[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Notices]
[Pages 11148-11149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05571]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85362; File No. SR-NASDAQ-2018-079]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 2, To Amend Nasdaq Rules 5705 and 5710 To Adopt a Disclosure
Requirement for Certain Securities
March 19, 2019.
I. Introduction
On November 29, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities
[[Page 11149]]
and Exchange Commission (``Commission''), pursuant to Section 19(b)(1)
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Nasdaq Rules 5705 and
5710 to adopt a disclosure requirement for certain securities. The
proposed rule change was published for comment in the Federal Register
on December 19, 2018.\3\ On January 29, 2019, pursuant to Section
19(b)(2) of the Act,\4\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ On March 5, 2019, the Exchange
filed Amendment No. 1 to the proposed rule change.\6\ On March 19,
2019, the Exchange filed Amendment No. 2 to the proposed rule
change.\7\ The Commission has received no comments on the proposed rule
change. This order grants approval of the proposed rule change, as
modified by Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 84812 (December 13,
2018), 83 FR 65184.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 85000, 84 FR 1525
(February 4, 2019).
\6\ Amendment No. 1, which amends and replaces the proposed rule
change in its entirety, is available at: https://www.sec.gov/comments/sr-nasdaq-2018-079/srnasdaq2018079-5020213-183007.pdf.
\7\ In Amendment No. 2, which amends and replaces the proposed
rule change, as modified by Amendment No. 1, in its entirety, the
Exchange removes (i) the proposed definition of Closing Indicative
Value relating to Linked Securities, and (ii) all of the proposed
changes in the first paragraph of Nasdaq Rule 5710(d). Because
Amendment No. 2 does not materially alter the substance of the
proposed rule change or raise unique or novel regulatory issues, it
is not subject to notice and comment. Amendment No. 2 is available
at: https://www.sec.gov/comments/sr-nasdaq-2018-079/srnasdaq2018079-5146426-183370.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 2 8
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\8\ For more information regarding the proposal, including the
proposed amendments to Nasdaq Rules 5705 and 5710, see Amendment No.
2, supra note 7.
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The Exchange proposes to amend Nasdaq Rule 5705(b)(1)(B) relating
to Index Fund Shares and Nasdaq Rule 5710(d) relating to Linked
Securities. Specifically, the Exchange proposes to require issuers of
leveraged or inverse Index Fund Shares and Linked Securities that seek
returns on a daily basis to provide additional website disclosure
highlighting the daily return feature of these products and the risks
associated with holding these products for longer than one day. The
Exchange proposes to amend Nasdaq Rules 5705(b)(1)(B) and 5710(d) to
require issuers of such Index Fund Shares or Linked Securities to
include on each such product's website a statement that the product
seeks returns for a single day,\9\ and that, due to the compounding of
returns, holding periods of longer than one day can result in
investment returns that are significantly different than the product's
target returns. The proposed disclosure would also direct investors to
consult the prospectus for further information on the calculation of
the returns and other risks associated with investing in this type of
product. The Exchange represents that, while issuers' websites already
typically contain language similar to the disclosure proposed herein,
Nasdaq believes that providing example language enhances the
transparency of the proposed listing standard.
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\9\ The Exchange notes that the proposed rule change is limited
to Multiple/Inverse Daily Products.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 2, is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\10\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 2, is consistent
with Section 6(b)(5) of the Act,\11\ which requires, among other
things, that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, 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.
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\10\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
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Currently, Nasdaq rules permit the listing and trading of Index
Fund Shares and Linked Securities that seek investment results to
exceed by a multiple of the performance (leveraged), or exceed by a
multiple of the inverse of the performance (inverse), of an underlying
index or reference asset. According to the Exchange, these products are
designed to track the daily performance of an underlying instrument,
and holding these products for longer than a day can result in
investment returns that are significantly different than the target
return. The Exchange states that some investors may not fully
understand this risk. The Commission believes that the proposed
amendments requiring additional disclosure for these types of Index
Fund Shares and Linked Securities listed on the Exchange are consistent
with investor protection because the disclosure would provide investors
with additional information regarding the investment risks associated
with these products.
This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendment No.
2.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) of the Act \12\ and the rules and regulations thereunder
applicable to a national securities exchange.
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\12\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NASDAQ-2018-079), as
modified by Amendment No. 2 be, and it hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05571 Filed 3-22-19; 8:45 am]
BILLING CODE 8011-01-P