[Federal Register: February 7, 2008 (Volume 73, Number 26)]
[Notices]
[Page 7293-7298]
[DOCID:fr07fe08-74]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. 2007D-0494]

Draft Guidance for Industry: Control of Listeria monocytogenes in
Refrigerated or Frozen Ready-To-Eat Foods; Availability

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is announcing the
availability of the draft guidance entitled ``Guidance for Industry:
Control of Listeria monocytogenes in Refrigerated or Frozen Ready-To-
Eat Foods'' (the draft Listeria guidance). This draft guidance, when
finalized, will complement FDA's current good manufacturing practices
(CGMP) regulations by providing specific guidance on the control of L.
monocytogenes in the processing of refrigerated or frozen ready-to-eat
foods (RF-RTE foods). The draft Listeria guidance and the CGMP
regulations are intended to assist processors in controlling L.
monocytogenes in the food processing environment during the manufacture
of RF-RTE foods.

DATES: Although you can comment on any guidance at any time (see 21 CFR
10.115(g)(5)), to ensure that the agency considers your comment on this
draft

guidance before it begins work on the final version of the guidance,
submit written or electronic comments on the draft guidance by April 7,
2008. Submit written or electronic comments concerning the collection
of information provisions by April 7, 2008.

ADDRESSES: Submit written requests for single copies of the draft
guidance entitled ``Guidance for Industry: Control of Listeria
monocytogenes in Refrigerated or Frozen Ready-To-Eat Foods'' to the
Office of Food Safety, Center for Food Safety and Applied Nutrition
(HFS-325), Food and Drug Administration, 5100 Paint Branch Pkwy.,
College Park, MD 20740. Send two self-addressed adhesive labels to
assist that office in processing your request, or fax your request to
301-436-2601. See the SUPPLEMENTARY INFORMATION section for electronic
access to the draft guidance.
    Submit written comments on the draft guidance and the proposed
collection of information provisions to the Division of Dockets
Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane,
rm. 1061, Rockville, MD 20852. Submit electronic comments to http://www.regulations.gov
.

FOR FURTHER INFORMATION CONTACT: With regard to the information
collection provisions: Jonna Capezzuto, Office of the Chief Information
Officer (HFA-250), Food and Drug Administration, 5600 Fishers Lane,
Rockville, MD 20857,<PHONE_NUMBER>.
    With regard to the draft guidance document: Mary Losikoff, Center
for Food Safety and Applied Nutrition (HFS-325), Food and Drug
Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, 301-
436-1412.

SUPPLEMENTARY INFORMATION:

I. Background

    L. monocytogenes is a pathogenic bacterium that is widespread in
the environment and thus may be introduced into a food processing
facility. L. monocytogenes can contaminate foods and cause a mild
illness (called listerial gastroenteritis) or a severe, sometimes life-
threatening, disease (called invasive listeriosis). With rare
exceptions, foods that have been implicated in outbreaks or sporadic
cases of invasive listeriosis have been refrigerated foods that can
support the growth of L. monocytogenes and that are RTE. RF-RTE foods
can be contaminated if ingredients in the foods are contaminated with
L. monocytogenes and not treated to destroy viable cells of this
pathogen, or if L. monocytogenes is present on surfaces (e.g., in the
food processing environment) that can contaminate food or food-contact
surfaces.
    With this notice, FDA is announcing the availability of the draft
Listeria guidance. This draft guidance is being issued consistent with
FDA's good guidance practices regulation (21 CFR 10.115). The draft
guidance, when finalized, will represent FDA's current thinking on the
control of L. monocytogenes in the processing of RF-RTE foods. It does
not create or confer any rights for or on any person and does not
operate to bind FDA or the public. An alternative approach may be used
if such approach satisfies the requirements of the applicable statutes
and regulations.

II. Paperwork Reduction Act of 1995

    This draft guidance contains information collection provisions that
are subject to review by the Office of Management and Budget (OMB)
under the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C 3501-
3520). Under the PRA, Federal agencies must obtain approval from the
OMB for each collection of information they conduct or sponsor.
``Collection of information'' is defined in 44 U.S.C. 3502(3) and 5 CFR
1320.3(c) and includes agency requests or requirements that members of
the public submit reports, keep records, or provide information to a
third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A))
requires Federal agencies to provide a 60-day notice in the Federal
Register concerning each proposed collection of information before
submitting the collection to OMB for approval. To comply with this
requirement, FDA is publishing notice of the proposed collection of
information set forth in this document.
    FDA invites comments on these topics: (1) Whether the proposed
collection of information is necessary for the proper performance of
FDA's functions, including whether the information will have practical
utility; (2) the accuracy of FDA's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (3) ways to enhance the quality,
utility, and clarity of the information to be collected; and (4) ways
to minimize the burden of the collection of information on respondents,
including through the use of automated collection techniques, when
appropriate, and other forms of information technology.
    Title: Control of Listeria monocytogenes in Refrigerated or Frozen
Ready-To-Eat Foods.
    Description: The Federal Food, Drug, and Cosmetic Act prohibits the
distribution of adulterated food in interstate commerce (21 U.S.C. 331
and 342). L. monocytogenes is a pathogenic bacterium that is widespread
in the environment and thus may be introduced into a food processing
facility. L. monocytogenes can contaminate foods and cause a mild
illness (called listerial gastroenteritis) or a severe, sometimes life-
threatening, disease (called invasive listeriosis). Foods that have
been implicated in outbreaks of invasive listeriosis have been
refrigerated foods that can support the growth of L. monocytogenes and
that are RTE. RF-RTE foods can be contaminated if ingredients in the
foods are contaminated with L. monocytogenes and not treated to destroy
viable cells of this pathogen, or if L. monocytogenes is present on
surfaces (e.g., in the food processing environment) that can
contaminate food or food-contact surfaces. The draft Listeria guidance,
when finalized, will complement FDA's CGMP regulations in 21 CFR part
110 by providing specific guidance on the control of L. monocytogenes
in the processing of RF-RTE foods. The draft Listeria guidance and the
CGMP regulations are intended to assist processors in controlling L.
monocytogenes in the food processing environment during the manufacture
of RF-RTE foods. FDA encourages processors of RF-RTE foods to adopt the
general recommendations in the draft Listeria guidance and to tailor
practices to their individual operations.
    FDA's draft Listeria guidance represents the agency's
recommendations to industry based on the current state of science.
Following the recommendations set forth in the draft Listeria guidance
is the choice of each individual operation, plant, or processor. FDA
estimates the burden of this draft guidance on industry by assuming
that those in the industry who process RF-RTE foods and who do not
currently follow the recommendations put forth in the guidance will
find it of value to do so. Therefore, the estimates of the burden
associated with the issuance of this guidance represent the upper bound
estimate of burden: the burden if every operation, plant, or processor
that does not follow the recommendations of the guidance should choose
to do so.
    In order to minimize L. monocytogenes contamination in RF-RTE
foods, FDA is recommending that the following records be maintained, as
appropriate, to identify trends, document procedures, and facilitate
corrective actions:

Ingredient and Process Control
     List of ingredients reasonably likely to be contaminated
with L. monocytogenes
     Listeristatic or listericidal control measures
     Ingredient control records, i.e. certificate of
conformance (COC), certificate of analysis (COA)
     Ingredient testing records
General Sanitation
     Written sanitation standard operating procedures (SSOP)
     Sanitation monitoring records
Monitoring of Critical Surfaces and Sampling of Finished Product
     Written plan for monitoring L. monocytogenes on food-
contact and non-food-contact surfaces
     Procedures to detect and enumerate L. monocytogenes,
unless the procedure used is the procedure that FDA identifies in the
guidance
     Results of tests to detect or enumerate L. monocytogenes
on food-contact and non-food contact surfaces
     Results of tests to detect or enumerate L. monocytogenes
in finished product
     Corrective actions taken
    Description of Respondents: The likely respondents to this request
to keep the records described previously are U.S. processors of RF-RTE
foods.
    FDA estimates the burden of this collection of information as
follows:
    The estimated recurring annual burden for this information
collection is 863,974 hours. Thus, the first year estimated burden for
this information collection is 939,242 hours (863,974 hours + 75,268
first-year-only hours). A detailed breakdown of the estimated burden is
shown in table 1 of this document.

                                                   Table 1.--Estimated Annual Recordkeeping Burden\1\
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                                                   No. of         Annual Frequency      Total Annual       Hours per      Total Capital
               Type of Record                  Recordkeepers      per Recordkeeping       Records           Record          Costs\2\       Total Hours
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Ingredient and Process Control
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List of ingredients reasonably likely to be              3,755                     1            3,755               1    ..............            3,755
 contaminated with L. monocytogenes\3\
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Record of verification of technique used                   188                     3              564               1    ..............              564
 for listeristatic control measures\3\
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Record of verification of technique used                 2,629                     1            2,629               1    ..............    *COM041*2,629
 for listericidal control measures\3\
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Listeristatic control                                      376                   900          338,400               0.1  ..............           33,840
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Listericidal control                                     2,629                   900        2,366,100               0.1  ..............          236,610
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Ingredient control records (includes COC,                1,126                    72           81,072               0.1  ..............            8,107
 COA, and ingredient testing)
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General Sanitation
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Written SSOP\3\                                          4,270                     1            4,270               8    ..............           34,160
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Sanitation monitoring records                            4,270                   300        1,281,000               0.1  ..............          128,100
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Environmental Monitoring and Product Sampling
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Written critical surface and finished                    4,270                     1            4,270               8    ..............           34,160
 product monitoring program\3\
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Food-contact surface monitoring results                  4,270                    52          222,040               0.5  ..............          111,020
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Record of corrective action taken for food-              4,270                    10           42,700               0.5  ..............           21,350
 contact surface positive
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Non-food-contact surface monitoring results              4,270                    26          111,020               0.5  ..............           55,510
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Record of corrective action taken for non-               4,270                    10           42,700               0.5  ..............           21,350
 food-contact surface positive
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Finished product results                                 4,270                    12           51,240               0.5  ..............           25,620
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Record of corrective action taken for                    4,270                   0.2              854               0.5  ..............              427
 finished product positive
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Written analytical method to detect or                       0                     1                0               0.1  ..............                0
 enumerate L. monocytogenes (besides the
 bacteriological analytical manual (BAM) or
 the international organization for
 standardization (ISO))\3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Record Maintenance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Record Maintenance                                       4,270                    52          222,040               1    ..............          222,040
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                                             .................  ....................  ...............  ................        $640,500  ...............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total hours for first year                                                                                939,242
----------------------------------------------------------------------------------------------------------------------------------------
Total recurring hours                                                                                863,974
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\1\There are no operating and maintenance costs associated with this collection of information.
\2\Estimated capital costs for all record keeping items are combined.
\3\First year burden.

    Data for the number of establishments potentially affected by this
guidance were obtained from U.S. Census Bureau's 2003 ``County Business
Patterns.'' Including grocery stores, delicatessens, and retail
establishments that might perform some sort of RF-RTE food processing
would bring the number of affected establishments to over 100,000.
However, FDA anticipates this guidance would be used mainly by firms
that are primarily RF-RTE food processors and manufacturers. Overall,
there are 4,270 RF-RTE food processors and manufacturers that might be
affected by this guidance. Liquid milk producers account for 515 of the
establishments, and are already regulated by each state individually
through the adoption of the Pasteurized Milk Ordinance (PMO). FDA
assumes that milk producers would refer to the PMO for guidance in
production and therefore would only be collecting or maintaining new
information for general sanitation and on environmental monitoring and
product sampling. There are currently 34 butter manufacturers, 408 ice
cream manufacturers, 514 cheese manufacturers, and 501 ice
manufacturers in the United States. There are 643 producers of
perishable foods (including sandwiches, salads, and fresh-cut
vegetables).\1\ There are 782 canned fruit and vegetable processors
(including orange juice).\2\ There are 259 frozen pastry
manufacturers.\3\ Furthermore, there are 614 RF-RTE seafood
establishments.\4\ Some aspects of this record collection, such as
sanitation monitoring records, are covered by FDA's regulations
concerning hazard analysis and critical control point (HACCP) systems
(21 CFR parts 120 and 123), though not specifically for L.
monocytogenes. Therefore, some of the records may already be collected
by some establishments. For the purposes of this analysis, FDA assumes
that none of the affected establishments are currently collecting the
information specific to L. monocytogenes. There are approximately 3,755
establishments (4,270 establishments - 515 milk producers) that would
be collecting new information on ingredient and process control. All
4,270 establishments would be collecting new information for general
sanitation and on environmental

monitoring and product sampling. All establishments would need to
maintain those records.
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    \1\North American Industry Classification System (NAICS) code
311991 also includes items such as fresh pasta and prepared meals.
Producers of some of these items will not follow the guidance,
either because their item is not an RF-RTE food or they are under
the jurisdiction of the U.S. Department of Agriculture (USDA). In
this regard, using the total from NAICS 311991 is an overestimate of
the total burden. However, this is offset by the establishments in
``County Business Patterns'' that are counted only under their
primary NAICS code. Establishments whose primary line of business is
not in NAICS 311991 are not counted in this category.
    \2\NAICS 311421 includes many items that are not refrigerated.
Therefore, this number is an overestimate of the burden of the
guidance. However, that may be offset to some extent by failure to
count establishments whose primary line of business is in another
NAICS code.
    \3\NAICS code 311813 contains some items, such as some frozen
pies, that are not considered RF-RTE foods. Therefore, using the
total number of establishments within NAICS 311813 is an
overestimate. This overestimate is offset to an unknown degree by
the undercounting of establishments whose primary product is in
another NAICS code.
    \4\Not all seafood processors are covered by this guidance.
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    The draft guidance recommends that establishments keep a list of
ingredients likely to be contaminated with L. monocytogenes. It is not
likely that many establishments will have such a list, so this will be
a one-time burden for 3,755 establishments. FDA estimates the list will
take about 1 hour to compile, for a total one-time burden of about
3,755 hours.
    Plants employing either a listericidal or listeristatic step would
be recommended to maintain documentation of scientific studies that
demonstrate that the control measure consistently destroys viable cells
or is effective in preventing the growth of L. monocytogenes. FDA
believes that about 80 percent of the establishments will either employ
a listericidal or listeristatic step (approximately 70 percent will
have a listericidal step and 10 percent will have listeristatic steps).
    Based on these assumptions, there will be roughly 2,629
establishments (0.70 x 3,755) that would be recommended to keep a new
record showing the efficacy of their listericidal step. Although the
time taken to commit the verification to record will vary, FDA
estimates that, on average, it will take about 1 hour for the
documentation.\5\ The total one-time burden is estimated to be about
2,629 hours.
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    \5\ Many firms may choose a well-established listericidal
measure, identified in the draft guidance (such as irradiation or
thermal processing). The efficacy of these measures will take less
time to record than less well-known means of listericidal control.
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    Under the draft guidance, listeristatic control measures fall into
two categories: Those that are generally recognized as effective in
preventing the growth of L. monocytogenes (such as maintaining a pH of
4.4 or below, or maintaining a water activity of 0.92 or below) and
those that a firm would develop on its own (such as formulating a food
to contain one or more inhibitory substances that, alone or in
combination, prevent the growth of L. monocytogenes). We estimate that
about 50 percent of firms that establish and use listeristatic control
measures (0.50 x 376, or 188 establishments) would develop their own
listeristatic control measures, and would do so for three different
food products on average. We also estimate that it would take
approximately 1 hour to establish a record documenting the scientific
studies that establish that the control measure consistently prevents
the growth of L. monocytogenes, for a total one-time burden of about
564 hours.
    As stated, the draft guidance recommends that processors of RF-RTE
foods select one or more identified measures to control ingredients.
The recommended measures to control ingredients that may be adopted by
firms expected to collect new records include: Eliminating L.
monocytogenes by using a listericidal control measure at some point
between the arrival of the ingredient and the shipping of the final
product, receiving ingredients under a COA or COC, or testing the
ingredients for the presence of L. monocytogenes.
    For firms that choose to eliminate L. monocytogenes by using a
listericidal control measure at some point between the arrival of the
ingredient and the shipping of the final product, the draft guidance
recommends that records of listericidal control measures be kept on a
daily basis, per product, per lot, either per ingredient lot or per
final product lot. FDA estimates that most firms choosing to employ a
listericidal control measure would do so on the final product and that
although the number of lots may vary from firm to firm, the time taken
to record the entire process for each product would not. Therefore, the
records can be treated as a daily collection for each unique product.
We estimate that records of each listericidal control measure could be
produced in approximately 6 minutes for an average of three products
per plant. FDA does not have information to predict how many
establishments would employ a listericidal control step. For this
analysis, FDA estimates that about 70 percent of the affected
establishments (2,629 establishments) would do so. These records would
produce a total annual burden of about 236,610 hours ((2,629 plants) x
(3 products) x (300 days of production) x (0.1 hours)).
    Under the recommendations in the draft guidance, firms may instead
choose to test ingredients for L. monocytogenes on a per ingredient
basis, or to receive ingredients under a COC or a COA. Firms that
choose to test would test each lot after it arrives at the facility.
Firms employing a listericidal step would not need to perform this type
of ingredient control, so FDA estimates that this may be a new burden
for 1,126 establishments. FDA assumes that processors of RF-RTE foods
typically receive ingredients twice a month and the number of
ingredients varies from firm to firm. Although some products could
contain more than 20 ingredients, we assume that only an average of 3
ingredients would need to be tested for the presence of L.
monocytogenes in a single product. Therefore, the frequency of the
collection is 72 times per year. FDA estimates that the record of the
test results could be produced in about 6 minutes. Firms that choose to
receive ingredients under a COC or a COA would produce a record of the
COC or COA on a per ingredient, per delivery basis, resulting in an
average of 72 collections per year. FDA believes that these records
would take less than 6 minutes each to produce. Ingredient testing
records or collecting a COC or COA would produce a total annual
paperwork burden of about 8,107 hours ((1,126 plants) x (72 collections
per year) x (6 minutes per record)).
    Firms may choose to add a listeristatic step in addition to the
COC, COA, or ingredient testing. FDA recommends in the draft guidance
that records of listeristatic control measures be kept on a daily basis
per lot, either per ingredient lot or per final product lot. FDA
assumes that, similar to listericidal control records, listeristatic
control records can be treated as a daily collection for each product,
taking approximately 6 minutes. FDA does not have information to
predict how many establishments would employ a listeristatic step. For
this analysis, FDA estimates that about 10 percent of the affected
establishments (376 establishments) would collect the information for
an average of 3 products. These records would produce a total annual
burden of about 33,840 hours ((376 plants) x (3 products) x (300 days
of production) x (0.1 hours)).
    In the draft guidance, FDA is recommending that firms have written
SSOPs. FDA assumes this is a new collection for 4,270 establishments.
Developing written SSOPs would be a one-time cost and we assume that
this would take approximately 8 hours. This results in a first year
burden of 34,160 hours (4,270 plants x 8 hours). The guidance also
recommends that firms have written sanitation monitoring records. As
stated previously, establishments subject to FDA's HACCP regulations
are already required to have sanitation monitoring records, in order in
order to comply with those regulations. However, because these records
may not be specific to L. monocytogenes, FDA assumes this is a new
collection for 4,270 establishments. We assume that sanitation
monitoring records would be kept every day and could be produced in
about 6 minutes per day. Therefore about 128,100 hours would be spent
annually on sanitation records ((4,270 plants) x (300 days of
production) x (0.1 hours)).
    FDA assumes that although some firms may have an environmental
monitoring program for critical surfaces in place (including surfaces
that contact

food as well as surfaces that do not contact food), very few would have
a program in place as thorough as the one described in the draft
guidance. Therefore, FDA estimates that 4,270 establishments may choose
to adopt the recommendations to develop a written environmental
monitoring program, keep environmental testing results, and record
finished product testing results. Developing a written environmental
monitoring program would be a one-time cost and we assume that it would
take approximately 8 hours. This results in a first year burden of
about 34,160 hours (4,270 plants x 8 hours). For critical food-contact
surfaces, the draft guidance recommends that tests be conducted on a
weekly basis. We assume that it would take up to half an hour to
produce a record of the results of the test, depending on the number of
sites tested and subject to variability between firms, resulting in an
annual burden of about 111,020 hours ((4,270 plants) x (52 records per
year) x (0.5 hours)). For critical non-food-contact surfaces, the draft
guidance recommends that tests be conducted every 2 weeks. As with
testing for food-contact surfaces, we assume that the records would
take up to half an hour to produce, resulting in an annual burden of
about 55,510 hours ((4,270 plants) x (26 records per year) x (0.5
hours)). The draft guidance recommends ``periodic'' testing of finished
product, such as weekly, monthly, or quarterly. For purposes of this
analysis, FDA assumes most firms would conduct monthly testing of
finished product. As with testing of critical surfaces, we assume the
records would take approximately one half hour to produce, for an
annual burden of about 25,620 hours ((4,270 plants) x (12 records per
year) x (0.5 hours)).
    In the draft guidance, FDA is recommending that firms that detect
Listeria species on critical surfaces or in the finished product take
corrective action and keep a record of what was done. The time to
record the corrective actions would vary, but on average FDA estimates
the record would require one half hour to produce. FDA cannot
accurately predict how often firms would detect Listeria species in the
environment. For the purposes of this analysis, and assuming that firms
follow the rest of the guidance, FDA conservatively assumes that firms
would detect Listeria species on food-contact surfaces about 20 percent
of the time that tests are run, producing a total of 10 new records per
establishment annually. Because non-food-contact surfaces cover
inherently more space than food-contact surfaces and may be cleaned
less stringently, FDA estimates that firms would detect Listeria
species twice as often per test as they do when running tests on food-
contact surfaces. Because these tests are run only half as often as
food-contact surface tests (every 2 weeks rather than every week), this
record would also be produced an average of 10 times annually per
establishment. We assume that Listeria species would not often be
detected in the final product, based on the projections of the
``Quantitative Assessment of Relative Risk to Public Health From
Foodborne Listeria monocytogenes Among Selected Categories of Ready-to-
Eat Foods,'' (the Risk Assessment), written jointly by USDA and FDA.
The Risk Assessment projected that 2 percent of RF-RTE food is
contaminated with L. monocytogenes. FDA uses this number to estimate
that records for corrective action due to finished product testing
would produce, on average, 0.2 new records per establishment annually.
The total annual burden produced by corrective action records would be
about 43,127 hours ([(4,270 plants) x (10 records per year for
corrective actions taken after food-contact surface positive) x (0.5
hours per record)] + [(4,270 plants) x (10 records per year) x (0.5
hours per record for corrective actions taken after non-food-contact
surface positive )] + ((4,270 plants) x (0.2 records per year for
corrective actions after finished product positive) x (0.5 hours per
record)]).
    If a firm does not use one of the methods described in FDA's BAM or
by ISO, FDA is recommending that the firm have a written record of its
method to enumerate or detect L. monocytogenes. FDA assumes most firms
would use one of the methods described in the BAM or by ISO. Therefore,
there would be no new collection of information.
    FDA estimates that record maintenance would require roughly 1 hour
per week for each firm, for a total of about 222,040 annual hours
((4,270 plants) x (52 weeks maintenance) x (1 hour per week)).
    FDA estimates that each of the 4,270 establishments expected to
keep new records would purchase a storage unit for the records. A
standard file cabinet large enough for such records as described in the
guidance costs about $150. Therefore, there would be total first year
capital costs of about $640,500 (4,270 plants x $150).

III. Comments

    Interested persons may submit to the Division of Dockets Management
(see ADDRESSES) written or electronic comments regarding the draft
guidance and the collection of information provisions. Submit a single
copy of electronic comments or two paper copies of any mailed comments,
except that individuals may submit one paper copy. Comments are to be
identified with the docket number found in brackets in the heading of
this document. The draft guidance and received comments may be seen in
the Division of Dockets Management between 9 a.m. and 4 p.m., Monday
through Friday.
    Please note that on January 15, 2008, the FDA Web site transitioned
to the Federal Dockets Management System (FDMS). FDMS is a Government-
wide, electronic docket management system. Electronic submissions will
be accepted by FDA through the FDMS only.

IV. Electronic Access

    Persons with access to the Internet may obtain the draft guidance
from the Center for Food Safety and Applied Nutrition home page at
http://www.cfsan.fda.gov/guidance.html.

    Dated: January 16, 2008.
Jeffrey Shuren,
Assistant Commissioner for Policy.
[FR Doc. 08-548 Filed 2-6-08; 8:45 am]

BILLING CODE 4160-01-S


[Federal Register Volume 79, Number 185 (Wednesday, September 24, 2014)]
[Notices]
[Pages 57144-57150]
[FR Doc No: 2014-22670]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73140; File No. SR-NASDAQ-2014-073]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1, To List and Trade Shares of the First Trust Emerging Markets Local
Currency Bond ETF of First Trust Exchange-Traded Fund III

September 18, 2014.

I. Introduction

    On July 18, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the First
Trust Emerging Markets Local Currency Bond ETF (``Fund'') under Nasdaq
Rule 5735. The Exchange filed Amendment No. 1 to the proposal on July
25, 2014.\3\ The proposed rule change, as modified by Amendment No. 1,
was published for comment in the Federal Register on August 5, 2014.\4\
The Commission received no comments on the proposed rule change. This
order grants approval of the proposed rule change, as modified by
Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 clarified that reverse repurchase agreements
will not be used by the Fund to enhance leverage.
    \4\ See Securities Exchange Act Release No. 72716 (July 30,
2014), 79 FR 45535 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant
to Nasdaq Rule 5735, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by First Trust
Exchange-Traded Fund III (``Trust''), which was established as a
Massachusetts business trust on January 9, 2008.\5\ The Fund will

be a series of the Trust. First Trust Advisors L.P. will be the
investment adviser (``Adviser'') to the Fund. First Trust Global
Portfolios Ltd will serve as investment sub-adviser (``Sub-Adviser'')
to the Fund and provide day-to-day portfolio management.\6\ First Trust
Portfolios L.P. (``Distributor'') will be the principal underwriter and
distributor of the Fund's Shares. Brown Brothers Harriman & Co. will
act as the administrator, accounting agent, custodian, and transfer
agent to the Fund.
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    \5\ According to the Exchange, the Trust is registered with the
Commission as an investment company and has filed a registration
statement on Form N-1A (``Registration Statement'') with the
Commission. See Post-Effective Amendment No. 10 to Registration
Statement on Form N-1A for the Trust, dated July 8, 2014 (File Nos.
333-176976 and 811-22245). The Exchange states that the Commission
has issued an order granting certain exemptive relief to the Trust
under the Investment Company Act of 1940 (``1940 Act''). See
Investment Company Act Release No. 30029 (April 10, 2012) (File No.
812-13795) (``Exemptive Relief''). In addition, the Exchange states
that the Commission has issued no-action relief pertaining to the
Fund's ability to invest in derivatives, notwithstanding certain
representations in the application for the Exemptive Relief. See
Commission No-Action Letter (December 6, 2012).
    \6\ The Exchange states that neither the Adviser nor the Sub-
Adviser is a broker-dealer; however, both the Adviser and the Sub-
Adviser are affiliated with the Distributor (as defined herein),
which is a broker-dealer. The Exchange represents that the Adviser
and the Sub-Adviser have each implemented a fire wall with respect
to their broker-dealer affiliate regarding access to information
concerning the composition of or changes to the portfolio. The
Exchange further represents that 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 addition, the
Exchange represents that in the event (a) the Adviser or the Sub-
Adviser becomes, or becomes newly affiliated with, a broker-dealer
or registers as a broker-dealer; or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with a
broker-dealer, the Adviser or Sub-Adviser or any new adviser or sub-
adviser, as applicable, will implement a fire wall with respect to
its relevant personnel and/or such broker-dealer affiliate, as
applicable, regarding access to information concerning the
composition of or changes to the portfolio, and the Adviser or Sub-
Adviser or any new adviser or sub-adviser, as applicable, will be
subject to procedures designed to prevent the use and dissemination
of material non-public information regarding the portfolio.
---------------------------------------------------------------------------

    The Exchange has made the following representations and statements
in describing the Fund and its principal investments, investments in
derivatives and foreign currencies, and other investments and
investment restrictions.\7\
---------------------------------------------------------------------------

    \7\ The Commission notes that additional information regarding
the Trust, the Fund, and the Shares, including investment
strategies, risks, creation and redemption procedures, calculation
of net asset value (``NAV''), fees, portfolio holdings disclosure
policies, distributions, and taxes, among other things, can be found
in the Notice and Registration Statement, as applicable. See supra
notes 4 and 5, respectively.
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Principal Investments

    The investment objective of the Fund will be to seek maximum total
return and current income. Under normal market conditions,\8\ the Fund
will invest at least 80% of its net assets (including investment
borrowings) in bonds, notes, bills, certificates of deposit, time
deposits, commercial paper, and loans issued by issuers in emerging
market \9\ countries (``Debt Instruments'') that are denominated in the
local currency of the issuer. Debt Instruments will be issued or
guaranteed (as applicable) by: (i) Foreign governments (which may be
local foreign governments); (ii) instrumentalities, agencies, or other
political subdivisions of foreign governments (which may be local
foreign governments); (iii) central banks, sovereign entities,
supranational issuers, or development agencies; or (iv) entities or
enterprises organized, owned, backed, or sponsored by any of the
entities set forth in the foregoing clauses (i)-(iii).\10\ The Fund
will invest in Debt Instruments issued by at least 13 non-affiliated
issuers.
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    \8\ 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 fixed income markets or the
financial markets generally; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
    \9\ According to the Adviser and the Sub-Adviser, while there is
no universally accepted definition of what constitutes an ``emerging
market,'' in general, emerging market countries are characterized by
developing commercial and financial infrastructure with significant
potential for economic growth and increased capital market
participation by foreign investors. The Adviser and Sub-Adviser will
look at a variety of commonly-used factors when determining whether
a country is an ``emerging'' market. In general, the Adviser and
Sub-Adviser will consider a country to be an emerging market if it
is classified by the World Bank in the lower, lower middle, or upper
middle income designation for one of the past three years. This
definition could be expanded or exceptions could be made depending
on the evolution of market and economic conditions.
    \10\ Debt Instruments include fixed rate, floating rate, and
index-linked debt obligations. In addition, Debt Instruments include
inflation-linked bonds. Inflation-linked bonds are fixed income
securities that are structured to provide protection against
inflation. The value of the inflation-linked bond's principal or the
interest income paid on the bond is adjusted to track changes in an
official inflation measure. The value of inflation-linked bonds is
expected to change in response to changes in real interest rates.
Real interest rates are tied to the relationship between nominal
interest rates and the rate of inflation. If nominal interest rates
increase at a faster rate than inflation, real interest rates may
rise, leading to a decrease in the value of inflation-linked bonds.
---------------------------------------------------------------------------

    In implementing the Fund's investment strategy, the Sub-Adviser
will seek to provide current income and enhance capital, while
minimizing volatility. The Sub-Adviser will continually review
fundamental economic and structural themes that impact long- and
medium-term asset returns in emerging markets. The Sub-Adviser will
also consider shorter-term market drivers such as valuations, liquidity
conditions, and sentiment to determine the appropriate positioning of
the Fund's investments. The Sub-Adviser will adjust the portfolio's
country allocations, duration, and individual security positioning to
reflect the most attractive opportunities on a continuous basis.
    The Fund's exposure to any single country generally will be limited
to 20% of the Fund's net assets (although this percentage may change
from time to time in response to economic events). The percentage of
Fund assets invested in a specific region, country, or issuer will
change from time to time. The Fund intends, initially, to invest in
Debt Instruments of issuers in the following countries: Brazil, Chile,
Colombia, Hungary, Indonesia, Israel, Malaysia, Mexico, Nigeria, Peru,
Philippines, Poland, Romania, Russia, South Africa, South Korea,
Thailand, Turkey, and Uruguay. This list may change as market
developments occur and may include additional issuers. The Fund will
invest only in Debt Instruments that, at the time of purchase, are
performing, and not in default or distressed; however, the Debt
Instruments in which the Fund invests may become non-performing,
distressed, or defaulted subsequent to purchase and the Fund may
continue to hold such Debt Instruments. The Fund may invest in Debt
Instruments of any credit quality,\11\ including unrated securities,
and with effective or final maturities of any length.
---------------------------------------------------------------------------

    \11\ The universe of emerging markets local currency debt
currently includes securities that are rated ``investment grade'' as
well as ``non-investment grade'' securities. The Fund will invest in
both investment-grade and non-investment-grade securities, as well
as unrated securities. There is no limit on the amount of the Fund's
assets that may be invested in non-investment grade and unrated
securities.
---------------------------------------------------------------------------

    Liquidity will be a substantial factor in the Fund's security
selection process.\12\ Under normal market conditions, at least 80% of
the Fund's net assets that are invested in Debt

Instruments will be invested in Debt Instruments that are issued by
issuers with outstanding debt of at least $200 million (or the foreign
currency equivalent thereof).
---------------------------------------------------------------------------

    \12\ In reaching liquidity decisions, the Adviser and/or the
Sub-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).
---------------------------------------------------------------------------

Investments in Derivative Instruments and Foreign Currencies

    The Fund's investments in derivative instruments will be made in
accordance with the 1940 Act and consistent with the Fund's investment
objective and policies. Under normal market conditions, no more than
20% of the value of the Fund's net assets will be invested in
derivative instruments. 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, among other things,
interest rates, currencies, or currency exchange rates. The Fund may,
but is not required to, use derivative instruments for risk management
purposes or as part of its investment strategies. The Fund may invest
in exchange-listed futures contracts,\13\ exchange-listed options,\14\
exchange-listed options on futures contracts, forward currency
contracts, non-deliverable forward currency contracts, and exchange-
listed currency options.\15\
---------------------------------------------------------------------------

    \13\ The Fund will use futures contracts to hedge interest rate
risk and to actively manage interest rate exposure.
    \14\ Option purchases and sales can be used to help manage
exposures (i.e., exposures to interest rates and/or currencies) more
efficiently in the portfolio, while limiting downside.
    \15\ At least 90% of the Fund's net assets that are invested in
exchange-traded derivative instruments will be invested in
instruments that trade in markets that are members of the
Intermarket Surveillance Group (``ISG'') or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------

    The Fund will use derivative instruments primarily to hedge
interest rate and foreign currency risk and to actively manage interest
rate and foreign currency exposure. The Fund may also use derivative
instruments to enhance returns, as a substitute for, or to gain
exposure to, a position in an underlying asset, to reduce transaction
costs, to maintain full market exposure (i.e., to adjust the
characteristics of its investments to more closely approximate those of
the markets in which it invests), to manage cash flows, or to preserve
capital.\16\ The Fund's investments in derivative instruments will not
be used to seek to achieve a multiple or inverse multiple of an index.
---------------------------------------------------------------------------

    \16\ The Fund will seek, where possible, to use counterparties
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 and/or the Sub-Adviser will evaluate the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, the Adviser's and/or the
Sub-Adviser's analysis will evaluate each approved counterparty
using various methods of analysis and may consider such factors as
the counterparty's liquidity, its reputation, the Adviser's and/or
Sub-Adviser's past experience with the counterparty, its known
disciplinary history, and its share of market participation.
---------------------------------------------------------------------------

    The Fund will invest in foreign currencies and Debt Instruments
denominated in foreign (non-U.S.) currencies, and will receive revenues
in foreign currencies. In addition, the Fund may engage in foreign
currency transactions on a spot (cash) basis and, as indicated above,
enter into forward currency contracts.\17\ A forward currency contract,
which involves an obligation to purchase or sell a specific currency at
a future date at a price set at the time of the contract, reduces the
Fund's exposure to changes in the value of the currency it will deliver
and increases its exposure to changes in the value of the currency it
will receive for the duration of the contract. Certain foreign currency
transactions (i.e., non-deliverable forward currency contracts) may
also be settled in cash rather than the actual delivery of the relevant
currency. The effect on the value of the Fund is similar to selling
securities denominated in one currency and purchasing securities
denominated in another currency. A contract to sell foreign currency
would limit any potential gain which might be realized if the value of
the hedged currency increases. The Fund may enter into these contracts
to hedge against foreign exchange risk, to increase exposure to a
foreign currency, or to shift exposure to foreign currency fluctuations
from one currency to another. Suitable hedging transactions may not be
available in all circumstances and there can be no assurance that the
Fund will engage in such transactions at any given time or from time to
time.
---------------------------------------------------------------------------

    \17\ At least 90% of the Fund's net assets that are invested in
foreign currencies will be invested in currencies with a minimum
average daily foreign exchange turnover of USD $1 billion as
determined by the Bank for International Settlements (``BIS'')
Triennial Central Bank Survey. As of the most recent BIS Triennial
Central Bank Survey, at least 52 separate currencies had minimum
average daily foreign exchange turnover of USD $1 billion. For a
list of eligible BIS currencies, see www.bis.org.
---------------------------------------------------------------------------

    The Fund will comply with the regulatory requirements of the
Commission to maintain assets as ``cover,'' maintain segregated
accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e.,
instruments other than purchase options). If the applicable guidelines
prescribed under the 1940 Act so require, the Fund will earmark or set
aside cash, U.S. government securities, high grade liquid debt
securities, and/or other liquid assets permitted by the Commission in a
segregated custodial account in the amount prescribed.

Other Investments and Investment Restrictions

    Under normal market conditions, the Fund will invest substantially
all of its assets to meet its investment objective and, as described
above, the Fund may invest in derivative instruments and foreign
currencies. In addition, the Fund may invest its remaining assets as
described below.
    The Fund may invest up to 20% of its net assets in non-U.S.
corporate bonds that are not included within the meaning of the term
``Debt Instruments'' (referred to as ``Corporate Bonds''). The Fund
will invest only in Corporate Bonds that the Adviser and/or the Sub-
Adviser deems to be sufficiently liquid.\18\ Under normal market
conditions, a Corporate Bond must have $200 million (or the foreign
currency equivalent thereof) or more par amount outstanding and
significant par value traded to be considered as an eligible
investment. Economic and other conditions may, from time to time, lead
to a decrease in the average par amount outstanding of non-U.S.
corporate bond issuances. Therefore, although the Fund does not intend
to do so, the Fund may invest up to 5% of its net assets in Corporate
Bonds with less than $200 million (or the foreign currency equivalent
thereof) par amount outstanding if (i) the Adviser and/or the Sub-
Adviser deems such securities to be sufficiently liquid and (ii) such
investment is deemed by the Adviser and/or the Sub-Adviser to be in the
best interest of the Fund.
---------------------------------------------------------------------------

    \18\ See supra note 12.
---------------------------------------------------------------------------

    The Fund may invest up to 20% of its net assets in short-term debt
securities (as described in the following paragraph) that are not
included within the meaning of the term ``Debt Instruments,'' \19\
money market funds, and other cash equivalents, or it may hold cash.
For temporary 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 and invest part or all of its assets in these securities or
it may hold cash. During such periods, the Fund may not be able to
achieve its investment objective. The Fund may adopt a defensive
strategy when the Adviser and/or Sub-Adviser believes that securities
in which the Fund normally invests have elevated risks due to political
or economic factors and in other extraordinary circumstances. The use
of temporary investments will not be a part of a principal investment
strategy of the Fund.
---------------------------------------------------------------------------

    \19\ Short-term debt securities are securities from issuers
having a long-term debt rating of at least A by Standard & Poor's
Ratings Services (``S&P Ratings''), Moody's Investors Service, Inc.
(``Moody's''), or Fitch Ratings (``Fitch'') and having a maturity of
one year or less. For the sake of clarity, the foregoing parameters
do not apply to Debt Instruments.
---------------------------------------------------------------------------

    Short-term debt securities are the following: (1) 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; (2) short-term securities issued or
guaranteed by non-U.S. governments or by their agencies or
instrumentalities; \20\ (3) certificates of deposit issued against
funds deposited in a bank or savings and loan association; (4) bankers'
acceptances, which are short-term credit instruments used to finance
commercial transactions; (5) repurchase agreements,\21\ which involve
purchases of debt securities; (6) 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; (7) commercial
paper, which is short-term unsecured promissory notes; \22\ and (8)
other securities that are similar to the foregoing.
---------------------------------------------------------------------------

    \20\ The relevant non-U.S. government, agency, or
instrumentality must have a long-term debt rating of at least A by
S&P Ratings, Moody's, or Fitch. For the sake of clarity, the
foregoing ratings requirement does not apply to Debt Instruments.
    \21\ The Fund intends to enter into repurchase agreements only
with financial institutions and dealers believed by the Sub-Adviser
to present minimal credit risks in accordance with criteria approved
by the Board of Trustees of the Trust (``Trust Board''). The Sub-
Adviser will review and monitor the creditworthiness of such
institutions. The Sub-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.
    \22\ Except for commercial paper that is included within the
meaning of the term ``Debt Instruments,'' the Fund will 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.
---------------------------------------------------------------------------

    The Fund may invest up to 20% of its net assets in the securities
of money market funds (as noted above) and other exchange-traded funds
(``ETFs'') \23\ that invest primarily in short-term debt securities or
Debt Instruments. Except for these investments in other investment
companies, the Fund will not invest directly in equity securities.\24\
The ETFs in which the Fund will invest will be exchange-listed and
trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------

    \23\ 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
(including without limitation ETFs) 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). While the Fund may invest in inverse ETFs, the Fund will not
invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
    \24\ It is possible, however, that an investment company in
which the Fund invests will invest a portion of its assets in
foreign and/or domestic equity securities.
---------------------------------------------------------------------------

    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 and/or
the Sub-Adviser.\25\ 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.
---------------------------------------------------------------------------

    \25\ See supra note 12.
---------------------------------------------------------------------------

    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 (a) obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or (b) securities of
other investment companies.
    The Fund may purchase securities on a when-issued or other delayed
delivery basis and may enter into reverse repurchase agreements.
Reverse repurchase agreements will not be used by the Fund to enhance
leverage.
    The Fund will seek to qualify for treatment as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended.

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 Act and
the rules and regulations thereunder applicable to a national
securities exchange.\26\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with Section 6(b)(5) of the Act,\27\ which requires, among other
things, that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, 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. 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.
---------------------------------------------------------------------------

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

    The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\28\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last
sale information for the Shares will be available via Nasdaq
proprietary quote and trade services, as well as in accordance with the
Unlisted Trading Privileges and the Consolidated Tape Association plans
for the Shares. In addition, the Intraday Indicative Value,\29\ as
defined in Nasdaq Rule

5735(c)(3), for the Fund will be available on the NASDAQ OMX
Information LLC proprietary index data service, 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.\30\ On each business day, before commencement of trading in
Shares in the Regular Market Session \31\ 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.\32\ The Fund's custodian, through the National Securities Clearing
Corporation, will make available on each business day, prior to the
opening of business of the Exchange, the list of the names and
quantities of the instruments, as well as the estimated amount of cash
(if any), constituting the creation basket for the Fund for that day.
The NAV of the Fund will be determined as of the close of trading
(normally 4:00 p.m., Eastern Time) on each day the New York Stock
Exchange is open for business.\33\ 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. Quotation and
last sale information for ETFs will be available via the CTA high-speed
line, and will be available from the national securities exchange on
which they are listed. Pricing information for ETFs and exchange-traded
derivative instruments will be available from the exchanges on which
they trade and from major market data vendors. Pricing information for
Debt Instruments, forward currency contracts, non-deliverable forward
currency contracts, and other debt securities in which the Fund may
invest will be available from major broker-dealer firms, major market
data vendors and/or Pricing Services. Money market funds are typically
priced once each business day and their prices will be available
through the applicable fund's Web site or 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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \29\ According to the Exchange, the Intraday Indicative Value
reflects an estimated intraday value of the Fund's Disclosed
Portfolio and will be based upon the current value for the
components of a Disclosed Portfolio. The Exchange states that 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, that premiums and
discounts between the Intraday Indicative Value and the market price
may occur, and that the Intraday Indicative Value should not be
viewed as a ``real time'' update of the NAV per Share of the Fund,
which is calculated only once a day.
    \30\ Currently, the NASDAQ OMX Global Index Data Service
(``GIDS'') is the NASDAQ OMX global index data feed service. The
Exchange represents that GIDS offers real-time updates, daily
summary messages, and access to widely followed indexes and Intraday
Indicative Values for ETFs and that GIDS provides investment
professionals with the daily information needed to track or trade
NASDAQ OMX indexes, listed ETFs, or third-party partner indexes and
ETFs.
    \31\ 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
4:00 p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session
from 4:00 p.m. or 4:15 p.m. to 8:00 p.m., Eastern Time).
    \32\ 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); 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 the percentage weighting of the holding in
the Fund's portfolio. The Fund's disclosure of derivative positions
in the Disclosed Portfolio will include information that market
participants can use to value these positions intraday. This Web
site information will be publicly available at no charge.
    \33\ NAV per Share will be calculated for the Fund by taking the
market price of the Fund's total assets, including interest or
dividends accrued but not yet collected, less all liabilities,
dividing such amount by the total number of Shares outstanding, and
rounding to the nearest cent. The Fund's investments will be valued
daily at market value or, in the absence of market value with
respect to any investment, at fair value, in each case in accordance
with valuation procedures, which may be revised from time to time,
adopted by the Trust Board (``Valuation Procedures'') and in
accordance with the 1940 Act. A market valuation generally means a
valuation (i) obtained from an exchange, an independent pricing
service (``Pricing Service''), or a major market maker or dealer, or
(ii) based on a price quotation or other equivalent indication of
value supplied by an exchange, a Pricing Service, or a major market
maker or dealer. Certain securities, including Debt Instruments, in
which the Fund will invest will not be listed on any securities
exchange or board of trade. Such securities will typically be bought
and sold by institutional investors in individually negotiated
private transactions that function in many respects like an over-
the-counter secondary market, although typically no formal market
makers will exist. Certain securities, particularly debt securities,
will have few or no trades, or trade infrequently, and information
regarding a specific security may not be widely available or may be
incomplete. Accordingly, determinations of the fair value of debt
securities may be based on infrequent and dated information. Because
there is less reliable, objective data available, elements of
judgment may play a greater role in valuation of debt securities
than for other types of securities. Typically, Debt Instruments and
other debt securities in which the Fund may invest will be valued
using information provided by a Pricing Service. To the extent debt
securities have a remaining maturity of 60 days or less when
purchased, they will be valued at cost adjusted for amortization of
premiums and accretion of discounts. Overnight repurchase agreements
will be valued at cost. Term repurchase agreements (i.e., those
whose maturity exceeds seven days) will be valued at the average of
the bid quotations obtained daily from at least two recognized
dealers. ETFs listed on any exchange other than the Exchange will be
valued at the last sale price on the exchange on which they are
principally traded on the business day as of which such value is
being determined. ETFs listed on the Exchange will be valued at the
official closing price on the business day as of which such value is
being determined. If there has been no sale on such day, or no
official closing price in the case of ETFs traded on the Exchange,
the ETFs will be valued using fair value pricing. ETFs traded on
more than one securities exchange will be valued at the last sale
price or official closing price, as applicable, on the business day
as of which such value is being determined at the close of the
exchange representing the principal market for such ETFs. Shares of
money market funds will be valued at their net asset values as
reported by such funds to Pricing Services. Exchange-traded options
and futures contracts will be valued at the closing price in the
market where such contracts are principally traded. Forward currency
contracts and non-deliverable forward currency contracts will be
valued at the current day's interpolated foreign exchange rate, as
calculated using the current day's spot rate, and the thirty, sixty,
ninety, and one-hundred-eighty day forward rates provided by a
Pricing Service or by certain independent dealers in such contracts.
Certain securities may not be able to be priced by pre-established
pricing methods. Such securities may be valued by the Trust Board or
its delegate at fair value. The use of fair value pricing by the
Fund will be governed by the Valuation Procedures and conducted in
accordance with the provisions of the 1940 Act. Valuing the Fund's
securities using fair value pricing will result in using prices for
those securities that may differ from current market valuations or
official closing prices on the applicable exchange. Because foreign
securities exchanges may be open on different days than the days
during which an investor may purchase or sell Shares, the value of
the Fund's securities may change on days when investors are not able
to purchase or sell Shares. Assets denominated in foreign currencies
will be translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a Pricing Service.
The value of assets denominated in foreign currencies will be
converted into U.S. dollars at the exchange rates in effect at the
time of valuation.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time. Trading in Shares of the Fund will be
halted under the conditions specified in Nasdaq Rules 4120 and 4121,
including the trading pause provisions under Nasdaq Rules 4120(a)(11)
and (12). Trading in the Shares may be halted because of market
conditions or for reasons that, in the view of the

Exchange, make trading in the Shares inadvisable,\34\ and trading in
the Shares will be subject to Nasdaq Rule 5735(d)(2)(D), which sets
forth circumstances under which trading in Shares of the Fund may be
halted. The Exchange states that it has a general policy prohibiting
the distribution of material, non-public information by its employees.
Further, the Commission notes that the Reporting Authority that
provides the Disclosed Portfolio must implement and maintain, or be
subject to, procedures designed to prevent the use and dissemination of
material, non-public information regarding the actual components of the
portfolio.\35\ In addition, the Exchange states that, while neither the
Adviser nor the Sub-Adviser is registered as a broker-dealer, each of
the Adviser and the Sub-Adviser is affiliated with a broker-dealer and
has implemented a fire wall with respect to that broker-dealer
regarding access to information concerning the composition of, or
changes to, the portfolio, and that 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.\36\ 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.\37\ The Exchange further represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
Prior to the commencement of trading, the Exchange states that it will
inform its members in an Information Circular of the special
characteristics and risks associated with trading the Shares.
---------------------------------------------------------------------------

    \34\ These reasons may include: (1) the extent to which trading
is not occurring in the securities or other assets 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. With respect to trading halts, the
Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in the Shares of the Fund.
    \35\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \36\ See supra note 6. The Exchange states 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, the Sub-Adviser and their 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.
    \37\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
---------------------------------------------------------------------------

    The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made the following
representations:
    (1) The Shares will be subject to Rule 5735, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
    (3) Trading 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 that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws. 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
with other markets and other entities that are members of ISG, and
FINRA may obtain trading information regarding trading in the Shares
and the 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. Moreover, FINRA, on
behalf of the Exchange, will be able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine.
    (4) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Circular will discuss the following: (a) the procedures for
purchases and redemptions of Shares in creation units (and that Shares
are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes
suitability obligations on Nasdaq members with respect to recommending
transactions in the Shares to customers; (c) how and by whom
information regarding the Intraday Indicative Value and 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.
    (5) For initial and continued listing, the Fund must be in
compliance with Rule 10A-3 under the Act.\38\
---------------------------------------------------------------------------

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

    (6) 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 and/or
the Sub-Adviser. 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.
    (7) Under normal market conditions, the Fund will invest at least
80% of its net assets (including investment borrowings) in Debt
Instruments. The Fund will invest in Debt Instruments issued by at
least 13 non-affiliated issuers. The Fund's exposure to any single
country generally will be limited to 20% of the Fund's net assets
(although this percentage may change from time to time in response to
economic events). The Fund will invest

only in Debt Instruments that, at the time of purchase, are performing.
    (8) Under normal market conditions, at least 80% of the Fund's net
assets that are invested in Debt Instruments will be invested in Debt
Instruments that are issued by issuers with outstanding debt of at
least $200 million (or the foreign currency equivalent thereof).
    (9) Under normal market conditions, no more than 20% of the value
of the Fund's net assets will be invested in derivative instruments.
The Fund's investments in derivative instruments will be made in
accordance with the 1940 Act and consistent with the Fund's investment
objective and policies. The Fund's investments in derivative
instruments will not be used to seek to achieve a multiple or inverse
multiple of an index.
    (10) At least 90% of the Fund's net assets that are invested in
exchange-traded derivative instruments 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.
    (11) The Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced. The
Adviser and/or the Sub-Adviser will evaluate the creditworthiness of
counterparties on an ongoing basis.
    (12) At least 90% of the Fund's net assets that are invested in
foreign currencies will be invested in currencies with a minimum
average daily foreign exchange turnover of USD $1 billion as determined
by the BIS Triennial Central Bank Survey.
    (13) The Fund will comply with the regulatory requirements of the
Commission to maintain assets as ``cover,'' maintain segregated
accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e.,
instruments other than purchase options). If the applicable guidelines
prescribed under the 1940 Act so require, the Fund will earmark or set
aside cash, U.S. government securities, high grade liquid debt
securities, and/or other liquid assets permitted by the Commission in a
segregated custodial account in the amount prescribed.
    (14) The Fund may invest up to 20% of its net assets in Corporate
Bonds. Under normal market conditions, a Corporate Bond must have $200
million (or the foreign currency equivalent thereof) or more par amount
outstanding and significant par value traded to be considered as an
eligible investment. Although the Fund does not intend to do so, the
Fund may invest up to 5% of its net assets in Corporate Bonds with less
than $200 million (or the foreign currency equivalent thereof) par
amount outstanding if (i) the Adviser and/or the Sub-Adviser deems such
securities to be sufficiently liquid and (ii) such investment is deemed
by the Adviser and/or the Sub-Adviser to be in the best interest of the
Fund.
    (15) The Fund intends to enter into repurchase agreements only with
financial institutions and dealers believed by the Sub-Adviser to
present minimal credit risks in accordance with criteria approved by
the Trust Board. The Sub-Adviser will review and monitor the
creditworthiness of such institutions. The Sub-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.
    (16) The ETFs in which the Fund will invest will be exchange-listed
and trade in markets that are members of ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
    (17) Reverse repurchase agreements will not be used by the Fund to
enhance leverage.
    (18) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Act \39\ and the rules and regulations
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\40\ that the proposed rule change (SR-NASDAQ-2014-073), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
---------------------------------------------------------------------------

    \41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22670 Filed 9-23-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 191 (Wednesday, October 4, 2017)]
[Notices]
[Pages 46338-46339]
[FR Doc No: 2017-21275]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81747; File No. SR-NYSEArca-2017-06]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of
Withdrawal of a Proposed Rule Change, as Modified by Amendment No. 2,
Relating to the Listing and Trading of Shares of the Bitcoin Investment
Trust Under NYSE Arca Equities Rule 8.201

September 28, 2017.
    On January 25, 2017, NYSE Arca, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade
shares of the Bitcoin Investment Trust under NYSE Arca Equities Rule
8.201. The proposed rule change was published for comment in the
Federal Register on February 9, 2017.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79955 (Feb. 3,
2017), 82 FR 10086 (Feb. 9, 2017).
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    On March 22, 2017, 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 approve or disapprove the proposed
rule change.\5\ On April 6, 2017, the Exchange filed Amendment No. 1 to
the proposed rule change. On April 27, 2017, the Commission published
notice of Amendment No. 1 and instituted proceedings to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No. 1.\6\ On May 11, 2017, the Exchange filed Amendment
No. 2 to the proposed rule change, and on May 25, 2017, the Commission
published notice of Amendment No. 2.\7\ On July 25, 2017, the
Commission designated a longer period for Commission action on the
proposed rule change.\8\ The Commission has received eighteen comment
letters on the proposed rule change.\9\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 80297 (Mar. 22,
2017), 82 FR 15408 (Mar. 28, 2017).
    \6\ See Securities Exchange Act Release No. 80502 (Apr. 21,
2017), 82 FR 19398 (Apr. 27, 2017).
    \7\ See Securities Exchange Act Release No. 80729 (May 19,
2017), 82 FR 24185 (May 25, 2017).
    \8\ See Securities Exchange Act Release No. 81201 (July 25,
2017), 82 FR 33938 (July 31, 2017). The Commission designated
October 7, 2017, as the date by which the Commission shall either
approve or disapprove the proposed rule change.
    \9\ See Letters from Joseph Stephen White (Feb. 5, 2017);
Anonymous (Feb. 8, 2017) (purportedly from Jeffrey Wilcke, Ethereum
Foundation); Mark T. Williams, Finance Professor, Boston University
(Mar. 13, 2017); Clark Haley (Apr. 15, 2017); Daniel Warsh, Managing
Member, Warberg Asset Management (Jun. 8, 2017); Murray Stahl,
Chairman, CEO, CIO, and Hugh Ross, COO, Horizon Kinetics LLC (Jun.
12, 2017); Tim Lewkow, Founder, Wealth Manager (Jun. 14, 2017);
Jerry Brito, Executive Director, Coin Center (Jun. 20, 2017); Sheri
Kaiserman, Managing Director, Wedbush Securities (Jun. 20, 2017);
Douglas M. Yones, Head of Exchange Traded Products, New York Stock
Exchange, and Elizabeth King, General Counsel, New York Stock
Exchange (Jun. 28, 2017); Arthur Levitt (Jul. 5, 2017); Jeffrey
McCarthy, CEO, Exchange Traded Funds, The Bank of New York Mellon
(Jul. 7, 2017); Ari Paul, CIO and Managing Partner, Block Tower
Capital (Jul. 9, 2017); Dr. James Smith, CEO, Elliptic (Jul. 18,
2017); Prof. Campbell R. Harvey, Fuqua School of Business, Duke
University, et al. (Aug. 28, 2017); James J. Angel, Associate
Professor of Finance, McDonough School of Business, Georgetown
University (Sept. 11, 2017); Matt Corallo (Sept. 11, 2017); Joseph
A. Hall, Davis Polk & Wardwell LLP. All comments on the proposed
rule change, as well as a copy of the presentation submitted in a
meeting with the Commission's staff on July 7, 2017, are available
on the Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2017-06/nysearca201706.htm.

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    On September 27, 2017, the Exchange withdrew the proposed rule
---------------------------------------------------------------------------
change (SR-NYSEArca-2017-06), as modified by Amendment No. 2.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21275 Filed 10-3-17; 8:45 am]
 BILLING CODE 8011-01-P