[Federal Register Volume 79, Number 159 (Monday, August 18, 2014)]
[Notices]
[Pages 48787-48796]
[FR Doc No: 2014-19471]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72813; File No. SR-NASDAQ-2014-053]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the iShares Commodities Strategy ETF of
iShares U.S. ETF Trust

August 12, 2014.
    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 July 31, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in in Items I
and II below, which Items have been prepared by Nasdaq. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the iShares
Commodities Strategy ETF (the ``Fund'') of iShares U.S. ETF Trust (the
``Trust'') under Nasdaq Rule 5735 (``Managed Fund Shares''), under
Nasdaq Rule 5735 (``Managed Fund Shares''). The shares of the Fund are
collectively referred to herein as the ``Shares.''
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \3\ on the Exchange.\4\ The Fund will be an
actively managed exchange-traded fund (``ETF''). The Shares will be
offered by the Trust, which was established as a Delaware statutory
trust on June 21, 2011.\5\ The Trust is registered with the Commission
as an investment company and has filed a registration statement on Form
N-1A (``Registration Statement'') with the Commission.\6\ The Fund is a
series of the Trust. With respect to the futures contracts held
indirectly through a wholly-owned subsidiary controlled by the Fund and
organized under the laws of the Cayman Islands (referred to herein as
the ``Subsidiary''), not more than 10% of the weight \7\ of such
futures contracts in the aggregate shall consist of instruments whose
principal trading market is not a member of the Intermarket
Surveillance Group (``ISG'') or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
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    \3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized
as an open-end investment company or similar entity that invests in
a portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Index Fund Shares, listed
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the price and yield
performance of a specific foreign or domestic stock index, fixed
income securities index or combination thereof.
    \4\ The Commission approved Nasdaq Rule 5735 in Securities
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June
20, 2008) (SR- NASDAQ-2008-039). The Fund would not be the first
actively-managed fund listed on the Exchange; see Securities
Exchange Act Release No. 66489 (February 29, 2012), 77 FR 13379
(March 6, 2012) (SR-NASDAQ-2012-004) (order approving listing and
trading of WisdomTree Emerging Markets Corporate Bond Fund). The
Exchange believes the proposed rule change raises no significant
issues not previously addressed in those prior Commission orders.
    \5\ The Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act (the ``Exemptive
Order''). See Investment Company Act Release No. 29571 (January 24,
2011) (File No. 812-13601). In compliance with Nasdaq Rule
5735(b)(5), which applies to Managed Fund Shares based on an
international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that the Fund will comply
with the federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the
securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933 (15 U.S.C. 77a).
    \6\ See Registration Statement on Form N-1A for the Trust, dated
January 24, 2014 (File Nos. 333-179904 and 811-22649). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement.
    \7\ To be calculated as the value of the contract divided by the
total absolute notional value of the Subsidiary's futures contracts.
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    BlackRock Fund Advisors will be the investment adviser
(``Adviser'') to the Fund. BlackRock Investments, LLC (``Distributor'')
will be the principal underwriter and distributor of the Fund's Shares.
State Street Bank and Trust Company will act as the administrator,
accounting agent, custodian (``Custodian'') and transfer agent to the
Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser
to the investment company issuing Managed Fund Shares is affiliated
with a broker-dealer, such investment adviser shall erect a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\8\ In addition,

paragraph (g) further requires that personnel who make decisions on the
open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material, non-public
information regarding the open-end fund's portfolio. Rule 5735(g) is
similar to Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in
connection with the establishment of a ``fire wall'' between the
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case
with index-based funds. The Adviser is not a broker-dealer, although it
is affiliated with the Distributor, a broker-dealer. The Adviser has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the Fund's (including the Subsidiary's) portfolio. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer or
registers as 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
and/or such broker-dealer affiliate, if applicable, regarding access to
information concerning the composition and/or changes to the portfolio
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund does not currently intend to use a sub-adviser.
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    \8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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iShares Commodities Strategy ETF
    The Fund's investment objective is to seek total return by
providing investors with broad commodity exposure.
Principal Investments
Fund's Investments
    The Fund will be an actively managed ETF that seeks to achieve its
investment objective by investing in a combination of exchange-traded
commodity futures contracts, exchange-traded options on futures
contracts and exchange-cleared swaps (together and as further described
below, ``Commodity-Linked Investments'') and exchange-traded commodity-
related equities (``Commodity-Related Equities''), thereby obtaining
exposure to the commodities markets.
    Commodity-Linked Investments will be comprised of exchange-traded
futures contracts on the 22 commodities that comprise the S&P GSCI
Index and index futures linked to commodities. Although the Fund
generally holds the same futures contracts as the S&P GSCI Index, the
Fund is not obligated to invest in such futures contracts and does not
seek to track the performance of the S&P GSCI Index. Commodity-Linked
Investments will also be comprised of exchange-cleared swaps on
commodities, and exchange-traded options on futures that provide
exposure to the investment returns of the commodities markets, without
investing directly in physical commodities.
    Commodity-Related Equities will be comprised of exchange-traded
common stocks of companies that operate in commodities, natural
resources and energy businesses, and in associated businesses, as well
as companies that provide services or have exposure to such businesses.
    The Fund will invest directly in Commodity-Related Equities and
will seek to gain exposure to Commodity-Linked Investments through
investments in the Subsidiary. The Fund's investment in the Subsidiary
may not exceed 25% of the Fund's total assets. The remainder of the
Fund's assets will be invested, either directly by the Fund or through
the Subsidiary, in: (1) Short-term investment grade fixed income
securities that include U.S. government and agency securities,\9\
treasury inflation-protected securities, sovereign debt obligations of
non-U.S. countries, and repurchase agreements; (2) money market
instruments; \10\ and (3) cash and other cash equivalents. The Fund
will use such instruments as investments and to collateralize the
Subsidiary's Commodity-Linked Investments exposure on a day-to-day
basis.
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    \9\ Such securities will include securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S.
government, or by various instrumentalities, which have been
established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the ``full faith and credit'' of the U.S.
government. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed
by the full faith and credit of the U.S. government.
    \10\ For the Fund's purposes, money market instruments will
include: short-term, high-quality securities issued or guaranteed by
non-U.S. governments, agencies and instrumentalities; non-
convertible corporate debt securities with remaining maturities of
not more than 397 days that satisfy ratings requirements under Rule
2a-7 of the 1940 Act; money market mutual funds; and deposits and
other obligations of U.S. and non-U.S. banks and financial
institutions. As a related matter, according to the Registration
Statement, the Fund may invest in shares of money market mutual
funds to the extent permitted by the 1940 Act.
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    The Fund will not invest directly in physical commodities. The Fund
may invest directly in exchange-traded notes (``ETNs''),\11\ commodity-
linked notes,\12\ ETFs \13\ and other investment companies, including
exchange-traded closed-end funds that provide exposure to commodities,
equity securities and fixed income securities to the extent permitted
under the 1940 Act.\14\
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    \11\ As would be listed under Nasdaq Rule 5710.
    \12\ Such commodity-linked notes will not be exchange-traded.
The Fund's investments in such commodity-linked notes will generally
be limited to circumstances in which the Fund reaches position
limits, accountability levels or price limits on one or more
exchange-traded futures contracts or index futures in which the Fund
invests.
    \13\ An ETF is an investment company registered under the 1940
Act that holds a portfolio of securities. Many ETFs are designed to
track the performance of a securities index, including industry,
sector, country and region indexes. ETFs included in the Fund will
be listed and traded in the U.S. on registered exchanges. The Fund
may invest in the securities of ETFs in excess of the limits imposed
under the 1940 Act pursuant to exemptive orders obtained by other
ETFs and their sponsors from the Commission. The ETFs in which the
Fund may invest include Index Fund Shares (as described in Nasdaq
Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule
5735).
    \14\ Not more than 10% of the equity securities (including
shares of ETFs and closed-end funds) and ETNs in which the Fund may
invest will be invested in securities that trade in markets that are
not members of the ISG, which includes all U.S. national securities
exchanges, or are not parties to a comprehensive surveillance
sharing agreement with the Exchange.
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    The Fund's investment in the Subsidiary will be designed to help
the Fund achieve exposure to commodity returns in a manner consistent
with the federal tax requirements applicable to the Fund and other
regulated investment companies.
Subsidiary's Investments
    The Subsidiary will seek to make investments generally in
Commodity-Linked Investments. The Adviser will use its discretion to
determine the percentage of the Fund's assets allocated to the
Commodity-Linked Investments held by the Subsidiary and the Commodity-
Related Equities portion of the Fund's portfolio. Generally, the
Adviser will take various factors into account on a periodic basis in
allocating the assets of the Fund, including, but not limited to the
results of proprietary models developed by the Adviser, the performance
of index benchmarks for the Commodity-Linked Investments and Commodity-
Related Equities relative to each other, relative price differentials
for a range of commodity futures for current delivery as compared to
similar commodity futures for future delivery,

and other market conditions. The weightings of the Fund's portfolio
will be reviewed and updated at least annually.
    The Subsidiary will be advised by the Adviser.\15\ The Fund's
investment in the Subsidiary is intended to provide the Fund with
exposure to commodity markets within the limits of current federal
income tax laws applicable to investment companies such as the Fund,
which limit the ability of investment companies to invest directly in
the derivative instruments. The Subsidiary will have the same
investment objective as the Fund, but unlike the Fund, it may invest
without limitation in Commodity-Linked Investments. The Subsidiary's
investments will provide the Fund with exposure to domestic and
international markets.
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    \15\ The Subsidiary will not be registered under the 1940 Act
and will not be directly subject to its investor protections, except
as noted in the Registration Statement. However, the Subsidiary will
be wholly-owned and controlled by the Fund and will be advised by
the Adviser. Therefore, the Fund's ownership and control of the
Subsidiary will prevent the Subsidiary from taking action contrary
to the interests of the Fund or its shareholders. The Trust's board
(``Board'') will have oversight responsibility for the investment
activities of the Fund, including its expected investment in the
Subsidiary, and the Fund's role as the sole shareholder of the
Subsidiary. The Adviser will receive no additional compensation for
managing the assets of the Subsidiary. The Subsidiary will also
enter into separate contracts for the provision of custody, transfer
agency, and accounting agent services with the same or with
affiliates of the same service providers that provide those services
to the Fund.
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    The Subsidiary will initially consider investing in futures
contracts set forth in the following table. The table also provides
each instrument's trading hours, exchange and ticker symbol. The table
is subject to change.

----------------------------------------------------------------------------------------------------------------
 Contract ticker
    (Bloomberg       Exchange code       Exchange name \17\        Commodity contract       Trading hours (ET)
     generic)       (Bloomberg) \16\
----------------------------------------------------------------------------------------------------------------
CO1..............  ICE..............  ICE Futures Europe......  BRENT CRUDE FUTR.......  20:00-18:00.
BZA1.............  NYM..............  New York Mercantile       Brent Fin Last Da......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
BH1..............  NYM..............  New York Mercantile       Brt Crude Pen Fin......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
V61..............  CME..............  Chicago Mercantile        BUTTER CASH FUTR.......  18:00-17:00.
                                       Exchange.
FC1..............  CME..............  Chicago Mercantile        CATTLE FEEDER FUT......  18:00-17:00 & 10:05-
                                       Exchange.                                          14:00.
CC1..............  NYB..............  ICE Futures US Softs....  COCOA FUTURE...........  05:45-13:30.
KC1..............  NYB..............  ICE Futures US Softs....  COFFEE `C' FUTURE......  05:15-13:30.
BQ1..............  CMX..............  Commodity Exchange, Inc.  COMEX miNY GOLD........  18:00-17:15.
ID1..............  CMX..............  Commodity Exchange, Inc.  COMEX miNY SILVER......  18:00-17:15.
C 1..............  CBT..............  Chicago Board of Trade..  CORN FUTURE............  20:00-14:15 & 09:30-
                                                                                14:15.
ICR1.............  NYB..............  ICE Futures US Softs....  Corn Futures (ICE).....  20:00-14:30.
CT1..............  NYB..............  ICE Futures US Softs....  COTTON NO.2 FUTR.......  21:00-14:20.
AG1..............  NYM..............  New York Mercantile       CRUDE OIL FINANCL......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
EC1..............  NYM..............  New York Mercantile       E-MINI CRUDE OIL.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
JO1..............  NYB..............  ICE Futures US Softs....  FCOJ-A FUTURE..........  08:00-14:00.
QS1..............  ICE..............  ICE Futures Europe......  GAS OIL FUT (ICE)......  20:00-18:00.
XB1..............  NYM..............  New York Mercantile       GASOLINE RBOB FUT......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
YZ1..............  NYM..............  New York Mercantile       GLOBEX HEAT OIL........  18:00-17:15.
                                       Exchange.
UL1..............  NYM..............  New York Mercantile       GLOBEX RBOB GASLN......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
GC1..............  CMX..............  Commodity Exchange, Inc.  GOLD 100 OZ FUTR.......  18:00-17:15 & 08:20-
                                                                                13:30.
NV1..............  ICE..............  ICE Futures Europe......  HEATING OIL FUT........  20:00-18:00.
KW1..............  CBT..............  Chicago Board of Trade..  KC HRW WHEAT FUT.......  20:00-14:15 & 09:30-
                                                                                14:15.
LH1..............  CME..............  Chicago Mercantile        LEAN HOGS FUTURE.......  18:00-17:00 & 10:05-
                                       Exchange.                                          14:00.
LC1..............  CME..............  Chicago Mercantile        LIVE CATTLE FUTR.......  18:00-17:00 & 10:05-
                                       Exchange.                                          14:00.
LP1..............  LME..............  London Metal Exchange...  LME COPPER FUTURE......  16:00-15:45.
LL1..............  LME..............  London Metal Exchange...  LME LEAD FUTURE........  16:00-15:45.
LN1..............  LME..............  London Metal Exchange...  LME NICKEL FUTURE......  16:00-15:45.
LA1..............  LME..............  London Metal Exchange...  LME PRI ALUM FUTR......  16:00-15:45.
LT1..............  LME..............  London Metal Exchange...  LME TIN FUTURE.........  16:00-15:45.
LX1..............  LME..............  London Metal Exchange...  LME ZINC FUTURE........  16:00-15:45.
SII1.............  CMX..............  Commodity Exchange, Inc.  Mini Silver Futur......  18:00-17:15.
IW1..............  NYM..............  New York Mercantile       NAT GAS LAST DAY.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
NG1..............  NYM..............  New York Mercantile       NATURAL GAS FUTR.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
NR1..............  NYM..............  New York Mercantile       NATURAL GAS SWAP.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
HO1..............  NYM..............  New York Mercantile       NY Harb ULSD Fut.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
TR1..............  NYM..............  New York Mercantile       NYH ULSD Asia Op.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
FCO1.............  NYM..............  New York Mercantile       NYMEX Cocoa Fut........  18:00-17:15.
                                       Exchange.
FCC1.............  NYM..............  New York Mercantile       NYMEX Coffee Fut.......  18:00-17:15.
                                       Exchange.
FSB1.............  NYM..............  New York Mercantile       NYMEX Sugar 11 Fu......  18:00-17:15.
                                       Exchange.
PL1..............  NYM..............  New York Mercantile       PLATINUM FUTURE........  18:00-17:15 & 08:20-
                                       Exchange.                                          13:05.
PG1..............  ICE..............  ICE Futures Europe......  RBOB GASOLINE FT.......  20:00-18:00.
SI1..............  CMX..............  Commodity Exchange, Inc.  SILVER FUTURE..........  18:00-17:15 & 08:25-
                                                                                13:25.
ISB1.............  NYB..............  ICE Futures US Softs....  Soybean Fut (ICE)......  20:00-14:30.
S 1..............  CBT..............  Chicago Board of Trade..  SOYBEAN FUTURE.........  20:00-14:15 & 09:30-
                                                                                14:15.
SM1..............  CBT..............  Chicago Board of Trade..  SOYBEAN MEAL FUTR......  20:00-14:15 & 09:30-
                                                                                14:15.
ISL1.............  NYB..............  ICE Futures US Softs....  Soybean Meal(ICE)......  20:00-14:30.
BO1..............  CBT..............  Chicago Board of Trade..  SOYBEAN OIL FUTR.......  20:00-14:15 & 09:30-
                                                                                14:15.
IBO1.............  NYB..............  ICE Futures US Softs....  Soybean Oil(ICE).......  20:00-14:30.
SB1..............  NYB..............  ICE Futures US Softs....  SUGAR 11        04:30-13:00.
                                                                 (WORLD).
W 1..............  CBT..............  Chicago Board of Trade..  WHEAT FUTURE(CBT)......  20:00-14:15 & 09:30-
                                                                                14:15.
IWT1.............  NYB..............  ICE Futures US Softs....  Wheat Future(ICE)......  20:00-14:30.
EN1..............  ICE..............  ICE Futures Europe......  WTI CRUDE FUTURE.......  20:00-18:00.

CL1..............  NYM..............  New York Mercantile       WTI CRUDE FUTURE.......  18:00-17:15 & 09:00-
                                       Exchange.                                          14:30.
----------------------------------------------------------------------------------------------------------------

    As U.S. and London exchanges list additional contracts, as
currently listed contracts on those exchanges gain sufficient liquidity
or as other exchanges list sufficiently liquid contracts, the Adviser
will include those contracts in the list of possible investments of the
Subsidiary. The list of commodities futures and commodities markets
considered for investment can and will change over time.
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    \16\ The exchange codes listed are Bloomberg shorthand codes for
the corresponding exchanges. The New York Board of Trade is
currently owned by the ICE Futures Exchange; Bloomberg continues to
use NYB as its shorthand code for certain contracts formerly traded
on the New York Board of Trade.
    \17\ All of the exchanges are ISG members except for the London
Metal Exchange (``LME''). The LME falls under the jurisdiction of
the United Kingdom Financial Conduct Authority (``FCA''). The FCA is
responsible for ensuring the financial stability of the exchange
members' businesses, whereas the LME is largely responsible for the
oversight of day-to-day exchange activity, including conducting the
arbitration proceedings under the LME arbitration regulations.
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Commodities Regulation
    The Commodity Futures Trading Commission (``CFTC'') has recently
adopted substantial amendments to CFTC Rule 4.5 relating to the
permissible exemptions and conditions for reliance on exemptions from
registration as a commodity pool operator. As a result of the
instruments that will be indirectly held by the Fund, the Adviser has
registered as a commodity pool operator \18\ and is also a member of
the National Futures Association (``NFA''). The Fund and the Subsidiary
are subject to regulation by the CFTC and NFA and additional
disclosure, reporting and recordkeeping rules imposed upon commodity
pools.
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    \18\ As defined in Section 1a(11) of the Commodity Exchange Act.
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Investment Restrictions
    The Fund may not invest more than 25% of the value of its total
assets in securities of issuers in any one industry or group of
industries other than certain industries described in the Registration
Statement. This restriction will not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
or securities of other investment companies.\19\
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    \19\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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    The Subsidiary's shares will be offered only to the Fund and the
Fund will not sell shares of the Subsidiary to other investors. The
Fund will not purchase securities of open-end or closed-end investment
companies except in compliance with the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment).\20\
The Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an adequate level
of liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\21\
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    \20\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
    \21\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), FN 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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    The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company under SubChapter M of the
Internal Revenue Code.\22\
---------------------------------------------------------------------------

    \22\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    Under the 1940 Act, the Fund's investment in investment companies
will be limited to, subject to certain exceptions: (i) 3% of the total
outstanding voting stock of any one investment company, (ii) 5% of the
Fund's total assets with respect to any one investment company, and
(iii) 10% of the Fund's total assets with respect to investment
companies in the aggregate.
    The Fund's and the Subsidiary's investments will be consistent with
the Fund's investment objective and although certain investments will
have a leveraging effect on the Fund, the Fund will not seek leveraged
returns (e.g., 2X or -3X).
Net Asset Value
    The Fund's net asset value (``NAV'') will be determined once each
business day, generally as of the regularly scheduled close of business
of the New York Stock Exchange (``NYSE'') (normally 4:00 p.m., Eastern
time) on each day that the NYSE is open for trading, based on prices at
the time of closing provided that any Fund assets or liabilities
denominated in currencies other than the U.S. dollar will converted
into U.S. dollars at the prevailing rates of exchange at such times as
may be determined by the Fund from time to time. The NAV may be
determined prior to 4:00 p.m. Eastern time on each business day, as
described in the Registration Statement. The NAV of the Fund will be
calculated by dividing the value of the net assets of the Fund (i.e.
the value of its total assets less total liabilities) by the total
number of outstanding Shares of the Fund, generally rounded to the
nearest cent. The value of the securities and other assets held by the
Fund, and its liabilities, will be determined pursuant to valuation
policies and procedures approved by the Trust's Board.
    The Fund's assets and liabilities will be valued primarily on the
basis of market quotations, when readily available. Equity securities
and debt securities, including ETNs, traded on a recognized securities
exchange will be valued at market value, which is generally determined
using the last

reported official closing price or last trading price on the exchange
or other market on which the security is primarily traded at the time
of valuation. Fixed income securities, including money market
securities and U.S. government securities, for which market quotations
are readily available are generally valued using such securities' most
recent bid prices provided directly from one or more broker-dealers,
market makers, or independent third-party pricing services, each of
whom may use matrix pricing and valuation models, as well as recent
market transactions. Short-term investments that mature in less than 60
days when purchased will be valued at amortized cost.
    Exchange-traded futures contracts, options on futures contracts,
and index futures will be valued at their settle price as of the close
of such exchanges. Exchange-cleared swap agreements and commodity-
linked notes are generally valued daily based on quotations from market
makers or by a pricing service in accordance with valuation procedures
adopted by the Board.
    Shares of underlying ETFs and other investment companies, including
closed-end funds, will be valued at their most recent closing price on
the exchange on which they are traded. Shares of underlying money
market funds will be valued at their NAV.
    When market quotations are not readily available or are believed by
the Adviser to be unreliable, a Fund's investments will be valued at
fair value. Fair value determinations are made by the Adviser in
accordance with policies and procedures approved by the Trust's Board
and in accordance with the 1940 Act. The Adviser may conclude that a
market quotation is not readily available or is unreliable if a
security or other asset or liability does not have a price source due
to its lack of liquidity, if a market quotation differs significantly
from recent price quotations or otherwise no longer appears to reflect
fair value, where the security or other asset or liability is thinly
traded, or where there is a significant event subsequent to the most
recent market quotation. A ``significant event'' is an event that, in
the judgment of the Adviser, is likely to cause a material change to
the closing market price of the asset or liability held by a Fund. Non-
U.S. securities whose values are affected by volatility that occurs in
U.S. markets on a trading day after the close of foreign securities
markets may be fair valued.\23\
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    \23\ Fair value represents a good faith approximation of the
value of an asset or liability. The fair value of an asset or
liability held by a Fund is the amount a Fund might reasonably
expect to receive from the current sale of that asset or the cost to
extinguish that liability in an arm's-length transaction. Valuing a
Fund's investments using fair value pricing will result in prices
that may differ from current market valuations and that may not be
the price at which those investments could have been sold during the
period in which the particular fair values were used.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The Trust will issue and sell Shares of the Fund only in Creation
Unit aggregations on a continuous basis through the Distributor,
without a sales load, at a price based on the Fund's NAV next
determined after receipt, on any business day, of an order in proper
form.
    The consideration for purchase of Creation Units generally will
consist of the in-kind deposit of a designated portfolio of securities
(including any portion of such securities for which cash may be
substituted) that represents the portion of the Fund's investments in
Commodity-Related Equities (i.e., the Deposit Securities) and the Cash
Component computed (as described below) that represents the portion of
the Fund's investments in Commodity-Related Investments, including
investments by the Subsidiary, as well as investments in instruments
used to collateralize the Subsidiary's Commodity-Linked Investments
exposure. Together, the Deposit Securities and the Cash Component
constitute the ``Fund Deposit,'' which will be applicable (subject to
possible amendment or correction) to creation requests received in
proper form. The Fund Deposit represents the minimum initial and
subsequent investment amount for a Creation Unit of the Fund.
    The Cash Component will be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the ``Deposit
Amount,'' which is an amount equal to the market value of the Deposit
Securities, and serves to compensate for the difference between the NAV
per Creation Unit and the Deposit Amount, including the portion of the
NAV per Creation Unit attributable to the Fund's investments in
Commodity-Linked Investments and instruments used to collateralize such
investments.
    The Fund may accept cash in substitution for the Deposit Securities
it might otherwise accept as in-kind consideration for the purchase of
Creation Units. Although the Trust does not ordinarily permit partial
or full cash purchases of Creation Units of iShares funds, when partial
or full cash purchases of Creation Units are available or specified, as
is the case with the Fund, they will be effected in essentially the
same manner as in-kind purchases thereof. In the case of a partial or
full cash purchase, the ``Authorized Participant'' (a Depository Trust
Company (``DTC'') participant that has entered into an Authorized
Participant agreement with the Distributor) must pay the cash
equivalent of the Deposit Securities it would otherwise be required to
provide through an in-kind purchase, plus the same Cash Component
required to be paid by an in-kind purchaser.\24\
---------------------------------------------------------------------------

    \24\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares of a Fund in cash, such
transactions will be effected in the same manner, or in an equitable
manner, for all Authorized Participants, subject to the best
interests of the Fund.
---------------------------------------------------------------------------

    The Adviser, through the National Securities Clearing Corporation
(``NSCC''), will make available on each business day, prior to the
opening of business of the NYSE (currently 9:30 a.m., E.T.), the list
of the names and the required number of each Deposit Security and the
amount of the Cash Component to be included in the current Fund Deposit
(based on information at the end of the previous business day). Such
Fund Deposit will be applicable, subject to any adjustments as
described below, in order to effect creations of Creation Unit
aggregations of the Fund until such time as the next-announced
composition of the Fund Deposit is made available.
    The identity and number of the Deposit Securities may change
pursuant to changes in the composition of the Fund's portfolio and as
rebalancing adjustments and corporate actions events are reflected from
time to time by the Adviser with a view to the investment objective of
the Fund. The composition of the Deposit Securities may also change in
response to adjustments to the weighting or composition of the
component securities constituting the Fund's portfolio.
    The portfolio of securities required for purchase of a Creation
Unit may not be identical to the portfolio of securities a Fund will
deliver upon redemption of Fund Shares. The Deposit Securities and Fund
Securities (as defined below), as the case may be, in connection with a
purchase or redemption of a Creation Unit, generally will correspond
pro rata to the securities held by such Fund.
    The Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through

the DTC. The Fund also reserves the right to permit or require a ``cash
in lieu'' amount in certain circumstances, including circumstances in
which (i) the delivery of the Deposit Security by the Authorized
Participant would be restricted under applicable securities or other
local laws or (ii) the delivery of the Deposit Security to the
Authorized Participant would result in the disposition of the Deposit
Security by the Authorized Participant becoming restricted under
applicable securities or other local laws, or in certain other
situations.
    Creation Units may be purchased only by or through an Authorized
Participant. Except as noted below, all creation orders must be placed
for one or more Creation Units and must be received by the Distributor
in proper form no later than the closing time of the regular market
session\25\ of the Exchange (normally 4:00 p.m., Eastern time), or
earlier as described in the Registration Statement, in each case on the
date such order is placed in order for creation of Creation Units to be
effected based on the NAV of Shares of the Fund as next determined on
such date after receipt of the order in proper form. Orders requesting
substitution of a ``cash in lieu'' amount generally must be received by
the Distributor no later than 4:00 p.m., Eastern time, or earlier as
described in the Registration Statement. On days when the exchange or
other markets close earlier than normal, a Fund may require orders to
create Creation Units to be placed earlier in the day. A standard
creation transaction fee will be imposed to offset the transfer and
other transaction costs associated with the issuance of Creation Units.
---------------------------------------------------------------------------

    \25\ See Nasdaq Rule 4120(b)(4) (describing the three trading
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m.
to 8 p.m. E.T.).
---------------------------------------------------------------------------

    Shares of the Fund may be redeemed by Authorized Participants only
in Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the Distributor or its agent and
only on a business day. The Funds will not redeem shares in amounts
less than Creation Units. Each Fund generally will redeem Creation
Units for Fund Securities, a designated portfolio of securities, plus
the Cash Amount, which is an amount equal to the difference between the
net asset value of the shares being redeemed, as next determined after
the receipt of a redemption request in proper form, and the value of
Fund Securities, less a redemption transaction fee. Unless cash
redemptions are available or specified for the Fund, the redemption
proceeds for a Creation Unit generally will consist of Fund Securities
plus the Cash Amount.
    A standard redemption transaction fee will be imposed to offset
transfer and other transaction costs that may be incurred by a Fund.
    Redemption requests for Creation Units of a Fund must be submitted
to the Distributor by or through an Authorized Participant no later
than 4:00 p.m. Eastern time, or earlier as described in the
Registration Statement, on any business day, in order to receive that
day's NAV. The Authorized Participant must transmit the request for
redemption in the form required by a Fund to the Distributor in
accordance with procedures set forth in the Authorized Participant
agreement.
Availability of Information
    The Fund's Web site (www.ishares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund: (1) The prior business day's
reported NAV and closing price, mid-point of the bid/ask spread at the
time of calculation of such NAV (the ``Bid/Ask Price'') \26\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Regular Market Session on the Exchange, the
Fund will disclose on its Web site the Disclosed Portfolio as defined
in Nasdaq Rule 5735(c)(2) that will form the basis for the Fund's
calculation of NAV at the end of the business day.\27\
---------------------------------------------------------------------------

    \26\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
    \27\ 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'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on such business day. Accordingly, the
Fund will be able to disclose at the beginning of the business day
the portfolio that will form the basis for the NAV calculation at
the end of the business day.
---------------------------------------------------------------------------

    On a daily basis, the Fund will disclose for each portfolio
security and other asset of the Fund, including those held by the
Subsidiary, the following information on the Funds' Web site (if
applicable): Ticker symbol, CUSIP number or other identifier, if any; a
description of the holding (including the type of holding, such as the
type of swap); the identity of the security, commodity, index, or other
asset or instrument underlying the holding, if any; for options, the
option strike price; quantity held (as measured by, for example, par
value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holdings in the Fund's portfolio. The Web site information will be
publicly available at no charge.
    In addition, a basket composition file, which includes the security
names and quantities required to be delivered in exchange for each
Fund's Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the Exchange via
NSCC. The basket represents one Creation Unit of the Fund.
    In addition, for the Fund, an Indicative Optimized Portfolio Value
(``IOPV'') \28\, defined in Rule 5735(c)(3) as the ``Intraday
Indicative Value,'' that reflects an estimated intraday value of the
Fund's portfolio (including the Subsidiary's portfolio), will be
disseminated. Moreover, the Intraday Indicative Value, available on the
NASDAQ OMX Information LLC proprietary index data service \29\ will be
based upon the current value for the components of the Disclosed
Portfolio

and will be updated and widely disseminated by one or more major market
data vendors and broadly displayed at least every 15 seconds during the
Regular Market Session.
---------------------------------------------------------------------------

    \28\ The IOPV will be based on the current value of the
securities and other assets held by the Fund and the Subsidiary
using market data converted into U.S. dollars at the current
currency rates. The IOPV price will be based on quotes and closing
prices from the securities' local market and may not reflect events
that occur subsequent to the local market's close. Premiums and
discounts between the IOPV and the market price may occur. The IOPV
will not necessarily reflect the precise composition of the current
portfolio of securities and assets held by a Fund at a particular
point in time or the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a ``real-
time'' update of a Fund's NAV, which will be calculated only once a
day. The quotations of certain Fund holdings may not be updated
during U.S. trading hours if such holdings do not trade in the
United States.
    \29\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service,
offering real-time updates, daily summary messages, and access to
widely followed indexes and Intraday Indicative Values for ETFs.
GIDS provides investment professionals with the daily information
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and will provide
a close estimate of that value throughout the trading day.
    Intra-day, executable price quotations on the exchange-traded
assets held by the Fund and the Subsidiary, including the Commodity-
Related Equities, futures contracts, options on futures contracts,
index futures, ETNs, ETFs and other investment companies, including
closed-end funds, will be available on the exchange on which they are
traded. Intra-day, executable price quotations on swaps, money market
instruments, and commodity-linked notes, and fixed-income instruments
will be available from major broker-dealer firms. Intra-day price
information will also be available through subscription services, such
as Bloomberg and Reuters. Additionally, the Trade Reporting and
Compliance Engine (``TRACE'') of the Financial Industry Regulatory
Authority (``FINRA'') will be a source of price information for certain
fixed income securities held by the Fund.
    Investors will also be able to obtain the Fund's Statement of
Additional Information (``SAI''), the Fund's Shareholder Reports, and
its Form N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Fund,
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and 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. Quotation
and last sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares. Quotation and last sale information for any underlying
exchange-traded equity will also be available via the quote and trade
service of their respective primary exchanges, as well as in accordance
with the Unlisted Trading Privileges and the Consolidated Tape
Association plans. Quotation and last sale information for any
underlying exchange-traded options will also be available via the quote
and trade service of their respective primary exchanges. Quotation and
last sale information for any underlying exchange-traded futures
contracts will be available via the quote and trade service of their
respective primary exchanges.
    Information on the S&P GSCI Index will be available on the S&P Dow
Jones Indices Web site (http://us.spindices.com).
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund and the Subsidiary must be in compliance with Rule
10A-3 \30\ under the Act. A minimum of 100,000 Shares will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time.
---------------------------------------------------------------------------

    \30\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Nasdaq will halt trading in the
Shares under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
Trading may be halted because of market conditions or for reasons that,
in the view of the Exchange, make trading in the Shares inadvisable.
These may include: (1) The extent to which trading is not occurring in
the securities and other assets constituting the Disclosed Portfolio of
the Fund and the Subsidiary; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
5735(d)(2)(D), which sets forth circumstances under which Shares of the
Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. Nasdaq will allow trading in the Shares
from 4:00 a.m. until 8:00 p.m. E.T. The Exchange has appropriate rules
to facilitate transactions in the Shares during all trading sessions.
As provided in Nasdaq Rule 5735(b)(3), the minimum price variation for
quoting and entry of orders in Managed Fund Shares traded on the
Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by both Nasdaq and
also the Financial Industry Regulatory Authority (``FINRA'') on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws.\31\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
---------------------------------------------------------------------------

    \31\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed
regarding trading information it can obtain relating to the Shares,
other exchange-traded securities and other assets held by the Fund and
the Subsidiary, which include exchange-traded Commodity-Related
Equities, exchange-traded or exchange-cleared Commodity-Linked
Investments (with the exception of exchange-cleared swaps), ETNs, ETFs
and other exchange-traded investment companies, with other markets and
other entities that are members of the ISG \32\ and FINRA may obtain
trading information regarding trading in the Shares, other exchange-
traded securities and other assets held by the Fund and the Subsidiary
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, other exchange-
traded securities and other assets held by the Fund and the Subsidiary
from

markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Moreover, FINRA,
on behalf of the Exchange, will be able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's TRACE.
---------------------------------------------------------------------------

    \32\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------

    In addition, with respect to the exchange-traded futures contracts
and options on futures contracts held indirectly through the
Subsidiary, not more than 10% of the weight \33\ of such futures
contracts and options on futures contracts in the aggregate shall
consist of instruments whose principal trading market is not a member
of ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement. Not more than 10% of the
equity securities (including shares of ETFs and closed-end funds) and
ETNs in which the Fund may invest will be invested in securities that
trade in markets that are not members of the ISG or are not parties to
a comprehensive surveillance sharing agreement with the Exchange. In
addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
---------------------------------------------------------------------------

    \33\ To be calculated as the value of the contract divided by
the total absolute notional value of the Subsidiary's futures
contracts.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (3) how and by whom the
information regarding the Intraday Indicative Value and the Disclosed
Portfolio is disseminated; (4) the risks involved in trading the Shares
during the Pre-Market and Post-Market Sessions when an updated Intraday
Indicative Value will not be calculated or publicly disseminated; (5)
the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
    In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
    Additionally, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV calculation time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act in general and Section 6(b)(5) of the Act in particular in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and in general, to protect
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Nasdaq Rule 5735. The
Exchange represents that trading in the Shares will be subject to the
existing trading surveillances, administered by both Nasdaq and also
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities laws.
The Adviser is affiliated with a broker-dealer and has implemented a
fire wall with respect to its broker-dealer affiliate regarding access
to information concerning the composition and/or changes to the Fund's
portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material, non-public information regarding
the open-end fund's portfolio.
    The Fund's and the Subsidiary's investments will be consistent with
the Fund's investment objective and although certain investments will
have a leveraging effect on the Fund, the Fund will not seek leveraged
returns. FINRA may obtain information via ISG from other exchanges that
are members of ISG. In addition, the Exchange may obtain information
regarding trading in the Shares, other exchange-traded securities and
other assets held by the Fund and the Subsidiary from markets and other
entities that are members of ISG, which includes securities and futures
exchanges, or with which the Exchange has in place a comprehensive
surveillance sharing agreement. Moreover, FINRA, on behalf of the
Exchange, will be able to access, as needed, trade information for
certain fixed income securities held by the Fund reported to FINRA's
TRACE. With respect to the futures contracts held indirectly through
the Subsidiary, not more than 10% of the weight \34\ of such futures
contracts in the aggregate shall consist of instruments whose principal
trading market is not a member of the ISG or is a market with which the
Exchange does not have a comprehensive surveillance sharing agreement.
Not more than 10% of the equity securities (including shares of ETFs
and closed-end funds) and ETNs in which the Fund may invest will be
invested in securities that trade in markets that not members of the
ISG or are not parties to a comprehensive surveillance sharing
agreement with the Exchange. The Fund will invest up to 25% of its
total assets in the Subsidiary. The Fund may hold up to an aggregate
amount of 15% of its net assets in illiquid securities (calculated at
the time of investment). The Fund will use the fixed-income securities
as investments and to collateralize the Subsidiary's commodity exposure
on a day-to-day basis. The Fund may also invest directly in ETFs and
other investment companies, including exchange-traded closed-end funds,
that provide exposure to commodities, equity securities and fixed
income securities to the extent permitted under the 1940 Act.
---------------------------------------------------------------------------

    \34\ To be calculated as the value of the contract divided by
the total absolute notional value of the Subsidiary's futures
contracts.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market

participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Intraday
Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Regular Market Session. On each business day, before commencement of
trading in Shares in the Regular Market Session on the Exchange, the
Fund will disclose on its Web site the Disclosed Portfolio of the Fund
and the Subsidiary that will form the basis for the Fund's calculation
of NAV at the end of the business day. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last sale information for
the Shares will be available via Nasdaq proprietary quote and trade
services, as well as in accordance with the Unlisted Trading Privileges
and the Consolidated Tape Association plans for the Shares. Intra-day
price information will be available through subscription services, such
as Bloomberg and Reuters.
    The Fund's Web site will include a form of the prospectus for the
Fund and additional data relating to NAV and other applicable
quantitative information. Trading in Shares of the Fund will be halted
under the conditions specified in Nasdaq Rules 4120 and 4121 or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable, and trading in the Shares will
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances
under which Shares of the Fund may be halted. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, FINRA, on behalf of the
Exchange, will communicate as needed regarding trading information it
can obtain relating to the Shares, other exchange-traded securities and
other assets held by the Fund and the Subsidiary with other markets and
other entities that are members of the ISG and FINRA may obtain trading
information regarding trading in the Shares, other exchange-traded
securities and other assets held by the Fund and the Subsidiary from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, other exchange-traded
securities and other assets held by the Fund and the Subsidiary from
markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Additionally,
FINRA's TRACE will be a source of price information for certain fixed
income securities held by the Fund. Furthermore, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the Intraday Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded fund that will
enhance competition among market participants, to the benefit of
investors and the marketplace.

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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the 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-2014-053 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-2014-053. 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-2014-053 and should
be submitted on or before September 8, 2014.
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    \35\ 17 CFR 200.30-3(a)(12).

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    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19471 Filed 8-15-14; 8:45 am]
BILLING CODE 8011-01-P