[Federal Register Volume 80, Number 174 (Wednesday, September 9, 2015)]
[Notices]
[Pages 54349-54351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-22606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75815; File No. SR-NASDAQ-2015-103]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 5745

September 2, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 31, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, and 
II below, which Items have been prepared by Nasdaq. The Exchange filed 
the proposal as a ``non-controversial'' proposed rule change pursuant 
to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6)

[[Page 54350]]

thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Nasdaq Rule 5745 entitled 
``Exchange-Traded Managed Fund Shares'' in connection with a type of 
open-end management investment company registered under the Investment 
Company Act of 1940, as amended (``1940 Act''), called an Exchange-
Traded Managed Fund (``ETMF''). The shares of an ETMF are collectively 
referred to herein as ``ETMF Shares'' or ``Shares.''
    The Exchange has designated that the amendments be operative on 
October 1, 2015 so that they are in place by the expected launch of the 
initial ETMFs on that date.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 5745 in connection with 
the trading of ETMF Shares.\5\ Specifically, the Exchange proposes to 
add to Nasdaq Rule 5745 subsections (b)(6), (b)(6)(A) and (b)(6)(B) to 
clarify that all order attributes (``Order Attributes''), as described 
in Nasdaq Rule 4703, are applicable to ETMF Shares other than for 
certain exceptions. The first exception is that any order \6\ with 
respect to ETMF Shares received with a routing instruction (as defined 
in Nasdaq Rule 4758) prior to the opening trading in the applicable 
ETMF security will be automatically canceled and returned. Since ETMFs 
are not permitted to trade prior to 9:30 a.m. (Eastern Time), the 
Exchange believes that allowing routing to occur only during Regular 
Market Session \7\ through 4:00 p.m. (Eastern Time) is the best way to 
eliminate any possible confusion regarding system availability for 
trading ETMFs.
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    \5\ The Commission approved Nasdaq Rule 5745 in Securities 
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov. 
14, 2014) (SR-NASDAQ-2014-020).
    \6\ See Nasdaq Rule 4701(e).
    \7\ Nasdaq Rule 4120(b)(4)(D) defines the Regular Market Session 
as the trading session from 9:30 a.m. to 4:00 p.m. or 4:15 p.m. ETMF 
Shares will trade until 4:00 p.m.
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    The other exception is that certain Time-in-Force Order Attributes, 
as defined in Nasdaq Rule 4703, are not applicable to orders in ETMF 
securities. These include orders designated to deactivate one year 
after entry and referred to as a ``Good-till-Cancelled'' or ``GTC'' 
Orders.\8\ If a GTC Order is designated as eligible for execution 
during Market Hours only, it may be referred to as having a Time-in-
Force of ``Market Hours Good-till-Cancelled'' or ``MGTC''.\9\ If a GTC 
is designated as eligible for execution during System Hours, it may be 
referred to as having a Time-in-Force of ``System Hours Good-till-
Cancelled'' or ``SGTC''.\10\ GTC, MGTC and SGTC Order Attributes should 
not be used with ETMF Share orders for the following reasons.
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    \8\ See Nasdaq Rule 4703(a)(3).
    \9\ Id.
    \10\ Id.
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    ETMF Shares will trade on Nasdaq using a new trading protocol 
called ``NAV-Based Trading.'' In NAV-Based Trading, all bids, offers 
and execution prices will be expressed as a premium/discount (which may 
be zero) to the ETMF's next-determined NAV (e.g., NAV-$0.01; 
NAV+$0.01). An ETMF's next-determined NAV will be represented at the 
beginning of each trading day by a proxy price of 100.00. An ETMF's NAV 
will be determined each business day, normally no later than 6:45 p.m. 
Eastern Time. At this time, the day's premiums/discounts associated 
with the day's transactions will be applied to the day's NAV to create 
the final transaction price. Trade executions using NAV-Based Trading 
will be binding at the time orders are matched on Nasdaq's facilities, 
with the transaction prices contingent upon the determination of the 
ETMF's NAV at the end of the business day.
    As such, GTC, MGTC and SGTC Order Attributes that allow an order to 
be activated or deactivated in a manner that is inconsistent with a 
standard trading day create a possibility for error and confusion. The 
daily price function and format of order entry, in premium or discount 
to the NAV, which is characteristic of NAV-Based Trading, represent the 
value a participant is willing to purchase or sell an ETMF. Since a 
GTC, MGTC or SGTC Order Attribute allows for an order to deactivate 
after the day it was entered, the price at which it is entered in 
premium or discount would not represent the same value for an order on 
a subsequent day where the value of NAV may have changed significantly 
from the time it was entered.
    Instead of modifying and limiting each applicable Order Attribute 
that allows for orders to be either activated or deactivated during a 
time when ETMF's are not permitted to trade, the Exchange believe it is 
in the best interests of Exchange members to allow the use of only 
those Order Attributes that pertain to orders that expire during a 
standard trading day. The Exchange believes that this approach both 
simplifies and clarifies the treatment of Order Attributes.
    Additionally, since trading in ETMF Shares will occur only during 
the regular trading hours of between 9:30 a.m. and 4 p.m. (Eastern 
Time),\11\ any orders for ETMF Shares submitted to the Exchange prior 
to market open will not be accepted. Also, orders received after market 
close will be rejected. All orders to buy or sell ETMF Share that are 
not executed on the day the order is submitted would be automatically 
cancelled as of the close of trading on such day.
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    \11\ See Nasdaq Rule 5745(b)(2).
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2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \12\ in general and Section 6(b)(5) of the Act \13\ in 
particular in that it is 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, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange is proposing to clarify Nasdaq Rule 5745 by adding 
subsections (b)(6), (b)(6)(A) and (b)(6)(B) to clarify that all Order 
Attributes (as described in Nasdaq Rule 4703) are applicable to ETMF 
Shares other than

[[Page 54351]]

for certain exceptions, including that any order \14\ received with a 
routing instruction (as defined in Nasdaq Rule 4758) prior to the 
opening of trading in the ETMF security will be automatically canceled 
and returned. Also, the proposed rule seeks to clarify that certain 
Time-in-Force Order Attributes (as defined in Nasdaq Rule 4703) are not 
applicable for ETMF securities and include the following orders: GTC, 
MGTC, and SGTC Orders.\15\
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    \14\ See Nasdaq Rule 4701(e).
    \15\ See Nasdaq Rule 4703(a)(3).
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    The Exchange believes that, because this proposed rule change 
clarifies for all market participants exactly what types of Order 
Attributes are permissible for ETMF Shares and thereby reduces possible 
confusion in the trading of ETMF Shares, it will facilitate 
transactions in securities, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, help to protect investors and the public interest. The 
proposed rule change is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.\16\
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    \16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that the proposed rule change will assist in the introduction 
of ETMFs through clarifying for all market participants exactly what 
types of Order Attributes are permissible for ETMF Shares and will 
reduce possible confusion in the trading of ETMF Shares.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\17\
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    \17\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii)\19\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-2015-103 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1001.

All submissions should refer to File Number SR-NASDAQ-2015-103. 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 such filing also will be available 
for inspection and copying at the principal office of Nasdaq. 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-2015-103, and 
should be submitted on or before September 30, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-22606 Filed 9-8-15; 8:45 am]
 BILLING CODE 8011-01-P