[Federal Register Volume 83, Number 214 (Monday, November 5, 2018)]
[Notices]
[Pages 55416-55435]
[FR Doc No: 2018-24068]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84505; File No. SR-NASDAQ-2018-080]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of a Proposed Rule Change To List and Trade Shares of
the BrandywineGLOBAL--Global Total Return ETF, a Series of Legg Mason
ETF Investment Trust Under Nasdaq Rule 5735

October 30, 2018.
    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 October 17, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade the shares of the
BrandywineGLOBAL--Global Total Return ETF (the ``Fund''), a series of
Legg Mason ETF Investment Trust (the ``Trust'') under Nasdaq Rule 5735
(``Managed Fund Shares'').\3\ The shares of the Fund are collectively
referred to herein as the ``Shares.''
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    \3\ 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). There are already multiple actively-
managed funds listed on the Exchange. See, e.g., Securities Exchange
Act Release Nos. 80946 (June 15, 2017), 82 FR 28126 (June 20, 2017)
(SR-NASDAQ-2017-039) (order approving listing and trading of
Guggenheim Limited Duration ETF); 78592 (August 16, 2016), 81 FR
56729 (August 22, 2016) (SR-NASDAQ-2016-061) (order approving
listing and trading of First Trust Equity Market Neutral ETF); 78443
(July 29, 2016), 81 FR 51517 (August 4, 2016) (SR-NASDAQ-2016-064)
(order approving listing and trading of First Trust Strategic
Mortgage REIT ETF); 71913 (April 9, 2014), 79 FR 21333 (April 15,
2014) (SR-NASDAQ-2014-019) (order approving listing and trading of
First Trust Managed Municipal ETF); 69464 (April 26, 2013), 78 FR
25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order approving listing
and trading of First Trust Senior Loan Fund); 66489 (February 29,
2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-004) (order
approving listing and trading of WisdomTree Emerging Markets
Corporate Bond Fund); see also filings for similar ETFs listed on
other national securities exchanges: Securities Exchange Act Release
Nos. 80657 (May 11, 2017) 82 FR 22702 (May 17, 2017) (SR-NYSE Arca-
2017-09) (order approving listing and trading of Janus Short
Duration Income ETF); 79683 (December 23, 2016), 81 FR 96539
(December 30, 2016) (SR-NYSEArca-2016-82) (order approving listing
and trading of JPMorgan Diversified Event Driven ETF); 77904 (May
25, 2016), 81 FR 35101 (SR-NYSE Arca-2016-17) (order approving
listing and trading of JPMorgan Diversified Alternative ETF); 68870
(February 8 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (order approving listing and trading of First Trust
Preferred Securities and Income ETF). The Exchange believes the
proposed rule change raises no significant issues not previously
addressed in those prior Commission orders.
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    The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund
under Nasdaq Rule 5735, which governs the listing and trading of
Managed Fund Shares \4\ on the Exchange. The Fund will be an exchange-
traded fund (``ETF'') that is actively-managed. The Shares will be
offered by the Trust, which was established as a Maryland statutory
trust on June 8, 2015.\5\ The Exchange notes that other actively-
managed, broad market fixed-income ETFs have been previously approved
by the SEC prior to the adoption of ``generic'' listing standards for
actively-managed ETFs.\6\ The Trust is registered with the Commission
as an investment company under the 1940 Act and has filed a
registration statement on Form N-1A (``Registration Statement'') with
the Commission with respect to the Fund.\7\ The Fund will be a series
of the Trust. The Fund intends to qualify each year as a regulated
investment company (``RIC'') under Subchapter M of the Internal Revenue
Code of 1986, as amended.
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    \4\ A Managed Fund Share is a security that represents an
interest in a company, which is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') and
organized as an open-end investment company or similar entity, that
invests in a portfolio of securities selected by its investment
adviser consistent with the company's investment objective 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.
    \5\ The Commission has issued an order, upon which the Trust may
rely, granting certain exemptive relief under the 1940 Act. See
Investment Company Act Release No. 32391 (December 13, 2016) (File
No. 812-14547) (the ``Exemptive Relief''). In addition, on December
6, 2012, the staff of the Commission's Division of Investment
Management (``Division'') issued a no-action letter (``No-Action
Letter'') relating to the use of derivatives by actively-managed
ETFs. See No-Action Letter dated December 6, 2012 from Elizabeth G.
Osterman, Associate Director, Office of Exemptive Applications,
Division of Investment Management. The No-Action Letter stated that
the Division would not recommend enforcement action to the
Commission under applicable provisions of and rules under the 1940
Act if actively-managed ETFs operating in reliance on specified
orders (which include the Exemptive Relief) invest in options
contracts, futures contracts or swap agreements provided that they
comply with certain representations stated in the No-Action Letter.
    \6\ See, e.g., Securities Exchange Act Release Nos. 76719
(December 21, 2015), 80 FR 80859 (December 28, 2015) (SR-NYSEArca-
2015-73) (granting approval for the listing of shares of the
Guggenheim Total Return Bond ETF); 66321 (February 3, 2012), 77 FR
6850 (February 9, 2012) (SR-NYSEArca-2011-95) (granting approval for
the listing of shares of the PIMCO Total Return Exchange Traded Fund
(now known as the PIMCO Active Bond Exchange-Traded Fund)); and
72666 (July 24, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-
2013-122) (granting approval to the use of derivatives by the PIMCO
Total Return Exchange Traded Fund); see also infra notes 86 and 104.
    \7\ See Post-Effective Amendment No. 50 to the Registration
Statement on Form N-1A for the Trust (File Nos. 333-206784 and 811-
23096) as filed on June 5, 2018. The Trust will file additional
amendments to the Registration Statement as necessary to conform to
the representations in this filing. The descriptions of the Fund and
the Shares contained herein are based, in part, on information in
the Registration Statement.
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    Legg Mason Partners Fund Advisor, LLC will be the investment
adviser to the Fund (the ``Manager'').\8\ Brandywine Global Investment
Management, LLC will serve as the sub-adviser to the Fund (the ``Sub-
Adviser'').\9\ Legg Mason Investor Services, LLC (the ``Distributor'')
will be the distributor of the Fund's Shares. The Investment Adviser,
the Sub-Adviser and the Distributor are wholly-owned subsidiaries of
Legg Mason, Inc. (``Legg Mason''). An entity that is not affiliated
with Legg Mason, and which is named in the Registration Statement, will
act as the administrator, accounting agent, custodian, and transfer
agent to the Fund.
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    \8\ Legg Mason Partners Fund Advisor, LLC describes its role as
``investment manager,'' rather than as ``investment adviser'' in
applicable Fund-related documents, including the Registration
Statement, in its investment management agreement with the Fund and
in connection with its annual approval process by the board of
trustees for the Trust (the ``Board''). As a result, the defined
term ``Manager'' is used in this filing with respect to a proposed
rule change instead of the term ``investment adviser,'' which is the
term used by certain other investment advisers to ETFs in their
filings with respect to proposed rule changes under Rule 19b-4 of
the Act.
    \9\ The Sub-Adviser is responsible for the day-to-day management
of the Fund and, as such, typically makes all decisions with respect
to portfolio holdings regardless of where the instruments are
traded. The Manager has ongoing oversight responsibility.
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    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 and maintain
a ``fire wall'' between the investment adviser and the broker-dealer
with respect to access to information concerning the composition and/or
changes to such investment company's portfolio.\10\ In addition,
paragraph (g) further requires that personnel who make decisions on the
investment company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material,
non-public information regarding the investment company's portfolio.
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    \10\ An investment adviser to an investment company is required
to be registered under the Investment Advisers Act of 1940 (the
``Advisers Act''). As a result, the Manager and the Sub-Adviser, as
registered investment advisers, and their related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. Rule 204A-1 requires investment
advisers (such as the Manager and the Sub-Adviser) 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 the Manager and the Sub-Adviser
must be consistent with the Advisers Act and Rule 204A-1 thereunder.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser (such as the Manager and the Sub-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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    Rule 5735(g) is similar to Nasdaq Rule 5705(b)(5)(A)(i); however,
paragraph (g) in connection with the establishment and maintenance of a
``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable investment company's portfolio, not an
underlying benchmark index, as is the case with index-based funds.
Neither the Manager nor the Sub-Adviser is a broker-dealer, but each is
affiliated with the Distributor, a broker-dealer, and has implemented
and will maintain a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio.
    In addition, personnel who make decisions on the Fund's portfolio
composition will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding the
Fund's portfolio. In the event (a) the Manager or the Sub-Adviser
registers as a broker-dealer or becomes newly affiliated with a broker-
dealer, or (b) any new investment adviser or any new sub-adviser to the
Fund is a registered broker-dealer or becomes affiliated with another
broker-dealer, it will implement

and maintain a fire wall with respect to its relevant personnel and/or
such broker-dealer affiliate, as applicable, regarding access to
information concerning the composition and/or changes to the Fund's
portfolio and will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding such
portfolio.
BrandywineGLOBAL--Global Total Return ETF
Principal Investments
    The investment objective of the Fund will be to seek to maximize
total return, consisting of income and capital appreciation. Although
the Fund may invest in securities and Debt (as defined below) of any
maturity, the Fund will normally maintain an effective duration as set
forth in the prospectus.\11\ Effective duration seeks to measure the
expected sensitivity of market price to changes in interest rates,
taking into account the anticipated effects of structural complexities
(for example, some bonds can be prepaid by the issuer).
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    \11\ The effective duration of the Fund may fall outside of its
expected range due to market movements. If this happens, the Sub-
Adviser will take action to bring the Fund's effective duration back
within its expected range within a reasonable period of time.
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    Under Normal Market Conditions,\12\ the Fund will seek to achieve
its investment objective by investing at least 80% of its assets in a
portfolio comprised of U.S. or foreign fixed income securities; U.S. or
foreign Debt (as defined below); \13\ ETFs \14\ that provide exposure
to such U.S. or foreign fixed income securities, Debt or other
Principal Investments (defined below); derivatives \15\ that (i)
provide exposure to such U.S. or foreign fixed income securities, Debt
and other Principal Investments, (ii) are used to risk manage the
Fund's holdings, and/or (iii) are used to enhance returns, such as
through covered call strategies;\16\ U.S. or foreign equity securities
of any type acquired in reorganizations of issuers of fixed income
securities or Debt held by the Fund (``Work Out Securities''); \17\
U.S. or foreign non-convertible preferred securities (other than trust
preferred securities, which the Fund may invest in, but which are
treated as fixed income securities \18\) (``Non-Convertible Preferred
Securities''); \19\ warrants,\20\ comprised of: Warrants on

U.S. or foreign fixed income securities (``Fixed-Income Related
Warrants'') and warrants on U.S. or foreign equity securities
(``Equity-Related Warrants''),\21\ both fixed income and equity
securities of which are generally issued by the issuer of the warrants,
and both types of warrants of which are generally attached to,
accompany or are purchased alongside investments in U.S. or foreign
fixed income securities; cash and cash equivalents; \22\ and foreign
currencies (together, the ``Principal Investments'' and the equity
elements of the Principal Investments, which consist of Work Out
Securities, ETFs that provide exposure to fixed income securities, Debt
or other Principal Investments, Equity-Related Warrants \23\ and Non-
Convertible Preferred Securities, are referred to as the ``Principal
Investment Equities'').\24\
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    \12\ The term ``Normal Market Conditions'' has the meaning set
forth in Nasdaq Rule 5735(c)(5). The Fund may vary from ordinary
parameters on a temporary basis, including for defensive purposes,
during the initial invest-up period (i.e., the six-week period
following the commencement of trading of Shares on the Exchange) and
during periods of high cash inflows or outflows (i.e., rolling
periods of seven calendar days during which inflows or outflows of
cash, in the aggregate, exceed 10% of the Fund's assets as of the
opening of business on the first day of such periods). In those
situations, the Fund may depart from its principal investment
strategies and may, for example, hold a higher than normal
proportion of its assets in cash and cash equivalents. During such
periods, the Fund may not be able to achieve its investment
objective. The Fund may also adopt a defensive strategy and hold a
significant portion of its assets in cash and cash equivalents when
the Manager or the Sub-Adviser believes securities, Debt and other
instruments in which the Fund normally invests have elevated risks
due to political or economic factors, heightened market volatility
or in other extraordinary circumstances that do not constitute
``Normal Market Conditions''. The Fund's investments in cash
equivalents are described in greater detail in note 22 infra.
    \13\ As noted below, the Fund's fixed income security and Debt
investments will satisfy specific diversification requirements set
forth in the Fund's prospectus that are not included in Nasdaq Rule
5735, including, without limitation, that each issuer of securities
or borrower in respect to Debt have economic exposure to at least
three countries. See infra ``Investment Restrictions.
    \14\ The ETFs in which the Fund may invest include Index Fund
Shares (as described in Nasdaq Rule 5705(b)), Portfolio Depositary
Receipts (as described in Nasdaq Rule 5705(a)), and Managed Fund
Shares (as described in Nasdaq Rule 5735). The Fund will not invest
in ETFs that are not registered as investment companies under the
1940 Act. The ETFs held by the Fund will invest in fixed income
securities, Debt, money-market instruments and other Principal
Investments to which the Fund seeks exposure. All such ETFs will
trade in markets that are members of the ISG or exchanges that are
parties to a comprehensive surveillance sharing agreement with the
Exchange. The Fund will not invest in leveraged ETFs, inverse ETFs,
or inverse leveraged ETFs. Other fixed-income funds have been
approved to include ETFs in their 80% principal investment category.
See, e.g., Securities Exchange Act Release No. 80946 (June 15,
2017), 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039) (approving
fund seeking to meet its investment objective of having at least 80%
of assets invested in a portfolio of debt instruments in part
through investments in ETFs that invest substantially all of their
assets in such debt instruments).
    \15\ Derivatives will include: (i) Swaps and security-based
swaps, futures, options, options on futures, and swaptions that are
traded on an exchange, trading facility, swap execution facility or
alternative trading system (``Exchange-Traded Derivatives'') (A)
that is a member of the Intermarket Surveillance Group (``ISG''),
which includes all U.S. national securities exchanges and most
futures exchanges, (B) that is subject to a comprehensive
surveillance sharing agreement with the Exchange, or (C) that is not
an ISG member and with which the Exchange does not have a
comprehensive surveillance sharing agreement; and (ii) swaps and
security-based swaps, options, options on futures, swaptions,
forwards and similar instruments that are traded in the over-the-
counter market and are either centrally cleared or cleared
bilaterally (``OTC Derivatives''), as further described below. For
the purposes of describing the scope of the Fund's potential
investments in derivatives, the terms ``swaps'' and ``security-based
swaps'' shall have the meanings set forth in the Commodity Exchange
Act (``CEA''), as amended by The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010)
(``Dodd-Frank''), and regulations thereunder, and references to
swaps and forwards on foreign exchange or currencies shall include
``foreign exchange forwards'' and ``foreign exchange swaps'', as
such terms are defined in Sections 1a(24)-(25) of the CEA. The terms
``exchange-traded'' and ``exchange-listed'', when used with respect
to swaps and security-based swaps, shall include swaps and security-
based swaps that are executed on swap execution facilities and
security-based swap execution facilities and cleared through
regulated, central clearing facilities. The types of derivatives in
which the Fund may invest and the reference assets for such
derivatives are described in greater detail below. Exchange-Traded
Derivatives and OTC Derivatives may reference Principal Investments
and other investments. Those Exchange-Traded Derivatives and OTC
Derivatives that reference Principal Investments will be treated as
Principal Investments and those that do not will not be treated as
Principal Investments. For purposes of the 80% Principal Investments
measure, the Fund will value Exchange-Traded Derivatives and OTC
Derivatives based on the mark-to-market value of such derivatives.
This approach is consistent with the valuation methodology for asset
coverage purposes in Rule 18f-4 under the 1940 Act proposed by the
Commission. See Investment Company Act Release No. 31933 (December
11, 2015); 80 FR 80884 (December 28, 2015) (the ``Derivatives Rule
Proposing Release''); see also infra note 107. No more than 10% of
the assets of the Fund will be invested in Exchange-Traded
Derivatives and exchange-listed securities whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.
    \16\ See also infra ``The Fund's Use of Derivatives.''
    \17\ Work Out Securities will generally be traded in the OTC
market but may be listed on an exchange that may or may not be an
ISG member. To the extent that the Work Out Securities are exchange-
listed, they will be subject to the 10% limit on the Fund's total
assets that can be listed on a market that is not a member of ISG or
a market with which the Exchange does not have a comprehensive
surveillance sharing agreement. See infra ``Investment
Restrictions.''
    \18\ See Nasdaq Rule 5735(b)(1)(B).
    \19\ Non-convertible preferred stock, such as that comprising
the Non-Convertible Preferred Securities, provides holders with a
fixed or variable distribution and a status upon bankruptcy of the
issuer that is subordinated to debt holders but preferred over
common shareholders. Non-Convertible Preferred Securities may be
listed on either an ISG member exchange (or an exchange with which
the Exchange has a comprehensive surveillance sharing agreement) or
a non-ISG member exchange or be unlisted and trade in the over-the-
counter market. Non-Convertible Preferred Securities that are listed
and traded on a non-ISG member exchange or on an exchange with which
the Exchange does not have a comprehensive surveillance sharing
agreement, together with all other exchange-listed securities and
Exchange-Traded Derivatives held by the Fund that are listed on a
non-ISG member exchange or exchange with which the Exchange does not
have a comprehensive surveillance sharing agreement, are limited to
10% of the Fund's total assets. See infra ``Investment
Restrictions.''
    \20\ Warrants are equity securities that provide the holder with
the right to purchase specified securities of the issuer of the
warrants at a specified exercise price until the expiration date of
the warrant. The Fund may hold warrants that provide the right to
purchase fixed income securities or equity securities and expects
that most of the warrants it holds will be attached to related fixed
income securities. Warrants held by the Fund may be traded in the
OTC market or may be listed on an exchange. Warrants that are listed
on a non-ISG member exchange or an exchange with which the Exchange
does not have a comprehensive surveillance sharing agreement,
together with all other exchange-listed securities and Exchange-
Traded Derivatives held by the Fund that are listed on a non-ISG
member exchange or exchange with which the Exchange does not have a
comprehensive surveillance sharing agreement, are limited to 10% of
the Fund's total assets. See infra ``Investment Restrictions.''
    \21\ The Fund's interests in Equity-Related Warrants are similar
to the Fund's interest in Work Out Securities in that they reflect
interests in equity securities that are held solely in connection
with investments in fixed income securities.
    \22\ Cash equivalents consist of the following, all of which
have maturities of less than 360 days: U.S. government securities;
certificates of deposit issued against funds deposited in a bank or
savings and loan association; bankers' acceptances (which are short-
term credit instruments used to finance commercial transactions);
repurchase agreements and reverse repurchase agreements; and bank
time deposits (which are monies kept on deposit with banks or
savings and loan associations for a stated period of time at a fixed
rate of interest). Cash equivalents also consist of money market
funds registered under the 1940 Act and money market funds that are
not registered under the 1940 Act but that comply with Rule 2a-7
under the 1940 Act (together, ``Money Market Funds''), money market
ETFs and commercial paper, which are short-term unsecured promissory
notes, having maturities of 360 days or less. The Exchange notes
that, while the Fund treats commercial paper having maturities of
360 days or less as cash equivalents for the purposes of the 80%
Principal Investments measure, the Fund will apply the definition of
cash equivalents in Nasdaq Rule 5735(b)(1)(C) (which is limited to
instruments with maturities of less than three months) for purposes
of compliance with Nasdaq Rule 5735(b)(1) and will comply with the
applicable requirements of Nasdaq Rule 5735(b)(1) with respect to
all commercial paper held by the Fund. Investments in cash
equivalents that are Money Market Funds will be made in accordance
with Rule 12d1-1 under the 1940 Act.
    \23\ For purposes of this proposed rule change, Fixed-Income
Related Warrants are treated as fixed income securities and not as
Principal Investment Equities. Fixed-Income Related Warrants will be
subject to and comply with the generic listing requirements for
fixed income securities rather than the requirements applicable to
equity securities.
    \24\ The Manager and Sub-Adviser will manage the Fund to ensure
that the weight of Non-Convertible Preferred Securities, Equity-
Related Warrants and Work Out Securities (which are generally traded
solely in the over-the-counter market) together does not exceed 15%
of the Fund's assets.
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    The Manager or Sub-Adviser (as applicable) may select from any of
the following types of fixed income securities: (i) U.S. or foreign
corporate debt securities, including notes, bonds, debentures, trust
preferred securities, and commercial paper issued by corporations,
trusts, limited partnerships, limited liability companies and other
types of non-governmental legal entities; (ii) U.S. government
securities, including obligations of, or guaranteed by, the U.S.
government, its agencies or government-sponsored entities (other than
MBS described below); (iii) sovereign debt securities, which include
fixed income securities issued by governments, agencies or
instrumentalities and their political subdivisions, securities issued
by government-owned, controlled or sponsored entities, interests in
entities organized and operated for the purpose of restructuring the
investment instruments issued by such entities, Brady Bonds,\25\ and
fixed income securities issued by supranational entities such as the
World Bank; \26\ (iv) municipal securities, which include general
obligation bonds, revenue bonds, housing authority bonds, private
activity bonds, industrial development bonds, residual interest bonds,
tender option bonds, tax and revenue anticipation notes, bond
anticipation notes, tax-exempt commercial paper, municipal leases,
participation certificates and custodial receipts; (v) zero coupon
securities, which are securities that pay no interest during the life
of the obligation but are issued at prices below their stated maturity
value; (vi) pay-in-kind securities, which have a stated coupon, but the
interest is generally paid in the form of obligations of the same type
as the underlying pay-in-kind securities (e.g., bonds) rather than in
cash; (vii) deferred interest securities, which are obligations that
generally provide for a period of delay before the regular payment of
interest begins and are issued at a significant discount from face
value; (viii) U.S. or foreign structured notes and indexed securities,
including securities that have demand, tender or put features, or
interest rate reset features; (ix) U.S. or foreign inflation-indexed or
inflation-protected securities, which are fixed income securities that
are structured to provide protection against inflation and whose
principal value or coupon is periodically adjusted according to the
rate of inflation and which include, among others, treasury inflation
protected securities; and (x) fixed income securities issued by
securitization vehicles (``Securitized Products'').\27\ Securitized
Products include: (A) U.S. or foreign mortgage-backed securities
(``MBS''), which are securities that represent direct or indirect
participations in, or are collateralized by and payable from, mortgage
loans secured by real property and which may be issued or guaranteed by
government-sponsored entities (``GSEs'') \28\ such as Fannie Mae
(formally known as the Federal National Mortgage Association) or
Freddie Mac (formally known as the Federal Home Loan Mortgage
Corporation) or issued or guaranteed by agencies of the U.S.
government, such as the Government National Mortgage Association
(``Ginnie Mae''); \29\ (B) U.S. or foreign asset-

backed securities (``ABS'') \30\ and (C) U.S. or foreign collateralized
debt obligations (``CDOs'').\31\
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    \25\ Brady Bonds are debt securities issued under the framework
of the Brady Plan as a means for debtor nations to restructure their
outstanding external indebtedness.
    \26\ A supranational entity is a bank, commission or company
established or financially supported by the national government of
one or more countries to promote reconstruction or development.
    \27\ As defined in Rule 6710(m) of the Financial Industry
Regulatory Authority, Inc. (``FINRA''), the term Securitized Product
means a security collateralized by any type of financial asset, such
as a loan, a lease, a mortgage, or a secured or unsecured
receivable, and includes but is not limited to an asset-backed
security as defined in Section 3(a)(79)(A) of the Act, a synthetic
asset-backed security, any residual tranche or interest of any
security specified above, which tranche or interest is a fixed
income security for purposes of FINRA Rule 6700 and paragraph (a) of
FINRA Rule 6710. Consistent with the requirements applicable to
other fixed income securities listed pursuant to this proposed rule
change, Securitized Products are subject to limits set forth in
Nasdaq Rule 5735(b)(1)(B)(i), (ii), (iii), (iv) and (v), except
that, with respect to the Fund's investments in ABS/Private MBS (as
defined below), the Fund will not comply with the 90% requirement in
Nasdaq Rule 5735(b)(1)(B)(iv) and CDOs (as defined below) will not
be subject to the limits set forth in Nasdaq Rule 5735(b)(1)(B)(v)
but will be required to comply with the tests in Nasdaq Rule
5735(b)(1)(B)(i)-(iv), including, without limitation, the 90%
requirement in Nasdaq Rule 5735(b)(1)(B)(iv). Investments in CDOs
will separately be subject to a limit of 10% of total assets of the
Fund. In addition, the Fund's total investments in Securitized
Products (including CDOs) will be subject to the restrictions
applicable to all fixed income securities and Debt holdings of the
Fund, including that: No more than 30% of the Debt and fixed income
securities held by the Fund will be below investment grade, and no
more than 25% of the total assets of the Fund will be invested in
Debt or fixed income or equity securities of issuers in any one
industry. See infra ``Investment Restrictions.''
    \28\ A ``GSE'' is a type of financial services corporation
created by the United States Congress. GSEs include Fannie Mae and
Freddie Mac but not Sallie Mae, which is no longer a government
entity.
    \29\ MBS include collateralized mortgage obligations (``CMOs''),
which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized
by Ginnie Mae, Fannie Mae or Freddie Mac certificates, but they may
also be collateralized by whole loans or pass-through securities
issued by private issuers (i.e., issuers other than U.S. government
agencies or GSEs) (referred to as ``Private MBS''). Payments of
principal and of interest on the mortgage-related instruments
collateralizing the MBS, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs. In a CMO, a
series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a ``tranche'' of securities, is
issued at a specified fixed or floating coupon rate and has a stated
maturity or final distribution date.
    \30\ As defined by FINRA Rule 6710(cc), ABS are Securitized
Products in connection with which the securities issued, which may
be issued by either a U.S. or a foreign entity, are collateralized
by any type of financial asset, such as a consumer or student loan,
a lease, or a secured or unsecured receivable. ABS exclude (per the
FINRA definition, which is applicable for purposes of reporting and
as used herein): (i) A Securitized Product that is backed by
residential or commercial mortgage loans, mortgage-backed
securities, or other financial assets derivative of mortgage-backed
securities; (ii) a small business administration backed ABS traded
``To Be Announced'' or in a specified pool transaction as defined in
FINRA Rule 6710(x) and (iii) CDOs (as defined in note 31 infra).
Consistent with the requirements of Nasdaq Rule 5735(b)(1)(B)(v),
the Fund will limit investments in ABS and Private MBS (together,
``ABS/Private MBS'') to 20% of the weight of the fixed income
portion of the Fund's portfolio.
    \31\ For purposes of this proposed rule change, CDOs are
excluded from the definition of ABS and, for purposes of this
proposed rule change only, are comprised exclusively of
collateralized loan obligations (``CLOs'') and collateralized bond
obligations (``CBOs''). CLOs are securities issued by a trust or
other special purpose entity that are collateralized by a pool of
loans by U.S. banks and participations in loans by U.S. banks that
are unsecured or secured by collateral other than real estate. CBOs
are securities issued by a trust or other special purpose entity
that are backed by a diversified pool of fixed income securities
issued by U.S. or foreign governmental entities or fixed income
securities issued by U.S. or corporate issuers. CDOs are
distinguishable from ABS because they are collateralized by bank
loans or by corporate or government fixed income securities and not
by consumer, and other loans made by non-bank lenders, including
student loans. For purposes of this proposed rule change, CDOs will
not be subject to the 20% limit set forth in Nasdaq Rule
5735(b)(1)(B)(v). However, the Exchange believes that the 10% limit
on the Fund's holdings in CDOs will help to ensure that the Fund
maintains a diversified portfolio and will mitigate the risk of
manipulation. See infra ``Investment Restrictions.''
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    The securities in which the Fund invests may pay fixed, variable or
floating rates of interest or, in the case of instruments such as zero
coupon bonds, do not pay current interest but are issued at a discount
from their face values. Securitized Products in which the Fund will
invest make periodic payments of interest and/or principal on
underlying pools of mortgages, in the case of MBS, loans, leases and
receivables other than real estate, in the case of ABS, and government
and corporate bonds or non-real estate related loans, in the case of
CDOs. The Fund may also invest in stripped Securitized Products, which
represent the right to receive either payments of principal or payments
of interest on real estate receivables. Interests in CDOs and ABS will
not be stripped so as to provide the right to receive only payments of
principal or payments of interest.
    Investments by the Fund in debt instruments that are not
characterized as ``securities'' under applicable case law
(``Debt''),\32\ are comprised primarily of the following: (i) U.S. or
foreign loans made by banks and participations in such loans, loans
made by commercial non-bank lenders and participations in such loans,
loans made by governmental entities and participations in such loans
and/or other extensions of credit, such as guarantees made by any of
the foregoing lenders; and (ii) U.S. or foreign loans on real estate
secured by mortgages and participations in such loans. Debt may be
partially or fully secured by collateral supporting the payment of
interest and principal, or unsecured and/or subordinated to other
instruments.\33\ Debt may relate to financings for highly-leveraged
borrowers.
---------------------------------------------------------------------------

    \32\ Although bank loans are included as ``fixed income
securities'' for purposes of the ``generic'' listing requirements of
Nasdaq Rule 5735(b)(1), the types of bank loans in which the Fund
invests are not treated as ``securities'' under applicable case law
and, as a result, the Fund intends to treat bank loans as Debt and
not as fixed income securities. See, e.g., Banco Espanol de Credito
et al. v. Security Pacific National Bank, 973 F.2d 51(2d Cir. 1992),
cert. denied, 509 U.S. 903 (1993). Accordingly, the Fund will not
seek to comply with the parameters on investments in fixed income
securities under Nasdaq Rule 5735(b)(1)(B) with respect to the
Fund's holdings in bank loans, but instead will comply with the
alternative limitations applicable to Debt with respect to such
holdings, as set forth herein. See infra ``Investment
Restrictions.''
    \33\ As discussed infra in ``Investment Restrictions,'' at least
75% of the Fund's investments fixed income securities (including
convertible fixed income and preferred securities) and Debt
(together constituting the fixed income weight of the portfolio)
shall have a minimum principal amount outstanding of $100 million or
more. In addition, consistent with the Fund's Registration
Statement, the following diversification requirements will apply:
During Normal Market Conditions, the Fund: (i) Will not invest more
than 25% of its total assets in securities or Debt in any one
foreign country, other than the United States, Canada, the United
Kingdom, Japan, Australia and member countries of the European
Union, or denominated in any one currency, other than the U.S.
dollar, the Canadian dollar, the British pound, the yen, the
Australian dollar, or the euro; and (ii) will have ``economic
exposure'' to at least three countries. ``Economic exposure'' means
that an issuer of a security or a borrower in respect to Debt: (A)
Will have a class of securities whose principal securities market is
in the country; (B) is organized under the laws of, or has a
principal office in, the country; (iii) [sic] derives 50% or more of
its total revenue or profit from goods produced, sales made or
services provided in the country; or (D) maintains 50% of more of
its assets in that country. In addition, no more than 30% of the
Debt and fixed income securities held by the Fund, will be below
investment grade (as defined infra in ``Investment Restrictions'');
and (iii) [sic] no more than 25% of the total assets of the Fund
will be invested in Debt or fixed income or equity securities of
issuers in any one industry.
---------------------------------------------------------------------------

    With respect to fixed income securities, the Fund may invest in
restricted instruments which are subject to resale restrictions that
limit purchasers to qualified institutional buyers, as defined in Rule
144A under the Securities Act of 1933, as amended (the ``Securities
Act'') or to non-U.S. persons, within the meaning of Regulation S under
the Securities Act.
    The Fund will use derivatives to (i) provide exposure to U.S. or
foreign fixed income securities, Debt and other Principal Investments,
(ii) risk manage the Fund's holdings,\34\ and/or (iii) enhance returns,
such as through covered call strategies.\35\ The Fund will not use
derivatives for the purpose of seeking leveraged returns or performance
that is the multiple or inverse multiple of a benchmark. Derivatives
that the Fund may enter into include: (i) Over-the-counter deliverable
and non-deliverable foreign exchange forward contracts; (ii) exchange-
listed futures contracts on securities (including Treasury Securities
\36\ and foreign government securities), Debt, commodities, securities-
, commodities-, or combined-asset-class-related indices, interest
rates, financial rates and currencies; (iii) exchange-listed or over-
the-counter options or swaptions (i.e., options to enter into a swap)
on securities, Debt, commodities, securities-, commodities-, or
combined-asset-class-related indices, interest rates, financial rates,
currencies and futures contracts; (iv) exchange-listed or over-the-
counter swaps (including total return swaps) on securities, Debt,
commodities, securities-, commodities-, or combined-asset-class-related
indices, interest rates, financial rates, and currencies; and (v)
credit default swaps on single names, baskets and indices (both as
protection seller and as protection buyer). As a result of the Fund's
use of derivatives and to serve as collateral, the Fund may also hold
significant amounts of Treasury Securities, cash and cash equivalents
and, in the case of derivatives that are payable in a foreign currency,
the

foreign currency in which the derivatives are payable.
---------------------------------------------------------------------------

    \34\ The risk management uses of derivatives will include
managing (i) investment-related risks, (ii) risks due to
fluctuations in securities prices, interest rates, or currency
exchanges rates, (iii) risks due to the credit-worthiness of an
issuer, and (iv) the effective duration of the Fund's portfolio.
    \35\ See also infra ``The Fund's Use of Derivatives.''
    \36\ The term ``Treasury Securities'' has the meaning set forth
in Nasdaq Rule 5735(b)(1)(B).
---------------------------------------------------------------------------

    The Fund may, without limitation, enter into repurchase
arrangements and borrowing and reverse repurchase arrangements,
purchase and sale contracts, buybacks \37\ and dollar rolls \38\ and
spot currency transactions. The Fund may also, subject to required
margin and without limitation, purchase securities and other
instruments under when-issued, delayed delivery, to be announced or
forward commitment transactions, where the securities or instruments
will not be delivered or paid for immediately.\39\ To the extent
required under applicable federal securities laws (including the 1940
Act), rules, and interpretations thereof, the Fund will ``set aside''
liquid assets or engage in other measures to ``cover'' open positions
held in connection with the foregoing types of transactions, as well as
derivative transactions.
---------------------------------------------------------------------------

    \37\ A buyback refers to a TBA transaction that incorporates a
special feature for addressing a failure by the seller to deliver
the mortgages promised under the contract. A buyback feature
typically provides that, in the event a TBA seller fails to deliver
the MBS that is the subject of the transaction to the TBA buyer on
the scheduled settlement date, the TBA buyer will be entitled to
close-out its payment obligations by either (i) selling the
deliverable MBS back to the seller at a price established under the
buyback or (ii) accepting assignment from the seller of its right to
receive the specified MBS from the third-party entity that failed to
deliver the MBS to the TBA seller.
    \38\ A dollar roll transaction is a simultaneous sale and
purchase of an Agency Pass-Through Mortgage-Backed Security (as
defined in FINRA Rule 6710(v), which is the only reference security
for such transaction) for different settlement dates, where the
initial seller agrees to take delivery, upon settlement of the re-
purchase transaction, of the same or substantially similar
securities. See FINRA Rule 6710(z).
    \39\ FINRA Rule 4210 is scheduled to begin requiring broker-
dealers to impose margin requirements on investors in TBAs and
certain other delayed delivery transactions beginning March 25,
2019.
---------------------------------------------------------------------------

Other Investments
    Under Normal Market Conditions, the Fund will seek its investment
objective by investing at least 80% of its assets in a portfolio of the
Principal Investments. The Fund may invest its remaining assets
exclusively in: (i) U.S. or foreign exchange-listed \40\ or over-the
counter convertible fixed income and preferred securities; \41\ and
(ii) OTC Derivatives and Exchange-Traded Derivatives for which the
underlying reference asset is not a Principal Investment.\42\
---------------------------------------------------------------------------

    \40\ No more than 10% of the Fund's total assets will be
invested in exchange-listed securities or Exchange-Traded
Derivatives that are listed on an exchange that is not an ISG-member
or an exchange with which the Exchange does not have a comprehensive
surveillance sharing agreement. See infra ``Investment
Restrictions.''
    \41\ The Fund's investment in U.S. or foreign fixed income or
preferred securities would include contingent convertible
securities, which are also referred to as ``CoCos.'' CoCos are fixed
income instruments that are convertible into equity if a pre-
specified trigger event occurs. The type of event that causes a CoCo
to be convertible occurs when capital of the issuer falls below a
designated threshold. The Fund will limit investments in convertible
securities to 20% of the Fund's assets under Normal Market
Conditions.
    \42\ Investments in OTC Derivatives and Exchange-Traded
Derivatives will also be subject to the limitations described in the
``The Fund's Use of Derivatives'' section below. As is the case with
respect to the Fund's investments in OTC Derivatives and Exchange-
Traded Derivatives for which the underlying reference asset is a
Principal Investment, the Fund will invest in OTC Derivatives and
Exchange-Traded Derivatives whose underlying reference asset is not
a Principal Investment in order to (i) provide exposure to non-
Principal Investments instruments; (ii) to risk manage the Fund's
holdings; and/or (iii) to enhance returns.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    The types of derivatives in which the Fund may invest and the
reference assets for such derivatives are described in greater detail
in ``Principal Investments'' and ``Other Investments'' above. Exchange-
Traded Derivatives will primarily be traded on exchanges that are ISG
members or exchanges with which the Exchange has a comprehensive
surveillance sharing agreement. The Fund may, however, invest up to 10%
of the assets of the Fund in Exchange-Traded Derivatives and exchange-
listed, securities whose principal market is not a member of ISG or a
market with which the Exchange has a comprehensive surveillance sharing
agreement. For purposes of this 10% limit, the weight of such Exchange-
Traded Derivatives will be calculated based on the mark-to-market value
of such Exchange-Traded Derivatives.
    The Fund will limit the weight of its investments in OTC
Derivatives to 10% of the assets of the Fund, with the exception of
Interest Rate Derivatives \43\ and Currency Derivatives \44\ (together,
``Interest Rate and Currency Derivatives'') entered into with broker-
dealers, banks and other financial intermediaries. Investments in
Interest Rate and Currency Derivatives (whether the instruments are
Exchange-Traded Derivatives or OTC Derivatives) will not be subject to
a limit. The Exchange believes that this exception, which is generally
consistent with the requirement in a previous filing for the listing of
an ETF approved by the Commission,\45\ is appropriate in light of the
fact that Interest Rate and Currency Derivatives are among the most
liquid investment instruments (including not only derivatives but also
securities) in the market \46\ (and are even more liquid than most non-
government or government-guaranteed securities). Based on the data
compiled by the Sub-Adviser in respect to its liquidity policy, these
derivatives are among the most liquid investments traded. In addition,
most Interest Rate Derivatives traded by the Fund are centrally cleared
by regulated clearing firms, and Interest Rate and Currency Derivatives
are

subject to trade reporting,\47\ and other robust regulation.\48\ Given
the size of the trading market and the regulatory oversight of the
markets, the Exchange believes that Interest Rate and Currency
Derivatives are not readily subject to manipulation. The Exchange also
believes that allowing the Fund to risk manage its portfolio through
the use of Interest Rate and Currency Derivatives without limit is
necessary to allow the Fund to achieve its investment objective and
protect investors.
---------------------------------------------------------------------------

    \43\ ``Interest Rate Derivatives'' are comprised of interest
rate swaps, swaptions (i.e., options on interest rate swaps), rate
options and other similar derivatives, and may be Exchange-Traded
Derivatives or OTC Derivatives. As reflected in statistics compiled
by the Bank for International Settlements, as of June 30, 2017 there
were approximately $416 trillion (notional amount) of total interest
rate contracts outstanding in the over-the-counter markets alone. As
reflected by the statistics, the market is wide, deep and liquid.
See https://www.bis.org/statistics/d7.pdf (accessed November 2017).
Interest Rate Derivatives may trade on trading platforms that are
not ISG members or that are not subject to a comprehensive
surveillance sharing agreement with the Exchange. Holdings in
Exchange-Traded Derivatives (together with exchange-listed
securities) that are listed on an exchange that is not an ISG member
or on a market with which the Exchange does not have a comprehensive
surveillance sharing agreement are limited to 10% of the Fund's
assets.
    \44\ ``Currency Derivatives'' are comprised of deliverable
forwards, which are agreements between the contracting parties to
exchange a specified amount of currency at a specified future time
at a specified rate, non-deliverable forwards, which are agreements
to pay the difference between the exchange rates specified for two
currencies at a future date, swaps and options on currencies, and
similar currency or foreign exchange derivatives. As reflected in
statistics compiled by the Bank for International Settlements, as of
June 30, 2017 there were approximately $77 trillion (notional
amount) of Currency Derivatives outstanding in the over-the-counter
markets alone. As reflected by the statistics, the market is wide,
deep and liquid. See https://www.bis.org/statistics/d6.pdf (accessed
November 2017). Currency Derivatives may trade on trading platforms
that are not ISG members or that are not subject to a comprehensive
surveillance sharing agreement with the Exchange. Holdings in
Exchange-Traded Derivatives (together with exchange-listed
securities) that are listed on an exchange that is not an ISG member
or on a market with which the Exchange does not have a comprehensive
surveillance sharing agreement are limited to 10% of the Fund's
assets.
    \45\ See Securities Exchange Act Release No. 80657 (May 11,
2017), 82 FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (approving
up to 50% of the fund's assets (calculated on the basis of aggregate
gross notional value) to be invested in over-the-counter derivatives
that are used to reduce currency, interest rate, or credit risk
arising from the fund's investments, including forwards, over-the-
counter options, and over-the-counter swaps).
    \46\ Trading in foreign exchange markets averaged $5.1 trillion
per day in April 2016, and 67% of this trading activity was in
derivatives contracts such as currency or foreign exchange forwards,
options and swaps (with the other 33% consisting of spot
transactions). See Bank for International Settlements, Triennal
[sic] Central Bank Survey, Foreign Exchange Turnover in April 2016,
available at http://www.bis.org/publ/rpfx16fx.pdf (accessed November
2017). Trading in OTC interest rate derivatives averaged $2.7
trillion per day in April 2016. See Bank for International
Settlements, Triennal [sic] Central Bank Survey, OTC Interest Rate
Derivatives Turnover in April 2016, available at http://www.bis.org/publ/rpfx16ir.pdf (accessed November 2017).
    \47\ Transactions in Interest Rate and Currency Derivatives are
required to be reported to a swap data repository, and transactions
in Interest Rate Derivatives and certain Currency Derivatives (i.e.,
Currency Derivatives that are not excluded from the definition of a
``swap'', as described below) are also publicly reported pursuant to
rules issued by the Commodity Futures Trading Commission (``CFTC'').
See 17 CFR parts 43, 45 and 46. Pursuant to Section 1(a)(47)(E) of
the CEA and a related determination by the Department of the
Treasury, physically-settled Currency Derivatives that meet the
definition of ``foreign exchange forwards'' or ``foreign exchange
swaps'' under Sections 1a(24)-(25) of the CEA that are entered into
between eligible contract participants (as defined in the CEA)
(``Excluded Currency Derivatives'') are excluded from the definition
of a ``swap'' under the CEA. See Determination of Foreign Exchange
Swaps and Foreign Exchange Forwards Under the Commodity Exchange
Act, 77 FR 69694 (Nov. 20, 2012). Transactions in such Excluded
Currency Derivatives are required to be reported to a swap data
repository, but they are not subject to the public reporting
requirements.
    \48\ Interest Rate Derivatives and Currency Derivatives other
than Excluded Currency Derivatives are comprehensively regulated as
swaps under the CEA and regulations issued thereunder by the CFTC
and other federal financial regulators. See, e.g., 17 CFR part 23
(capital and margin requirements for swap dealers, business conduct
standards for swap dealers, and swap documentation requirements); 17
CFR part 50 (clearing requirements for swaps). While Excluded
Currency Derivatives are not subject to all swap regulations, they
are subject to the ``business conduct standards'' adopted by the
CFTC pursuant to the CEA. See Section 1(a)(47)(E) of the CEA;
Determination of Foreign Exchange Swaps and Foreign Exchange
Forwards Under the Commodity Exchange Act, 77 FR 69694 (Nov. 20,
2012).
---------------------------------------------------------------------------

    For purposes of the 10% limit applicable generally to OTC
Derivatives (other than Interest Rate and Currency Derivatives), the
weight of such OTC Derivatives will be calculated based on the mark-to-
market value of such OTC Derivatives.\49\ The mark-to-market
methodology is consistent with the methodology proposed by the SEC in
proposed Rule 18f-4 for the purposes of asset coverage requirements
\50\ and in keeping with disclosures regarding compliance with Section
18 of the 1940 Act made by other registered investment companies and
reviewed by the SEC staff for a number of years.\51\ In that regard,
the SEC expressly noted in the Derivatives Rule Proposing Release that
reliance on a mark-to-market valuation of a derivatives position for
purposes of calculating the required coverage amount ``would generally
correspond to the amount of the fund's liability with respect to the
derivatives transaction'' and, therefore, be consistent with the
appropriate valuation of the derivatives transaction.\52\ The mark-to-
market value is also the measure on which collateral posting is based
under the Master Agreement published by the International Swaps and
Derivatives Association, Inc. (``ISDA''), which is the predominant
agreement used to trade derivatives.\53\ This value measures gain and
loss to the Fund of the Fund's derivatives positions on a daily basis,
as well as on a net basis across all transactions covered by a master
netting agreement and, as a result, accurately reflects the actual
economic exposure of the Fund to the counterparty on each derivative
(as compared to notional amount, which may overstate or understate
economic risk).
---------------------------------------------------------------------------

    \49\ The mark-to-market value reflects the Fund's actual
delivery or payment obligation under the derivative. This measure
differs from that referenced in Nasdaq Rule 5735(b)(1)(E), which
bases its 20% limit of assets in the portfolio applicable for funds
issuing Managed Fund Shares on the aggregate gross national value of
the over-the-counter derivatives rather than on the mark-to-market
value.
    \50\ See Derivatives Rule Proposing Release at 157-158; see also
infra note 107.
    \51\ See Derivatives Rule Proposing Release at n.58, citing
Comment Letter on SEC Concept Release (November 11, 2011) (File No.
S7-33-11), Davis Polk & Wardwell LLP, available at http://www.sec.gov/comments/s7-33-11/s73311-49.pdf (``[F]und registration
statements indicate that, in recent years, the Staff has not
objected to the adoption by funds of policies that require
segregation of the mark-to-market value, rather than the notional
amount . . . [for asset segregation purposes].'').
    \52\ See Derivatives Rule Proposing Release at 157-158.
    \53\ The Credit Support Annex to the ISDA Master Agreement bases
the collateral amount owed by a party to a derivatives contract,
which is defined as a party's ``exposure,'' by reference to the
replacement value of the party's net positions. Replacement value,
which has the same meaning as ``mark-to-market'' value, is the
amount owed by a party at a point in time determined based on the
net termination payment due under the outstanding transaction.
---------------------------------------------------------------------------

    The Fund may choose not to make use of derivatives.
    Generally, derivatives are financial contracts whose value depends
upon, or is derived from, the value of an underlying asset, reference
rate or index, and may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, commodities, and related
indexes. As described above, the Fund will use derivatives to (i)
provide exposure to the Principal Investments, (ii) risk manage the
Fund's holdings,\54\ and/or (iii) enhance returns, such as through
covered call strategies. The Fund will not use derivatives for the
purpose of seeking leveraged returns or performance that is the
multiple or inverse multiple of a benchmark. The Fund will enter into
derivatives only with counterparties that the Fund reasonably believes
are financially and operationally able to perform the contract or
instrument, and the Fund will collect collateral from the counterparty
in accordance with credit considerations and margining requirements
under applicable law.\55\
---------------------------------------------------------------------------

    \54\ The risk management uses of derivatives will include
managing (i) investment-related risks, (ii) risks due to
fluctuations in securities prices, interest rates, or currency
exchanges rates, (iii) risks due to the credit-worthiness of an
issuer, and (iv) the effective duration of the Fund's portfolio.
    \55\ The Fund will seek, where practicable, to trade with
counterparties whose financial status is such that the risk of
default is reduced. The Sub-Adviser will monitor the financial
standing of counterparties on an ongoing basis. This monitoring may
include reliance on information provided by credit agencies or of
credit analysts employed by the Sub-Adviser. The analysis may
include earnings updates, the counterparty's reputation, past
experience with the dealer, market levels for the counterparty's
debt and equity, credit default swap levels for the counterparty's
debt, the liquidity provided by the counterparty and its share of
market participation.
---------------------------------------------------------------------------

    Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies. To limit the potential risk (including leveraging risk)
associated with such transactions, the Fund will segregate or
``earmark'' assets determined to be liquid by the Manager and/or the
Sub-Adviser in accordance with procedures established by the Board and
in accordance with the 1940 Act (or, as permitted by applicable
regulation, enter into offsetting positions) to cover its obligations
under derivative instruments. These procedures have been adopted
consistent with Section 18 of the 1940 Act and related Commission
guidance. In addition, the Fund will include appropriate risk
disclosure in its offering documents, including leveraging risk.
Leveraging risk is the risk that transactions of the Fund, including
the Fund's use of derivatives, may give rise to additional leverage,
causing the Fund to be more volatile than it would have if it had not
been leveraged. Because the markets for securities or Debt, or the
securities or Debt themselves, may be unavailable, cost prohibitive or
tax-inefficient as compared to derivative instruments, suitable
derivative transactions may be an efficient alternative for the Fund to
obtain the desired asset exposure.
    The Manager and the Sub-Adviser believe that derivatives can be an
economically attractive substitute for an underlying physical security
or Debt that the Fund would otherwise

purchase. For example, the Fund could purchase futures contracts on
Treasury Securities instead of investing directly in Treasury
Securities or could sell credit default protection on a corporate bond
instead of buying a physical bond. Economic benefits include
potentially lower transactions costs, attractive relative valuation of
a derivative versus a physical bond (e.g., differences in yields) or
economic exposure without incurring transfer or similar taxes.
    The Manager and the Sub-Adviser further believe that derivatives
can be used as a more liquid means of adjusting portfolio duration, as
well as targeting specific areas of yield curve exposure, with
potentially lower transaction costs than the underlying securities or
Debt (e.g., interest rate swaps may have lower transaction costs than
the physical bonds). Similarly, money market futures can be used to
gain exposure to short-term interest rates in order to express views on
anticipated changes in central bank policy rates. In addition,
derivatives can be used to protect client assets through selectively
hedging downside (or ``tail risks'') in the Fund.
    The Fund also can use derivatives to increase or decrease credit
exposure. Index credit default swaps can be used to gain exposure to a
basket of credit risk by ``selling protection'' against default or
other credit events, or to hedge broad market credit risk by ``buying
protection.'' Single name credit default swaps can be used to allow the
Fund to increase or decrease exposure to specific issuers, saving
investor capital through lower trading costs. The Fund can use total
return swap contracts to obtain the total return of a reference asset
or index in exchange for paying financing costs. A total return swap
may be more efficient than buying underlying securities or Debt,
potentially lowering transaction costs.
    The Fund expects to manage foreign currency exchange rate risk by
entering into Currency Derivatives.
    The Sub-Adviser may use options strategies to meet the Fund's
investment objectives. Option purchases and sales can also be used to
hedge specific exposures in the portfolio and can provide access to
return streams available to long-term investors such as the persistent
difference between implied and realized volatility. Options strategies
can generate income or improve execution prices (e.g., covered calls).
Investment Restrictions
    At least 75% of the Fund's investments in Debt and fixed income
securities shall have a minimum principal amount outstanding of $100
million or more. In addition, consistent with the Fund's Registration
Statement, the following diversification requirements will apply:
During Normal Market Conditions, the Fund: (i) Will not invest more
than 25% of its total assets in securities or Debt in any one foreign
country, other than the United States, Canada, the United Kingdom,
Japan, Australia and member countries of the European Union, or
denominated in any one currency, other than the U.S. dollar, the
Canadian dollar, the British pound, the yen, the Australian dollar, or
the euro; and (ii) will have ``economic exposure'' to at least three
countries. ``Economic exposure'' means an issuer of a security or a
borrower in respect to Debt: (A) Will have a class of securities whose
principal securities market is in the country; (B) is organized under
the laws of, or has a principal office in, the country; (iii) [sic]
derives 50% or more of its total revenue or profit from goods produced,
sales made or services provided in the country; or (D) maintains 50% of
more of its assets in that country.
    The Fund may invest up to 15% of its assets in Non-Convertible
Preferred Securities, Equity-Related Warrants and Work Out Securities.
The Fund will not invest in equity securities other than Principal
Investment Equities.\56\ Principal Investment Equities consist of (i)
Non-Convertible Preferred Securities, Equity-Related Warrants and Work
Out Securities, which are subject to the 15% limit noted above and (ii)
shares of ETFs that provide exposure to fixed income securities, Debt
or other Principal Investments, which are subject to no limits.
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    \56\ The convertible fixed income securities (including CoCos)
and convertible preferred securities will comply with the tests set
forth in Nasdaq Rule 5735(b)(1)(B) and will be limited to 20% of the
total assets of the Fund. In addition, no more than 10% of such
convertible fixed income and convertible preferred securities or
Exchange Traded Derivatives on such securities, together with all
other listed securities and Exchange Traded Derivatives in which the
Fund will invest, will be traded on an exchange that is not an ISG
member or an exchange with which the Exchange has comprehensive
surveillance sharing agreement.
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    While the Fund will invest principally in fixed income securities
and Debt that are, at the time of purchase, investment grade, the Fund
may invest up to 30% of its assets in below investment grade fixed
income securities and Debt. For these purposes, ``investment grade'' is
defined as investments with a rating at the time of purchase in one of
the four highest rating categories of at least one nationally
recognized statistical ratings organization (``NRSRO'') (e.g., BBB- or
higher by S&P Global Ratings (``S&P''), and/or Fitch Ratings
(``Fitch''), or Baa3 or higher by Moody's Investors Service, Inc.
(``Moody's'')).\57\ Unrated fixed income securities or Debt may be
considered investment grade if, at the time of purchase, and under
Normal Market Conditions, the applicable Sub-Adviser determines that
such securities are of comparable quality based on a fundamental credit
analysis of the unrated security or Debt instrument and comparable
NRSRO-rated securities.
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    \57\ For the avoidance of doubt, if a security or Debt is rated
by multiple NRSROs and receives different ratings, the Fund will
treat the security or Debt as being rated in the highest rating
category received from any one NRSRO. If a security or Debt is not
rated, the Fund may determine its rating by reference to other
securities issued by the issuer or comparable NRSRO-rated
securities.
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    The Fund may invest in fixed income or equity securities and Debt
issued by both U.S. and non-U.S. issuers (including issuers in emerging
markets [sic]. Consistent with the Fund's Registration Statement, the
following diversification requirements will apply: During Normal Market
Conditions, the Fund: (i) Will not invest more than 25% of its total
assets in securities or Debt in any one foreign country, other than the
United States, Canada, the United Kingdom, Japan, Australia and member
countries of the European Union, or denominated in any one currency,
other than the U.S. dollar, the Canadian dollar, the British pound, the
yen, the Australian dollar, or the euro; and (ii) will have ``economic
exposure'' to at least three countries. ``Economic exposure'' means
that an issuer of a security or a borrower in respect to Debt: (A) Will
have a class of securities whose principal securities market is in the
country; (B) is organized under the laws of, or has a principal office
in, the country, (iii) [sic] derives 50% or more of its total revenue
or profit from goods produced, sales made or services provided in the
country, or (D) maintains 50% of more of its assets in that country.
See infra ``Investment Restrictions.'' [sic]
    The Fund will not invest more than 20% of the fixed income portion
of the Fund's portfolio \58\ in ABS/Private MBS or more than 10% of the
Fund's total

assets in CDOs.\59\ The Fund will also not invest more than 20% of its
total assets in Debt that is unsecured and subordinated.
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    \58\ The Exchange notes that the terms ``fixed income weight of
the portfolio'' and ``weight of the fixed income portion of the
portfolio'' are used synonymously in Nasdaq Rule 5735. For purposes
of this proposed rule change, the ``fixed income weight of the
Fund's portfolio'' includes all fixed income securities (including
convertible fixed income and preferred securities, even though such
instruments are not Principal Investments) and Debt held by the Fund
and excludes equity securities (including ETFs), derivatives and
cash and cash equivalents.
    \59\ As discussed above, CDOs would be excluded from the 20%
limit on ABS/Private MBS but would be subject to a separate limit of
10%, measured with respect to the total assets of the Fund. See
supra note 31. The Exchange believes that the 10% limit on the
Fund's holdings in CDOs will help to ensure that the Fund maintains
a diversified portfolio and will mitigate the risk of manipulation.
---------------------------------------------------------------------------

    The Fund may not concentrate its investments (i.e., invest more
than 25% of the value of its total assets) in Debt of borrowers in any
one industry or in fixed income or equity securities of issuers in any
one industry as provided in the Registration Statement.\60\ The Fund
may hold up to an aggregate amount of 15% of its net assets in illiquid
assets (calculated at the time of investment),\61\ including Rule 144A
securities deemed illiquid by the Manager or the Sub-Adviser.\62\ 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 securities or other illiquid assets.
Illiquid securities and other illiquid assets include those subject to
contractual or other restrictions on resale and other instruments or
assets that lack readily available markets as determined in accordance
with Commission staff guidance.\63\
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    \60\ 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). For these purposes and as described
above, Debt is comprised of loans that do not constitute securities
(consistent with applicable case law) whereas fixed income
securities would include loans and other fixed income instruments
that are characterized as securities under applicable case law. See
supra note 32.
    \61\ See Rule 22e-4(b)(1)(iv). ``No fund or In-Kind ETF may
acquire any illiquid investment if, immediately after the
acquisition, the fund or In-Kind ETF would have invested more than
15% of its net assets in illiquid investments that are assets.''
(emphasis added)
    \62\ In reaching liquidity decisions, the Manager or Sub-Adviser
(as applicable) 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 in
which it trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer).
    \63\ Long-standing Commission guidelines have required
investment companies 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 Nos. 5847
(October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement
Regarding ``Restricted Securities''); and 18612 (March 12, 1992), 57
FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N-1A). The
Commission also recently adopted Rule 22e-4 under the 1940 Act,
which requires that each registered open-end management investment
company, including ETFs but not including money market mutual funds,
to establish a liquidity risk management program that includes
limitations on illiquid investments. See Investment Company Act
Release No. 32315 (October 13, 2016), 81 FR 82142 (November 18,
2016). Under Rule 22e-4, a fund's portfolio security is illiquid if
it cannot be sold or disposed of in current market conditions in
seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. See 17
CFR 270.22e-4(a)(8).
---------------------------------------------------------------------------

    As noted in ``The Fund's Use of Derivatives,'' the Fund's
investments in derivatives will be consistent with the Fund's
investment objective and will not be used for the purpose of seeking
leveraged returns or performance that is the multiple or inverse
multiple of a benchmark (although derivatives have embedded leverage).
Although the Fund will be permitted to borrow as permitted under the
1940 Act, it will not be operated as a ``leveraged ETF,'' (i.e., it
will not be operated in a manner designed to seek a multiple or inverse
multiple of the performance of an underlying reference index). The Fund
may engage in frequent and active trading of portfolio securities,
Debt, and derivatives to achieve its investment objective.
    Under Normal Market Conditions, the Fund will satisfy the following
requirements, on a continuous basis measured at the time of purchase:
(i) Component fixed income securities and Debt that in the aggregate
account for at least 75% of the fixed income weight of the Fund's
portfolio each shall have a minimum original principal amount
outstanding of $100 million or more; (ii) no fixed income security held
in the portfolio (excluding Treasury Securities and GSE-sponsored
securities) will represent more than 30% of the fixed income weight of
the Fund's portfolio, and the five most heavily weighted portfolio
securities (excluding Treasury Securities and GSE-sponsored securities)
will not in the aggregate account for more than 65% of the fixed income
weight of the Fund's portfolio; and (iii) the Fund's portfolio of fixed
income securities (excluding exempted securities) will include a
minimum of 13 non-affiliated issuers.\64\ Under Normal Market
Conditions, the Fund will also satisfy the following requirements, on a
continuous basis measured at the time of purchase: (x) At least 75% of
the Fund's investments in fixed income securities issued by emerging
market issuers shall have a minimum original principal amount
outstanding of $200 million or more; and (y) at least 75% of the Fund's
investments in Debt shall be in senior loans with an initial deal size
of $100 million or greater.\65\
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    \64\ These requirements are consistent with the ``generic''
listing requirements under Nasdaq Rule 5735(b)(1)(B)(i)-(iii), which
require: (i) For fixed income securities, that components that in
the aggregate account for at least 75% of the fixed income weight of
the portfolio each have a minimum principal amount outstanding of
$100 million or more (see Nasdaq Rule 5735(b)(1)(B)(i)); (ii) for
component fixed-income securities (excluding Treasury Securities and
GSE-sponsored securities) that no component represent more than 30%
of the fixed income weight of the portfolio (see Nasdaq Rule
5735(b)(1)(B)(ii)); (iii) that the five most heavily weighted
component fixed income securities in the portfolio (excluding
Treasury Securities and GSE-sponsored securities) not in the
aggregate account for more than 65% of the fixed income weight of
the portfolio) (see Rule 5735(b)(1)(B)(ii)); and (iv) that an
underlying portfolio (excluding exempted securities) that includes
fixed income securities include a minimum of 13 non-affiliated
issuers (see Nasdaq Rule 5735(b)(1)(B)(iii)). Nasdaq Rule
5735(b)(1)(B)(iv) includes the following requirement: Component
securities that in aggregate account for at least 90% of the fixed
income weight of the portfolio must be either: (a) From issuers that
are required to file reports pursuant to Sections 13 and 15(d) of
the Act; (b) from issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (c) from issuers that have outstanding securities that are
notes, bonds, debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; (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. Nasdaq Rule 5735(b)(1)(B)(v)
requires: non-agency, non-GSE and privately-issued mortgage-related
and other asset-backed securities components of a portfolio shall
not account, in the aggregate, for more than 20% of the weight of
the fixed income portion of the portfolio.
    \65\ The Exchange notes that Nasdaq Rule 5735(b)(1)(F) provides
that, to the extent that derivatives are used to gain exposure to
individual fixed income securities or indexes of fixed income
securities, the aggregate gross notional value of such exposure
shall meet the criteria set forth in Nasdaq Rule 5735(b)(1)(B). The
Exchange proposes, however, as further described below, that for the
purposes of the requirements in this paragraph and any requirements
under Nasdaq Rule 5735(b)(1), the Fund will use the mark-to-market
value of its derivatives rather than gross notional value.
---------------------------------------------------------------------------

    Those exchange-listed securities and Exchange-Traded Derivatives
held by the Fund that are listed and traded on a non-ISG member
exchange or an exchange with which the Exchange does not have a
comprehensive surveillance sharing agreement are limited to 10% of the
Fund's assets.
    In addition, the Fund will impose the limits described in the
following section, which describes differences between the ``generic''
listing requirements of Nasdaq Rule 5735(b)(1) and those applicable to
the Fund.

Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the
Fund will not meet all of the ``generic'' listing requirements of
Nasdaq Rule 5735(b)(1). The Fund will meet all such requirements except
the requirements described below,\66\ and the Exchange proposes that
the Fund will comply with the alternative limits described below.
---------------------------------------------------------------------------

    \66\ The Exchange notes that, while the Fund treats commercial
paper having maturities of 360 days or less as cash equivalents for
the purposes of its 80% Principal Investments measure, the Fund will
comply with the applicable requirements of Nasdaq Rule 5735(b)(1)
with respect to all commercial paper held by the Fund. Further, in
accordance with Nasdaq Rule 5735(b)(1)(B), to the extent that the
Fund holds securities that are convertible into fixed income
securities, the fixed income securities into which any such
securities are converted shall meet the criteria of Nasdaq Rule
5735(b)(1)(B) after converting.
---------------------------------------------------------------------------

    (i) The Fund will not comply with the requirements in Nasdaq Rule
5735(b)(1) regarding the use of aggregate gross notional value of
derivatives when calculating the weight of such derivatives or the
exposure that such derivatives provide to underlying reference assets,
including the requirements in Rules 5735(b)(1)(D)(i),\67\
5735(b)(1)(D)(ii),\68\ 5735(b)(1)(E) \69\ and 5735(b)(1)(F).\70\
Instead, the Exchange proposes that, except as otherwise provided
herein, for the purposes of any applicable requirements under Nasdaq
Rule 5735(b)(1), and any alternative requirements proposed by the
Exchange, the Fund will use the mark-to-market value of its derivatives
in calculating the weight of such derivatives or the exposure that such
derivatives provide to their reference assets.\71\ The Exchange
believes that this alternative requirement is appropriate because the
mark-to-market value is a more accurate measurement of the actual
exposure incurred by the Fund in connection with a derivatives
position.\72\
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    \67\ Nasdaq Rule 5735(b)(1)(D)(i) provides that, at least 90% of
the weight of a portfolio's holdings invested in futures, exchange-
traded options, and listed swaps shall, on both an initial and
continuing basis, consist of futures, options and swaps for which
the Exchange may obtain information via the ISG, from other members
or affiliates of the ISG, or for which the principal market is a
market with which the Exchange has a comprehensive surveillance
sharing agreement; for the purposes of calculating this limitation,
a portfolio's investment in such listed derivatives will be
calculated as the aggregate gross notional value of the listed
derivatives.
    \68\ Nasdaq Rule 5735(b)(1)(D)(ii) provides that, the aggregate
gross notional value of listed derivatives based on any five or
fewer underlying reference assets shall not exceed 65% of the weight
of the portfolio (including gross notional exposures), and the
aggregate gross notional value of listed derivatives based on any
single underlying reference asset shall not exceed 30% of the weight
of the portfolio (including gross notional exposures).
    \69\ Nasdaq Rule 5735(b)(1)(E) provides that, on both an initial
and continuing basis, no more than 20% of the assets in the
portfolio may be invested in over-the-counter derivatives, including
forwards, options, and swaps on commodities, currencies and
financial instruments (e.g., stocks, fixed income, interest rates,
and volatility) or a basket or index of any of the foregoing; for
purposes of calculating this limitation, the Fund's investment in
OTC Derivatives will be calculated as the aggregate gross notional
value of the OTC Derivatives.
    \70\ Nasdaq Rule 5735(b)(1)(F) provides that, to the extent that
listed or over-the-counter derivatives are used to gain exposure to
individual equities and/or fixed income securities, or to indexes of
equities and/or indexes of fixed income securities, the aggregate
gross notional value of such exposure shall meet the criteria set
forth in Nasdaq Rules 5735(b)(1)(A) and 5735(b)(1)(B), respectively.
    \71\ Further, as described further below, the Exchange is
proposing that the Fund will comply with alternative requirements
rather than Rules 5735(b)(1)(D)(i), 5735(b)(1)(D)(ii), and
5735(b)(1)(E).
    \72\ See infra note 107.
---------------------------------------------------------------------------

    (ii) The Fund will not comply with the requirement that securities
comprising at least 90% of the fixed income weight of the Fund's
portfolio meet one of the criteria in Nasdaq Rule 5735(b)(1)(B)(iv) in
respect to its investments in ABS/Private MBS.\73\ Instead, ABS/Private
MBS will be limited to 20% of the weight of the fixed income portion of
the Fund's portfolio.\74\ Other than ABS/Private MBS, which will not
meet the criteria in Nasdaq Rule 5735(b)(1)(B)(iv) but will be subject
to the 20% limit on aggregate holdings in ABS/Private MBS, all fixed
income securities held by the Fund (which, for purposes of this
proposed rule change, include convertible fixed income and preferred
securities (including CoCos)) will satisfy this 90% requirement. As a
result, other than ABS/Private MBS, which will not satisfy the 90%
requirement, and CDOs, which will be excluded from the requirement in
Nasdaq Rule 5735(b)(1)(B)(v) and, instead, be limited to 10% of the
total assets of the Fund, all fixed income securities held by the Fund
will comply with all of the requirements of Nasdaq Rule
5735(b)(1)(B)(i)-(v). The Exchange believes that this exception is
appropriate for the reasons stated below in this proposed rule
change.\75\
---------------------------------------------------------------------------

    \73\ Nasdaq Rule 5735(b)(1)(B)(iv) provides that, component
securities that in the aggregate account for at least 90% of the
fixed income weight of the portfolio must be either: (a) From
issuers that are required to file reports pursuant to Sections 13
and 15(d) of the Act; (b) from issuers that have a worldwide market
value of its outstanding common equity held by non-affiliates of
$700 million or more; (c) from issuers that have outstanding
securities that are notes, bonds debentures, or evidence of
indebtedness having a total remaining principal amount of at least
$1 billion; (d) exempted securities as defined in Section 3(a)(12)
of the Act; or (e) from issuers that are a government of a foreign
country or a political subdivision of a foreign country.
    \74\ ABS/Private MBS are generally issued by special purpose
vehicles, so the criteria in Nasdaq Rule 5735(b)(1)(B)(iv) regarding
an issuer's market capitalization and the remaining principal amount
of an issuer's securities are typically unavailable with respect to
ABS/Private MBS, even though such ABS/Private MBS may own
significant assets.
    \75\ See infra ``Statutory Basis.''
---------------------------------------------------------------------------

    (iii) The Exchange has classified bank loans as Debt for purposes
of this proposed rule change and not as ``fixed income securities'' as
they are classified in Nasdaq Rule 5735(b)(1)(B). As a result, the
Fund's investments in bank loans will comply with the limitations or
restrictions applicable to the Fund's investments in Debt as set forth
herein with respect to such holdings and not with the restrictions for
fixed income securities set forth in Nasdaq Rule 5735(b)(1)(B)(i)-
(v).\76\ The Exchange believes that this exception is appropriate for
the reasons stated below in this proposed rule change.\77\
---------------------------------------------------------------------------

    \76\ For a listing of such restrictions, see supra ``Investment
Restrictions.''
    \77\ See infra ``Statutory Basis.''
---------------------------------------------------------------------------

    (iv) The Fund will not comply with the equity requirements in
Nasdaq Rules 5735(b)(1)(A)(i) \78\ and

5735(b)(1)(A)(ii) \79\ with respect to the Fund's investment in Non-
Convertible Preferred Securities, Work Out Securities, and
warrants.\80\ Instead, the Exchange proposes that (i) the Fund's
investments in convertible fixed income and preferred securities shall
be limited to 20% of the Fund's portfolio; and (ii) the weight of Non-
Convertible Preferred Securities, Work Out Securities and Equity-
Related Warrants in the Fund's portfolio shall together not exceed 15%
of the Fund's assets. The Exchange believes that these alternative
limitations are appropriate in light of the fact that the Non-
Convertible Preferred Securities, Equity Related Warrants and Work Out
Securities are providing debt-oriented exposures or are received in
connection with the Fund's previous investment in Debt or fixed income
securities, and all of the other equity securities held by the Fund
will comply with the requirements of Nasdaq Rule 5735(b)(1)(A).\81\
---------------------------------------------------------------------------

    \78\ Nasdaq Rule 5735(b)(1)(A)(i) provides that, the components
stocks of the equity portion of a portfolio that are U.S. Component
Stocks (as such term is defined in Nasdaq Rule 5705) shall meet the
following criteria initially and on a continuing basis: (a)
Component stocks (excluding Exchange Traded Derivative Securities
and Linked Securities, as such terms are defined in Nasdaq Rules
5735(c)(6) and 5710, respectively) that in the aggregate account for
at least 90% of the equity weight of the portfolio (excluding such
Exchange Traded Derivative Securities and Linked Securities, as such
terms are defined in Nasdaq Rules 5735(c)(6) and 5710, respectively)
each shall have a minimum market value of at least $75 million; (b)
Component stocks (excluding Exchange Traded Derivative Securities
and Linked Securities, as such terms are defined in Nasdaq Rules
5735(c)(6) and 5710, respectively) that in the aggregate account for
at least 70% of the equity weight of the portfolio (excluding such
Exchange Traded Derivative Securities and Linked Securities, as such
terms are defined in Nasdaq Rules 5735(c)(6) and 5710, respectively)
each shall have a minimum monthly trading volume of 250,000 shares,
or minimum notional volume traded per month of $25,000,000, averaged
over the last six months; (c) The most heavily weighted component
stock (excluding Exchange Traded Derivative Securities and Linked
Securities, as such terms are defined in Nasdaq Rules 5735(c)(6) and
5710, respectively) shall not exceed 30% of the equity weight of the
portfolio, and, to the extent applicable, the five most heavily
weighted component stocks (excluding Exchange Traded Derivative
Securities and Linked Securities, as such terms are defined in
Nasdaq Rules 5735(c)(6) and 5710, respectively) shall not exceed 65%
of the equity weight of the portfolio; (d) Where the equity portion
of the portfolio does not include Non-U.S. Component Stocks, the
equity portion of the portfolio shall include a minimum of 13
component stocks; provided, however, that there shall be no minimum
number of component stocks if (i) one or more series of Exchange
Traded Derivative Securities or Linked Securities, as such terms are
defined in Nasdaq Rules 5735(c)(6) and 5710, respectively,
constitute, at least in part, components underlying a series of
Managed Fund Shares (as defined in Nasdaq Rule 5735), or (ii) one or
more series of Exchange Traded Derivative Securities or Linked
Securities, as such terms are defined in Nasdaq Rule 5735(c)(6) and
5710, respectively, account for 100% of the equity weight of the
portfolio of a series of Managed Fund Shares; (e) except as
otherwise provided, equity securities in the portfolio shall be U.S.
Component Stocks listed on a national securities exchange and shall
be NMS Stocks as defined in Rule 600 of Regulation NMS under the
Act; and (f) American Depositary Receipts (``ADRs'') in a portfolio
may be exchange-traded or non-exchange-traded; however, no more than
10% of the equity weight of a portfolio shall consist of non-
exchange-traded ADRs.
    \79\ Nasdaq Rule 5735(b)(1)(A)(ii) provides that, the component
stocks of the equity portion of a portfolio that are Non-U.S.
Component Stocks (as such term is defined in Nasdaq Rule 5705) shall
meet the following criteria initially and on a continuing basis: (a)
Non-U.S. Component Stocks (as such term is defined in Nasdaq Rule
5705) each shall have a minimum market value of at least $100
million; (b) Non-U.S. Component Stocks (as such term is defined in
Nasdaq Rule 5705) each shall have a minimum global monthly trading
volume of 250,000 shares, or minimum global notional volume traded
per month of $25,000,000, averaged over the last six months; (c) The
most heavily weighted Non-U.S. Component Stock (as such term is
defined in Nasdaq Rule 5705) shall not exceed 25% of the equity
weight of the portfolio, and, to the extent applicable, the five
most heavily weighted Non-U.S. Component Stocks (as such term is
defined in Nasdaq Rule 5705) shall not exceed 60% of the equity
weight of the portfolio; (d) Where the equity portion of the
portfolio includes Non-U.S. Component Stocks (as such term is
defined in Nasdaq Rule 5705), the equity portion of the portfolio
shall include a minimum of 20 component stocks; provided, however,
that there shall be no minimum number of component stocks if (i) one
or more series of Exchange Traded Derivative Securities or Linked
Securities, as such terms are defined in Nasdaq Rules 5735(c)(6) and
5710, respectively, constitute, at least in part, components
underlying a series of Managed Fund Shares, or (ii) one or more
series of Exchange Traded Derivative Securities or Linked
Securities, as such terms are defined in Nasdaq Rules 5735(c)(6) and
5710, respectively, account for 100% of the equity weight of the
portfolio of a series of Managed Fund Shares; and (e) Each Non-U.S.
Component Stock (as such term is defined in Nasdaq Rule 5705) shall
be listed and traded on an exchange that has last-sale reporting.
    \80\ As noted above, convertible fixed income securities
(including CoCos) and convertible preferred securities are treated
as fixed income securities for purposes of this proposed rule
change. See supra section (ii).
    \81\ Other equities consist of ETFs (including money market
ETFs) that provide exposure to fixed income securities, Debt and
other Principal Investments. The weight of such ETFs in the Fund's
portfolio shall not be limited. As noted above, Fixed-Income Related
Warrants are treated as fixed income securities for purposes of this
proposed rule change and will be subject to and comply with the
generic listing requirements for fixed-income securities, rather
than the generic listing requirements for equity securities. See
supra note 23.
---------------------------------------------------------------------------

    (v) The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(E) that no more than 20% of the assets in the Fund's
portfolio may be invested in over-the-counter derivatives. Instead, the
Exchange proposes that there shall be no limit on the Fund's investment
in Interest Rate and Currency Derivatives, and the weight of all OTC
Derivatives other than Interest Rate and Currency Derivatives shall not
exceed 10% of the Fund's assets. For purposes of this 10% limit on OTC
Derivatives, the weight of such OTC Derivatives will be calculated
based on the mark-to-market value of such OTC Derivatives. The Exchange
believes that this exception for Interest Rate and Currency Derivatives
is appropriate for the reasons stated below in this proposed rule
change.\82\
---------------------------------------------------------------------------

    \82\ See infra notes 114-117 and accompanying text.
---------------------------------------------------------------------------

    (vi) The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(D)(i) that at least 90% of the weight of the Fund's holdings
in futures, exchange-traded options, and listed swaps shall, on both an
initial and continuing basis, consist of futures, options and swaps for
which the Exchange may obtain information via the ISG from other
members or affiliates of the ISG, or for which the principal market is
a market with which the Exchange has a comprehensive surveillance
sharing agreement. Instead, the Exchange proposes that no more than 10%
of the assets of the Fund will be invested in Exchange-Traded
Derivatives and exchange-listed securities whose principal market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement. For purposes of
this 10% limit, the weight of such Exchange-Traded Derivatives will be
calculated based on the mark-to-market value of such Exchange-Traded
Derivatives. The Exchange believes that this exception is appropriate
for the reasons stated below in this proposed rule change.\83\
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    \83\ See infra ``Statutory Basis.''
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    (vii) The Fund will not comply with the requirement in Nasdaq Rule
5735(b)(1)(D)(ii) that the aggregate gross notional value of listed
derivatives based on any five or fewer underlying reference assets
shall not exceed 65% of the weight of the Fund's portfolio (including
gross notional exposures), and the aggregate gross notional value of
listed derivatives based on any single underlying reference asset shall
not exceed 30% of the weight of the Fund's portfolio (including gross
notional exposures). Instead, the Exchange proposes that the Fund will
comply with the concentration requirements in Nasdaq Rule
5735(b)(1)(D)(ii) except with respect to the Fund's investment in
futures and options (including options on futures) referencing
eurodollars and sovereign debt issued by the United States (i.e.,
Treasury Securities) and other ``Group of Seven'' countries \84\ where
such futures and options contracts are listed on an exchange that is an
ISG member or an exchange with which the Exchange has a comprehensive
surveillance sharing agreement (``Eurodollar and G-7 Sovereign Futures
and Options''). The Fund may maintain significant positions in
Eurodollar and G-7 Sovereign Futures and Options, and such investments
will not be subject to the concentration limits provided in Nasdaq Rule
5735(b)(1)(D)(ii). For purposes of this requirement, the weight of the
applicable Exchange-Traded Derivatives will be calculated based on the
mark-to-market value of such Exchange-Traded Derivatives. The Exchange
believes that this exception is appropriate for the reasons stated
below in this proposed rule change.\85\
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    \84\ The ``Group of Seven'' or G-7 countries consist of the
United States, Canada, France, Germany, Italy, Japan and the United
Kingdom.
    \85\ See infra note 118 and accompanying text.
---------------------------------------------------------------------------

    The Exchange believes that, notwithstanding that the Fund would not
meet a limited number of ``generic'' listing requirements of Nasdaq
Rule 5735(b)(1) in order to be able to satisfy its investment
objective, the Exchange will be able to appropriately monitor and
surveil trading in the underlying investments, including those that do
not meet the ``generic'' listing requirements. The Exchange also notes
that the parameters around the Fund's portfolio holdings are generally
consistent with the parameters approved by the Commission prior to
adoption of ``generic'' listing requirements for

actively-managed ETFs.\86\ In addition, the Fund will be well
diversified. For these reasons, the Exchange believes that it is
appropriate and in the public interest to approve listing and trading
of Shares of the Fund on the Exchange.
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    \86\ See, e.g., Securities Exchange Act Release Nos. 76719
(December 21, 2015), 80 FR 80859 (December 28, 2015) (SR-NYSEArca-
2015-73) (granting approval for the listing of shares of the
Guggenheim Total Return Bond ETF); 66321 (February 3, 2012), 77 FR
6850 (February 9, 2012) (SR-NYSEArca-2011-95) (granting approval for
the listing of shares of the PIMCO Total Return Exchange Traded Fund
(now known as the PIMCO Active Bond Exchange-Traded Fund)); and
72666 (July 24, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-
2013-122) (granting approval to the use of derivatives by the PIMCO
Total Return Exchange Traded Fund). The investments of the
Guggenheim Total Return Bond ETF include a wide variety of U.S. and
foreign fixed income instruments (including Private ABS/MBS),
preferred securities, cash equivalents, other ETFs and listed and
over-the-counter derivatives and are managed in a manner that
appears to be generally consistent with that proposed for the Fund.
Consistent with the requests made in this proposed rule change, the
Commission's approval of the listing of shares of the Guggenheim
Total Return Bond ETF did not include many of the conditions imposed
by the generic listing standards under Nasdaq Rule 5735; the
Commission's approval did not impose limits regarding the total
notional size of the ETF's investment in over-the-counter
derivatives, did not impose concentration limits on the ETF's
investment in listed derivatives and did not require compliance with
the same criteria as the fixed income criteria in Nasdaq Rule
5735(b)(1)(B). The order approving investments in derivatives by the
PIMCO Total Return Exchange Traded Fund described investments in
both over-the-counter and listed derivatives, but did not impose
limits regarding the total notional size of the ETF's investments in
over-the-counter derivatives, did not impose concentration limits on
the ETF's investments in listed derivatives, and did not impose
limitations on investments in listed derivatives whose principal
market is not a member of ISG or is a market with which its listing
exchange does not have a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------

    As further described in ``Statutory Basis,'' deviations from the
generic requirements are necessary for the Fund to achieve its
investment objective and efficiently manage the risks associated with
its investments, and any possible risks have been fully mitigated and
addressed through the alternative limits proposed by the Exchange. In
addition, many of the changes requested are generally consistent with
previous filings approved by the Commission.\87\
---------------------------------------------------------------------------

    \87\ See, e.g., Securities Exchange Act Release Nos. 80657 (May
11, 2017), 82 FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09)
(approving up to 50% of the fund's assets (calculated on the basis
of aggregate gross notional value) to be invested in over-the-
counter derivatives that are used to reduce currency, interest rate,
or credit risk arising from the fund's investments, including
forwards, over-the-counter options, and over-the-counter swaps);
78592 (August 16, 2016), 81 FR 56729 (August 22, 2016) (SR-NASDAQ-
2016-061) (approving investment of up to 20% of the fund's assets
in, among other things, non-exchange-traded equity securities
acquired in conjunction with the fund's event-driven strategy,
including securities acquired by the fund as a result of certain
corporate events including reorganizations); 76719 (December 21,
2015), 80 FR 80859 (December 28, 2015) (SR-NYSEArca-2015-73)
(permitting (i) investments in over-the-counter and listed
derivatives without imposing limits on the total notional size of
the ETF's investments in over-the-counter derivatives and without
imposing concentration limits on the ETF's investments in listed
derivatives and (ii) permitting investments in a wide variety of
fixed income instruments without compliance with the same criteria
as the fixed income criteria in Nasdaq Rule 5735(b)(1)(B)); and
72666 (July 24, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-
2013-122) (permitting investments in both over-the-counter and
listed derivatives, but without imposing limits regarding the total
notional size of the ETF's investments in over-the-counter
derivatives, without imposing concentration limits on the ETF's
investments in listed derivatives, and without imposing limitations
on investments in listed derivatives whose principal market is not a
member of ISG or is a market with which its listing exchange does
not have a comprehensive surveillance sharing agreement); and 69061
(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR-NYSEArca-2013-01)
(approving investments in non-agency commercial MBS and non-agency
residential MBS without a fixed limit but consistent with the fund's
objective of investing up to 80% of its assets in investment grade
fixed-income securities).
---------------------------------------------------------------------------

Net Asset Value
    The Fund's administrator will calculate the Fund's net asset value
(``NAV'') per Share as of the close of regular trading (normally 4:00
p.m., Eastern time (``E.T.'')) on each day the New York Stock Exchange
is open for business. NAV per Share will be calculated for the Fund by
taking the value of the Fund's total assets, including interest or
dividends accrued but not yet collected, less all liabilities, and
dividing such amount by the total number of Shares outstanding. The
result, rounded to the nearest cent, will be the NAV per Share
(although creations and redemptions will be processed using a price
denominated to the fifth decimal point, meaning that rounding to the
nearest cent may result in different prices in certain circumstances).
Impact on Arbitrage Mechanism
    The Manager and the Sub-Adviser believe there will be minimal, if
any, impact on the arbitrage mechanism for the Fund as a result of its
use of derivatives. The Manager and the Sub-Adviser understand that
market makers and other market participants should be able to value
derivatives held by the Fund as long as the Fund's positions are
disclosed. The Manager and the Sub-Adviser believe that the price at
which Shares trade will continue to be disciplined by arbitrage
opportunities created by the ability for authorized participants
(``APs'') to purchase or redeem creation Shares at their NAV, which
should ensure that Shares will not trade at a material discount or
premium in relation to their NAV.
    The Manager and the Sub-Adviser do not believe that there will be
any significant impact on the settlement or operational aspects of the
Fund's arbitrage mechanism due to the use of derivatives. Because
derivatives generally are not eligible for in-kind transfer, they will
typically be substituted with a ``cash in lieu'' amount when the Fund
processes purchases or redemptions of creation units in-kind.
Creation and Redemption of Shares
    The Fund will issue Shares of the Fund at NAV only to APs and only
in aggregations of at least 50,000 shares (each aggregation is called a
``Creation Unit'') or multiples thereof, on a continuous basis through
the Distributor, without a sales load, at the NAV next determined after
receipt, on any Business Day, of an order in proper form. A ``Business
Day'' is defined as any day that the Trust is open for business,
including as required by Section 22(e) of the 1940 Act.
    Although the Fund reserves the right to issue Creation Units on a
partial or fully ``in kind'' basis, the Fund expects that it will
primarily issue Creation Units solely for cash. As a result, APs
seeking to purchase Creation Units will generally be required to
transfer to the Fund cash in an amount equal to the value of the
Creation Unit(s) purchased and the applicable transaction fee. To the
extent that the Fund elects to issue Creation Units on an ``in-kind''
basis, the applicable AP will be required to deposit with the Fund a
designated portfolio of securities and/or instruments (the ``Deposit
Securities'') that will conform pro rata to the holdings of the Fund
(except in the circumstances described in the Fund's Statement of
Additional Information (the ``SAI'')) and/or an amount of cash. If
there is a difference between the NAV attributable to a Creation Unit
and the aggregate market value of the Deposit Securities or Redemption
Securities (defined below) exchanged for the Creation Unit, the party
conveying the instruments with the lower value will pay to the other an
amount in cash equal to that difference (the ``Cash Component'').
Together, the Deposit Securities and the Cash Component will constitute
the ``Fund Deposit,'' which will represent the minimum initial and
subsequent investment amount for a Creation Unit of the Fund.
    The Fund also expects to effect redemptions of Creation Units
primarily on a cash basis, although it reserves the right to effect
redemption on a partial or wholly ``in-kind'' basis. In connection with
a cash redemption, the AP will be

required to transfer to the Fund, Creation Units and cash equal to the
transaction fee. To the extent that the Fund elects to utilize an ``in-
kind'' redemption, it will deliver to the redeeming AP, in exchange for
a Creation Unit, securities and/or instruments that will conform pro
rata to the holdings of the Fund (``Redemption Securities'') plus the
Cash Component.
    To be eligible to place orders with respect to creations and
redemptions of Creation Units, an entity must have executed an
agreement with the Distributor, subject to acceptance by the transfer
agent, with respect to creations and redemptions of Creation Units.
Each such entity (an AP) must be (i) a broker-dealer or other
participant in the clearing process through the continuous net
settlement system of the National Securities Clearing Corporation
(``NSCC'') or (ii) a Depository Trust Company participant.
    When the Fund permits Creation Units to be issued principally or
partially in-kind, the Fund will cause to be published, through the
NSCC, on each Business Day, at or before 9:00 a.m. E.T., the identity
and the required principal amount or number of each Deposit Security
and the amount of the Cash Component (if any) to be included in the
current Fund Deposit (based on information at the end of the previous
Business Day).
    All orders to create Creation Units must be received by the
Distributor within a one-hour window from 9:00 a.m. E.T. to 10:00 a.m.
E.T. on a given Business Day in order to receive the NAV determined on
the Business Day on which the order was placed.
    Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form on a
Business Day and only through an AP. The Fund will not redeem Shares in
amounts less than a Creation Unit unless the Fund is being liquidated.
    When the Fund permits Creation Units to be redeemed principally or
partially in-kind, the Fund will cause to be published, through the
NSCC, at or before 9:00 a.m. E.T. on each Business Day, the identity of
the Redemption Securities and/or an amount of cash that will be
applicable to redemption requests received in proper form on that day.
The Redemption Securities will be identical to the Deposit Securities.
    In order to redeem Creation Units of the Fund, an AP must submit an
order to redeem for one or more Creation Units. All such orders must be
received by the Distributor within a one-hour window from 9:00 a.m.
E.T. to 10:00 a.m. E.T. on a given Business Day in order to receive the
NAV determined on the Business Day on which the order was placed.
Availability of Information
    The Fund's website (www.leggmason.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 website will
include the Shares' ticker, CUSIP and exchange information, along with
additional quantitative information updated on a daily basis,
including, for the Fund: (1) The prior Business Day's NAV per share and
the market closing price or mid-point of the bid/ask spread at the time
of calculation of such NAV per share (the ``Bid/Ask Price''),\88\ and a
calculation of the premium or discount of the market closing price or
Bid/Ask Price against such NAV per share; and (2) a table showing the
number of days of such premium or discount for the most recently
completed calendar year, and the most recently completed calendar
quarters since that year (or the life of Fund, if shorter).
---------------------------------------------------------------------------

    \88\ 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.
---------------------------------------------------------------------------

    On each Business Day, before commencement of trading in Shares in
the Regular Market Session \89\ on the Exchange, the Fund will disclose
on its website the identities and quantities of the portfolio of
securities and other assets (the ``Disclosed Portfolio'' as defined in
Nasdaq Rule 5735(c)(2)) held by the Fund that will form the basis for
the Fund's calculation of NAV at the end of the Business Day.\90\ The
Fund's disclosure of derivative positions in the Disclosed Portfolio
will include sufficient information for market participants to use to
value these positions intraday. On a daily basis, the Fund will
disclose on the Fund's website the following information regarding each
portfolio holding, as applicable to the type of holding: Ticker symbol,
CUSIP number or other identifier, if any; a description of the holding
(including the type of holding), the identity of the security or other
asset or instrument underlying the holding, if any; for options, the
option strike price; quantity held (as measured by, for example, par
value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and percentage weighting of the holding in
the Fund's portfolio.\91\ The website information will be publicly
available at no charge.
---------------------------------------------------------------------------

    \89\ 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.).
    \90\ 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.
    \91\ See Nasdaq Rule 5735(c)(2).
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in Rule
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an
estimated intraday value of the Fund's Disclosed Portfolio, will be
disseminated. Moreover, the Intraday Indicative Value, available on the
Nasdaq Information LLC proprietary index data service,\92\ 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 vendor and broadly displayed at least every 15
seconds during the Regular Market Session. The Intraday Indicative
Value will be based on quotes and closing prices provided by a dealer
who makes a market in those instruments. Premiums and discounts between
the Intraday Indicative Value and the market price may occur. This
should not be viewed as a ``real time'' update of the NAV per Share of
the Fund, which is calculated only once a day.
---------------------------------------------------------------------------

    \92\ Currently, the Nasdaq Global Index Data Service (``GIDS'')
is the Nasdaq 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 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 Business Day.
    Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the Business Day on brokers' computer screens and
other electronic services. 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
(``CTA'') plans for the Shares and for the following U.S. securities,
to the extent that they are exchange-listed securities: Work Out
Securities, Non-Convertible Preferred Securities, warrants, convertible
fixed income and preferred securities and ETFs. Price information for
U.S. exchange-listed options will be available via the Options Price
Reporting Authority and for other U.S. Exchange-Traded Derivatives will
be available from the applicable listing exchange and from major market
data vendors. Price information for TRACE-Eligible Securities \93\ sold
in transactions under Rule 144A under the Securities Act will generally
be available through FINRA's Trade Reporting and Compliance Engine
(``TRACE'') and information regarding transactions in non-TRACE-
Eligible Securities or transactions not otherwise subject to TRACE
reporting is generally available from major market data vendors and
broker-dealers. For most of the U.S. dollar denominated corporate
bonds, GSE-sponsored securities, Securitized Products and other U.S.
dollar denominated fixed income securities in which the Fund invests,
price information will be available from TRACE and EMMA (as defined
below).\94\ For those instruments for which FINRA does not disseminate
price information from TRACE, such as CDOs and fixed income securities
denominated in foreign currencies, pricing information will generally
be available from major market data vendors and broker-dealers. Money
Market Funds are typically priced once each Business Day and their
prices will be available through the applicable fund's website or from
major market data vendors.
---------------------------------------------------------------------------

    \93\ For the definition of ``TRACE-Eligible Security,'' see
FINRA Rule 6710(a).
    \94\ FINRA generally disseminates information on all
transactions in TRACE-Eligible Securities, including those effected
pursuant to Rule 144A of the Securities Act, immediately upon
receipt of the transaction reports. Exceptions to this dissemination
schedule are: (i) In respect to CMOs transacted pursuant to Rule
144A under the Securities Act, where the transaction value is $1
million or more and there have been five or more transactions of $1
million or more in the period reported by at least two different
market participant identifiers (where FINRA will disseminate
information weekly and monthly); (ii) certain transactions with
affiliates, certain transfers in connection with mergers and not in
furtherance of a trading strategy; and certain primary offerings;
(iii) transactions in CDOs, collateralized mortgage backed
securities and CMOs, if the transaction value is $1 million or more
and does not qualify for periodic dissemination; and (iv) Treasury
Securities. See FINRA Rule 6750.
---------------------------------------------------------------------------

    For other exchange-listed securities (to be comprised primarily of
ETFs, warrants and structured notes and which may include exchange-
listed securities of both U.S. and non-U.S. issuers), equities traded
in the over-the-counter market (including Work Out Securities, and Non-
Convertible Preferred Securities), Exchange-Traded Derivatives
(including U.S. or foreign), OTC Derivatives, Debt and fixed income
securities (including convertible fixed income and convertible
preferred securities), and the small number of Securitized Products
that are not reported to TRACE,\95\ intraday price quotations will
generally be available from broker-dealers and trading platforms (as
applicable). Price information for such securities and instruments will
also be available from feeds from major market data vendors, published
or other public sources, or online information services. As noted
above, TRACE will be a source of price information for most of the U.S.
dollar denominated corporate bonds, GSE-sponsored securities,
Securitized Products and other U.S. dollar denominated fixed income
securities in which the Fund invests. Intraday and other price
information related to foreign government securities, Money Market
Funds, and other cash equivalents that are traded over-the-counter and
other Non-TRACE Eligible Securities as well as prices for Treasury
Securities, CDOs, commercial mortgage-backed securities, or CMOs
purchased through transactions that do not qualify for periodic
dissemination by FINRA \96\ will be available through major market data
vendors, such as Bloomberg, Markit, IDC and Thomson Reuters, which can
be accessed by APs and other investors. Electronic Municipal Market
Access (``EMMA'') will be a source of price information for municipal
bonds. Pricing for repurchase transactions and reverse repurchase
agreements entered into by the Fund are not publicly reported. Prices
are determined by negotiation at the time of entry with counterparty
brokers, dealers and banks.
---------------------------------------------------------------------------

    \95\ Non-TRACE Eligible Securities, which are Securitized
Products, in which the Fund may invest will primarily consist of
fixed income securities issued by foreign entities and denominated
in foreign currencies. For such securities that are not TRACE-
eligible, pricing information will generally be available from major