[Federal Register Volume 79, Number 191 (Thursday, October 2, 2014)]
[Notices]
[Pages 59530-59534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23448]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 73233; File No. SR-NASDAQ-2014-053]


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

September 26, 2014.

I. Introduction

    On July 31, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``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 the shares (``Shares'') of the 
iShares Commodities Strategy ETF (``Fund'') under Nasdaq Rule 5735. The 
proposed rule change was published for comment in the Federal Register 
on August 18, 2014.\3\ The Commission received no comments on the 
proposed rule change. This order grants approval of the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72813 (Aug. 12, 
2014), 79 FR 48787 (``Notice'').
---------------------------------------------------------------------------

II. Description of Proposed Rule Change

    The Exchange proposes to list and trade the Shares pursuant to 
Nasdaq Rule 5735, which governs the listing and trading of Managed Fund 
Shares on the Exchange. The Shares will be offered by the iShares U.S. 
ETF Trust (``Trust''), which was established as a Delaware statutory 
trust on June 21, 2011.\4\ The Fund is a series of the Trust. BlackRock 
Fund Advisors will be the investment adviser (``Adviser'') to the 
Fund.\5\ BlackRock Investments, LCC (``Distributor'') will be the 
principal underwriter and distributor of the Fund's Shares. State 
Street Bank and Trust Company will act as the administrator, accounting 
agent, custodian, and transfer agent to the Fund.
---------------------------------------------------------------------------

    \4\ 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 Registration Statement on Form N-1A for the Trust, 
dated January 24, 2014 (File Nos. 333-179904 and 811-22649). 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. 
29571 (January 24, 2011) (File No. 812-13601).
    \5\ The Exchange states that, while the Adviser is not a broker-
dealer, the Adviser is affiliated with the Distributor, which is a 
broker-dealer. The Exchange represents that the Adviser has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and 
changes to the Fund's portfolio. Nasdaq Rule 5735(g) further 
requires that personnel who make decisions on the open-end fund's 
portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the open-end fund's portfolio (including the portfolio of 
the Subsidiary, as defined herein). In addition, the Exchange 
represents that in the event (a) the Adviser becomes newly 
affiliated with a broker-dealer or registers as a broker-dealer, or 
(b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, the Adviser will implement 
a fire wall with respect to its relevant personnel or such broker-
dealer affiliate, as applicable, regarding access to information 
concerning the composition and changes to the portfolio, and the 
Adviser will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
portfolio. The Exchange also states that the Fund does not currently 
intend to use a sub-adviser.
---------------------------------------------------------------------------

    The Exchange has made the following representations and statements 
in describing the Fund and its principal investments (including those 
of the Subsidiary, as defined herein), other investments, and 
investment restrictions.\6\
---------------------------------------------------------------------------

    \6\ 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 3 and 4, respectively.
---------------------------------------------------------------------------

Principal Investments of the Fund

    According to the Exchange, the investment objective of the Fund 
will be to seek total return by providing investors with broad 
commodity exposure. The Fund will be an actively managed exchange-
traded fund (``ETF'') that seeks to achieve its investment objective by 
investing in a combination of exchange-traded commodity futures 
contracts, exchange-traded options on

[[Page 59531]]

futures contracts, and exchange-cleared swaps (collectively, 
``Commodity-Linked Investments'') \7\ and exchange-traded commodity-
related equities (``Commodity-Related Equities''),\8\ thereby obtaining 
exposure to the commodities markets. The Fund will seek to gain 
exposure to Commodity-Linked Investments through investments in a 
wholly-owned subsidiary controlled by the Fund and organized under the 
laws of the Cayman Islands (``Subsidiary''), and will invest directly 
in Commodity-Related Equities. The Fund's investment in the Subsidiary 
may not exceed 25% of the Fund's total assets.
---------------------------------------------------------------------------

    \7\ ``Commodity-Linked Investments'' will be comprised of 
exchange-traded futures contracts on the 22 commodities that 
comprise the S&P GSCI Index and index futures linked to commodities. 
However, the Fund is not obligated to invest in such futures 
contracts and does not seek to track the performance of the S&P GSCI 
Index. Commodity-Linked Investments will also be comprised of 
exchange-cleared swaps on commodities and exchange-traded options on 
futures that provide exposure to the investment returns of the 
commodities markets, without investing directly in physical 
commodities. According to the Exchange, with respect to the futures 
contracts and options on futures contracts held indirectly through 
the Subsidiary, not more than 10% of the weight of such futures 
contracts and options on futures contracts, in the aggregate, shall 
consist of such instruments whose principal trading market is not a 
member of the Intermarket Surveillance Group (``ISG'') or is a 
market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. Nasdaq states that this 10% 
limitation will be calculated using the value of the contract 
divided by the total absolute notional value of the Subsidiary's 
futures contracts.
    \8\ ``Commodity-Related Equities'' will be comprised of 
exchange-traded common stocks of companies that operate in 
commodities, natural resources and energy businesses, and in 
associated businesses, as well as companies that provide services or 
have exposure to such businesses.
---------------------------------------------------------------------------

    The remainder of the Fund's assets will be invested, either 
directly by the Fund or through the Subsidiary, in: (1) Short-term, 
investment grade fixed income securities that include U.S. government 
and agency securities,\9\ treasury inflation-protected securities, 
sovereign debt obligations of non-U.S. countries, and repurchase 
agreements; (2) money market instruments; \10\ and (3) cash and other 
cash equivalents. The Fund will use such instruments as investments and 
to collateralize the Subsidiary's Commodity-Linked Investments exposure 
on a day-to-day basis.
---------------------------------------------------------------------------

    \9\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \10\ For the Fund's purposes, money market instruments will 
include: Short-term, high-quality securities issued or guaranteed by 
non-U.S. governments, agencies and instrumentalities; non-
convertible corporate debt securities with remaining maturities of 
not more than 397 days that satisfy ratings requirements of Rule 2a-
7 under the 1940 Act; money market mutual funds; and deposits and 
other obligations of U.S. and non-U.S. banks and financial 
institutions. As a related matter, according to the Exchange, the 
Fund may invest in shares of money market mutual funds to the extent 
permitted by the 1940 Act.
---------------------------------------------------------------------------

    The Exchange notes that the Fund will not invest directly in 
physical commodities. The Fund may invest directly in exchange-traded 
notes (``ETNs''),\11\ commodity-linked notes,\12\ ETFs \13\ and other 
investment companies, including exchange-traded closed-end funds that 
provide exposure to commodities, equity securities, and fixed income 
securities to the extent permitted under the 1940 Act.\14\
---------------------------------------------------------------------------

    \11\ According to the Exchange, ETNs are exchange-traded notes 
as would be listed under Nasdaq Rule 5710.
    \12\ Such commodity-linked notes will not be exchange-traded. 
The Fund's investments in such commodity-linked notes will generally 
be limited to circumstances in which the Fund reaches position 
limits, accountability levels, or price limits on one or more 
exchange-traded futures contracts or index futures in which the Fund 
invests.
    \13\ An ETF is an investment company registered under the 1940 
Act that holds a portfolio of securities. Many ETFs are designed to 
track the performance of a securities index, including industry, 
sector, country, and region indexes. ETFs included in the Fund will 
be listed and traded in the U.S. on registered exchanges. The Fund 
may invest in the securities of ETFs in excess of the limits imposed 
under the 1940 Act pursuant to exemptive orders obtained by other 
ETFs and their sponsors from the Commission. The ETFs in which the 
Fund may invest include Index Fund Shares (as described in Nasdaq 
Rule 5705), Portfolio Depositary Receipts (as described in Nasdaq 
Rule 5705), and Managed Fund Shares (as described in Nasdaq Rule 
5735).
    \14\ Not more than 10% of the equity securities (including 
shares of ETFs and closed-end funds) and ETNs in which the Fund may 
invest will be invested in securities that trade in markets that are 
not members of the ISG, which includes all U.S. national securities 
exchanges, or are not parties to a comprehensive surveillance 
sharing agreement with the Exchange.
---------------------------------------------------------------------------

    According to the Exchange, the Fund's investment in the Subsidiary 
will be designed to help the Fund achieve exposure to commodity returns 
in a manner consistent with the federal tax requirements applicable to 
the Fund and other regulated investment companies.

Investments of the Subsidiary

    The Subsidiary will seek to make investments generally in 
Commodity-Linked Investments. The Adviser will use its discretion to 
determine the percentage of the Fund's assets allocated to the 
Commodity-Linked Investments held by the Subsidiary and the Commodity-
Related Equities portion of the Fund's portfolio. Generally, the 
Adviser will take various factors into account on a periodic basis in 
allocating the assets of the Fund, including, but not limited to, the 
results of proprietary models developed by the Adviser, the performance 
of index benchmarks for the Commodity-Linked Investments and Commodity-
Related Equities relative to each other, relative price differentials 
for a range of commodity futures for current delivery as compared to 
similar commodity futures for future delivery, and other market 
conditions. The weightings of the Fund's portfolio will be reviewed and 
updated at least annually.
    The Subsidiary will be advised by the Adviser \15\ and will have 
the same investment objective as the Fund. However, unlike the Fund, 
the Subsidiary may invest without limitation in Commodity-Linked 
Investments. The Subsidiary's investments will provide the Fund with 
exposure to domestic and international markets. The Subsidiary will 
initially consider investing in futures contracts based on the table 
outlined in the Notice.\16\ The Exchange notes that the list of 
commodities futures and commodities markets considered for investment 
can and will change over time.
---------------------------------------------------------------------------

    \15\ The Exchange states that the Subsidiary will not be 
registered under the 1940 Act and will not be directly subject to 
its investor protections, except as noted in the Registration 
Statement. However, the Subsidiary will be wholly-owned and 
controlled by the Fund and will be advised by the Adviser. 
Therefore, the Fund's ownership and control of the Subsidiary will 
prevent the Subsidiary from taking action contrary to the interests 
of the Fund or its shareholders. The Trust's board will have 
oversight responsibility for the investment activities of the Fund, 
including its expected investment in the Subsidiary, and the Fund's 
role as the sole shareholder of the Subsidiary. The Adviser will 
receive no additional compensation for managing the assets of the 
Subsidiary. The Subsidiary will also enter into separate contracts 
for the provision of custody, transfer agency, and accounting agent 
services with the same or with affiliates of the same service 
providers that provide those services to the Fund.
    \16\ See Notice, supra note 3, 79 FR at 48789-48790. In the 
Notice, the Exchange states that as U.S. and London exchanges list 
additional contracts, as currently listed contracts on those 
exchanges gain sufficient liquidity, or as other exchanges list 
sufficiently liquid contracts, the Adviser will include those 
contracts in the list of possible investments of the Subsidiary.
---------------------------------------------------------------------------

    The Fund and the Subsidiary are subject to regulation by the 
Commodity Futures Trading Commission and National Futures Association 
(``NFA'') and additional disclosure, reporting, and recordkeeping rules 
imposed upon commodity pools.\17\
---------------------------------------------------------------------------

    \17\ As a result of the instruments that will be indirectly held 
by the Fund, the Exchange represents that the Adviser has registered 
as a commodity pool operator and is also a member of the NFA.

---------------------------------------------------------------------------

[[Page 59532]]

Investment Restrictions

    The Fund may not invest more than 25% of the value of its total 
assets in securities of issuers in any one industry or group of 
industries other than certain industries described in the Registration 
Statement. This restriction will not apply to obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities, 
or securities of other investment companies.
    The Subsidiary's shares will be offered only to the Fund, and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund will not purchase securities of open-end or closed-end investment 
companies except in compliance with the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment).\18\ 
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.\19\
---------------------------------------------------------------------------

    \18\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \19\ 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.
---------------------------------------------------------------------------

    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company under SubChapter M of the 
Internal Revenue Code.
    Under the 1940 Act, the Fund's investment in investment companies 
will be limited to, subject to certain exceptions: (i) 3% of the total 
outstanding voting stock of any one investment company; (ii) 5% of the 
Fund's total assets with respect to any one investment company; and 
(iii) 10% of the Fund's total assets with respect to investment 
companies in the aggregate.
    The Fund's and the Subsidiary's investments will be consistent with 
the Fund's investment objective, and, although certain investments will 
have a leveraging effect on the Fund, the Fund will not seek leveraged 
returns (e.g., 2X or -3X).

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.\20\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\21\ 
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.
---------------------------------------------------------------------------

    \20\ 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).
    \21\ 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,\22\ 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, an Indicative Optimized Portfolio Value, 
defined in Nasdaq Rule 5735(c)(3) as the ``Intraday Indicative Value,'' 
\23\ 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.\24\ On each business day, 
before commencement of trading in Shares in the Regular Market Session 
\25\ on the Exchange, the Fund will disclose on its Web site the 
Disclosed Portfolio, as defined in Nasdaq Rule 5735(c)(2), that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\26\ The Adviser, through the National Securities Clearing 
Corporation, will make available on each business day, prior to the 
opening of business of the New York Stock 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.\27\

[[Page 59533]]

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 any 
underlying exchange-traded equity will be available via the CTA high-
speed line, and will be available from the national securities exchange 
on which they are listed. Quotation and last-sale information for any 
underlying exchange-traded options or exchange-traded futures contracts 
will be available via the quote and trade service of their respective 
primary exchanges. Information on the S&P GSCI Index will be available 
on the S&P Dow Jones Indices Web site. 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. The 
Exchange further notes that intraday, executable price quotations on 
the exchange-traded assets held by the Fund and the Subsidiary, 
including the Commodity-Related Equities, futures contracts, options on 
futures contracts, index futures, ETNs, ETFs, and other investment 
companies, including closed-end funds, will be available on the 
exchange on which they are traded. Intraday, executable price 
quotations on swaps, money market instruments, commodity-linked notes, 
and fixed-income instruments will be available from major broker-dealer 
firms. Intraday price information will also be available through 
subscription services, such as Bloomberg and Reuters. Additionally, the 
Trade Reporting and Compliance Engine (``TRACE'') of the Financial 
Industry Regulatory Authority (``FINRA'') will be a source of price 
information for certain fixed income securities held by the Fund.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ According to the Exchange, the Intraday Indicative Value 
will reflect an estimated intraday value of the Fund's portfolio 
(including the Subsidiary's 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.
    \24\ 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.
    \25\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4:00 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).
    \26\ On a daily basis, the Fund will disclose 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, commodity, index, or other asset or 
instrument underlying the holding, if any; for options, the option 
strike price; quantity held (as measured by, for example, par value, 
notional value or number of shares, contracts or units); maturity 
date, if any; coupon rate, if any; effective date, if any; market 
value of the holding; and the percentage weighting of the holding in 
the Fund's portfolio. The Web site information will be publicly 
available at no charge.
    \27\ NAV per Share will be calculated for the Fund by taking the 
market price of the Fund's total assets, less all liabilities, 
dividing such amount by the total number of Shares outstanding, and 
rounding to the nearest cent. The value of the securities, other 
assets, and liabilities held by the Fund will be determined pursuant 
to valuation policies and procedures approved by the Trust's Board. 
The Fund's assets and liabilities will be valued primarily on the 
basis of market quotations. Equity securities and debt securities, 
including ETNs, traded on a recognized securities exchange will be 
valued at market value, which is determined using the last reported 
official closing price or last trading price on the exchange or 
other market on which the security is primarily traded at the time 
of valuation. Fixed income securities, including money market 
securities and U.S. government securities, for which market 
quotations are readily available are generally valued using such 
securities' most recent bid prices provided directly from one or 
more broker-dealers, market makers, or independent third-party 
pricing services, each of whom may use matrix pricing and valuation 
models, as well as recent market transactions. Short-term 
investments that mature in less than 60 days when purchased will be 
valued at amortized cost. Exchange-traded futures contracts, options 
on futures contracts, and index futures will be valued at their 
settled price as of the close of such exchanges. Exchange-cleared 
swap agreements and commodity-linked notes are generally valued 
daily based on quotations from market makers or by a pricing service 
in accordance with valuation procedures adopted by the Trust's 
board. Shares of underlying ETFs and other investment companies, 
including closed-end funds, will be valued at their most recent 
closing price on the exchange on which they are traded. Shares of 
underlying money market funds will be valued at their NAV.
---------------------------------------------------------------------------

    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,\28\ and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth additional 
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, as defined 
in Nasdaq Rule 5735(c)(4), 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.\29\ In addition, the 
Exchange states that, while the Adviser is not registered as a broker-
dealer, the 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.\30\
---------------------------------------------------------------------------

    \28\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and other assets constituting the 
Disclosed Portfolio of the Fund and the Subsidiary; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. 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.
    \29\ See Nasdaq Rule 5735(d)(2)(B)(ii).
    \30\ See supra note 5. 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 and its related personnel are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients, as 
well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non- public information by an investment adviser must be 
consistent with Rule 204A-1 under the Advisers Act. In addition, 
Rule 206(4)-7 under the Advisers Act makes it unlawful for an 
investment adviser to provide investment advice to clients unless 
such investment adviser has (i) adopted and implemented written 
policies and procedures reasonably designed to prevent violation, by 
the investment adviser and its supervised persons, of the Advisers 
Act and the Commission rules adopted thereunder; (ii) implemented, 
at a minimum, an annual review regarding the adequacy of the 
policies and procedures established pursuant to subparagraph (i) 
above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
---------------------------------------------------------------------------

    The Exchange represents that 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.\31\ 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.
---------------------------------------------------------------------------

    \31\ 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

[[Page 59534]]

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 and the Subsidiary, which include exchange-traded Commodity-
Related Equities, exchange-traded or exchange-cleared Commodity-Linked 
Investments (with the exception of exchange-cleared swaps), ETNs, ETFs 
and other exchange-traded investment companies, with other markets and 
other entities that are members of ISG, and FINRA may obtain trading 
information regarding trading in the Shares and such exchange-traded 
securities and instruments held by the Fund and the Subsidiary from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and such exchange-traded 
securities and instruments held by the Fund and the Subsidiary from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, will be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's 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 and the Subsidiary 
must be in compliance with Rule 10A-3 under the Act.\32\
---------------------------------------------------------------------------

    \32\ 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). 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) The Fund will invest directly in Commodity-Related Equities and 
will seek to gain exposure to Commodity-Linked Investments through 
investments in the Subsidiary. The Fund's investment in the Subsidiary 
will not exceed 25% of the Fund's total assets.
    (8) The Fund will not invest in directly in physical commodities 
and may invest directly in ETNs, commodity-linked notes, ETFs, and 
other investment companies.
    (9) The Subsidiary will seek to make investments in Commodity-
Linked Investments. The Subsidiary will initially consider investing in 
futures contracts as outlined in the table in the Notice, though the 
table is subject to change.
    (10) The Fund and the Subsidiary's investments will be consistent 
with the Fund's investment objectives and although certain investments 
will have a leveraging effect on the Fund, the Fund will not seek 
leveraged returns.
    (11) With respect to the exchange-traded futures contracts and 
options on futures contracts held indirectly through the Subsidiary, 
not more than 10% of the weight \33\ of such futures contracts and 
options on futures contracts in the aggregate shall consist of 
instruments whose principal trading market is not a member of ISG or is 
a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. In addition, not more than 10% of the 
equity securities (including shares of ETFs and closed-end funds) and 
ETNs in which the Fund may invest will be invested in securities that 
trade in markets that are not members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------

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

    (12) 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 is consistent with Section 6(b)(5) of the Act \34\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-NASDAQ-2014-053), be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23448 Filed 10-1-14; 8:45 am]
BILLING CODE 8011-01-P