[Federal Register Volume 80, Number 130 (Wednesday, July 8, 2015)]
[Notices]
[Pages 39166-39169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16652]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75349; File No. SR-NASDAQ-2015-049]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2 Thereto, Relating to the Listing and Trading of the Shares
of the PowerShares DB Optimum Yield Diversified Commodity Strategy
Portfolio, PowerShares Agriculture Commodity Strategy Portfolio,
PowerShares Precious Metals Commodity Strategy Portfolio, PowerShares
Energy Commodity Strategy Portfolio, PowerShares Base Metals Commodity
Strategy Portfolio and PowerShares Bloomberg Commodity Strategy
Portfolio, Each a Series of PowerShares Actively Managed Exchange-
Traded Commodity Fund Trust
July 1, 2015.
I. Introduction
On April 30, 2015, 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 relating to the listing and trading of shares
(``Shares'') of the PowerShares DB Optimum Yield Diversified Commodity
Strategy Portfolio, PowerShares Agriculture Commodity Strategy
Portfolio, PowerShares Precious Metals Commodity Strategy Portfolio,
PowerShares Energy Commodity Strategy Portfolio, PowerShares Base
Metals Commodity Strategy Portfolio and PowerShares Bloomberg Commodity
Strategy Portfolio (individually, ``Fund,'' and collectively,
``Funds''), each a series of the PowerShares Actively Managed Exchange-
Traded Commodity Fund Trust (``Trust'') \3\ under Nasdaq Rule 5735. The
proposed rule change was published for comment in the Federal Register
on May 21, 2015.\4\ On June 30, 2015, the Exchange filed Amendment No.
1 to the proposed rule change, and on July 1, 2015, the Exchange filed
Amendment No. 2 to the proposed rule change.\5\ The Commission received
no comments on the proposal. This order grants approval of the proposed
rule change, as modified by Amendment Nos. 1 and 2 thereto.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 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 with the Commission. A description of each
Fund's investment strategy is set forth in the Trust's registration
statement (``Registration Statement''). See Pre-effective Amendment
No. 1 to the Registration Statement for the Trust, dated May 20,
2014 (File Nos. 333-193135 and 811-22927).
\4\ See Securities Exchange Act Release No. 74979 (May 15,
2015), 80 FR 29359 (``Notice'').
\5\ In Amendment No. 1 to the proposed rule change, the
Exchange: (a) Made a technical typographical correction to the
citation in its filing referencing an exemptive order issued under
the Investment Company Act of 1940 (``1940 Act''); and (b) clarified
that only the Subsidiary (as defined herein) will hold Commodity-
Linked Instruments (as defined herein) by removing the following
statement in the filing: ``in addition, each Fund may hold
instruments that its respective Subsidiary is entitled to hold, and
vice versa, to the extent consistent with federal tax
requirements.''. In Amendment No. 2 to the proposed rule change, the
Exchange further clarified that (a) each Fund, through its
respective Subsidiary (but not directly), will only invest in those
commodity-linked notes, OTC Swaps, Forwards, or other over-the-
counter instruments that are based on the price of relevant
Commodities Futures, as applicable, and tend to exhibit trading
prices or returns that correlate with any Commodities Futures and
that will further the investment objective of such Fund (each ``OTC
Swaps,'' ``Forwards,'' and ``Commodities Futures,'' as defined
herein); and (b) each Subsidiary (not each Fund) will enter into
swap agreements and other over-the-counter transactions only with
large, established, and well capitalized financial institutions that
meet certain credit quality standards and monitoring policies, and
each Subsidiary (not each Fund) will use various techniques to
minimize credit risk, including early termination, or reset and
payment of such investments, the use of different counterparties, or
limiting the net amount due from any individual counterparty.
Because Amendment Nos. 1 and 2 to the proposed rule change seek to
make certain clarifications and technical corrections, and do not
materially affect the substance of the proposed rule change or raise
unique or novel regulatory issues, Amendment Nos. 1 and 2 to the
proposed rule change do not require notice and comment. The text of
Amendment Nos. 1 and 2 is available at: http://www.sec.gov/rules/sro/nasdaq.shtml.
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II. Description of the Proposed Rule Change
The Commission previously approved the listing and trading of the
Shares on the Exchange under Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund Shares.\6\ According to the
Exchange, the Shares of the PowerShares DB Optimum Yield Diversified
Commodity Strategy
[[Page 39167]]
Portfolio have commenced trading on the Exchange; the Shares of the
other Funds have not. The Exchange proposes to permit the listing or
continued listing, as the case may be, of the Shares based on certain
proposed revisions to their investment strategies, as described in more
detail below.\7\
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\6\ See Securities Exchange Act Release Nos. 73078 (Sept. 11,
2014), 79 FR 55851 (Sept. 17, 2014) (SR-NASDAQ-2014-80) (``Prior
Notice''); and 73471 (Oct. 30, 2014), 79 FR 65751 (Nov. 5, 2014)
(SR-NASDAQ-2014-080) (``Prior Order,'' and, together with the Prior
Notice, collectively, ``Prior Release'').
\7\ The Exchange states that the changes described herein will
be effective contingent upon effectiveness of a post-effective
amendment to the Registration Statement of the Trust, on behalf of
each Fund.
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A. Principal Investments
As stated in the Prior Release, each Fund's investment objective is
to seek long-term capital appreciation. The Prior Release states that
each Fund seeks to achieve its investment objective by investing, under
normal circumstances,\8\ in a combination of: (i) A wholly-owned
subsidiary organized under the laws of the Cayman Islands
(individually, ``Subsidiary,'' and collectively, ``Subsidiaries'');
(ii) exchange-traded products or exchange-traded commodity pools; \9\
and (iii) U.S. Treasury Securities, money market mutual funds, high
quality commercial paper, and similar instruments (``Collateral
Instruments'').\10\
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\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity, commodities and futures markets or the financial markets
generally; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or manmade disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
\9\ Specifically, the Prior Release noted that the Funds will
invest in: (1) Exchange-traded funds (``ETFs'') that provide
exposure to commodities, as would be listed under Nasdaq Rules 5705
and 5735; (2) exchange-traded notes (``ETNs'') that provide exposure
to commodities, as would be listed under Nasdaq Rule 5710; or (3)
exchange-traded pooled investment vehicles that invest primarily in
commodities and commodity-linked instruments, as would be listed
under Nasdaq Rules 5711(b), (d), (f), (g), (h), (i), and (j)
(``Commodity Pool'' or ``Commodity Pools'').
\10\ The Exchange represents that, for a 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 under Rule 2a-7 of the 1940 Act; money market mutual
funds; and deposits and other obligations of U.S. and non-U.S. banks
and financial institutions.
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The Prior Release also states that each Subsidiary will invest in
exchange-traded futures contracts linked to commodities (``Commodities
Futures'') to provide its parent Fund with additional indirect exposure
to the commodities markets. Each Fund's investment in its Subsidiary is
designed to help the Fund obtain exposure to Commodities Futures
returns in a manner consistent with the federal tax requirements
applicable to regulated investment companies, such as the Funds, which
limit the ability of investment companies to invest directly in
derivative instruments such as Commodities Futures.
In this proposed rule change, the Exchange seeks to make certain
revisions to the investment strategy described in the Prior Release.
Specifically, the proposal seeks to allow the Funds and the
Subsidiaries, as applicable, to also invest in a variety of other
securities and instruments beyond those set forth in the Prior Release,
as follows:
Each Fund, which already may invest in ETFs, ETNs, and
Commodity Pools, seeks to also invest in: (i) Other investment
companies,\11\ to the extent permitted under the 1940 Act; \12\ and
(ii) exchange-traded commodity-linked equity securities \13\ (``Equity
Securities'') (collectively, ``Commodity-Related Assets'').
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\11\ In addition to ETFs, the other investment companies will
consist of non-exchange traded U.S. registered open-end investment
companies (mutual funds), closed-end investment companies traded on
U.S. exchanges, or exchange-traded non-U.S. investment companies
traded on foreign exchanges.
\12\ According to the Exchange, each Fund's investment in
securities of other investment companies may exceed the limits
permitted under the 1940 Act, in accordance with certain terms and
conditions set forth in a Commission exemptive order issued to an
affiliate of the Trust (which applies equally to the Trust) pursuant
to Section 12(d)(1)(J) of the 1940 Act. See Investment Company Act
Release No. 30238 (Oct. 23, 2012) (File No. 812-13820) or, in the
case of non-U.S. investment companies, pursuant to Commission No-
Action relief. See Red Rocks Capital, LLC (pub. avail. June 3,
2011).
\13\ Equity Securities 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.
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each Subsidiary, which already may invest in Commodities
Futures, now also seeks to invest in: (i) Exchange-traded futures
contracts on commodity indices; (ii) commodity-linked notes; \14\ (iii)
ETNs; (iv) exchange-traded options on Commodities Futures
(``Options''); \15\ (v) centrally-cleared or over the counter (``OTC'')
swaps on commodities (``Swaps''); and (vi) commodity-related forward
contracts (``Forwards'') (collectively, ``Commodity-Linked
Instruments''), which provide exposure to the investment returns of the
commodities markets, without investing directly in physical
commodities.
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\14\ According to the Exchange, such commodity-linked notes
generally will not be exchange-traded; however it is possible that
in the future some of those instruments could be listed for trading
on an exchange.
\15\ The Prior Release noted that with respect to Commodities
Futures held indirectly through a Subsidiary, not more than 10% of
the weight of such Commodities Futures in the aggregate shall
consist of instruments whose principal trading market is not a
member of the Intermarket Surveillance Group (``ISG'') or a market
with which the Exchange does not have a comprehensive surveillance
sharing agreement. The Exchange now clarifies that Options and
commodity index futures will be subject to the same restrictions as
Commodities Futures, and that Options and commodity index futures
will be considered in the aggregate with Commodities Futures.
Therefore, with respect to Commodities Futures, commodity index
futures, and Options, not more than 10% of the weight of such
Commodities Futures, commodity index futures, and Options, in the
aggregate, shall consist of instruments whose principal trading
market is not a member of the ISG or a market with which the
Exchange does not have a comprehensive surveillance sharing
agreement. The Exchange states that this 10% limitation applicable
to Commodities Futures, commodity index futures, and Options, in the
aggregate, is separate from the 10% limitation applicable to
exchange traded equity securities described herein, and is
determined separately from this other limitation.
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The Prior Release notes that all of the exchange-traded securities
held by a Fund will be traded in a principal trading market that is a
member of ISG or a market with which the Exchange has a comprehensive
surveillance sharing agreement. The Funds propose to invest in Equity
Securities, closed-end funds, ETFs, ETNs, Commodity Pools, and non-U.S.
investment companies that are not traded in a principal trading market
that is a member of ISG or a market with which the Exchange has a
comprehensive surveillance sharing agreement; however, not more than
10% of each Fund's investments in these investments (in the aggregate)
will be invested in instruments that trade in markets that are not
members of the ISG or that are not parties to a comprehensive
surveillance sharing agreement with the Exchange.
According to the Exchange, these additional instruments are
intended to support each Fund's principal investment strategy by
providing each Fund with the flexibility to obtain additional exposure
to the investment returns of the commodities markets within the limits
of applicable federal tax requirements and without investing directly
in physical commodities. Each Fund, through its respective Subsidiary,
will only invest in those commodity-linked notes, OTC Swaps, Forwards,
or other over-the-counter instruments that are based on the price of
relevant Commodities Futures, as applicable, and tend to exhibit
trading prices or returns that correlate with any Commodities Futures
and that will further the investment objective of such Fund.\16\ The
Funds represent that the
[[Page 39168]]
descriptions of the original asset types included in the Prior Release
remain otherwise unchanged and that the Funds and their Subsidiaries
will adhere to all investment restrictions set forth in the Prior
Release as they apply to the original asset types. The Funds also
represent that the investments in these additional asset types will be
consistent with each Fund's investment objective.
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\16\ Each Subsidiary will enter into swap agreements and other
over-the-counter transactions only with large, established, and well
capitalized financial institutions that meet certain credit quality
standards and monitoring policies. Each Subsidiary will use various
techniques to minimize credit risk, including early termination, or
reset and payment of such investments, the use of different
counterparties, or limiting the net amount due from any individual
counterparty.
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The Exchange represents that, except for these changes described
herein, all other facts presented and representations made in the Prior
Release remain unchanged and in full effect. Additional information
regarding the Trust, Fund, and Shares, including investment strategies
and restrictions, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, distributions and taxes,
calculation of net asset value (``NAV''), availability of information,
trading rules and halts, and surveillance procedures, among other
things, can be found in the Registration Statement, Notice, and Prior
Release, as applicable.\17\
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\17\ See Registration Statement, Notice, and Prior Release,
supra notes 3, 4, and 6, respectively, and accompanying text.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment Nos. 1 and 2 thereto, is consistent
with the requirements of Section 6 of the Act \18\ and the rules and
regulations thereunder applicable to a national securities
exchange.\19\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1 and 2 thereto, is
consistent with the requirements of Section 6(b)(5) of the Act,\20\
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 also finds
that the proposal to list and trade the Shares on the Exchange is
consistent with Section 11A(a)(1)(C)(iii) of the Act,\21\ which sets
forth the finding of Congress that it is in the public interest and
appropriate for the protection of investors and the maintenance of fair
and orderly markets to assure the availability to brokers, dealers, and
investors of information with respect to quotations for, and
transactions in, securities.
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\18\ 15 U.S.C. 78(f).
\19\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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The Exchange represents that not more than 10% of each Fund's
investments in Equity Securities, closed-end funds, ETFs, ETNs,
Commodity Pools, and non-U.S. investment companies, in the aggregate,
will be invested in instruments that trade in markets that are not
members of the ISG or that are not parties to a comprehensive
surveillance sharing agreement with the Exchange. In addition, the
Exchange represents that, with respect to Commodities Futures,
commodity index futures, and Options, not more than 10% of the weight
of such Commodities Futures, commodity index futures, and Options, in
the aggregate, will consist of instruments whose principal trading
market is not a member of the ISG or a market with which the Exchange
does not have a comprehensive surveillance sharing agreement. The
Commission further notes that: (1) Commodity-Linked Instruments will
only be held at the Fund's Subsidiary level; \22\ and (2) according to
the Prior Release, each Fund's investment in a Subsidiary may not
exceed 25% of the Fund's total assets.\23\
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\22\ See Amendment No. 1, supra note 5.
\23\ See Prior Release, supra note 6. The Commission further
notes that, according to the Prior Release, because each Fund will
wholly own and control its respective Subsidiary, and the Fund and
the Subsidiary will be managed by Invesco PowerShares Capital
Management LLC (``Adviser''), the Subsidiary will not take action
contrary to the interests of the Fund or the Fund's shareholders.
The Board of Trustees of the Trust has oversight responsibility for
the investment activities of each Fund, including its expected
investments in its Subsidiary, and that Fund's role as the sole
shareholder of such Subsidiary. In managing a Subsidiary's
portfolio, the Adviser will be subject to the same investment
restrictions and operational guidelines that apply to the management
of a Fund. See Prior Release, supra note 6, 79 FR at 55853.
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With respect to the calculation of NAV, in addition to the
information set forth in the Prior Release, the Exchange represents
that: (i) Equity Securities, ETNs, and futures on commodity indices
will be valued at the last sales price or the official closing price on
the exchange where such securities principally trade; (ii) investment
companies will be valued using such company's end of the day NAV per
share, unless the shares are exchange-traded, in which case they will
be valued at the last sales price or official closing price on the
exchanges on which they primarily trade; (iii) Options generally will
be valued at the closing price (and, if no closing price is available,
at the mean of the last bid/ask quotations) generally from the exchange
where such instruments principally trade; and (iv) Swaps, commodity-
linked notes and Forwards generally will be valued based on quotations
from a pricing vendor (such quotations being derived from available
market- and company-specific data), all in accordance with valuation
procedures adopted by the Board of Trustees of the Trust. All other
valuation procedures pertaining to the Funds, and as set forth in the
Prior Release, are unchanged.
On each business day, before commencement of trading in Shares in
the Regular Market Session on the Exchange, each Fund will disclose on
its Web site the identities and quantities of its portfolio of
securities and other assets (``Disclosed Portfolio,'' as defined in
Nasdaq Rule 5735(c)(2)) held by such Fund and its Subsidiary, which
will form the basis for each Fund's calculation of NAV at the end of
the business day. In addition to the information set forth in the Prior
Release, the Funds will disclose on a daily basis on the Funds' Web
site the following information regarding each portfolio holding, as
applicable to the type of holding: ticker symbol, CUSIP number or other
identifier, if any; a description of the holding (including the type of
holding), the identity of the security or other asset or instrument
underlying the holding, if any; for options, the option strike price;
for Swaps, a description of the type of Swap; quantity held (as
measured by, for example, par value, notional value or number of
shares, contracts or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and
percentage weighting of the holding in the Fund's portfolio. The Web
site information will be publicly available at no charge. Intra-day
price information on the exchange-traded assets held by the Fund and
the Subsidiary, including the Equity Securities, ETNs, Options,
exchange-traded investment companies (including closed-end funds), and
exchange-traded futures contracts on commodity indices will be
available via the quote and trade service of the respective exchanges
on
[[Page 39169]]
which they principally trade. Additionally, price information on Swaps,
commodity-linked notes, Forwards, and non-exchange traded investment
companies will be available from major broker-dealer firms or through
subscription services, such as Bloomberg, Markit, and Thomson Reuters,
which can be accessed by entities that have entered into an authorized
participant agreement with the Trust and other investors.
In addition to the information set forth in the Prior Release, the
Exchange represents that: (i) FINRA, on behalf of the Exchange, will
communicate as needed regarding trading information it can obtain
relating to exchange-traded or centrally-cleared equity securities and
assets held by a Fund or its Subsidiary, as applicable, which include
exchange-traded Commodity-Related Assets and exchange-traded or
centrally-cleared Commodity-Linked Instruments, with other markets and
other entities that are members of the ISG; (ii) FINRA may obtain
trading information regarding trading in exchange-traded equity
securities and other assets held by each Fund and each Subsidiary, as
applicable, from such markets and other entities; and (iii) the
Exchange may obtain information regarding trading in exchange-traded
equity securities and other assets held by each Fund and each
Subsidiary from such markets and other entities (as long as such
markets and other entities are members of ISG or have in place a
comprehensive surveillance sharing agreement with the Exchange). The
Exchange has a general policy prohibiting the distribution of material,
non-public information by its employees.
The Commission notes that, beyond the changes described herein, the
Exchange represents that there are no changes to any other information
included in the Prior Release, and all other facts presented and
representations made in the Prior Release remain true and in effect.
The Commission further notes that the Funds and the Shares must comply
with the requirements of Nasdaq Rule 5735 to be initially and
continuously listed and traded on the Exchange. This approval order is
based on all of the Exchange's representations and description of the
Funds, including those set forth above, in the Prior Release, and in
the Notice.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-NASDAQ-2015-049), as
modified by Amendment Nos. 1 and 2 thereto, be, and it hereby is,
approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16652 Filed 7-7-15; 8:45 am]
BILLING CODE 8011-01-P