[Federal Register Volume 84, Number 141 (Tuesday, July 23, 2019)]
[Notices]
[Pages 35446-35448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15560]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86399; File No. SR-NASDAQ-2019-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Generic Listing Standards for Fixed Income Securities
Included in the Portfolio of a Series of Managed Fund Shares
July 17, 2019.
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 July 3, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``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 the Exchange. 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
The Exchange proposes to amend Nasdaq Rule 5735(b)(1)(B)(v)
relating to generic listing standards applicable to fixed income
securities included in the portfolio of a series of Managed Fund Shares
listed on the Exchange.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, 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 5735(b)(1), which sets
forth generic listing standards for the listing and trading of Managed
Fund Shares.\3\ Nasdaq Rule 5735(b)(1)(B) sets forth generic listing
standards applicable to fixed income securities included in the
portfolio of a series of Managed Fund Shares listed on the Exchange.\4\
Nasdaq Rule 5735(b)(1)(B)(v) provides that non-agency, non-GSE and
privately-issued mortgage related and other asset-backed securities
(``ABS'' and, collectively, ``non-agency ABS'') components of a
portfolio shall not account, in the aggregate, for more than 20% of the
weight of the fixed income portion of the portfolio. Nasdaq proposes to
amend Nasdaq Rule 5735(b)(1)(B)(v) by deleting the words ``fixed income
portion'' to provide that such 20% limitation would apply to the entire
portfolio rather than to only the fixed income portion of the
[[Page 35447]]
portfolio. Thus, Nasdaq Rule 5735(b)(1)(B)(v) would provide that non-
agency, non-GSE and privately-issued mortgage related and other ABS
components of a portfolio shall not account, in the aggregate, for more
than 20% of the weight of the portfolio.
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\3\ 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 management 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 management investment company that issues
Index Fund Shares that may be listed and traded on the Exchange
under Nasdaq Rule 5705(b) seeks to provide investment results that
correspond generally to the performance of a specific foreign or
domestic stock index, fixed income securities index or combination
thereof.
\4\ Nasdaq Rule 5735(b)(1)(B) provides that fixed income
securities are debt securities that are notes, bonds, debentures, or
evidence of indebtedness that include, but are not limited to, U.S.
Department of Treasury securities (``Treasury Securities''),
government-sponsored entity securities (``GSE Securities''),
municipal securities, trust preferred securities, supranational debt
and debt of a foreign country or a subdivision thereof, investment
grade and high yield corporate debt, bank loans, mortgage and asset
backed securities, and commercial paper.
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Nasdaq believes this amendment is appropriate because a fund's
investment in non-agency, non-GSE and privately-issued mortgage-related
and other ABS may provide a fund with benefits associated with
increased diversification, as such investments may be less correlated
to interest rates than many other fixed income securities. The Exchange
notes that application of the 20% limitation only to the fixed income
portion of a fund's portfolio may impose a much more restrictive
percentage limit on permitted holdings of non-agency ABS for funds that
have a more diversified investment portfolio than for funds that hold
principally or exclusively fixed income securities. For example, a fund
holding 100% of its assets in fixed income securities can hold 20% of
its entire portfolio's weight in non-agency ABS. In contrast, a fund
holding 25% of its assets in fixed income securities, 25% in U.S
Component Stocks, and 50% in cash and cash equivalents is limited to a
5% (25% * 20% = 5%) allocation to non-agency ABS. Nasdaq, therefore,
believes application of the 20% limitation to a fund's entire portfolio
would be more equitable for Managed Fund Shares issuers with different
investment objectives and holdings.
The Commission has previously approved a proposed rule change by
NYSE Arca, Inc. that is substantively identical to the amendment to
Nasdaq Rule 5735(b)(1)(B)(v) proposed herein.\5\ Therefore, Nasdaq
believes it is appropriate to apply the 20% limitation to a fund's
investment in non-agency, non-GSE and privately-issued mortgage-related
and other ABS components of a portfolio in Nasdaq Rule 5735(b)(1)(B)(v)
to a fund's total assets. Non-agency ABS would otherwise satisfy all
generic listing requirements of Nasdaq Rule 5735(b)(1)(B).
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\5\ See Securities Exchange Act Release No. 86017 (June 3,
2019), 84 FR 26711 (June 7, 2019) (SR-NYSEArca-2019-06) (Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to
Amend Certain Generic Listing Standards for Managed Fund Shares
Applicable to Holdings of Fixed Income Securities).
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Nasdaq believes the proposed amendments would provide issuers of
Managed Fund Shares with additional investment choices for fund
portfolios for funds permitted to list and trade on the Exchange
pursuant to Rule 19b-4(e), which would enhance competition among market
participants, to the benefit of investors and the marketplace.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\7\ 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 regulating, clearing, settling, processing
information with respect to, and 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 and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange has in place surveillance procedures that are adequate
to properly monitor trading in Managed Fund Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange notes that Nasdaq or
FINRA, on behalf of Nasdaq, or both, would communicate as needed
regarding trading in Managed Fund Shares with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''), and Nasdaq or FINRA, on behalf of Nasdaq, or both, could
obtain trading information regarding trading in Managed Fund Shares
from such markets and other entities. In addition, Nasdaq could obtain
information regarding trading in Managed Fund Shares from markets and
other entities that are members of ISG or with which Nasdaq has in
place a comprehensive surveillance sharing agreement.
Nasdaq believes that the proposed amendment to Nasdaq Rule
5735(b)(1)(B)(v) is appropriate because a fund's investment in non-
agency, non-GSE and privately-issued mortgage-related and other ABS may
provide a fund with benefits associated with increased diversification,
as such investments may be less correlated to interest rates than many
other fixed income securities. As noted above, application of the 20%
limitation to only the fixed income portion of a fund's portfolio may
impose a much lower percentage limit on permitted holdings of non-
agency ABS for funds that have a more diversified investment portfolio
than for funds that hold principally or exclusively fixed income
securities. Nasdaq, therefore, believes application of the 20%
limitation to a fund's entire portfolio would be more equitable for
issuers of Managed Fund Shares with different investment objectives and
holdings.
The Exchange notes that the Commission has previously approved a
rule change by NYSE Arca, Inc. that is substantively identical to the
amendment to Nasdaq Rule 5735(b)(1)(B)(v) proposed herein.\8\
Therefore, Nasdaq believes it is appropriate to apply the 20%
limitation to a fund's investment in non-agency, non-GSE and privately-
issued mortgage-related and other ABS components of a portfolio in
Nasdaq Rule 5735(b)(1)(B)(v) to a fund's total assets. Non-agency ABS
would otherwise satisfy all generic listing requirements of Nasdaq Rule
5735(b)(1)(B).
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\8\ See supra note 5.
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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
additional types of Managed Fund Shares that will enhance competition
among market participants, to the benefit of investors and the
marketplace.
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 not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change would
permit Exchange listing and trading under 19b-4(e) of additional types
of Managed Fund Shares, which would 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
No written comments were either solicited or 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
[[Page 35448]]
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and
Rule 19b-4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay. The
Exchange states its belief that the proposed rule change does not raise
any novel regulatory issues, noting that the Commission approved a
substantively identical proposed rule change by NYSE Arca, Inc.\13\ For
this reason, the Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission waives the 30-day operative delay
and designates the proposed rule change operative upon filing.\14\
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\11\ 17 CFR 240.19b-4(f)(6).
\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ See supra note 5.
\14\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 change 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-2019-054 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-2019-054. 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 website (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 website 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-054 and should be submitted
on or before August 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15560 Filed 7-22-19; 8:45 am]
BILLING CODE 8011-01-P