[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29590-29598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11156]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77781; File No. SR-NASDAQ-2016-064]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating to the Listing and 
Trading of the Shares of the First Trust Strategic Mortgage REIT ETF of 
First Trust Exchange-Traded Fund VIII

May 6, 2016.
    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 May 3, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by Nasdaq. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the First Trust 
Strategic Mortgage REIT ETF (the ``Fund'') of First Trust Exchange-
Traded Fund VIII (the ``Trust'') under Nasdaq Rule 5735 (``Managed Fund 
Shares'').\3\ The shares of the Fund are collectively referred to 
herein as the ``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see, e.g., Securities Exchange 
Act Release Nos. 72506 (July 1, 2014), 79 FR 38631 (July 8, 2014) 
(SR-NASDAQ-2014-050) (order approving listing and trading of First 
Trust Strategic Income ETF); 69464 (April 26, 2013), 78 FR 25774 
(May 2, 2013) (SR-NASDAQ-2013-036) (order approving listing and 
trading of First Trust Senior Loan Fund); and 66489 (February 29, 
2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-2012-004) (order 
approving listing and trading of WisdomTree Emerging Markets 
Corporate Bond Fund). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively-
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Massachusetts business trust on 
February 22, 2016.\5\ 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.\6\ The Fund will be a 
series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \5\ The Commission has issued an order, upon which the Trust may 
rely, granting certain exemptive relief under the 1940 Act. See 
Investment Company Act Release No. 28468 (October 27, 2008) (File 
No. 812-13477) (the ``Exemptive Relief'').
    \6\ See Registration Statement on Form N-1A for the Trust, dated 
March 14, 2016 (File Nos. 333-210186 and 811-23147). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
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    First Trust Advisors L.P. will be the investment adviser 
(``Adviser'') to the Fund. First Trust Portfolios L.P. (the 
``Distributor'') will be the principal underwriter and distributor of 
the Fund's Shares. The Bank of New York Mellon Corporation (``BNY'') 
will act as the administrator, accounting agent, custodian and transfer 
agent to the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition,

[[Page 29591]]

paragraph (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. Rule 5735(g) is 
similar to Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. The Adviser is not a broker-dealer, but it is 
affiliated with the Distributor, a broker-dealer, and has implemented a 
fire wall with respect to its broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to the 
portfolio. In addition, personnel who make decisions on the Fund's 
portfolio composition will be subject to procedures designed to prevent 
the use and dissemination of material non-public information regarding 
the Fund's portfolio. In the event (a) the Adviser or any sub-adviser 
registers as a broker-dealer, or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with another broker-dealer, it will 
implement a fire wall with respect to its relevant personnel and/or 
such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. The Fund currently does not intend to use a sub-adviser.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``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.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
First Trust Strategic Mortgage REIT ETF
Principal Investments
    The investment objective of the Fund will be to generate high 
current income. Under normal market conditions,\8\ the Fund will seek 
to achieve its investment objective by investing at least 80% of its 
net assets (including investment borrowings) in the exchange-traded 
common shares of U.S. exchange-traded mortgage real estate investment 
trusts (``mortgage REITs''). In general terms, a mortgage REIT makes 
loans to developers and owners of property and invests primarily in 
mortgages and similar real estate interests, and includes companies or 
trusts that are primarily engaged in the purchasing or servicing of 
commercial or residential mortgage loans or mortgage-related 
securities, which may include mortgage-backed securities issued by 
private issuers and those issued or guaranteed by U.S. Government 
agencies, instrumentalities or sponsored entities.
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    \8\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the securities markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance. On a temporary 
basis, including for defensive purposes, during the initial invest-
up period and during periods of high cash inflows or outflows, the 
Fund may depart from its principal investment strategies; for 
example, it may hold a higher than normal proportion of its assets 
in cash. During such periods, the Fund may not be able to achieve 
its investment objective. The Fund may adopt a defensive strategy 
when the Adviser believes securities in which the Fund normally 
invests have elevated risks due to political or economic factors and 
in other extraordinary circumstances.
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 Other Investments
    The Fund may invest (in the aggregate) up to 20% of its net assets 
in the following securities and instruments.
    The Fund may invest in the exchange-traded preferred shares of U.S. 
exchange-traded mortgage REITs.
    The Fund may invest in (i) U.S. exchange-traded equity and 
preferred securities and (ii) domestic over-the-counter (``OTC'') 
preferred securities, in each case, of companies engaged in the U.S. 
real estate industry (other than mortgage REITs) (collectively, ``Real 
Estate Companies'').
    The Fund may invest in mortgage-backed securities,\9\ and such 
investments may, from time to time, include investments in to-be-
announced transactions \10\ and mortgage dollar rolls \11\ 
(collectively, ``Mortgage-Related Instruments'').
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    \9\ Mortgage-backed securities, which are securities that 
directly or indirectly represent a participation in, or are secured 
by and payable from, mortgage loans on real property, will consist 
of: (1) Residential mortgage-backed securities (``RMBS''); (2) 
commercial mortgage-backed securities (``CMBS''); (3) stripped 
mortgage-backed securities (``SMBS''), which are mortgage-backed 
securities where mortgage payments are divided between paying the 
loan's principal and paying the loan's interest; (4) collateralized 
mortgage obligations (``CMOs'') and real estate mortgage investment 
conduits (``REMICs''), which are mortgage-backed securities that are 
divided into multiple classes, with each class being entitled to a 
different share of the principal and interest payments received from 
the pool of underlying assets.
    \10\ A to-be-announced (``TBA'') transaction is a method of 
trading mortgage-backed securities. In a TBA transaction, the buyer 
and seller agree upon general trade parameters such as agency, 
settlement date, par amount, and price. The actual pools delivered 
generally are determined two days prior to the settlement date.
    \11\ In a mortgage dollar roll, the Fund will sell (or buy) 
mortgage-backed securities for delivery on a specified date and 
simultaneously contract to repurchase (or sell) substantially 
similar (same type, coupon and maturity) securities on a future 
date. During the period between a sale and repurchase, the Fund will 
forgo principal and interest paid on the mortgage-backed securities. 
The Fund will earn or lose money on a mortgage dollar roll from any 
difference between the sale price and the future purchase price. In 
a sale and repurchase, the Fund will also earn money on the interest 
earned on the cash proceeds of the initial sale. The Fund intends to 
enter into mortgage dollar rolls only with high quality securities 
dealers and banks, as determined by the Adviser.
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    The Fund may invest in exchange-traded and OTC options on mortgage 
REITs and Real Estate Companies; OTC options on mortgage TBA 
transactions; exchange-traded U.S. Treasury and Eurodollar futures 
contracts; exchange-traded and OTC interest rate swap agreements; 
exchange-traded options on U.S. Treasury and Eurodollar futures 
contracts; and exchange-traded and OTC options on interest rate swap 
agreements. The use of these derivative transactions may allow the Fund 
to obtain net long or short exposures to selected interest rates. These 
derivatives may also be used to hedge risks, including interest rate 
risks and credit risks, associated with the Fund's portfolio 
investments. The Fund's investments in derivative instruments will be 
consistent with the Fund's investment objective and the 1940 Act and 
will not be used to seek to achieve a multiple or inverse multiple of 
an index. The Fund will only enter into transactions in OTC derivatives 
(including OTC options on mortgage REITs, Real Estate Companies and 
mortgage TBA transactions; OTC interest rate swap agreements; and OTC 
options on interest rate swap agreements) with counterparties that the 
Adviser reasonably believes are capable of performing under the 
applicable contract or agreement.\12\
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    \12\ The Fund will seek, where possible, to use counterparties, 
as applicable, whose financial status is such that the risk of 
default is reduced; however, the risk of losses resulting from 
default is still possible. The Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser's analysis 
will evaluate each approved counterparty using various methods of 
analysis and may consider the Adviser's past experience with the 
counterparty, its known disciplinary history and its share of market 
participation.
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    The Fund may invest in short-term debt securities and other short-
term debt instruments (described below), as well as cash equivalents, 
or it may hold cash.

[[Page 29592]]

The percentage of the Fund invested in such holdings or held in cash 
will vary and will depend on several factors, including market 
conditions. The Fund may invest in the following short-term debt 
instruments: \13\ (1) Fixed rate and floating rate U.S. government 
securities, including bills, notes and bonds differing as to maturity 
and rates of interest, which are either issued or guaranteed by the 
U.S. Treasury or by U.S. government agencies or instrumentalities; (2) 
certificates of deposit issued against funds deposited in a bank or 
savings and loan association; (3) bankers' acceptances, which are 
short-term credit instruments used to finance commercial transactions; 
(4) repurchase agreements,\14\ which involve purchases of debt 
securities; (5) bank time deposits, which are monies kept on deposit 
with banks or savings and loan associations for a stated period of time 
at a fixed rate of interest; and (6) commercial paper, which is short-
term unsecured promissory notes.\15\
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    \13\ Short-term debt instruments are issued by issuers having a 
long-term debt rating of at least A by Standard & Poor's Ratings 
Services, a Division of The McGraw-Hill Companies, Inc. (``S&P 
Ratings''), Moody's Investors Service, Inc. (``Moody's'') or Fitch 
Ratings (``Fitch'') and have a maturity of one year or less.
    \14\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser to 
present minimal credit risks in accordance with criteria approved by 
the Board of Trustees of the Trust (``Trust Board''). The Adviser 
will review and monitor the creditworthiness of such institutions. 
The Adviser will monitor the value of the collateral at the time the 
transaction is entered into and at all times during the term of the 
repurchase agreement.
    \15\ The Fund may only invest in commercial paper rated A-1 or 
higher by S&P Ratings, Prime-1 or higher by Moody's or F1 or higher 
by Fitch.
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    The Fund may invest (but only, in the aggregate, up to 10% of its 
net assets) in the securities of money market funds and other ETFs \16\ 
that, in each case, will be investment companies registered under the 
1940 Act.
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    \16\ An ETF is an investment company registered under the 1940 
Act that holds a portfolio of securities. Many ETFs are designed to 
track the performance of a securities index, including industry, 
sector, country and region indexes. ETFs included in the Fund will 
be listed and traded in the U.S. on registered exchanges. The Fund 
may invest in the securities of ETFs in excess of the limits imposed 
under the 1940 Act pursuant to exemptive orders obtained by other 
ETFs and their sponsors from the Commission. In addition, the Fund 
may invest in the securities of certain other investment companies 
in excess of the limits imposed under the 1940 Act pursuant to an 
exemptive order that the Trust has obtained from the Commission. See 
Investment Company Act Release No. 30377 (February 5, 2013) (File 
No. 812-13895). The ETFs in which the Fund may invest include Index 
Fund Shares (as described in Nasdaq Rule 5705), Portfolio Depository 
Receipts (as described in Nasdaq Rule 5705), and Managed Fund Shares 
(as described in Nasdaq Rule 5735). While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged or inverse 
leveraged (e.g., 2X or -3X) ETFs.
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Investment Restrictions
    The Fund may enter into short sales as part of its overall 
portfolio management strategies or to offset a potential decline in the 
value of a security; however, the Fund will not engage in short sales 
with respect to more than 30% of the value of its net assets. To the 
extent required under applicable federal securities laws, rules, and 
interpretations thereof, the Fund will ``set aside'' liquid assets or 
engage in other measures to ``cover'' open positions and short 
positions held in connection with the foregoing types of transactions.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser.\17\ The 
Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\18\
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    \17\ 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 in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers and the mechanics of transfer).
    \18\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry.\19\ This 
restriction does not apply to securities of issuers in the real estate 
sector, including real estate investment trusts; obligations issued or 
guaranteed by the U.S. government, its agencies or instrumentalities; 
or securities of other investment companies. The Fund will be 
concentrated in the real estate sector.
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    \19\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV'') \20\ only in large blocks of Shares (``Creation 
Units'') in transactions with authorized participants, generally 
including broker-dealers and large institutional investors 
(``Authorized Participants''). Creation Units generally will consist of 
50,000 Shares, although this may change from time to time. Creation 
Units, however, are not expected to consist of less than 50,000 Shares. 
As described in the Registration Statement and consistent with the 
Exemptive Relief, the Fund will issue and redeem Creation Units in 
exchange for an in-kind portfolio of instruments and/or cash in lieu of 
such instruments (the ``Creation Basket'').\21\ In addition, if there 
is a difference between the NAV attributable to a Creation Unit and the 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will pay to the 
other an amount in cash equal to the difference (referred to as the 
``Cash Component'').
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    \20\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m., 
Eastern Time (the ``NAV Calculation Time''). NAV per Share will be 
calculated by dividing the Fund's net assets by the number of Fund 
Shares outstanding.
    \21\ It is expected that the Fund will typically issue and 
redeem Creation Units on an in-kind basis; however, subject to, and 
in accordance with, the provisions of the Exemptive Relief, the Fund 
may, at times, issue and redeem Creation Units on a cash (or 
partially cash) basis.
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    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor and BNY with respect to creations and redemptions of 
Creation Units. All standard orders to create Creation Units must be 
received by the transfer agent no later than the closing time of the 
regular trading session on the NYSE (ordinarily 4:00 p.m., Eastern

[[Page 29593]]

Time) (the ``Closing Time'') in each case on the date such order is 
placed in order for the creation of Creation Units to be effected based 
on the NAV of Shares as next determined on such date after receipt of 
the order in proper form. Shares may be redeemed only in Creation Units 
at their NAV next determined after receipt not later than the Closing 
Time of a redemption request in proper form by the Fund through the 
transfer agent and only on a business day.
    The Fund's custodian, through the National Securities Clearing 
Corporation, will make available on each business day, prior to the 
opening of business of the Exchange, the list of the names and 
quantities of the instruments comprising the Creation Basket, as well 
as the estimated Cash Component (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following business day prior to commencement of trading in the 
Shares.
Net Asset Value
    The Fund's NAV will be determined as of Closing Time on each day 
the NYSE is open for trading. If the NYSE closes early on a valuation 
day, the NAV will be determined as of that time. NAV per Share will be 
calculated for the Fund by taking the value of the Fund's total assets, 
including interest or dividends accrued but not yet collected, less all 
liabilities, including accrued expenses and dividends declared but 
unpaid, and dividing such amount by the total number of Shares 
outstanding. The result, rounded to the nearest cent, will be the NAV 
per Share. All valuations will be subject to review by the Trust Board 
or its delegate.
    The Fund's investments will be valued daily. As described more 
specifically below, investments traded on an exchange (i.e., a 
regulated market), will generally be valued at market value prices that 
represent last sale or official closing prices. In addition, as 
described more specifically below, non-exchange traded investments will 
generally be valued using prices obtained from third-party pricing 
services (each, a ``Pricing Service'').\22\ If, however, valuations for 
any of the Fund's investments cannot be readily obtained as provided in 
the preceding manner, or the Pricing Committee of the Adviser (the 
``Pricing Committee'') \23\ questions the accuracy or reliability of 
valuations that are so obtained, such investments will be valued at 
fair value, as determined by the Pricing Committee, in accordance with 
valuation procedures (which may be revised from time to time) adopted 
by the Trust Board (the ``Valuation Procedures''), and in accordance 
with provisions of the 1940 Act. The Pricing Committee's fair value 
determinations may require subjective judgments about the value of an 
investment. The fair valuations attempt to estimate the value at which 
an investment could be sold at the time of pricing, although actual 
sales could result in price differences, which could be material.
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    \22\ The Adviser may use various Pricing Services or discontinue 
the use of any Pricing Services, as approved by the Trust Board from 
time to time.
    \23\ The Pricing Committee will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the Fund's portfolio.
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    Certain securities in which the Fund may invest will not be listed 
on any securities exchange or board of trade. Such securities will 
typically be bought and sold by institutional investors in individually 
negotiated private transactions that function in many respects like an 
OTC secondary market, although typically no formal market makers will 
exist. Certain securities, particularly debt securities, will have few 
or no trades, or trade infrequently, and information regarding a 
specific security may not be widely available or may be incomplete. 
Accordingly, determinations of the value of debt securities may be 
based on infrequent and dated information. Because there is less 
reliable, objective data available, elements of judgment may play a 
greater role in valuation of debt securities than for other types of 
securities.
    The information summarized below is based on the Valuation 
Procedures as currently in effect; however, as noted above, the 
Valuation Procedures are amended from time to time and, therefore, such 
information is subject to change.
    The following investments will typically be valued using 
information provided by a Pricing Service: (a) Mortgage-Related 
Instruments; (b) OTC derivatives (including OTC options on mortgage 
REITs, Real Estate Companies and mortgage TBA transactions; OTC 
interest rate swap agreements; and OTC options on interest rate swap 
agreements); (c) OTC preferred securities of Real Estate Companies; and 
(d) except as provided below, short-term U.S. government securities, 
commercial paper, and bankers' acceptances, all as set forth under 
``Other Investments'' (collectively, ``Short-Term Debt Instruments''). 
Debt instruments may be valued at evaluated mean prices, as provided by 
Pricing Services. Pricing Services typically value non-exchange-traded 
instruments utilizing a range of market-based inputs and assumptions, 
including readily available market quotations obtained from broker-
dealers making markets in such instruments, cash flows, and 
transactions for comparable instruments. In pricing certain 
instruments, the Pricing Services may consider information about an 
instrument's issuer or market activity provided by the Adviser.
    Short-Term Debt Instruments having a remaining maturity of 60 days 
or less when purchased will typically be valued at cost adjusted for 
amortization of premiums and accretion of discounts, provided the 
Pricing Committee has determined that the use of amortized cost is an 
appropriate reflection of value given market and issuer-specific 
conditions existing at the time of the determination.
    Certificates of deposit and bank time deposits will typically be 
valued at cost.
    Repurchase agreements will typically be valued as follows: 
Overnight repurchase agreements will be valued at amortized cost when 
it represents the best estimate of value. Term repurchase agreements 
(i.e., those whose maturity exceeds seven days) will be valued at the 
average of the bid quotations obtained daily from at least two 
recognized dealers.
    Common stocks and other equity securities (including mortgage REITs 
(both common and preferred shares); ETFs; and exchange-traded Real 
Estate Companies), as well as preferred securities of Real Estate 
Companies, that are listed on any exchange other than the Exchange will 
typically be valued at the last sale price on the exchange on which 
they are principally traded on the business day as of which such value 
is being determined. Such securities listed on the Exchange will 
typically be valued at the official closing price on the business day 
as of which such value is being determined. If there has been no sale 
on such day, or no official closing price in the case of securities 
traded on the Exchange, such securities will typically be valued using 
fair value pricing. Such securities traded on more than one securities 
exchange will be valued at the last sale price or official closing 
price, as applicable, on the business day as of which such value is 
being determined at the close of the exchange representing the 
principal market for such securities.
    Money market funds will typically be valued at their net asset 
values as reported by such funds to Pricing Services.
    Exchange-traded options on mortgage REITs and Real Estate 
Companies, exchange-traded U.S. Treasury and

[[Page 29594]]

Eurodollar futures contracts, exchange-traded interest rate swap 
agreements, exchange-traded options on U.S. Treasury and Eurodollar 
futures contracts, and exchange-traded options on interest rate swap 
agreements will typically be valued at the closing price in the market 
where such instruments are principally traded.
Availability of Information
    The Fund's Web site (www.ftportfolios.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include the Shares' ticker, CUSIP and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) Daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price''),\24\ and 
a calculation of the premium and discount of the Bid/Ask Price against 
the NAV; and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. 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 identities and 
quantities of the portfolio of securities and other assets (the 
``Disclosed Portfolio'' as defined in Nasdaq Rule 5735(c)(2)) held by 
the Fund that will form the basis for the Fund's calculation of NAV at 
the end of the business day.\26\
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    \24\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \25\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m., Eastern Time; (2) Regular Market Session from 9:30 a.m. to 4 
p.m. or 4:15 p.m., Eastern Time; and (3) Post-Market Session from 4 
p.m. or 4:15 p.m. to 8 p.m., Eastern Time).
    \26\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include sufficient information for market participants 
to use to value these positions intraday. On a daily basis, the Fund 
will disclose on the Fund's Web site the following information 
regarding each portfolio holding, as applicable to the type of holding: 
Ticker symbol, CUSIP number or other identifier, if any; a description 
of the holding (including the type of holding, such as the type of 
swap); the identity of the security or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
quantity held (as measured by, for example, par value, notional value 
or number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; and 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's Disclosed Portfolio, will be 
disseminated. Moreover, the Intraday Indicative Value, available on the 
NASDAQ OMX Information LLC proprietary index data service,\27\ will be 
based upon the current value for the components of the Disclosed 
Portfolio 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. 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. Premiums and discounts between the Intraday 
Indicative Value and the market price may occur. This should not be 
viewed as a ``real time'' update of the NAV per Share of the Fund, 
which is calculated only once a day.
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    \27\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the Nasdaq global index data feed service, offering 
real-time updates, daily summary messages, and access to widely 
followed indexes and Intraday Indicative Values for ETFs. GIDS 
provides investment professionals with the daily information needed 
to track or trade Nasdaq indexes, listed ETFs, or third-party 
partner indexes and ETFs.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Fund, and those documents 
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded 
from the Commission's Web site at www.sec.gov. 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 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 (``CTA'') plans for the Shares. Quotation and last 
sale information for U.S. exchange-traded equity securities (including 
mortgage REITs, ETFs and exchange-traded Real Estate Companies) will be 
available from the exchanges on which they are traded as well as in 
accordance with any applicable CTA plans. Quotation and last sale 
information for U.S. exchange-traded options will be available via the 
Options Price Reporting Authority.
    Pricing information for Mortgage-Related Instruments, OTC Real 
Estate Companies, Short-Term Debt Instruments, repurchase agreements, 
certificates of deposit, bank time deposits, OTC options on mortgage 
REITs, Real Estate Companies and mortgage TBA transactions, OTC 
interest rate swap agreements, and OTC options on interest rate swap 
agreements will be available from major broker-dealer firms and/or 
major market data vendors and/or Pricing Services. Pricing information 
for mortgage REITs (both common and preferred shares), exchange-traded 
Real Estate Companies, ETFs, exchange-traded options on mortgage REITs 
and Real Estate Companies, exchange-traded U.S. Treasury and Eurodollar 
futures contracts, exchange-traded interest rate swap agreements, 
exchange-traded options on U.S. Treasury and Eurodollar futures 
contracts, and exchange-traded options on interest rate swap agreements 
will be available from the applicable listing exchange and from major 
market data vendors. Money market funds are typically priced once each 
business day and their prices will be available through the applicable 
fund's Web site or from major market data vendors.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and

[[Page 29595]]

redemption procedures, fees, Fund holdings disclosure policies, 
distributions and taxes will be included in the Registration Statement.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and continued 
listing, the Fund must be in compliance with Rule 10A-3 \28\ under the 
Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. 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.
---------------------------------------------------------------------------

    \28\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    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. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and/or the other assets constituting the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules governing the 
trading of equity securities. Nasdaq will allow trading in the Shares 
from 4:00 a.m. until 8:00 p.m., Eastern Time. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\29\ The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
---------------------------------------------------------------------------

    \29\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    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 (including mortgage REITs (both common and 
preferred shares); exchange-traded Real Estate Companies; ETFs; 
exchange-traded options on mortgage REITs and Real Estate Companies; 
exchange-traded U.S. Treasury and Eurodollar futures contracts; 
exchange-traded interest rate swap agreements; exchange-traded options 
on U.S. Treasury and Eurodollar futures contracts; and exchange-traded 
options on interest rate swap agreements) with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG''),\30\ and FINRA may obtain trading information regarding 
trading in the Shares and such exchange-traded securities and 
instruments held by the Fund from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and the exchange-traded securities and instruments held by the 
Fund from markets and other entities that are members of ISG, which 
includes securities and futures exchanges, or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. Moreover, 
FINRA, on behalf of the Exchange, will be able to access, as needed, 
trade information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \30\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    At least 90% of the Fund's net assets that are invested in 
exchange-traded derivatives (including exchange-traded options on 
mortgage REITs and Real Estate Companies; exchange-traded U.S. Treasury 
and Eurodollar futures contracts; exchange-traded interest rate swap 
agreements; exchange-traded options on U.S. Treasury and Eurodollar 
futures contracts; and exchange-traded options on interest rate swap 
agreements) (in the aggregate) will be invested in instruments that 
trade in markets that are members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. All of 
the Fund's net assets that are invested in exchange-traded equity 
securities (including mortgage REITs (both common and preferred 
shares); ETFs; and exchange-traded Real Estate Companies) (in the 
aggregate) will be invested in securities that trade in markets that 
are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    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: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) 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; (5) the 
requirement that members deliver a prospectus to investors purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction; and (6) trading information. The Information Circular will 
also

[[Page 29596]]

discuss any exemptive, no-action and interpretive relief granted by the 
Commission from any rules under the Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules and surveillance procedures shall constitute continued listing 
requirements for listing the Shares on the Exchange. In addition, the 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will monitor for compliance with the continued 
listing requirements. If the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under the Nasdaq 5800 Series.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act 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, in general, to protect 
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances, administered by both Nasdaq and also 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws.
    The Adviser is not a broker-dealer, but it is affiliated with the 
Distributor, a broker-dealer, and is required to implement a ``fire 
wall'' with respect to such broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, paragraph (g) of Nasdaq Rule 5735 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.
    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 (including mortgage REITs (both common and 
preferred shares); exchange-traded Real Estate Companies; ETFs; 
exchange-traded options on mortgage REITs and Real Estate Companies; 
exchange-traded U.S. Treasury and Eurodollar futures contracts; 
exchange-traded interest rate swap agreements; exchange-traded options 
on U.S. Treasury and Eurodollar futures contracts; and exchange-traded 
options on interest rate swap agreements) 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 from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and the exchange-traded securities and 
instruments held by the Fund from markets and other entities that are 
members of ISG, which includes securities and futures exchanges, or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. Moreover, FINRA, on behalf of the Exchange, will be 
able to access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's TRACE.
    At least 90% of the Fund's net assets that are invested in 
exchange-traded derivatives (including exchange-traded options on 
mortgage REITs and Real Estate Companies; exchange-traded U.S. Treasury 
and Eurodollar futures contracts; exchange-traded interest rate swap 
agreements; exchange-traded options on U.S. Treasury and Eurodollar 
futures contracts; and exchange-traded options on interest rate swap 
agreements) (in the aggregate) will be invested in instruments that 
trade in markets that are members of ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. All of 
the Fund's net assets that are invested in exchange-traded equity 
securities (including mortgage REITs (both common and preferred 
shares); ETFs; and exchange-traded Real Estate Companies) (in the 
aggregate) will be invested in securities that trade in markets that 
are members of ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
    The investment objective of the Fund will be to generate high 
current income. Under normal market conditions, the Fund will seek to 
achieve its investment objective by investing at least 80% of its net 
assets (including investment borrowings) in the exchange-traded common 
shares of U.S. exchange-traded mortgage REITs. The Fund may invest up 
to 20% of its net assets in the exchange-traded preferred shares of 
U.S. exchange-traded mortgage REITs. Additionally, the Fund may invest 
up to 20% of its net assets in derivative instruments (including 
exchange-traded and OTC options on mortgage REITs and Real Estate 
Companies; OTC options on mortgage TBA transactions; exchange-traded 
U.S. Treasury and Eurodollar futures contracts; exchange-traded and OTC 
interest rate swap agreements; exchange-traded options on U.S. Treasury 
and Eurodollar futures contracts; and exchange-traded and OTC options 
on interest rate swap agreements). The Fund's investments in derivative 
instruments will be consistent with the Fund's investment objective and 
the 1940 Act and will not be used to seek to achieve a multiple or 
inverse multiple of an index. Also, the Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), including Rule 144A securities 
deemed illiquid by the Adviser. The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the

[[Page 29597]]

NAV and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service, will be widely disseminated by one or 
more major market data vendors and broadly displayed at least every 15 
seconds during the Regular Market Session. On each business day, before 
commencement of trading in Shares in the Regular Market Session on the 
Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. 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, and 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 CTA plans for the Shares. Pricing information for Mortgage-
Related Instruments, OTC Real Estate Companies, Short-Term Debt 
Instruments, repurchase agreements, certificates of deposit, bank time 
deposits, OTC options on mortgage REITs, Real Estate Companies and 
mortgage TBA transactions, OTC interest rate swap agreements, and OTC 
options on interest rate swap agreements will be available from major 
broker-dealer firms and/or major market data vendors and/or Pricing 
Services. Pricing information for mortgage REITs (both common and 
preferred shares), exchange-traded Real Estate Companies, ETFs, 
exchange-traded options on mortgage REITs and Real Estate Companies, 
exchange-traded U.S. Treasury and Eurodollar futures contracts, 
exchange-traded interest rate swap agreements, exchange-traded options 
on U.S. Treasury and Eurodollar futures contracts, and exchange-traded 
options on interest rate swap agreements will be available from the 
applicable listing exchange and from major market data vendors. Money 
market funds are typically priced once each business day and their 
prices will be available through the applicable fund's Web site or from 
major market data vendors.
    The Fund's Web site will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. Trading in Shares of the Fund will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121 or because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The Fund's investments will be valued daily. Investments traded on 
an exchange (i.e., a regulated market), will generally be valued at 
market value prices that represent last sale or official closing 
prices. Non-exchange traded investments will generally be valued using 
prices obtained from a Pricing Service. If, however, valuations for any 
of the Fund's investments cannot be readily obtained as provided in the 
preceding manner, or the Pricing Committee questions the accuracy or 
reliability of valuations that are so obtained, such investments will 
be valued at fair value, as determined by the Pricing Committee, in 
accordance with the Valuation Procedures and in accordance with 
provisions of the 1940 Act.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and exchange-traded securities and instruments held by the Fund 
(including mortgage REITs (both common and preferred shares); exchange-
traded Real Estate Companies; ETFs; exchange-traded options on mortgage 
REITs and Real Estate Companies; exchange-traded U.S. Treasury and 
Eurodollar futures contracts; exchange-traded interest rate swap 
agreements; exchange-traded options on U.S. Treasury and Eurodollar 
futures contracts; and exchange-traded options on interest rate swap 
agreements) 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 from such markets and other entities. In addition, the Exchange 
may obtain information regarding trading in the Shares and the 
exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, will be able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's TRACE. Furthermore, as noted above, investors will 
have ready access to information regarding the Fund's holdings, the 
Intraday Indicative Value, the Disclosed Portfolio, and quotation and 
last sale information for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose 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 facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(a) by order approve or disapprove such proposed rule change; or (b) 
institute proceedings to determine whether the proposed rule change 
should be disapproved.

[[Page 29598]]

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-2016-064 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 Number SR-NASDAQ-2016-064. 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 will also 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-2016-064 and should 
be submitted on or before June 2, 2016.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11156 Filed 5-11-16; 8:45 am]
 BILLING CODE 8011-01-P