June 25, 1996 TSCA SECTION 4 FINDINGS FOR 21 HAZARDOUS AIR POLLUTANTS A Supporting Document for Proposed Hazardous Air Pollutants ( RAPs)

Test Rule For specific information regarding this document, contact:

Gary E. Timrn Chemical Control Division Office of Pollution Prevention and Toxics ( 202) 260   1859 RECEIVED OPPT NCIC 2003 MAR11 5: 03PM OPPT 2003 0010 0021 The testing proposed in the HAP5 rule is based on the authority of section 4( a) of the Toxic Substances Control Act ( TSCA), 15 U. S. C. 2601 et p~ g. The U. S. Environmental Protection Agency ( EPA) interprets TSCA section 4( a) to mean that EPAs authority to require testing under TSCA section 4( a) ( 1) ( A) and ( B) is predicated on the data insufficiency and testing is necessary" findings required under TSCA section 4( a) ( 1) ( A) ( ii) and ( iii) and 4( a) ( 1) ( B) ( ii) and ( iii). Discussions of the statutory framework for TSCA section 4( a) findings are provided in EPAU5 first and second proposed test rules, which were published in the Federal Register notices of July 18, 1980 ( 45 FR 48524) and June 5, 1981 ( 46 FR 30300) . Thus once EPA has made a finding under TSCA section 4( a) ( 1) ( A) ( i) that a chemical substance may present an unreasonable risk of injury to health or the environment or a finding under section 4( a) ( 1) ( B) ( i) that a chemical substance is or will be produced in substantial quantities, and either it may enter the environment in substantial quantities or there may be substantial or significant human exposure to the chemical substance, EPA may require any type of health or environmental effects testing necessary to address unanswered questions about the effects of the chemical substance. EPA need not limit the scope of testing required to the factual basis for the section 4( a) ( 1) ( A) ( i) or ( B) ( i) findings. As explained in EPAs statement of policy for making findings under TSCA section 4( a) ( 1) ( B) in the Federal Register of May 14, 1993 ( EPA, l993a, pp. 28736,

28738) Essentially, under TSCA section 4( a) ( 1) ( B) ( i), EPA may require health effects testing even if it has only made a finding that there is or may be substantial entry into the environment of a substance, or require environmental effects testing even if it has only made a finding that there is or may be substantial or significant human exposure to a substance. Clauses ( I) and ( II) of section 4( a) ( 1) ( B) ( i) can be interpreted as mutually exclusive. . . . Either finding is sufficient to require testing, so long as EPA finds that data relevant to a determination of whether a substance does or does not present an unreasonable risk of injury to health or the environment are insufficient and that testing is necessary to develop such data.

In articulating the policy for making findings under section TSCA 4( a) ( 1) ( B) ( frequently described as the " B policy), EPA has defined " substantial production" as annual aggregate production of 1 million pounds or 2 more and " substantial release" as an annual release into the environment of 1 million pounds or 10% of production, whichever is lower. Id. at 28746. These definitions apply to the terms " substantial production" and " substantial release" as used in this document. ( As explained in Unit III. C. of the preamble to the proposed rule, all chemical substances proposed for testing in this proposed rule are emitted into the atmosphere in the amount of 50 tons per year or more according to the Toxics Release Inventory ( TRI) .)

In its final B policy statement, EPA defined " substantial human exposure" as an annual exposure of 100,000 members of the general population,

10,000 consumers, or 1,000 workers. Id. In proposing the B policy on July 15,

1991 ( EPA, l99la pp. 32294, 32297) , EPA explained its use of different exposure levels in this way:

EPA believes that the different numerical thresholds for workers,

consumers, and the general population are necessary to reflect the inherent differences in each probable exposure scenario ( e. g., workers generally are exposed on a more routine or direct basis than consumers,

and consumers are generally exposed on a more direct basis than the general public) As a general matter, EPA has found that workers tend to be subject to routine or episodic exposure over a long period of time. Thus,

exposure, to be considered substantial, does not have to be as widespread for workers as for consumers or the general population. .

Under TSCA, EPA has generally interpreted the term " significant"

as relating to the nature or importance of exposure. EPA therefore is proposing to interpret " significant" as referring to the nature of the exposure. EPA believes that if the nature of some exposure is sufficiently direct, large or prolonged, even if the number of people exposed is not " substantial, there is a need to develop data on the chemical because, on the basis of the data, EPA may take some risk management action to control the exposure.

Consistent with this policy, the findings below regarding substantial human exposure use different numerical thresholds for workers, consumers, and the general population.

A. 1,1   Biphenyl ( 92   52   4)

EPA is proposing testing of 1,1 biphenyl under the authority of sections 4( a) ( 1) ( A) and 4( a) ( 1) ( B) of TSCA.

3 and spleen of rats and mice with 90 day exposures up to 1,000 ppm ( NTP,

l992c) , but an evaluation of immune function was not performed. NTP has conducted an inhalation chronic assay, but the final report is not yet available ( NTP, 1996) . No data were located on the respiratory sensory irritation of ethylbenzene.

4. Section 4( a) ( 1) ( A) ( iii) and 4( a) ( 1) ( B) ( iii) findings. Therefore,

EPA believes that the testing of ethylbenzene is necessary to develop data for acute toxicity, developmental toxicity, reproductive toxicity, neurotoxicity , immunotoxicity, and respiratory sensory irritation. EPA believes that this testing is needed to determine if the manufacture, processing, use, and disposal of ethylbenzene does or does not present an unreasonable risk of injury to human health from inhalation exposure.

I. Ethylene Dichloride ( 107 06 2)

EPA is proposing testing of ethylene dichloride ( EDC) under the authority of sections 4( a) ( 1) ( A) and 4( a) ( 1) ( B) of TSCA.

1. Section 4( a) ( 1) ( A) ( i) findings. EPA believes that the manufacture, processing, and use of EDC may present an unreasonable risk of injury to health. Several studies indicated high mortality rates following inhalation exposure. Hofmann at al. exposed rats, guinea pigs, rabbits, and cats to 100 and 500 ppm of EDC for 6 hours/ day, 5 days per week for 6 weeks.

Mortality was high in all species exposed to 500 ppm. Necropsy revealed lesions in the liver, kidney, adrenals, heart, and lungs ( Hofmann et al.,

1971) . Maltoni et al. reported a high incidence of mortality of rats exposed to 250 ppm of EDC in an carcinogenicity study, forcing him to reduce the high exposure to 150 ppm after 10 weeks ( Maltoni et al., 1980). Mortality was reported at 300 ppm in a study of developmental toxicity ( Shell Oil Company,

1979)

The carcinogenicity of EDC has been demonstrated in rats and mice by gavage exposure ( NCI, l978a), but not by inhalation ( Maltoni et al., 1980).

Male rats had a significantly increased incidence of forestomach squamous cell 24 carcinomas and circulatory system hemangiosarcomas in the NCI study. Female rats and mice were observed to have significant increases in mammary adenocarcinoma incidence. Mice of both sexes developed alveolar/ bronchiolar adenomas, females developed endometrial stromal polyps and sarcomas, and males developed hepatocellular carcinomas ( NCI, l978a) . Based on the exposure discussed below and these concerns, EPA finds that EDC may present an unreasonable risk of injury to human health.

2. Section 4( a) ( 1) ( B) ( i) findings. ( i) EPA believes that EDC is produced in substantial quantities. EDC production in 1992 was 14.3 billion pounds ( CMR, l992f).

( ii) EPA believes that there is or may be substantial human exposure to EDC. EDC is currently used as a chemical intermediate principally in the synthesis of vinyl chloride monomer, as a solvent in closed systems, and in the synthesis of vinylidene chloride, l, l, l trichloroethane,

trichloroethylene, tetrachloroethylene, aziridines, and ethylene diamines ( ATSDR, 1992) . NIOSH estimated that 77,111 workers were potentially exposed to EDC in 1980 in the apparel and textile industries, chemical and allied products industries, business services, and petroleum and coal products industries ( NIOSH, 1989)

The greatest source of exposure to EDC for the general population is inhalation of contaminated air. Atmospheric exposure to EDC varies greatly from one location to another. Mean levels as high as 27.5 ppb have been monitored near production and use facilities in Lake Charles, Louisiana. Most locations have EDC concentrations of 0.5 ppb or less ( EPA, 1985)

( iii) EPA believes that there is substantial environmental release of EDC. The 1993 TRI indicates 2.3 million pounds of EDC were released to the atmosphere ( EPA, 1995)

3. Section 4( a) ( 1) ( A) ( ii) and 4( a) ( 1) ( B) ( ii) findings. EPA believes that there are inadequate data and experience to determine or predict the effects on human health from the manufacturing, processing, and use of EDC.

An inhalation developmental toxicity study was conducted in rabbits at 100 and 300 ppm ( Shell Oil Company, 1979) . Despite the use of only two exposure levels, EPA regards this study as acceptable. Maternal toxicity was observed 25 at both treatment levels. No developmental effects were noted. However, the inhalation developmental toxicity test in rats is inadequate ( Shell Oil Company, 1979) . Again, only two exposure levels were used ( 100 and 300 ppm)

However, maternal toxicity was so severe at the highest dose level that many females died and no pups were born to the surviving dams. Although no maternal or developmental effects were seen at 100 ppm, too few pregnant animals were used at this dose level to conclude that this was an acceptable negative study. A one generation reproductive inhalation study was conducted in rats at 25, 75, and 150 ppm ( Murray et al., 1980) and a multi generation drinking water test in mice was conducted at 30, 90, and 290 mg/ L ( Lane et al., 1982) . Both studies are deficient, however, in that neither identified an effect level.

The acute tests are not adequate to determine portal of entry effects and extra respiratory effects. The respiratory irritation study by DuPont was conducted in rats at inhalation exposures ranging from 640 to 12,000 ppm for only 10 minutes, exposed only males, did not evaluate histopathology, and used too few animals ( DuPont, 1982) . Union Carbide exposed rats, mice, and rabbits to 200 ppm of EDC for 1 hour ( Union Carbide Corporation, 1987) . This study was inadequate because it was conducted at only one dose level and only limited endpoints were evaluated. Similarly, Carpenter et al. exposed rats by inhalation to 1,000 ppm of EDC for 4 hours ( Carpenter et al., 1949). Spencer et al. exposed rats by inhalation to six different concentrations ranging from 300 to 3,000 ppm over a 0.5 to 8 hour period ( Spencer et al., 1951). The lack of adequate reporting precludes the further evaluation or use of this study. Heppel et al. exposed rats, mice, guinea pigs, rabbits, cats, hogs,

and raccoons by inhalation at 1,500 and 3,000 ppm over a range of times varying between 1.5 and 7 hours ( Heppel et al., 1945) . The Heppel et al.

study was also reported as a summary that precludes its full evaluation and use. Several inadequate subchronic studies were found in the literature.

Lioia and Elmino exposed rabbits to 3,000 ppm of EDC by inhalation for 90 days ( Lioia and Elmino, 1959) . This study was conducted at only one exposure level and does not report the use of controls. Hofmann et al. exposed rats, guinea pigs, rabbits, and cats to 100 and 500 ppm of EDC for 6 hours/ day, 5 days/ week 26 for 6 weeks ( Hofmann et al., 1971) . This study exposed animals to only two concentrations for only 6 weeks. High mortality was found at the high exposure level and no toxic effects were reported at the low exposure level.

Intermediate exposure levels should be studied to determine the effects of sublethal concentrations. A second study by Hofmann exposing rats, guinea pigs, rabbits, and cats to 500 ppm of EDC for 13 weeks followed by exposure to 1,000 ppm EDC for an additional 13 weeks produced results ( no toxicity at 500 ppm) that appear at odds with those of his first study ( Hofmann et al., 1971).

This study is not a standard subchronic study.

Although acute studies indicate neurological effects, these studies are inadequate because they did not evaluate the appropriate neurological endpoints: functional observational battery, neuropathology, and motor activity ( Spencer et al., 1951) . No subchronic neurotoxicity studies were found. No data were located for respiratory sensory irritation.

4. Section 4( a) ( 1) ( A) ( iii) and 4( a) ( 1) ( B) ( iii) findings. Therefore,

EPA believes that the testing of EDC is necessary to develop data for acute toxicity, subchronic toxicity, developmental toxicity, reproductive toxicity , neurotoxicity, and respiratory sensory irritation. EPA believes that this testing is needed to determine if the manufacture, processing, and use of EDC does or does not present an unreasonable risk of injury to human health from inhalation exposure.

J. Ethylene Glycol ( 107 21 1)

EPA is proposing testing of ethylene glycol under the authority of TSCA section 4( a) ( 1) ( B).

1. Section 4( a) ( 1) ( B) ( i) findings. ( i) EPA believes that ethylene glycol is produced in substantial quantities. Ethylene glycol production in 1992 was 7.4 billion pounds ( CMR, l993a)

( ii) EPA believes that there is or may be substantial human exposure to ethylene glycol. Ethylene glycol is widely used as an antifreeze in heating and cooling systems, a de icing agent on bridges and airport runways, and a solvent in the paints and plastics industry. It is also used in hydraulic 27


[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51517-51521]
[FR Doc No: 2016-18470]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78443; File No. SR-NASDAQ-2016-064]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change Relating to the Listing and
Trading of the Shares of the First Trust Strategic Mortgage REIT ETF of
First Trust Exchange-Traded Fund VIII

July 29, 2016.

I. Introduction

    On May 3, 2016, The NASDAQ Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the First Trust Strategic Mortgage REIT ETF (``Fund'')
of First Trust Exchange-Traded Fund VIII (``Trust'') under NASDAQ Rule
5735. The proposed rule change was published for comment in the Federal
Register on May 12, 2016.\3\ On June 15, 2016, pursuant to Section
19(b)(2) of the Act,\4\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ The Commission received no
comments on the proposed rule change. This order grants approval of the
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77781 (May 6, 2016),
81 FR 29590 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78078 (Jun. 21,
2016), 81 FR 40377.
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5735, which governs the listing and trading of Managed Fund Shares
on the Exchange. The Fund will be an actively-managed exchange-traded
fund (``ETF''). The Shares will be offered by the Trust, which was
established as a Massachusetts business trust on February 22, 2016.\6\
The Fund will be a series of the Trust.
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    \6\ The Exchange represents that the Trust is registered under
the Investment Company Act of 1940 (``1940 Act''). See Registration
Statement on Form N-1A for the Trust dated March 14, 2016 (File Nos.
333-210186 and 811-23147) (``Registration Statement''). The Exchange
further states that the Trust has obtained certain exemptive relief
under the 1940 Act. See Investment Company Act Release No. 28468
(October 27, 2008) (File No. 812-13477).
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    First Trust Advisors L.P. will be the investment adviser
(``Adviser'') to the Fund. First Trust Portfolios L.P.
(``Distributor'') will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon Corporation will act as
the administrator, accounting agent, custodian, and transfer agent to
the Fund. The Exchange states that the Adviser is not a broker-dealer,
but it is affiliated with the Distributor, a broker-dealer.\7\ The
Exchange represents that the Adviser has implemented a fire wall with
respect to its broker-dealer affiliate regarding access to information
concerning the composition of, and changes to, the portfolio.\8\
According to the Exchange, the Fund currently does not intend to use a
sub-advisor.\9\
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    \7\ See Notice, supra note 3, 81 FR at 29591.
    \8\ See id. The Exchange further represents that, in the event
(a) the Adviser or any sub-adviser registers as a broker-dealer, or
becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser registers is a registered broker-dealer or
becomes affiliated with another broker-dealer, it will implement a
fire wall with respect to its relevant personnel and such broker-
dealer affiliate, as applicable, regarding access to information
concerning the composition of, and changes to, the portfolio, and
will be subject to procedures designed to prevent the use and
dissemination of material, non-public information regarding such
portfolio.
    \9\ See id.
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    The Exchange has made the following representations and statements
in describing the Fund and its investment strategy, including the
Fund's portfolio holdings and investment restrictions.\10\
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    \10\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice and Registration Statement, supra notes 3 and
6, respectively.
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A. Exchange's Description of the Fund's Principal Investments

    The investment objective of the Fund will be to generate high
current income. Under normal market conditions,\11\ the Fund will seek
to achieve its investment objective by investing at least 80% of its
net assets (including investment borrowings) in the exchange-traded
common shares of U.S. exchange-traded mortgage real estate investment
trusts (``mortgage REITs''). In general terms, a mortgage REIT makes
loans to developers and owners of property and invests primarily in
mortgages and similar real estate interests, and includes companies or
trusts that are primarily engaged in the purchasing or servicing of
commercial or residential mortgage loans or mortgage-related
securities, which may include mortgage-backed securities issued by
private issuers and those issued or guaranteed by U.S. Government
agencies, instrumentalities, or sponsored entities.
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    \11\ The term ``under normal market conditions'' as used herein
includes, but is not limited to, the absence of adverse market,
economic, political or other conditions, including extreme
volatility or trading halts in the securities markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. On a temporary
basis, including for defensive purposes, during the initial invest-
up period and during periods of high cash inflows or outflows, the
Fund may depart from its principal investment strategies; for
example, it may hold a higher than normal proportion of its assets
in cash. According to the Exchange, during such periods, the Fund
may not be able to achieve its investment objective. The Fund may
adopt a defensive strategy when the Adviser believes securities in
which the Fund normally invests have elevated risks due to political
or economic factors and in other extraordinary circumstances. See
Notice, supra note 3, 81 FR at 29591 n.8.
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    The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended.

B. Exchange's Description of the Fund's Other Investments

    The Fund may invest (in the aggregate) up to 20% of its net assets
in

the following securities and instruments:
    (1) The Fund may invest in the exchange-traded preferred shares of
U.S. exchange-traded mortgage REITs.
    (2) The Fund may invest in (a) U.S. exchange-traded equity and
preferred securities and (b) domestic over-the-counter (``OTC'')
preferred securities, in each case, of companies engaged in the U.S.
real estate industry (other than mortgage REITs) (collectively, ``Real
Estate Companies'').
    (3) The Fund may invest in mortgage-backed securities,\12\ and such
investments may, from time to time, include investments in to-be-
announced transactions \13\ and mortgage dollar rolls \14\
(collectively, ``Mortgage-Related Instruments'').
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    \12\ Mortgage-backed securities, which are securities that
directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, will consist
of: (1) Residential mortgage-backed securities; (2) commercial
mortgage-backed securities; (3) stripped mortgage-backed securities,
which are mortgage-backed securities where mortgage payments are
divided between paying the loan's principal and paying the loan's
interest; (4) collateralized mortgage obligations and real estate
mortgage investment conduits, which are mortgage-backed securities
that are divided into multiple classes, with each class being
entitled to a different share of the principal and interest payments
received from the pool of underlying assets.
    \13\ A to-be-announced (``TBA'') transaction is a method of
trading mortgage-backed securities. In a TBA transaction, the buyer
and seller agree upon general trade parameters such as agency,
settlement date, par amount, and price. The actual pools delivered
generally are determined two days prior to the settlement date.
    \14\ In a mortgage dollar roll, the Fund will sell (or buy)
mortgage-backed securities for delivery on a specified date and
simultaneously contract to repurchase (or sell) substantially
similar (same type, coupon and maturity) securities on a future
date. During the period between a sale and repurchase, the Fund will
forgo principal and interest paid on the mortgage-backed securities.
The Fund will earn or lose money on a mortgage dollar roll from any
difference between the sale price and the future purchase price. In
a sale and repurchase, the Fund will also earn money on the interest
earned on the cash proceeds of the initial sale. According to the
Exchange, the Fund intends to enter into mortgage dollar rolls only
with high quality securities dealers and banks, as determined by the
Adviser. See Notice, supra note 3, 81 FR at 29591 n.11.
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    (4) The Fund may invest in (a) exchange-traded and OTC options on
mortgage REITs and Real Estate Companies; (b) OTC options on mortgage
TBA transactions; (c) exchange-traded U.S. Treasury and Eurodollar
futures contracts; (d) exchange-traded and OTC interest rate swap
agreements; (e) exchange-traded options on U.S. Treasury and Eurodollar
futures contracts; and (f) exchange-traded and OTC options on interest
rate swap agreements. The use of these derivative transactions may
allow the Fund to obtain net long or short exposures to selected
interest rates. These derivatives may also be used to hedge risks,
including interest rate risks and credit risks, associated with the
Fund's portfolio investments. The Exchange represents that the Fund's
investments in derivative instruments will be consistent with the
Fund's investment objective and the 1940 Act and will not be used to
seek to achieve a multiple or inverse multiple of an index. The Fund
will only enter into transactions in OTC derivatives (including OTC
options on mortgage REITs, Real Estate Companies, and mortgage TBA
transactions; OTC interest rate swap agreements; and OTC options on
interest rate swap agreements) with counterparties that the Adviser
reasonably believes are capable of performing under the applicable
contract or agreement.\15\
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    \15\ According to the Exchange, the Fund will seek, where
possible, to use counterparties, as applicable, whose financial
status is such that the risk of default is reduced; however, the
risk of losses resulting from default is still possible. The Adviser
will evaluate the creditworthiness of counterparties on an ongoing
basis. In addition to information provided by credit agencies, the
Adviser's analysis will evaluate each approved counterparty using
various methods of analysis and may consider the Adviser's past
experience with the counterparty, its known disciplinary history and
its share of market participation. See id. at 29591 n.12.
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    (5) The Fund may invest in short-term debt securities and other
short-term debt instruments (described below), as well as cash
equivalents, or it may hold cash. The percentage of the Fund invested
in such holdings or held in cash will vary and will depend on several
factors, including market conditions. The Fund may invest in the
following short-term debt instruments: \16\ (a) Fixed rate and floating
rate U.S. government securities, including bills, notes and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities; (b) certificates of deposit issued against funds
deposited in a bank or savings and loan association; (c) bankers'
acceptances, which are short-term credit instruments used to finance
commercial transactions; (d) repurchase agreements,\17\ which involve
purchases of debt securities; (e) 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; and (f) commercial
paper, which is short-term unsecured promissory notes.\18\
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    \16\ Short-term debt instruments are issued by issuers having a
long-term debt rating of at least A by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch
Ratings (``Fitch'') and have a maturity of one year or less.
    \17\ The Exchange represents that the Fund intends to enter into
repurchase agreements only with financial institutions and dealers
believed by the Adviser to present minimal credit risks in
accordance with criteria approved by the Board of Trustees of the
Trust (``Trust Board''). According to the Exchange, the Adviser will
review and monitor the creditworthiness of such institutions, and
the Adviser will monitor the value of the collateral at the time the
transaction is entered into and at all times during the term of the
repurchase agreement. See id. at 29592 n.14.
    \18\ The Exchange states that the Fund may only invest in
commercial paper rated A-1 or higher by S&P Ratings, Prime-1 or
higher by Moody's or F1 or higher by Fitch. See id. at 29592 n.15.
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    (6) The Fund may invest (but only, in the aggregate, up to 10% of
its net assets) in the securities of money market funds and other ETFs
that, in each case, will be investment companies registered under the
1940 Act.\19\
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    \19\ An ETF is an investment company registered under the 1940
Act that holds a portfolio of securities. Many ETFs are designed to
track the performance of a securities index, including industry,
sector, country and region indexes. ETFs included in the Fund will
be listed and traded in the U.S. on registered exchanges. The Fund
may invest in the securities of ETFs in excess of the limits imposed
under the 1940 Act pursuant to exemptive orders obtained by other
ETFs and their sponsors from the Commission. In addition, the Fund
may invest in the securities of certain other investment companies
in excess of the limits imposed under the 1940 Act pursuant to an
exemptive order that the Trust has obtained from the Commission. See
Investment Company Act Release No. 30377 (February 5, 2013) (File
No. 812-13895). The ETFs in which the Fund may invest include Index
Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depository
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares
(as described in Nasdaq Rule 5735). The Exchange represents that
while the Fund may invest in inverse ETFs, the Fund will not invest
in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs. See id. at
29592 n.16.
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C. Exchange's Description of the Fund's Investment Restrictions

    The Fund may enter into short sales as part of its overall
portfolio management strategies or to offset a potential decline in the
value of a security; however, the Fund will not engage in short sales
with respect to more than 30% of the value of its net assets. To the
extent required under applicable federal securities laws, rules, and
interpretations thereof, the Fund will ``set aside'' liquid assets or
engage in other measures to ``cover'' open positions and short
positions held in connection with the foregoing types of transactions.
    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser.\20\ The
Fund will monitor its

portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are held
in illiquid assets. Illiquid assets include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.
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    \20\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
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    The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry. This restriction
does not apply to securities of issuers in the real estate sector,
including real estate investment trusts; obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
or securities of other investment companies. The Fund will be
concentrated in the real estate sector.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\21\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Exchange
Act,\22\ which requires, among other things, that the Exchange's rules
be designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
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    \21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Exchange Act,\23\ which sets forth the finding of Congress that it
is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure the
availability to brokers, dealers, and investors of information with
respect to quotations for, and transactions in, securities. Quotation
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. Quotation and last-sale information for
U.S. exchange-traded equity securities (including mortgage REITs, ETFs,
and exchange-traded Real Estate Companies) will be available from the
exchanges on which they are traded as well as in accordance with any
applicable CTA plans. Quotation and last-sale information for U.S.
exchange-traded options will be available via the Options Price
Reporting Authority. On each business day, before commencement of
trading in Shares in the Regular Market Session \24\ on the Exchange,
the Fund will disclose on its Web site the identities and quantities of
the portfolio of securities and other assets (``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.\25\ An estimated value, defined in Nasdaq Rule 5735(c)(3) as the
``Intraday Indicative Value,'' that reflects an estimated intraday
value of the Fund's Disclosed Portfolio, will be disseminated. The
Intraday Indicative Value, available on the NASDAQ OMX Information LLC
proprietary index data service,\26\ will be based upon the current
value for the components of the Disclosed Portfolio and will be updated
and widely disseminated by one or more major market data vendors and
broadly displayed at least every 15 seconds during the Regular Market
Session.\27\
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \24\ 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., Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4
p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session from 4
p.m. or 4:15 p.m. to 8 p.m., Eastern Time).
    \25\ 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. 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 Web
site 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, such as the type of swap); 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. The Web
site information will be publicly available at no charge.
    \26\ Currently, the NASDAQ OMX 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. According
to the Exchange, GIDS provides investment professionals with the
daily information needed to track or trade Nasdaq indexes, listed
ETFs, or third-party partner indexes and ETFs.
    \27\ According to the Exchange, the Intraday Indicative Value
will be based on quotes and closing prices from the securities'
local market and may not reflect events that occur subsequent to the
local market's close. The Exchange states that premiums and
discounts between the Intraday Indicative Value and the market price
may occur. The Exchange states that 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. See Notice, supra note 3, 81 FR at 29594
---------------------------------------------------------------------------

    The Fund's NAV will be determined as of the close of trading
(normally 4:00 p.m. Eastern time) on each day the New York Stock
Exchange LLC is open for business.\28\ Additionally, information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. 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. Pricing information for Mortgage-Related
Instruments, OTC Real Estate Companies, Short-Term Debt Instruments,
repurchase agreements, certificates of deposit, bank time deposits, OTC
options on mortgage REITs, Real Estate Companies and mortgage TBA
transactions, OTC interest rate swap agreements, and OTC options on
interest rate swap agreements will be available from major broker-
dealer firms, major market data vendors, and/or Pricing Services.
Pricing information for mortgage REITs (both common and preferred
shares), exchange-traded Real Estate Companies, ETFs, exchange-traded
options on mortgage REITs and Real Estate Companies, exchange-traded
U.S. Treasury and Eurodollar futures contracts, exchange-traded
interest rate swap agreements, exchange-traded options on U.S. Treasury
and Eurodollar futures contracts, and exchange-traded

options on interest rate swap agreements will be available from the
applicable listing exchange and from major market data vendors. Money
market funds are typically priced once each business day, and their
prices will be available through the applicable fund's Web site or from
major market data vendors. The Fund's Web site, which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund and additional data relating to NAV and
other applicable quantitative information that may be downloaded.
---------------------------------------------------------------------------

    \28\ 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, including
accrued expenses and dividends declared but unpaid, and dividing
such amount by the total number of Shares outstanding. See Notice,
supra note 3, 81 FR at 29593-29594 (providing more detailed
information on the NAV valuation methodology for each of the Fund's
holdings).
---------------------------------------------------------------------------

    The Commission also believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange states that it will obtain a representation from
the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.\29\ The Exchange
also represents that the Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares of
the Fund. Nasdaq will halt trading in the Shares under the conditions
specified in Nasdaq Rules 4120 and 4121, including the trading pauses
under Nasdaq Rules 4120(a)(11) and (12). Trading may be halted because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable.\30\ Trading in the Shares also
will be subject to Rule 5735(d)(2)(D), which sets forth circumstances
under which trading of Shares of the Fund may be halted.\31\ The
Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees.\32\
The Exchange also represents that the Adviser is not a broker-dealer,
although it is affiliated with the Distributor, a broker-dealer, and
that the Adviser has implemented a fire wall with respect to its
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio.\33\ Further, the
Commission notes that the Reporting Authority \34\ that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\35\ The Exchange represents that trading in the Shares will
be subject to the existing trading surveillances, administered by both
Nasdaq and also the Financial Industry Regulatory Authority (``FINRA'')
on behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws.\36\
---------------------------------------------------------------------------

    \29\ See id. at 29595.
    \30\ These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments
constituting the Disclosed Portfolio of the Fund; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. See id.
    \31\ See id.
    \32\ See id.
    \33\ See id. at 29591. See also supra note 8. The Exchange
further represents that an investment adviser to an open-end fund is
required to be registered under the Investment Advisers Act of 1940
(``Advisers Act''). As a result, the Adviser and its related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
    \34\ Nasdaq Rule 5730(c)(4) defines ``Reporting Authority.''
    \35\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \36\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    Nasdaq deems the Shares to be equity securities, thus rendering
trading in the Shares subject to Nasdaq's existing rules governing the
trading of equity securities. In support of this proposal, the Exchange
represented that:
    (1) The Shares will be subject to Nasdaq Rule 5735, which sets
forth the initial and continued listing criteria applicable to Managed
Fund Shares.
    (2) Trading in the Shares will be subject to the existing trading
surveillances administered by both Nasdaq and FINRA on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
applicable federal securities laws, and these procedures are adequate
to properly monitor Exchange trading of the Shares in all trading
sessions and to detect and help deter violations of Exchange rules and
applicable federal securities laws.
    (3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the exchange-traded securities and
instruments held by the Fund (including mortgage REITs (both common and
preferred shares); exchange-traded Real Estate Companies; ETFs;
exchange-traded options on mortgage REITs and Real Estate Companies;
exchange-traded U.S. Treasury and Eurodollar futures contracts;
exchange-traded interest rate swap agreements; exchange-traded options
on U.S. Treasury and Eurodollar futures contracts; and exchange-traded
options on interest rate swap agreements) with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''),\37\ and FINRA may obtain trading information regarding
trading in the Shares and such exchange-traded securities and
instruments held by the Fund from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in the
Shares and the exchange-traded securities and instruments held by the
Fund from markets and other entities that are members of ISG, which
includes securities and futures exchanges, or with which the Exchange
has in place a comprehensive surveillance sharing agreement. FINRA, on
behalf of the Exchange, will be able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine.
---------------------------------------------------------------------------

    \37\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------

    (4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
    (5) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) The procedures for
purchases and redemptions of Shares in Creation Units (and that Shares
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how information regarding
the Intraday Indicative Value and the Disclosed Portfolio is
disseminated; (d) the risks

involved in trading the Shares during the Pre-Market and Post-Market
Sessions when an updated Intraday Indicative Value will not be
calculated or publicly disseminated; (e) the requirement that members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (f)
trading information.
    (6) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\38\
---------------------------------------------------------------------------

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

    (7) The Fund's investments in derivative instruments will be
consistent with the Fund's investment objective and the 1940 Act and
will not be used to seek to achieve a multiple or inverse multiple of
an index, and the Fund will only enter into transactions in OTC
derivatives (including OTC options on mortgage REITs, Real Estate
Companies and mortgage TBA transactions; OTC interest rate swap
agreements; and OTC options on interest rate swap agreements) with
counterparties that the Adviser reasonably believes are capable of
performing under the applicable contract or agreement.
    (8) The Fund may invest (but only, in the aggregate, up to 10% of
its net assets) in the securities of money market funds and other ETFs
that, in each case, will be investment companies registered under the
1940 Act, and ETFs included in the Fund will be listed and traded in
the U.S. on registered exchanges.
    (9) The Fund will not invest in leveraged or inverse leveraged
(e.g., 2X or -3X) ETFs.
    (10) The Fund will not engage in short sales with respect to more
than 30% of the value of its net assets. To the extent required under
applicable federal securities laws, rules, and interpretations thereof,
the Fund will ``set aside'' liquid assets or engage in other measures
to ``cover'' open positions and short positions held in connection with
the foregoing types of transactions.
    (11) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including securities deemed illiquid by the Adviser.
    (12) At least 90% of the Fund's net assets that are invested in
exchange-traded derivatives (including exchange-traded options on
mortgage REITs and Real Estate Companies; exchange-traded U.S. Treasury
and Eurodollar futures contracts; exchange-traded interest rate swap
agreements; exchange-traded options on U.S. Treasury and Eurodollar
futures contracts; and exchange-traded options on interest rate swap
agreements) (in the aggregate) will be invested in instruments that
trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
    (13) All of the Fund's net assets that are invested in exchange-
traded equity securities (including mortgage REITs (both common and
preferred shares); ETFs; and exchange-traded Real Estate Companies) (in
the aggregate) will be invested in securities that trade in markets
that are members of ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
    (14) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.

The Exchange represents that all statements and representations made in
this filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures shall
constitute continued listing requirements for listing the Shares on the
Exchange. In addition, the issuer has represented to the Exchange that
it will advise the Exchange of any failure by the Fund to comply with
the continued listing requirements, and, pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements.\39\ If the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under the Nasdaq 5800
Series.
---------------------------------------------------------------------------

    \39\ The Commission notes that certain other proposals for the
listing and trading of Managed Fund Shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Securities Exchange Act Release No.
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (Notice of Filing
of Amendment No. 2, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, to List and
Trade Shares of the SPDR DoubleLine Short Duration Total Return
Tactical ETF of the SSgA Active Trust), available at: http://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the context of this
representation, it is the Commission's view that ``monitor'' and
``surveil'' both mean ongoing oversight of the Fund's compliance
with the continued listing requirements. Therefore, the Commission
does not view ``monitor'' as a more or less stringent obligation
than ``surveil'' with respect to the continued listing requirements.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice. The
Commission notes that the Fund and the Shares must comply with the
requirements of Nasdaq Rule 5735 to be listed and traded on the
Exchange on an initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \40\ and the
rules and regulations thereunder applicable to a national securities
exchange.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\41\ that the proposed rule change (SR-NASDAQ-2016-064)
be, and it hereby is, approved.
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    \41\ 15 U.S.C. 78s(b)(2).
    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18470 Filed 8-3-16; 8:45 am]
 BILLING CODE 8011-01-P