[Federal Register Volume 79, Number 185 (Wednesday, September 24, 2014)]
[Notices]
[Pages 57150-57158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22672]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73142; File No. SR-NASDAQ-2014-065]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
Proposed Rule Change To Adopt New Rule 5713 and List Paired Class 
Shares Issued by AccuShares[supreg] Commodities Trust I

September 18, 2014.
    On June 11, 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: (1) adopt listing standards for Paired Class 
Shares in new Rule 5713; and (2) list and trade Paired Class Shares 
(``Shares'') issued by AccuShares[supreg] Commodities Trust I 
(``Trust'') relating to the following funds pursuant to new Rule 5713: 
(a) AccuShares S&P GSCI[supreg] Spot Fund; (b) AccuShares S&P 
GSCI[supreg] Agriculture and Livestock Spot Fund; (c) AccuShares S&P 
GSCI[supreg] Industrial Metals Spot Fund; (d) AccuShares S&P 
GSCI[supreg] Crude Oil Spot Fund; (e) AccuShares S&P GSCI[supreg] Brent 
Oil Spot Fund; (f) AccuShares S&P GSCI[supreg] Natural Gas Spot Fund; 
and (g) AccuShares Spot CBOE[supreg] VIX[supreg] Fund (each 
individually, ``Fund,'' and, collectively, ``Funds''). The proposed 
rule change was published for comment in the Federal Register on June 
23, 2014.\3\ On August 6, 2014, 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\ The Commission received no comments on the 
proposal. This Order institutes proceedings under Section 19(b)(2)(B) 
of the Act \6\ to determine whether to

[[Page 57151]]

approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72412 (June 17, 
2014), 79 FR 35610 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 72779, 79 FR 47162 
(August 12, 2014). The Commission designated a longer period within 
which to take action on the proposed rule change and designated 
September 19, 2014 as the date by which it should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Proposal

A. General Description of Paired Class Shares

    ``Paired Class Shares'' would be issued by a trust on behalf of a 
fund, each a segregated series of the trust.\7\ Paired Class Shares 
would have values that are based on an index or other numerical 
variable (``Underlying Benchmark'') whose value reflects the value of 
assets, prices, price volatility, or other economic interests 
(``Reference Asset'').\8\ The trust would always issue Paired Class 
Shares in pairs of shares of opposing classes of each fund. The values 
of the opposing classes would move in opposite directions as the value 
of the fund's Underlying Benchmark varies from its starting level, 
where one constituent of the pair is positively linked to the fund's 
Underlying Benchmark (``Up Shares'') and the other constituent is 
negatively linked to the fund's Underlying Benchmark (``Down 
Shares'').\9\ The rate of linkage or leverage of a fund's Up Shares and 
Down Shares performance to the performance of the fund's referenced 
Underlying Benchmark would be one-to-one.\10\ The calculation of the 
liquidation value of a fund attributable to each of its classes of 
Paired Class Shares (``Class Value''), and to each share of such 
class's pro rata portion of Class Value (``Class Value per Share''), 
would be determined according to a mathematical formula.\11\
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    \7\ See proposed NASDAQ Rule 5713(c).
    \8\ See id. The Exchange states that other economic interests 
would include, for example, currencies, interest rates, non-
investable economic indices, and other measures of financial 
instrument value. See Notice, supra note 3, 79 FR at 35611, n.11.
    \9\ See proposed NASDAQ Rule 5713(c).
    \10\ See Notice, supra note 3, 79 FR at 35611.
    \11\ See id. The Exchange represents that the mathematical 
formula would be based on the following factors: (1) the value of 
the fund's assets; (2) the allocation of such value based on changes 
in the level of the fund's Underlying Benchmark which may be 
limited, reduced, capped, or otherwise modified according to formula 
or pre-set parameters; and (3) the daily accrual of gain and income 
or loss on the assets of the fund, less the liabilities of the fund, 
as such gains, income losses, and liabilities are allocated to each 
class of the fund. See Notice, supra note 3, 79 FR at 35611, n.12.
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    Each fund would engage in scheduled ``regular distributions,'' and 
also may engage in: (1) ``special distributions,'' which would be 
triggered when the Underlying Benchmark exceeds a fixed rate of change 
since the fund's prior regular or special distribution date or 
inception date in the case of the first such distribution (``prior 
distribution date''); and (2) ``corrective distributions,'' which would 
be triggered when the trading price of a Paired Class Share deviates by 
a specified amount from its Class Value per Share for a specified 
period of time. Immediately after each regular, special, and corrective 
distribution, the fund's Underlying Benchmark participation or exposure 
would be reset, and the fund's Class Value per Share for each of its 
classes would be set to equal the lowest Class Value per Share of the 
two classes of Paired Class Shares. To the extent any class of Paired 
Class Shares of a fund has a positive net income from income or gain on 
class assets, after deduction of class liabilities, on a regular or 
special distribution date as measured from the prior distribution date, 
such class of Paired Class Shares would receive a distribution in cash 
equal to such positive net income regardless as to whether such class 
is entitled to a regular or special distribution on such date.
    Paired Class Shares would be structured with the objective of 
providing investors with exposure to changes in an Underlying 
Benchmark. The trust issuing Paired Class Shares on behalf of a fund 
would actively monitor deviations of trading price to Class Value per 
Share. To the extent there is a material and persistent deviation of a 
Paired Class Share trading price from such Paired Class Share's Class 
Value per Share according to pre-set thresholds, the trust issuing the 
Paired Class Shares would distribute to holders of each class shares of 
the opposing class, which would leave each holder with an equal number 
of Up Shares and Down Shares. According to the Exchange, as each holder 
would own both Up Shares and Down Shares, each holder could redeem 
their shares through an authorized participant (``Authorized 
Participant'') \12\ for cash at their respective Class Values per 
Share, which would eliminate the premium or discount.
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    \12\ An Authorized Participant may place orders to create or 
redeem one or more ``Creation Units.'' See note 16 infra.
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    The Exchange further states that, even if a corrective distribution 
is not triggered, the existence of a fund's corrective distribution 
feature would be expected to modify investor and Authorized Participant 
behavior to prevent persistent and material premium and discount 
conditions for Paired Class Shares from becoming locked. The Exchange 
states that regular and special distributions would have the effect of 
delivering changes in Class Value per Share to each class of the Paired 
Class Shares either directly through the distribution or indirectly 
through the dilution caused by the distribution.\13\ Thus, market 
expectation of regular and special distributions would cause the 
trading prices of a fund's Paired Class Shares to experience less-
pronounced conditions of premium or discount to Class Value per Share. 
The Exchange also states that a trust issuing Paired Class Shares on 
behalf of a fund would make regular and special distributions and reset 
the Fund's exposure or participation in its Underlying Benchmark to 
avoid depleting all of the capital of one class of shares.\14\ For 
regular distributions, Paired Class Shares would reset their Underlying 
Benchmark participation on regularly scheduled dates, and for special 
distributions, would reset whenever their Underlying Benchmark changes 
by a set percentage since the prior distribution date. Thus, on each 
reset date, a percentage change in the Underlying Benchmark would 
generally correspond to a percentage change in the Class Value per 
Share and leverage drift would be minimized.\15\
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    \13\ See Notice, supra note 3, 79 FR at 35612.
    \14\ See id.
    \15\ The Exchange describes ``leverage drift'' as circumstances 
when the percentage changes in the price of shares do not correlate 
to the percentage changes in the Underlying Benchmark once the 
Underlying Benchmark increases or decreases over time. See id. at 
35611.
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    With respect to creations and redemptions of Paired Class Shares, 
the procedures would be similar in nature to those for other exchange 
traded products. Paired Class Shares of a fund would be created and 
redeemed in specified aggregations of equal quantities of Up Shares and 
Down Shares \16\ at their respective Class Values per Share. Paired 
Class Shares could only be created or redeemed by Authorized 
Participants.\17\ In contrast to other exchange traded products that 
often allow or require non-cash (in-kind) creation and redemption 
consideration in the form of specified securities or other assets and 
do not involve multiple share classes, Paired Class Shares creation and 
redemption transactions would only occur (a) for cash consideration, 
and (b) in equal pre-determined quantities of Up Shares and Down 
Shares.
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    \16\ Each Creation Unit for each Fund would be comprised of 
25,000 Up Shares and 25,000 Down Shares. See id. at 35612, n.14.
    \17\ See id. at 35612.
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B. Proposed Listing Standards for Paired Class Shares (NASDAQ Rule 
5713)

    Proposed Rule 5713(a) indicates that NASDAQ would consider for 
trading, whether by listing or pursuant to unlisted trading privileges 
(``UTP''),

[[Page 57152]]

Paired Class Shares if the Paired Class Shares meet the criteria of 
Rule 5713. Proposed Rule 5713(b) clarifies that the rule is applicable 
only to Paired Class Shares. Subsection (b) also states that except to 
the extent inconsistent with this Rule, or unless the context otherwise 
requires, the By-laws and all other rules and procedures of the Board 
of Directors would be applicable to the trading on NASDAQ of such 
securities. Paired Class Shares, which are defined in proposed new 
subsection (c), are included within the definition of ``security'' or 
``securities'' as such terms are used in the By-laws and Rules of 
NASDAQ.
Paired Class Shares Defined
    Proposed subsection (c) specifically states that the term ``Paired 
Class Share'' means a security: (1) That is issued by a trust on behalf 
of a fund as part of a pair of shares of opposing classes whose 
respective underlying values move in opposite directions as the value 
of the fund's Underlying Benchmark (which is defined in NASDAQ Rule 
5713(e)) varies from its starting level, where one constituent of the 
pair is positively linked to the fund's Underlying Benchmark--Up 
Shares--and the other constituent is inversely linked to the fund's 
Underlying Benchmark--Down Shares; (2) that is issued in exchange for 
cash; (3) the issuance proceeds of which are invested and reinvested in 
highly rated short-term financial instruments that mature within 90 
calendar days and that serve certain functions; \18\ (4) that 
represents a beneficial interest in the fund; (5) the value of which is 
determined by the underlying value of the fund that is attributable to 
the class of which such security is a part; \19\ (6) that, when timely 
aggregated in a specified minimum number or amount of securities, along 
with an equal number or amount of the securities of the opposite class 
that constitute the other part of the pair, may be redeemed for a 
distribution of cash; and (7) that may be subject to mandatory 
redemption of all Paired Class Shares under specified circumstances.
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    \18\ These functions are: (1) Covering the fund's expenses; (2) 
providing income distributions to investors, based on income (after 
expenses) from the financial instruments held by the fund; (3) 
providing cash proceeds for regular and special distributions to be 
made in cash in lieu of Paired Class Shares; and (4) providing cash 
proceeds to be paid upon the redemption of Paired Class Shares. See 
id. at 35612, n.15. Thus, for example, upon redeeming 100 Paired 
Class Shares an investor would receive cash equal to the NAV per 
share for each share redeemed. Moreover, a trust issuing Paired 
Class Shares on behalf of a fund may engage in regular 
distributions, special distributions, and corrective distributions. 
See proposed NASDAQ Rule 5713(d).
    \19\ The Paired Class Shares value would either: (1) Increase as 
a result of an increase in the Underlying Benchmark and decrease as 
a result of a decrease in the Underlying Benchmark (in the case of 
an Up Share); or (2) increase as a result of a decrease in the 
Underlying Benchmark and decrease as the result of an increase in 
the Underlying Benchmark (in the case of a Down Share). See proposed 
NASDAQ Rule 5713(c)(5).
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Distributions
    Proposed Rule 5713(d) provides that a fund may engage in scheduled 
regular distributions, special distributions that are automatically 
triggered upon the Underlying Benchmark exceeding a fixed rate of 
change since the prior distribution, and corrective distributions that 
are automatically triggered when the trading price of a Paired Class 
Share deviates by a specified amount from its underlying value for a 
specified period of time.
Designation
    Proposed Rule 5713(e) states that NASDAQ may trade, either by 
listing or pursuant to UTP, Paired Class Shares whose values are based 
on an Underlying Benchmark whose value reflects the value of a 
Reference Asset. Each issue of Up Shares or Down Shares of a fund would 
be designated as a separate series and would be identified by a unique 
symbol.
Listing Standards
    Proposed Rule 5713(f) sets forth the initial and continued listing 
criteria. The Exchange proposes to adopt three initial listing 
requirements in Rule 5713(f)(i): (1) NASDAQ would establish a minimum 
number of Paired Class Shares for each fund required to be outstanding 
at the time of commencement of trading on NASDAQ; (2) NASDAQ would 
obtain a representation from the trust on behalf of each fund that the 
underlying value per share of each Up Share and Down Share would be 
calculated daily and that the underlying values and information about 
the assets of the fund would be made available to all market 
participants at the same time; and (3) if the Underlying Benchmark is 
maintained by a broker-dealer or investment advisor, the broker-dealer 
or investment advisor would be required to erect a ``firewall'' around 
the personnel who have access to information concerning changes and 
adjustments to the Underlying Benchmark.
    Under proposed NASDAQ Rule 5713(f)(ii), NASDAQ would consider the 
suspension of trading in, or removal from listing of, a fund's Paired 
Class Shares under any of the following circumstances: (1) If, 
following the initial twelve-month period beginning upon the 
commencement of trading of the Paired Class Shares, (a) there are fewer 
than 50 record or beneficial holders of the fund's Up Shares or Down 
Shares for 30 or more consecutive trading days, (b) the fund has fewer 
than 50,000 Up Shares or 50,000 Down Shares issued and outstanding, or 
(c) the combined market value of all shares of a fund issued and 
outstanding is less than $1,000,000; (2) if the intraday level of the 
Underlying Benchmark, or a substitute or replacement Underlying 
Benchmark based on the same Reference Asset, is no longer calculated or 
available \20\ on at least a 15-second delayed basis during the Regular 
Market Session \21\ when the fund's Paired Class Shares trade on NASDAQ 
from a source unaffiliated with the sponsor, the custodian, the trustee 
of the trust, the fund, or NASDAQ that is a major market data vendor 
(e.g., Reuters or Bloomberg); (3) if the underlying value per share of 
each Up Share and Down Share of a fund is no longer made available on a 
daily basis to all market participants at the same time; (4) if the 
estimate of the value of a share of the series of Paired Class Shares 
(``Intraday Indicative Value'') of the underlying value of each listed 
Up Share and Down Share of the fund is no longer made available on at 
least a 15-second delayed basis by a major market vendor during the 
time the Paired Class Shares trade on NASDAQ during the Regular Market 
Session; (5) if the ``firewall'' erected around the personnel who have 
access to information concerning changes and adjustments to the 
Underlying Benchmark is no longer in place; or (6) if such other event 
occurs or condition exists which in the opinion of NASDAQ makes further 
dealings on NASDAQ inadvisable.
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    \20\ The Underlying Benchmark may no longer be available due to 
a number of circumstances, including when the publication of the 
Underlying Benchmark is no longer economically viable, the data used 
to compute the Underlying Benchmark is no longer available, or the 
Underlying Benchmark methodology no longer tracks the same Reference 
Asset. See Notice, supra note 3, 79 FR at 35613, n.21.
    \21\ NASDAQ market makers are open for business during normal 
market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. See NASDAQ Rule 
4617. The Exchange states that it has trading hours from 4:00 a.m. 
until 8:00 p.m. Eastern Time, with trading sessions before and after 
normal market hours (``Pre-Market'' and ``Post-Market'') and 
appropriate rules to facilitate transactions during all trading 
sessions. Normal market hours are also known as the Regular Market 
Session. See, e.g., Rules 5705 (ETFs: portfolio depository receipts 
and index fund shares) and 5710 (securities linked to the 
performance of indexes and commodities (including currencies)).
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    Proposed Rule 5713(f)(ii) also provides that upon termination of a 
fund, Paired Class Shares issued in connection with the fund must be

[[Page 57153]]

removed from listing. A fund may terminate in accordance with the 
provisions of the fund's prospectus, which may provide for termination 
if the underlying value of the Paired Class Shares falls below a 
specified amount.
Additional Provisions of Proposed Rule 5713
    Provisions relating to the term, trustee, and voting rights are set 
forth in proposed NASDAQ Rule 5713(f)(iii)-(v). Proposed subsection 
(f)(iii) states that the stated term of a fund shall be as stated in 
the fund's prospectus. However, a fund may be terminated under such 
earlier circumstances as may be specified in the prospectus. Proposed 
subsection (f)(iv) states that the trustee of a trust must be a trust 
company or banking institution having substantial capital and surplus 
and the experience and facilities for handling corporate trust 
business. In cases where, for any reason, an individual has been 
appointed as trustee, a qualified trust company or banking institution 
must be appointed co-trustee. In addition, no change is to be made in 
the trustee of a listed issue without prior notice to and approval of 
NASDAQ. Regarding voting rights, subsection (f)(v) states that such 
rights, if any, would be as set forth in the applicable fund's 
prospectus.
    Proposed Rule 5713(g) sets forth a limitation of NASDAQ liability 
with respect to errors, omissions, or delays in calculating or 
disseminating any applicable Underlying Benchmark value, the underlying 
value of the fund and its Paired Class Shares, distribution values or 
any other information relating to the purchase, redemption, or trading 
of the Paired Class Shares.
    With respect to the activity and disclosure of Market Maker 
accounts, proposed NASDAQ Rule 5713(h) states that an Exchange member 
must file with NASDAQ, in a manner prescribed by the Exchange, and keep 
current a list identifying all accounts for trading in the applicable 
securities or physical commodities included in (or options, futures, or 
options on futures on) the Reference Asset of the Underlying Benchmark 
of any Paired Class Shares (or any other derivatives based on the 
Reference Asset or based on any security or Reference Asset included in 
the Underlying Benchmark) that the registered Market Maker may have or 
over which it may exercise investment discretion. In addition, proposed 
NASDAQ Rule 5713(h)(i) prohibits registered Market Makers from trading 
in the applicable securities or physical commodities included in (or 
options, futures, or options on futures on) the Reference Asset of the 
Underlying Benchmark of any Paired Class Shares (or any other 
derivatives based on the Reference Asset or based on any security or 
Reference Asset included in the Underlying Benchmark) in an account in 
which the registered Market Maker, directly or indirectly, controls 
trading activities, or in which the registered Market Maker has a 
direct interest in the profits or losses thereof, which has not been 
reported to NASDAQ as required by this proposed Rule. Proposed Rule 
5713(h)(ii) provides that, in addition to the existing obligations 
under NASDAQ rules regarding the production of books and records (see, 
e.g., NASDAQ Rule 4625), a registered Market Maker in Paired Class 
Shares must make available to NASDAQ such books, records, or other 
information pertaining to transactions by such entity or registered or 
non-registered employee affiliated with such entity for its or their 
own accounts for trading the applicable securities or physical 
commodities included in, or options, futures, or options on futures on, 
the Reference Asset of the Underlying Benchmark of any Paired Class 
Shares or any other derivatives based on such Reference Asset or based 
on any security or Reference Asset included in the Underlying 
Benchmark, as may be requested by NASDAQ.
    The Exchange also proposes six Commentaries to Rule 5713. Proposed 
Commentary .01 provides that members must provide all purchasers of 
newly issued Paired Class Shares a prospectus for the fund. Proposed 
Commentary .02 states that transactions in Paired Class Shares would 
occur during the trading hours specified in Rule 4120. Proposed 
Commentary .03 states that NASDAQ would file separate proposals under 
Section 19(b) of the Act before trading any new series of Paired Class 
Shares. Proposed Commentary .04 states that prior to a substitute or 
replacement Underlying Benchmark being selected for a fund, NASDAQ must 
file a related proposed rule change pursuant to Rule 19b-4 under the 
Act to continue trading the Paired Class Shares. Proposed Commentary 
.05 states that subsection 5713(f)(ii)(D), as discussed previously, is 
not applicable as a continuing listing standard if a fund's Paired 
Class Shares have been approved for listing and trading by the 
Commission under Section 19(b)(2) of the Act without the requirement 
that an estimate of the Intraday Indicative Value be made available on 
at least a 15-second delayed basis by a major market vendor during the 
time the Paired Class Shares trade on NASDAQ during the Regular Market 
Session. Lastly, proposed Commentary .06 states that NASDAQ would 
implement written surveillance procedures for trading the Paired Class 
Shares.
    Additional details of proposed NASDAQ Rule 5713 can be found in the 
Notice and Exhibit 5 thereto.\22\
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    \22\ See Notice, supra note 3. See also http://www.sec.gov/rules/sro/nasdaq/2014/34-72412-ex5.pdf.
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C. Description of the Trust, the Funds, and the Shares

    The Exchange has made the following representations and statements 
in describing, among other things, the Funds, the corresponding 
Underlying Benchmarks, arbitrage, and distributions.\23\
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    \23\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including risks, Class Value 
and Class Value per Share calculations, creation and redemption 
procedures, fees, disclosure policies, distributions, and taxes, 
among other information, is included in the Notice and the 
Registration Statement, as applicable. See Notice, supra note 3, and 
Registration Statement, infra note 24, respectively.
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    The Shares would be offered by the Trust, which is a Delaware 
statutory trust.\24\ AccuShares Investment Management, LLC, a Delaware 
limited liability company, is the sponsor (``Sponsor''), and Wilmington 
Trust, N.A., a national banking association, would serve as the trustee 
(``Trustee'') and the investment advisor (``Investment Advisor'') for 
each Fund. The Investment Advisor, which is chosen by the Sponsor, 
would be responsible for investing each Fund's available cash in bills, 
bonds, and notes issued and guaranteed by the United States Treasury 
(``United States Treasury Securities'') with remaining maturities of 90 
days or less (``Eligible Treasuries'') and over-night repurchase 
agreements collateralized by United States Treasury Securities 
(``Eligible Repos,'' and together with cash and Eligible Treasuries, 
collectively, ``Eligible Assets''). State Street Bank and Trust Company 
(``State Street''), a Massachusetts trust company, would serve as the 
custodian, administrator, and transfer agent (``Custodian,'' 
``Administrator,'' or ``Transfer Agent'') for each Fund.\25\
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    \24\ The Exchange states that the offer and sale of Paired Class 
Shares of each Fund would be registered with the Commission by means 
of the Trust's registration statement on Form S-1 (``Registration 
Statement'') under the Securities Act of 1933 (``Securities Act''). 
According to the Exchange, the Registration Statement was filed on 
March 18, 2014 and will be effective as of the date of such offer 
and sale. See Notice, supra note 3, 79 FR at 35615.
    \25\ The Custodian would hold each Fund's securities and cash 
and would perform each Fund's Class Value and Class Value per Share 
calculations. As Administrator, State Street would, among other 
things, perform or supervise the performance of services necessary 
for the operation and administration of the Funds (other than making 
investment decisions or providing services provided by other service 
providers), including accounting and other fund administrative 
services. As Transfer Agent, State Street would, among other things, 
provide transfer agent services with respect to the creation and 
redemption of Creation Units. The Transfer Agent would receive from 
Authorized Participants creation and redemption orders and deliver 
acceptances and rejections of such orders to Authorized Participants 
as well as coordinate the transmission of such orders and 
instructions among the Sponsor and the Authorized Participants.

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[[Page 57154]]

    The Underlying Benchmark of each Fund, other than the AccuShares 
Spot CBOE VIX Fund (``VIX Fund''), would be constructed, calculated, 
and published by S&P[supreg] Dow Jones Indices LLC (``Index 
Provider'').\26\ The CBOE Volatility Index[supreg] (``VIX''), which is 
the Underlying Benchmark of the VIX Fund, would be constructed by the 
Chicago Board Options Exchange, Incorporated (``CBOE''), and calculated 
and published by the Index Provider. Both the Index Provider and CBOE 
are unaffiliated with the Trust and the Sponsor.\27\ In accordance with 
proposed NASDAQ Rule 5713(f)(i)(C), to the extent that an Underlying 
Benchmark is maintained by a broker-dealer or investment advisor, such 
broker-dealer or investment advisor would erect a ``firewall'' around 
personnel who have access to information concerning changes and 
adjustments to the Underlying Benchmark.
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    \26\ The Underlying Benchmarks for all of the Funds other than 
the VIX Fund are: (1) the S&P GSCI Spot index; (2) the S&P GSCI 
Agricultural and Livestock Spot index; (3) the S&P GSCI Industrial 
Metals Spot index; (4) the S&P GSCI Crude Oil Spot index; (5) the 
S&P GSCI Brent Crude Oil Spot index; and (6) the S&P GSCI Natural 
Gas Spot index, (collectively, ``S&P GSCI Commodity Indices'').
    \27\ The Exchange represents that, should the Index Provider 
become affiliated with the Trust and the Sponsor, an appropriate 
firewall would be required. See Notice, supra note 3, 79 FR at 
35615, n.31.
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Description of the Underlying Benchmarks
    Each S&P GSCI Commodity Index would be constructed, calculated, and 
published by the Index Provider. The S&P GSCI Spot index (``S&P 
GSCI''), which would serve as the Underlying Benchmark for the 
AccuShares S&P GSCI Spot Fund, is an index on a production-weighted 
basket of currently 24 principal physical commodities that satisfy 
criteria established by the Index Provider. The commodities included in 
the S&P GSCI would be weighted, on a production basis, to reflect the 
relative significance (in the view of the Index Provider) of those 
commodities to the world economy. The referenced commodities within the 
S&P GSCI Agricultural and Livestock Spot Index (``S&P GSCI-AL'') and 
the S&P GSCI Industrial Metals Spot Index (``S&P GSCI-IN'') would each 
receive weightings that differ from the weightings they receive in the 
broader S&P GSCI.\28\ The value of the S&P GSCI has been normalized 
(``Normalizing Constant'') such that its hypothetical level on January 
2, 1970 was 100.
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    \28\ The S&P GSCI-AL comprises contracts referencing the 
following Reference Assets: Corn, Chicago Wheat, Soybeans, Live 
Cattle, Lean Hogs, Sugar, Cotton, Kansas Wheat, Coffee, Feeder 
Cattle, and Cocoa. The S&P GSCI-IN comprises contracts referencing 
the following Reference Assets: LME Copper, Aluminum, Nickel, Zinc, 
and Lead. The S&P GSCI comprises contracts referencing the Reference 
Assets of the S&P GSCI-AL and the S&P GSCI-IN, as well as West Texas 
Intermediate Crude Oil, Brent Crude Oil, Gas Oil, Heating Oil, RBOB 
Gasoline, Gold, Natural Gas, and Silver.
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    The S&P GSCI Crude Oil Spot Index (``S&P GSCI-CL''), the S&P GSCI 
Brent Crude Oil Spot Index (``S&P GSCI-BR''), and the S&P GSCI Natural 
Gas Spot Index (``S&P GSCI-NG'') are single-commodity sub-indices of 
the S&P GSCI.\29\ The S&P GSCI-AL and the S&P GSCI-IN are sub-indices 
of the S&P GSCI that comprise related groups of commodities otherwise 
contained in the broader S&P GSCI. All of the S&P GSCI Commodity 
Indices are the spot versions of such indices.
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    \29\ The S&P GSCI-CL, the S&P GSCI-BR, and the S&P GSCI-NG 
comprise, respectively, contracts referencing West Texas 
Intermediate Crude Oil, Brent Crude Oil, and Natural Gas.
---------------------------------------------------------------------------

    Each S&P GSCI Commodity Index would reflect only the daily 
settlement prices (``Daily Contract Reference Prices'') of commodities 
futures contracts that are the components of such index (``Designated 
Contracts'') on each business day. Each S&P GSCI Commodity Index would 
be based on the daily settlement prices of first nearby contract, 
except during the five-day ``Roll Period'' during which the ``Roll 
Contract Expirations'' shift to the next nearby contract and during 
which the weighting of the first nearby contract is decreased in favor 
of the next expiry contract 20 percent per day. Immediately following 
the Roll Period, the next expiry contract would be used for the index 
until the next following Roll Period. When shifting to a next nearby 
contract, contract quantities remain consistent, and relative values 
between the nearby and next nearby contracts could vary. The daily 
value of the S&P GSCI Commodity Indices, therefore, would be calculated 
solely based on the commodity production weightings assigned by the 
Index Provider of each Designated Contract, and of the Daily Contract 
Reference Prices of the nearby contract expiration of each Designated 
Contract, and it would not reflect any roll yield.
    The quantity of each of the contracts included in the S&P GSCI 
Commodity Indices would be determined on the basis of a five-year 
average, referred to as the ``world production average,'' of the 
production quantity of the underlying commodity, as published by the 
United Nations Statistical Yearbook, the Industrial Commodity 
Statistics Yearbook, and other official sources. However, if a 
commodity is primarily a regional commodity--based on its production, 
use, pricing, transportation, or other factors--the Index Provider 
would calculate the weight of that commodity based on regional, rather 
than world, production data. At present, natural gas is the only 
commodity the weights of which are calculated on the basis of regional 
production data, with the relevant region defined as North America.
    The Exchange states that a complete and current description of the 
eligibility criteria, weighting, and calculation methodologies the 
Index Provider would utilize in selecting commodities and Designated 
Contracts and their weights for an S&P GSCI Commodity Index can be 
found in the S&P GSCI Handbook, which is available at: 
www.spindices.com/documents/methodologies/methodology-sp-gsci.pdf.
    The Underlying Benchmark of the VIX Fund would be the VIX. The VIX 
is constructed by CBOE and calculated and published by the Index 
Provider. The VIX would seek to serve as a measure of the expected 
volatility of the S&P 500[supreg] total return stock index (``S&P 500 
Index''). It is an up-to-the-minute market estimate of expected 
volatility, calculated by using real-time S&P 500 Index option (ticker: 
SPX) bid/ask quotes. The SPX is the Reference Asset of the VIX. Each 
business day, the VIX uses SPX options with at least eight days left to 
expiration and then weights them to yield a constant, 30-day measure of 
the expected volatility of the S&P 500 Index.
    The VIX is based on real-time option prices, which reflect 
investors' consensus view of future expected stock market volatility. 
During periods of financial stress, which are often accompanied by 
steep market declines, SPX options prices--and the VIX--tend to rise. 
As expectations of large market moves subside, SPX option prices tend 
to decline, which in turn causes the VIX to decline.
    The VIX is quoted in percentage points and translates, roughly, to 
the expected movement in the S&P 500 Index over the next 30-day period, 
which is then annualized. The VIX is based on the spot variation of its 
Reference Asset and, as such, does not

[[Page 57155]]

incorporate the effects of closing out an expiring contract and 
establishing a position in the next available contact. Consequently, 
the VIX does not reflect any roll yield in option contract turnover and 
is properly viewed as a spot measure of 30-day expiry expected S&P 500 
Index volatility measured through SPX price movements. The Exchange 
states that additional information regarding the VIX can be found at 
CBOE's Web site at www.cboe.com/VIX.
Description of the Funds
    As is the case with Paired Class Shares generally, as discussed 
above, the Trust would issue Shares on behalf of a Fund in offsetting 
pairs, where one constituent of the pair, the Up Shares, is positively 
linked to the Fund's Underlying Benchmark and the other constituent, 
the Down Shares, is negatively linked to the Fund's Underlying 
Benchmark. Therefore, the Trust would only issue, distribute, maintain, 
and redeem equal quantities of Up Shares and Down Shares on behalf of a 
Fund at all times. The Trust would create and redeem Paired Class 
Shares on behalf of a Fund in Creation Units only for cash. Once 
created, a Fund's Paired Class Shares would trade independently of each 
other on the Exchange. As generally described above for all Paired 
Class Shares, the cash proceeds from the creation of Paired Class 
Shares by a Fund may be held by a Fund only in Eligible Assets that 
serve certain functions.\30\ Each Fund would invest its assets to 
preserve its capital while, at the same time, earning an investment 
return that is consistent with such preservation of capital.
---------------------------------------------------------------------------

    \30\ See supra note 18 and accompanying text.
---------------------------------------------------------------------------

Fund Assets
    Each Fund would maintain its Eligible Assets in a separate custody 
account maintained by the Fund's Custodian that would be segregated 
from the assets of any other series of the Trust, the Custodian, or any 
other customer of the Custodian. If, on any date, there is cash on 
deposit in a Fund's custody account that is not required to make 
payments or to make distributions to shareholders, all such cash would 
be either held as cash or invested by the Investment Advisor, acting in 
accordance with the Investment Advisory Agreement and on behalf of the 
Fund, in cash bank deposits, Eligible Treasuries, or Eligible 
Repos.\31\
---------------------------------------------------------------------------

    \31\ Eligible Repos would: (1) be entered into with a seller 
that is a bank with at least one billion U.S. dollars in assets or a 
registered securities dealer that is deemed creditworthy by the 
Fund's investment advisor; (2) terminate the business day following 
their execution; (3) be denominated in U.S. dollars; and (4) be 
``collateralized fully,'' meaning that (a) the value of the assets 
collateralizing the Eligible Repo (less transaction costs, including 
loss of interest, that the Fund reasonably could expect to incur if 
the seller were to default) would be, and during the entire term of 
the Eligible Repo would remain, at least equal to the resale price 
payable by the seller under the Eligible Repo, (b) such assets would 
be held by a custodian bank for the benefit of the Fund during the 
term of the Eligible Repo, and (c) such assets would consist 
entirely of United States Treasury Securities.
---------------------------------------------------------------------------

    Each Fund would invest its cash in Eligible Treasuries or Eligible 
Repos in order to generate income to pay its fees, expenses, and taxes 
and to generate income to shareholders from cash on deposit in the Fund 
that would not be immediately needed for other purposes pending a later 
net income distribution. Each Fund would hold a portion of its assets 
in Eligible Repos, because these agreements mature and convert to cash 
within one business day, which would make it possible for the Fund to 
have sufficient cash available on each business day to be able to 
effect any redemptions of its Creation Units.
    Except on a distribution date on which such proceeds would be 
needed to effect redemptions or net income distributions or to 
distribute cash for regular and special distributions, the Investment 
Advisor, on behalf of the Fund, would reinvest on a daily basis the 
proceeds received upon the maturity of the Fund's Eligible Treasuries 
and Eligible Repos in Eligible Assets. The Investment Advisor would 
also invest in Eligible Assets all of a Fund's cash funds delivered to 
it in connection with each creation of the Fund's Creation Units. On 
the liquidation of a Fund, all of the proceeds of the Eligible 
Treasuries and Eligible Repos held by the Fund would be used to make 
final cash liquidating payments (less the fees, expenses, and taxes of 
the Fund not assumed by the Sponsor) to the Fund's shareholders. Upon 
any redemption of a Fund's Creation Units by an Authorized Participant, 
the cash of the Fund would be used to pay the proceeds of such 
redemption to the redeeming Authorized Participant.
Distributions
    With respect to the specific distributions applicable to the Funds, 
as more generally described above for all Paired Class Shares, each 
Fund would be expected to engage in four types of distributions as of 
certain distribution dates. The first type of distribution, regular 
distributions, would occur at regular intervals for each Fund. Regular 
distributions would generally occur as long as there has been a change 
in the level of the Underlying Benchmark (and, in the case of the VIX 
Fund, the Daily Amount) as of the distribution date since the prior 
distribution date. Secondly, each Fund would expect to make net income 
distributions on each regular or special distribution date to the 
shareholders of any class of such Fund whose class Net Investment 
Income is positive as of such distribution date.
    The other two types of distributions would not be expected to occur 
regularly and are mechanisms intended to protect the interests of 
investors by providing them with the expected value of their Shares 
upon specified events. Thus, the third type, special distributions, 
would occur where the change in the Underlying Benchmark exceeds a 
specified percentage value since the prior distribution date but before 
the next regular distribution. The fourth type, corrective 
distributions, would occur only if the trading price of a class' Shares 
on the Exchange deviates for a specified length of time over a 
specified threshold amount from the Class Value per Share of such 
class.
    Regular Distributions. Each Fund would engage in regular 
distributions on either a monthly or quarterly basis as set forth in 
the applicable Fund prospectus.\32\ After each regular distribution, 
the applicable Fund would reset its Share Index Factors. An investor 
receiving distributions in cash could then choose to either do nothing 
or reinvest all or part of the distribution in the desired class of 
Shares to gain more economic exposure to the Underlying Benchmark.
---------------------------------------------------------------------------

    \32\ The VIX Fund and the AccuShares S&P GSCI Natural Gas Spot 
Fund would engage in monthly regular distributions on the 15th day 
of each calendar month (or the next following business day if the 
scheduled regular distribution date is not a business day). Each of 
the other five Funds would engage in quarterly regular distributions 
on March 15, June 15, September 15 and December 15 of each year (or 
the next following business day if the scheduled regular 
distribution date is not a business day).
---------------------------------------------------------------------------

    An investor receiving distributions in pairs of Shares may: (1) 
Sell the Shares received for cash and maintain the proceeds in cash; 
(2) sell only the opposing class of Shares received and maintain 
proceeds in cash; or (3) sell only the opposing class of Shares 
received and reinvest the proceeds in the desired class of Shares to 
gain more economic exposure to the Underlying Benchmark.
    Special Distributions. Special distributions would be a measure 
designed to protect the Funds and the investors in the Funds during 
periods when the Fund's Underlying Benchmark experiences unexpected

[[Page 57156]]

degrees of volatility. The Funds would effect a special distribution 
and a resetting of the Share Index Factors between regular distribution 
dates where the change in the Underlying Benchmark exceeds a specified 
percentage value since the prior distribution date, as set forth in the 
applicable Fund prospectus.\33\ A reverse share split may also be 
executed in conjunction with any special distributions.
---------------------------------------------------------------------------

    \33\ The percentage value for special distributions for each of 
the Funds would be 75%. See Notice, supra note 3, 79 FR at 35619, 
n.41.
---------------------------------------------------------------------------

    Value of Regular and Special Distributions. When the Class Values 
per Share of the Up Shares and the Down Shares of a Fund differ at the 
close of a Measuring Period (after adjusting for any net income 
distribution for such Shares), the Share class with the higher Class 
Value per Share would be expected to receive a regular or special 
distribution on that distribution date.
    The value of a distribution relating to each of a Fund's Up Shares 
(where such Shares are valued at their respective Class Values per 
Share) entitled to a distribution on a distribution date would be equal 
to the positive amount, if any, of the closing Class Value per Share of 
the Fund's Up Shares (after adjusting for any net income distribution) 
less the closing Class Value per Share of the Fund's Down Shares (after 
adjusting for any net income distribution).
    The value of a distribution relating to each of a Fund's Down 
Shares (where such Shares are valued at their respective Class Values 
per Share) entitled to a distribution on a distribution date would be 
equal to the positive amount, if any, of the closing Class Value per 
Share of the Fund's Down Shares (after adjusting for any net income 
distribution) less the closing Class Value per Share of the Fund's Up 
Shares (after adjusting for any net income distribution).
    Regular and special distributions would ordinarily be made in the 
form of cash during the first six months of trading in a Fund's Shares. 
Thereafter, each Fund would pay all or any part of any regular or 
special distribution in Paired Class Shares instead of cash where 
further cash distributions would adversely affect the liquidity of the 
market for the Fund's Shares \34\ or impact the Fund's ability to meet 
minimum asset size Exchange listing standards.\35\ All payments made in 
Paired Class Shares would be made in equal numbers of Up and Down 
Shares. To the extent a Share distribution would result in the 
distribution of fractional Shares, cash in an amount equal to the value 
of the fractional Shares would be distributed rather than fractional 
Shares.
---------------------------------------------------------------------------

    \34\ The Fund would engage in distributions of Paired Class 
Shares to maintain a net asset value sufficient to meet the net 
asset value expectations of certain institutional shareholders that 
condition their investment in exchange-traded products to only those 
products having more than a minimum amount of net assets. According 
to the Exchange, Paired Class Share distributions would have the 
effect of preserving a Fund's net assets (aggregate Class Values) to 
attract and retain these institutional investors and thereby 
increase the liquidity of the market for a Fund's Shares. See id. at 
35619, n.42.
    \35\ See proposed NASDAQ Rule 5713(f)(ii)(A)(iii).
---------------------------------------------------------------------------

    Corrective Distributions. Corrective distributions would occur for 
the Funds after the trading price of a Fund's Shares deviates 
materially and persistently from Class Value per Share according to 
fixed thresholds as set forth in the applicable Fund prospectus. 
Corrective distributions would be a formulaic process that continuously 
measures for any material deviation between the Class Value per Share 
of the Shares and the closing trading prices of the Shares as reported 
on the Exchange. After a specified period of time following a Fund's 
inception, if the closing trading prices of the Shares of the Fund 
deviate significantly from their Class Value per Share by a specified 
amount over a specified period of time, as set forth in the applicable 
Fund prospectus, the Fund would make a corrective distribution in 
addition to a regular distribution or special distribution on the next 
scheduled regular distribution date or special distribution date if 
previously triggered.\36\ In a corrective distribution, each Share 
(including those to be distributed on the related regular or special 
distribution date) would be resolved into a risk neutral position 
comprising an equal number of Up Shares and Down Shares. The corrective 
distribution would distribute: (1) a number of Down Shares equal to the 
number of outstanding Up Shares to the Up Shares holders; and (2) a 
number of Up Shares equal to the number of outstanding Down Shares to 
the Down Shares holders.
---------------------------------------------------------------------------

    \36\ The corrective distribution threshold for the VIX Fund 
would be a 10.0% deviation for three consecutive business days. The 
corrective distribution threshold for the AccuShares S&P GSCI 
Natural Gas Spot Fund would be a 7.5% deviation for three 
consecutive business days. The corrective distribution threshold for 
each of the other five Funds would be a 5.0% deviation over three 
consecutive business days. See Notice, supra note 3, 79 FR at 35620, 
n.44.
---------------------------------------------------------------------------

    Net Income Distributions. Whenever a Fund engages in a regular or 
special distribution, such Fund would determine whether any of its 
classes has a positive Net Investment Income. Shareholders of any class 
that has a positive Net Investment Income would receive a net income 
distribution. Net income distributions may occur for any class 
regardless of whether such class receives a regular or special 
distribution on that date.
    Share Splits. Reverse share splits would be declared to maintain a 
positive Class Value per Share for either the Up Shares or the Down 
Shares of a Fund should the Class Value per Share of either class 
approach zero. Reverse share splits would be expected to occur in the 
context of special distributions and are expected to be triggered after 
Class Value per Share declines below a specified dollar threshold as 
set forth in the applicable Fund prospectus.\37\ No other share splits 
would be expected to occur, although the Sponsor would have the right 
to declare in its sole discretion a share split, either forward or 
reverse, pursuant to the Trust Agreement. In the event of a reverse 
share split, the Share Index Factors and the per-Share calculations for 
Net Investment Income would be adjusted to reflect the split to 
maintain continuity in tracking the Fund's Underlying Benchmark.
---------------------------------------------------------------------------

    \37\ The specified dollar threshold for each Fund would be 
$4.00. See id. at 35620, n.45.
---------------------------------------------------------------------------

    Notification. Each Fund engaging in a regular distribution, a 
special distribution, a corrective distribution, or a net income 
distribution would provide at least three business days' advance notice 
(or longer advance notice as may be required by the Exchange) \38\ of 
such an event. Each Fund engaging in a share split would provide at 
least ten calendar days' advance notice (or longer advance notice as 
may be required by the Exchange) \39\ of such an event. In each 
instance, the Sponsor would notify the Exchange, and post a notice of 
such event and its details on the Sponsor's Web site 
(www.AccuShares.com).
---------------------------------------------------------------------------

    \38\ The Exchange states that it may determine that a longer 
notice is advisable in certain circumstances (e.g., an extended, or 
unexpected, market break).
    \39\ See id.
---------------------------------------------------------------------------

    With respect to regular distributions, the information provided 
would consist of the schedule of distributions and associated 
distribution dates, and a notification, as of the record date for such 
regular distribution, on the Sponsor's Web site as to whether or not 
the regular distribution would occur. For regular distributions that 
occur on schedule, the Sponsor would cause a press release to be issued 
identifying the receiving class, the amount of cash, the amount of 
Paired Class Shares (if any), and any other information the Sponsor 
deems relevant regarding the distribution and post such information on 
the Sponsor's Web site. This information would also be contained in

[[Page 57157]]

the Fund's quarterly and annual reports on Forms 10-Q and 10-K and 
annual reports to shareholders.
    With respect to special distributions, corrective distributions, 
and share splits, the information provided would include the relevant 
ex-, record, and payment dates for each such event and relevant data 
concerning each such event. These events would also be reported in 
press releases, on the Sponsor's Web site, and in current reports on 
Form 8-K as material events, as well as in the Fund's periodic reports. 
In addition, notice of net income distributions for each class of a 
Fund, if any, would also be included in the notifications of regular, 
special, and corrective distributions.
    Additional details regarding the Trust, the Funds, and the Shares 
can be found in the Notice.\40\
---------------------------------------------------------------------------

    \40\ See supra note 3.
---------------------------------------------------------------------------

II. Proceedings to Determine Whether to Approve or Disapprove SR-
NASDAQ-2014-065 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \41\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\42\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \43\
---------------------------------------------------------------------------

    \42\ Id.
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\44\
---------------------------------------------------------------------------

    \44\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by October 15, 2014. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 29, 2014.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\45\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
requests that commenters consider the following:
---------------------------------------------------------------------------

    \45\ See supra note 3.
---------------------------------------------------------------------------

    1. As described above, the Exchange represents in the proposed rule 
change that Paired Class Shares would engage in three different types 
of distributions: regular, special, and corrective. According to the 
Exchange, market expectation of these distributions would cause the 
trading prices of Paired Class Shares to experience less-pronounced 
conditions of premium or discount to Class Value per Share. Further, 
according to the Exchange, corrective distributions would eliminate 
then-existing premiums or discounts and would prevent persistent and 
material premium and discount conditions for Paired Class Shares from 
becoming locked. What are commenters' views on the effect that the 
distributions would have on premiums and discounts between the trading 
price of the Paired Class Shares and their respective Class Value per 
Share? Do commenters agree with the Exchange's assertions? Why or why 
not?
    2. What are commenters' views on whether retail investors and other 
market participants would be able to understand the Funds' redemption 
mechanics and the types and timing of distributions in which the Funds 
would engage? For example, do commenters believe that retail investors 
in one class of the two classes of shares could be reasonably expected 
to understand the practical implications of receiving, as a result of 
certain distributions, shares of the opposing class, which would leave 
the investor with an equal number of Up Shares and Down Shares, even 
though they started with only one class of the two classes of shares? 
Do commenters believe that retail investors could be reasonably 
expected to understand the actions they would have to take following 
such a distribution to reestablish the exposure to the index that they 
had prior to the distribution?
    3. In the proposed rule change, the Exchange represents that each 
fund issuing Paired Class Shares would periodically reset its exposure 
to its Underlying Benchmark to avoid depleting all of the capital of 
one class of shares and to avoid ``leverage drift.'' What are 
commenters' views on whether retail investors and other market 
participants would be able to understand the effect of these ``resets'' 
on their investment in the Funds?
    4. With respect to the trading of Paired Class Shares on the 
Exchange, do commenters believe that the Exchange's rules governing 
sales practices are adequately designed to ensure the suitability of 
recommendations regarding the Shares? Why or why not? If not, should 
the Exchange's rules governing sales practices be enhanced? If so, in 
what ways?
    5. Although each of the Funds would be based on an index, none of 
the Funds would actually invest its portfolio assets in an effort to 
match or exceed the performance of its underlying index. Instead, each 
Fund would hold short-term government securities (and repurchase 
agreements on those securities) and would allocate the value of its 
portfolio between holders of Up Shares and holders of Down Shares, 
depending on changes in the underlying index. What are commenters' 
views with respect to whether retail investors will understand this 
aspect of the Funds, and what are commenters' views about whether it is 
appropriate for an exchange-traded product to be structured in this 
way?
Comments may be submitted by any of the following methods:


[[Page 57158]]



Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2014-065 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-NASDAQ-2014-065. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of these filings also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2014-065 and should 
be submitted on or before October 15, 2014. Rebuttal comments should be 
submitted by October 29, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22672 Filed 9-23-14; 8:45 am]
BILLING CODE 8011-01-P