled investment vehicles, which include only the following
instruments and their equivalent products on other national stock
exchanges: Trust Issued Receipts (as defined in BZX Rule 14.11(f));
Commodity-Based Trust Shares (as defined in BZX Rule 14.11(e)(4));
Currency Trust Shares (as defined in BZX Rule 14.11(e)(5)); Commodity
Index Trust Shares (as defined in BZX Rule 14.11(e)(6)); Trust Units
(as defined in Rule BZX 14.11(e)(9)); and Paired Class Shares (as
defined in NASDAQ Stock Market LLC Rule 5713).\24\ The Fund will not
invest in inverse or leveraged (e.g., 2X, -2X, 3X or -3X) commodity-
related pooled investment vehicles.
---------------------------------------------------------------------------

    \24\ See Notice, supra note 4, 80 FR at 45548 and Amendment No.
2, supra note 6.
---------------------------------------------------------------------------

    The Fund may invest in U.S. equity securities. Equity securities
are securities that represent an ownership interest (or the right to
acquire such an interest) in a company and include common and preferred
stock, warrants, and rights. The Fund's investments in such U.S. equity
securities may include securities traded over-the-counter as well as
those traded on a securities exchange. The Fund may purchase such
securities on a forward commitment or when-issued or delayed delivery
basis, which means delivery and payment take place a number of days
after the date of the commitment to purchase. The Fund may invest in
exchange-traded master limited partnerships (``MLPs'').
    The Fund may purchase exchange-traded common stocks, exchange-
traded warrants, and exchange-traded rights in foreign corporations.
The Fund's investments in common stock of foreign corporations may also
be in the form of American Depositary Receipts (``ADRs''), Global
Depositary Receipts and European Depositary Receipts (collectively
``Depositary Receipts'').\25\
---------------------------------------------------------------------------

    \25\ According to the Exchange, the Fund will not invest in
unsponsored ADRs. The Exchange states that all exchange-traded
equity securities in which the Fund may invest will trade on markets
that are members of the Intermarket Surveillance Group (``ISG'') or
that have entered into a comprehensive surveillance agreement with
the Exchange. See Notice, supra note 4, 80 FR at 45548 n.28.
---------------------------------------------------------------------------

    The Fund may invest in convertible securities traded on an exchange
or OTC that are not described in the Principal Holdings section above.
Convertible securities are securities that may be converted or
exchanged (by the holder or by the issuer) into shares of the
underlying common stock (or cash or securities of equivalent value) at
a stated exchange ratio. Convertible securities include contingent
convertible securities.
    The Fund may invest in loan assignments and participations, which
are assignments of, or participations in, all or a portion of loans to
corporations or to governments, including governments in less developed
countries. The Fund may also invest in commitments to purchase loan
assignments.

Investment Restrictions

    The Fund may hold up to an aggregate amount of 15% of its Assets in
illiquid assets (calculated at the time of investment), including
restricted securities deemed illiquid by the Adviser under the 1940
Act. The Fund will monitor its portfolio liquidity on an ongoing basis
to determine whether, in light of current circumstances, an adequate
level of liquidity is being maintained, and will consider taking
appropriate steps in order to maintain adequate liquidity if, through a
change in values, Assets, or other circumstances, more than 15% of the
Fund's Assets are held in illiquid assets. A security is considered
illiquid if it cannot be sold or disposed of in the ordinary course of
business within 7 days at approximately the value at which it is being
carried by the Fund.
    The Fund intends to qualify each year as a regulated investment
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended. The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification, and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\26\ In

particular, the Commission finds that the proposed rule change, as
modified by Amendment Nos. 1, 2, and 3, is consistent with Section
6(b)(5) of the Exchange Act,\27\ which requires, among other things,
that the Exchange's rules be designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \26\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Exchange Act,\28\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers and investors of information with respect to
quotations for and transactions in securities. Quotation information
from brokers and dealers or pricing services will be available for U.S.
government obligations. Quotation and price information for Bonds,
auction rate securities, when-issued securities, delayed delivery
securities, and forward commitments, loan assignments and
participations, Brady Bonds, mortgages, common stock warrants and
rights, CDS, and foreign currency transactions will be available via
major market data vendors or broker dealers that make markets in such
instruments. Quotation and last sale information for the Shares will be
available on the facilities of the Consolidated Tape Association
(``CTA''). Information regarding market price and volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
Daily trading volume information for the Fund will also be available
through subscription services such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors, as well as through other electronic
services, including major public Web sites.
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    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    In addition, the ``Intraday Indicative Value'' \29\ will be updated
and widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Regular Trading Hours.\30\
On each business day, before commencement of trading in Shares during
Regular Trading Hours on the Exchange, the Fund will disclose on its
Web site the identities and quantities of the portfolio of securities
and other assets (the ``Disclosed Portfolio'') held by the Fund that
will form the basis for the Fund's calculation of NAV at the end of the
business day.\31\ The Web site for the Fund will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. The Web site and information will
be publicly available at no charge.
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    \29\ According to the Exchange, the Intraday Indicative Value
for each Fund will reflect an estimated intraday value of such
Fund's portfolio, and will be based upon the current value for the
components of the Disclosed Portfolio (as defined below). The
quotations of certain of the Fund's holdings may not be updated
during U.S. trading hours if such holdings do not trade in the
United States or if updated prices cannot be ascertained. The
Exchange's Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
    \30\ The Exchange notes that that several major market data
vendors display and/or make widely available Intraday Indicative
Values published via the CTA or other data feeds.
    \31\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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    Intraday, closing, and settlement prices of common stocks and other
exchange-listed instruments (including futures, options, Depositary
Receipts, preferred securities, convertible securities, warrants,
rights, MLPs, commodity-related pooled investment vehicles, and ETFs)
will be readily available from the exchanges trading such securities as
well as automated quotation systems, published or other public sources,
or online information services such as Bloomberg or Reuters. In
addition, price information for U.S. exchange-traded options will be
available from the Options Price Reporting Authority.
    The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The NAV of the Fund's Shares generally will be calculated once
daily Monday through Friday as of the close of regular trading on the
Exchange, generally 4:00 p.m. Eastern Time (the ``NAV Calculation
Time'') on each day that the Exchange is open for trading, based on
prices at the NAV Calculation Time. The Exchange will obtain a
representation from the issuer of the Shares that the NAV will be
calculated daily and that the NAV and the Disclosed Portfolio will be
made available to all market participants at the same time.\32\
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    \32\ See Notice, supra note 4, 80 FR 45551.
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    Trading in the Shares will be subject to BZX Rules 11.18 and
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which trading is not occurring in the securities and/or the financial
instruments composing the Disclosed Portfolio of a Fund; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
    The Reporting Authority that provides the Disclosed Portfolio must
implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material, non-public information
regarding the actual components of the portfolio.\33\ The Exchange
represents that it prohibits the distribution of material non-public
information by its employees.\34\ The Exchange states that the Adviser
is not registered as a broker-dealer but that the Adviser is affiliated
with a broker-dealer. In addition, the Exchange states that the Adviser
has implemented a ``fire wall'' with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the Fund's portfolio.\35\ In the event (a) the Adviser
becomes registered as a broker-dealer or newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to its relevant personnel or broker-
dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
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    \33\ See BZX Rule 14.11(i)(4)(B)(ii)(b).
    \34\ See Notice, supra note 4, 80 FR at 45552.
    \35\ See id.
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    The Exchange may obtain information regarding trading in the Shares
and the underlying shares in exchange traded investment companies, U.S.
equity securities, foreign equity securities, futures, and options via
the ISG, from

other exchanges who are members or affiliates of the ISG, or with which
the Exchange has entered into a comprehensive surveillance sharing
agreement.\36\ In addition, the Exchange is able to access, as needed,
trade information for certain fixed income instruments reported to
FINRA's Trade Reporting and Compliance Engine. The Exchange can also
access municipal bond trading activity for surveillance purposes in
connection with trading in the Shares through the Electronic Municipal
Market Access (``EMMA'') \37\ of the Municipal Securities Rulemaking
Board.
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    \36\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Exchange
also notes that all exchange-traded instruments, including ETFs,
commodity-related pooled investment vehicles, futures, and options
will trade on markets that are a member or affiliate of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement.
    \37\ Information available from EMMA includes next-day
information regarding municipal securities transactions and par
amounts traded.
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    The Exchange represents that it deems the Shares to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made the following
representations:
    (1) The Shares will be subject to BZX Rule 14.11(i), which sets for
the initial and continued listing criteria applicable to Managed Fund
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
    (3) Trading of the Shares through the Exchange will be subject to
the Exchange's surveillance procedures for derivative products,
including Managed Fund Shares, and such surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) The procedures for
purchases and redemptions of Shares in creation units (and that Shares
are not individually redeemable); (b) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (c) how
information regarding the Intraday Indicative Value and Disclosed
Portfolio is disseminated; (d) the risks involved in trading the Shares
during the Pre-Opening and After Hours Trading Sessions (as defined in
the Exchange's rules) when an updated Intraday Indicative Value will
not be calculated or publicly disseminated; (e) the requirement that
members deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading information.
    (5) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\38\
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.10A-3.
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    (6) The Fund will not invest more than 20% of the Fund's total
assets in non-agency ABS.
    (7) The Fund will not invest more than 20% of the Fund's total
assets in municipal securities.
    (8) In the aggregate, the Fund will not invest more than 20% of its
total assets in the following instruments: (a) Structured investments;
and (b) Unregistered Securities that do not satisfy the generic fixed
income listing requirements in BZX Rule 14.11(i)(4)(C)(ii)(d) measured
at the time of purchase. An Unregistered Security that no longer meets
the generic fixed income listing requirements of BZX Rule
14.11(i)(4)(C)(ii)(d) will be taken into account for purposes of
determining whether purchases of additional structured investments and
Unregistered Securities that do not meet the Fixed Income Rule will
cause the Fund to violate this 20% limitation.
    (9) The Fund will not invest in inverse or leveraged (e.g., 2X, -
2X, 3X or -3X) commodity-related pooled investment vehicles.
    (10) All exchange-traded equity securities in which the Fund may
invest will trade on markets that are ISG members or that have entered
into a comprehensive surveillance agreement with the Exchange.
    (11) The Fund may hold up to an aggregate amount of 15% of the
Fund's Assets in illiquid assets (calculated at the time of
investment), including restricted securities deemed illiquid by the
Adviser under the 1940 Act.
    (12) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.

The Exchange represents that all statements and representations made in
the filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures constitute
continued listing requirements for listing the Shares on the Exchange.
In addition, the issuer has represented to the Exchange that it will
advise the Exchange of any failure by a Fund to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will surveil for compliance
with the continued listing requirements. If a Fund is not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under Exchange Rule 14.12.

    This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendment Nos.
2 and 3. The Commission notes that the Funds and the Shares must comply
with the requirements of BZX Rule 14.11(i) to be initially and
continuously listed and traded on the Exchange.
    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1, 2, and 3, is consistent
with Section 6(b)(5) of the Act \39\ and Section 11A(a)(1)(C)(iii) of
the Act \40\ and the rules and regulations thereunder applicable to a
national securities exchange.
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    \39\ 15 U.S.C. 78f(b)(5).
    \40\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (SR-BatsBZX-2016-35), as
modified by Amendment Nos. 1, 2, and 3, be, and it hereby is, approved.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-24578 Filed 10-11-16; 8:45 am]
 BILLING CODE 8011-01-P