[Federal Register Volume 85, Number 78 (Wednesday, April 22, 2020)]
[Notices]
[Pages 22502-22507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08488]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88666; File No. SR-NASDAQ-2020-020]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the First Trust Tactical High Yield ETF
April 16, 2020.
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 April 15, 2020, 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, II,
and III below, which Items have been principally prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to a rule change relating to the First Trust
Tactical High Yield ETF (formerly known as the First Trust High Yield
Long/Short ETF) (the ``Fund'') of First Trust Exchange-Traded Fund IV
(the ``Trust''), the shares of which have been approved by the
Commission for listing and trading under Nasdaq Rule 5735 (``Managed
Fund Shares''). The shares of the Fund are collectively referred to
herein as the ``Shares.''
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 Commission has approved the listing and trading of Shares under
Nasdaq Rule 5735, which governs the listing and trading of Managed Fund
Shares on the Exchange.\3\ The Exchange believes the proposed rule
change reflects no significant issues not previously addressed in the
Prior Release.
---------------------------------------------------------------------------
\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). The Commission previously approved
the listing and trading of the Shares of the Fund. See Securities
Exchange Act Release Nos. 68581 (January 4, 2013), 78 FR 2295
(January 10, 2013) (``2013 Notice'') and 68972 (February 22, 2013),
78 FR 13721 (February 28, 2013) (``2013 Order'' and, together with
the 2013 Notice, the ``2013 Release'') (SR-NASDAQ-2012-147).
Subsequently, the Commission approved a proposed rule change
relating to the Fund in order to modify the description of the
measures First Trust Advisors L.P. (the ``Adviser'') would use to
implement the Fund's investment objectives and to modify certain
representations included in the 2013 Release. See Securities
Exchange Act Release Nos. 71473 (February 4, 2014), 79 FR 7728
(February 10, 2014) (``2014 Notice'') and 72141 (May 9, 2014), 79 FR
27944 (May 15, 2014) (``2014 Notice and Order'' and, together with
the 2014 Notice, the ``2014 Release'') (SR-NASDAQ-2014-009). The
2013 Release, together with the 2014 Release, are referred to
collectively as the ``Prior Release''.
---------------------------------------------------------------------------
The Fund is an actively-managed exchange-traded fund (``ETF''). The
Shares are offered by the Trust, which was established as a
Massachusetts business trust on September 15, 2010. The Trust, which is
registered with the Commission as an investment company under the
Investment Company Act of 1940 (the ``1940 Act''), has filed a
registration statement on Form N-1A (``Registration Statement'')
relating to the Fund with the Commission.\4\ The Fund is a series of
the Trust. The Adviser is the investment adviser to the Fund. First
Trust Portfolios L.P. is the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon acts as the
administrator, custodian, and fund accounting and transfer agent to the
Fund.
---------------------------------------------------------------------------
\4\ See Post-Effective Amendment No. 170 to Registration
Statement on Form N-1A for the Trust, dated February 28, 2020 (File
Nos. 333-174332 and 811-22559). The descriptions of the Fund and the
Shares contained herein are based, in part, on information in the
Registration Statement, as amended. The Adviser represents that it
will not implement the changes described herein until the instant
proposed rule change is operative.
---------------------------------------------------------------------------
The purpose of this proposed rule change is (1) to expand the
Fund's ability to hold certain fixed income, equity and equity-like
securities, positions and interests, and (2) to expand the Fund's
ability to invest in derivatives.
(1) Proposed Changes To Expand the Fund's Ability To Hold Certain Fixed
Income, Equity and Equity-Like Securities, Positions and Interests
As described in the 2013 Order, under normal market conditions, the
Fund invests at least 80% of its net assets (plus the amount of any
borrowing for investment purposes) in high-yield debt securities that
are rated below investment grade at the time of purchase, commonly
referred to as ``junk'' bonds, or unrated securities deemed by the
Adviser to be of comparable quality (collectively referred to as
``Primary Investments'') (the ``80% Requirement'').\5\ In addition to
Primary Investments, the Fund may invest up 20% of its net assets (in
the aggregate)
[[Page 22503]]
in certain other permitted investments as described in the Prior
Release (``Non-Primary Investments''). Going forward, the Exchange is
proposing that the Fund's ability to hold certain fixed income, equity
and equity-like securities, positions and interests be expanded as
described below.
---------------------------------------------------------------------------
\5\ See infra under the heading ``(2) Proposed Changes to Expand
the Fund's Ability to Invest in Derivatives'' regarding the 80%
Requirement in relation to proposed changes to the Fund's ability to
invest in derivatives.
---------------------------------------------------------------------------
Under the heading ``Other Investments,'' the 2013 Order stated that
the Fund may receive equity, warrants, corporate bonds, and ``other
such securities'' (i.e., equity and fixed income securities; and
``equity, warrants, corporate bonds, and other such securities'' are,
collectively, ``Received Instruments'' \6\) as a result of the
restructuring of the debt of an issuer, or a reorganization of a bank
loan or bond, or as part of a package of securities acquired together
with a high-yield bond or senior loan(s) of an issuer. Further, the
2013 Order stated that such investments (i.e., the Received
Instruments) would be subject to the Fund's investment objectives,
restrictions and strategies, as described therein. The Adviser believes
that under certain circumstances, a limited ability to retain Received
Instruments beyond the parameters set forth in the 2013 Order may serve
to benefit shareholders to the extent it helps the Fund to pursue its
investment objectives by retaining an investment interest, which the
Adviser believes has merit, relating to a particular issuer.\7\
However, the Adviser's overall approach to managing the Fund (which, as
described in the 2013 Order, incorporates a combination of thorough and
continuous credit risk analysis, market evaluation, diversification,
and the ability to reallocate investments) would not change.
---------------------------------------------------------------------------
\6\ For the avoidance of doubt, ``Equity-Based Received
Instruments'' (as defined below) are included within the meaning of
the term ``Received Instruments.''
\7\ For example, a situation may arise where in lieu of a bond,
loan, or other debt instrument that the Adviser originally selected,
the Fund would be presented with new equity of or relating to the
applicable issuer, but, in light of certain restrictions and
representations in the 2013 Order, would be precluded from retaining
the instrument and would therefore be required to dispose of the
instrument despite its perceived benefit to shareholders of the
Fund, in order to maintain compliance with the continued listing
standards of the Exchange.
---------------------------------------------------------------------------
To provide the Fund with additional flexibility with respect to its
ability to retain Received Instruments, going forward, the Exchange is
proposing that certain restrictions set forth in the 2013 Order be
modified, as described below.\8\ The Exchange believes that concerns
related to manipulation should be mitigated given that the proposed
changes (a) would be limited in scope, and (b) would be subject to the
limits described below. In this regard, the Exchange notes the
Adviser's expectation that generally, over time, significantly less
than 20% of the Fund's net assets would be comprised of Equity-Based
Received Instruments (as defined below) (which means that significantly
less than 20% of the Fund's net assets are expected to be comprised of
instruments that do not satisfy the ``ISG Restriction'' (as defined
below)).
---------------------------------------------------------------------------
\8\ The Exchange notes that the Commission has previously
approved a similar proposal with respect to another ETF for which
the Adviser serves as investment adviser. See Securities Exchange
Act Release No. 84425 (October 15, 2018), 83 FR 53124 (October 19,
2018) (SR-NASDAQ-2018-050) (relating to the First Trust Senior Loan
Fund) (the ``Senior Loan Fund Approval'').
---------------------------------------------------------------------------
Going forward, the Exchange is proposing that the definition of
Received Instruments be modified to allow the Fund to receive equity,
warrants, corporate bonds, and other such securities received (a) in
conjunction with the restructuring or reorganization, as applicable, of
an issuer or any debt issued by an issuer, whether accomplished within
or outside of a bankruptcy proceeding under 11 U.S.C. 101 et seq. (or
any other similar statutory restructuring or reorganization proceeding)
or (b) together with (i.e., as part of a unit or package that includes)
one or more Primary Investments (or other debt instruments) of an
issuer.\9\ The Fund's ability to retain Received Instruments would be
subject to the Fund's investment objectives, restrictions and
strategies, as described in the Prior Release, subject to the
modifications set forth in this filing. The Fund's aggregate holdings
in Equity-Based Received Instruments (as defined below) would continue
to not qualify as Primary Investments and, accordingly, together with
other Non-Primary Investments, would be limited to 20% of the Fund's
net assets.
---------------------------------------------------------------------------
\9\ For example, incidental to the Fund's purchase of a Primary
Investment, the Fund may from time to time receive warrants and/or
other equity securities as part of a unit or package combining a
Primary Investment and such warrants and/or other equity securities.
---------------------------------------------------------------------------
The 2013 Order stated that the equity securities in which the Fund
may invest (including any that have converted from convertible debt)
would be limited to securities that trade in markets that are members
of the Intermarket Surveillance Group (``ISG''), which includes all
U.S. national securities exchanges and certain foreign exchanges, or
are parties to a comprehensive surveillance sharing agreement with the
Exchange (the ``ISG Restriction''). In light of the many types of
interests that may be received and variations in nomenclature, the
Exchange is proposing that, going forward, the Fund may retain, without
regard to the ISG Restriction, equity and equity-like securities,
positions and interests that would be Received Instruments (``Equity-
Based Received Instruments'').\10\ For the avoidance of doubt, for
purposes of this filing, such Equity-Based Received Instruments shall
mean any one or more of the following (whether received individually or
as part of a unit or package of securities and/or other instruments):
(i) Common and preferred equity interests in corporations; (ii)
membership interests (e.g., in limited liability companies),
partnership interests, and interests in other types of entities (e.g.,
state law business trusts and real estate investment companies); (iii)
warrants; (iv) Tax Receivable Agreement (TRA) rights; (v) claims
(generally, rights to payment, which can come in various forms,
including without limitation claims units and claims trusts); (vi)
trust certificates representing an interest in a trust established
under a confirmed plan of reorganization; (vii) interests in
liquidating, avoidance or other types of trusts; (viii) interests in
joint ventures; and (ix) rights to acquire any of the Equity-Based
Received Instruments described in clauses (i) through (viii).\11\
---------------------------------------------------------------------------
\10\ For the avoidance of doubt, the Fund may also hold U.S. and
non-U.S. Received Instruments that are not Equity-Based Received
Instruments. Further, Received Instruments may include both Primary
Investments and Non-Primary Investments but, as mentioned above,
Equity-Based Received Instruments would not qualify as Primary
Investments and, together with other Non-Primary Investments, would
be limited to 20% of the Fund's net assets.
\11\ The Fund may be entitled to acquire additional Equity-Based
Received Instruments by exercising warrants (included in clause
(iii)) and/or rights (included in clause (ix)). For the avoidance of
doubt, the Fund's ability to retain Equity-Based Received
Instruments that it acquires by exercising such warrants and/or
rights will be the same as its ability to retain Equity-Based
Received Instruments that it otherwise receives. In addition, for
the avoidance of doubt, Received Instruments may include convertible
securities and Equity-Based Received Instruments may include
positions and interests resulting from the conversion of convertible
securities.
---------------------------------------------------------------------------
Except as described in this filing, the Fund's ability to retain
Received Instruments would continue to be subject to the Fund's
investment objectives, restrictions and strategies, as described in the
Prior Release. As indicated above, the Fund would not hold more than
20% of its net assets in Equity-Based Received Instruments
[[Page 22504]]
(among other Non-Primary Investments).\12\
---------------------------------------------------------------------------
\12\ In this regard, however, the Adviser expects that,
generally, over time, significantly less than 20% of the Fund's net
assets would be comprised of Equity-Based Received Instruments. In
addition, for the avoidance of doubt, Equity-Based Received
Instruments would not be taken into account for purposes of
compliance with the 80% Requirement.
---------------------------------------------------------------------------
(2) Proposed Changes To Expand the Fund's Ability To Invest in
Derivatives
The 2013 Order included a representation that the Fund would not
invest in options contracts, futures contracts or swap agreements.
However, the 2014 Notice and Order deleted this representation and
provided that under normal market conditions, the Fund would be
permitted to invest up to 30% of the value of its net assets in U.S.
exchange-traded options on futures contracts and U.S. exchange-traded
futures contracts (the ``Derivatives Provision'').\13\ Going forward,
the Exchange is proposing that to provide the Fund with additional
flexibility, the Derivatives Provision would be deleted and, instead,
the Fund would be permitted to invest in listed and over-the-counter
(``OTC'') derivatives (collectively, ``Derivative Instruments'') to the
extent permitted by the generic listing provisions of Nasdaq Rules
5735(b)(1)(D),\14\ (E) \15\ and (F) \16\ (collectively, the
``Derivatives GLS''). The Adviser believes that expanding the listed
derivatives in which the Fund may invest and permitting it to invest in
OTC derivatives may enhance the Fund's ability to utilize derivatives
for the purposes set forth in the 2014 Notice and Order.\17\ Further,
for purposes of complying with the 80% Requirement, in addition to
investing directly in Primary Investments, going forward, the Fund
would be permitted to invest in Derivative Instruments with economic
characteristics that are comparable to those of Primary
Investments.\18\
---------------------------------------------------------------------------
\13\ The Derivatives Provision also included footnote 15 of the
2014 Notice and Order which stated, among other things, that the
Fund would limit its direct investments in futures and options on
futures to the extent necessary for the Adviser to claim the
exclusion from regulation as a ``commodity pool operator'' with
respect to the Fund under Rule 4.5 promulgated by the Commodity
Futures Trading Commission (``CFTC''), as such rule may be amended
from time to time, and described certain related tests.
\14\ Under Nasdaq Rule 5735(b)(1)(D), a portfolio may hold
listed derivatives, including futures, options and swaps on
commodities, currencies and financial instruments (e.g., stocks,
fixed income, interest rates, and volatility) or a basket or index
of any of the foregoing. There shall be no limitation to the
percentage of the portfolio invested in such holdings, subject to
the following requirements: (i) In the aggregate, at least 90% of
the weight of such holdings invested in futures, exchange-traded
options, and listed swaps shall, on both an initial and continuing
basis, consist of futures, options, and swaps for which the Exchange
may obtain information via the ISG, from other members or affiliates
of the ISG, or for which the principal market is a market with which
the Exchange has a comprehensive surveillance sharing agreement.
(For purposes of calculating this limitation (referred to herein as
the ``90% Requirement''), a portfolio's investment in listed
derivatives will be calculated as the aggregate gross notional value
of the listed derivatives.); and (ii) the aggregate gross notional
value of listed derivatives based on any five or fewer underlying
reference assets shall not exceed 65% of the weight of the portfolio
(including gross notional exposures), and the aggregate gross
notional value of listed derivatives based on any single underlying
reference asset shall not exceed 30% of the weight of the portfolio
(including gross notional exposures). In light of the 90%
Requirement, the provision set forth in the 2014 Notice and Order
requiring that at least 90% of the Fund's net assets that are
invested in the derivative instruments specified therein would be
invested in derivative instruments that trade in markets that are
members of the ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange would be deleted.
\15\ Nasdaq Rule 5735(b)(1)(E) provides that a portfolio may
hold OTC derivatives, including forwards, options, and swaps on
commodities, currencies and financial instruments (e.g., stocks,
fixed income, interest rates, and volatility) or a basket or index
of any of the foregoing; however, on both an initial and continuing
basis, no more than 20% of the assets in the portfolio may be
invested in OTC derivatives. For purposes of calculating this
limitation, a portfolio's investment in OTC derivatives will be
calculated as the aggregate gross notional value of the OTC
derivatives.
\16\ Nasdaq Rule 5735(b)(1)(F) provides that to the extent that
listed or OTC derivatives are used to gain exposure to individual
equities and/or fixed income securities, or to indexes of equities
and/or indexes of fixed income securities, the aggregate gross
notional value of such exposure shall meet the criteria set forth in
Nasdaq Rules 5735(b)(1)(A) and 5735(b)(1)(B), respectively.
\17\ In this regard, the 2014 Notice and Order indicated that
the use of the derivative instruments specified therein may allow
the Fund to seek to enhance return, to hedge some of the risks of
its investments in securities, to substitute derivatives for a
position in an underlying asset, to reduce transaction costs, to
maintain full market exposure (which means to adjust the
characteristics of its investments to more closely approximate those
of the markets in which it invests), to manage cash flows, to
preserve capital, or to manage its foreign currency exposures. For
the avoidance of doubt, the Fund's use of derivatives would not be
limited to the foregoing purposes.
\18\ As indicated above, the Fund would comply with the
Derivatives GLS.
---------------------------------------------------------------------------
The Exchange does not believe that the proposed changes regarding
the Fund's ability to invest in derivatives should raise concerns given
that, going forward, the Fund would invest in Derivative Instruments in
accordance with the parameters of the Derivatives GLS. In addition,
certain related representations included in the 2014 Notice and Order
would continue to apply.\19\
---------------------------------------------------------------------------
\19\ First, although the Fund's investments in Derivative
Instruments could potentially be used to enhance leverage, the
Fund's investments in Derivative Instruments would be consistent
with the Fund's investment objectives and would not be used to seek
to achieve a multiple or inverse multiple of an index. Second,
investments in Derivative Instruments would be made in accordance
with the 1940 Act and consistent with the Fund's investment
objectives and policies. Third, the Fund would continue to comply
with the regulatory requirements of the Commission to maintain
assets as ``cover,'' maintain segregated accounts, and/or make
margin payments when it takes positions in Derivative Instruments
involving obligations to third parties (i.e., instruments other than
purchase options). If the applicable guidelines prescribed under the
1940 Act so require, the Fund would continue to earmark or set aside
cash, U.S. government securities, high-grade liquid debt securities,
and/or other liquid assets in a segregated custodial account in the
amount prescribed. Fourth, the Fund would continue to include
appropriate risk disclosure in its offering documents, including
leveraging risk. As indicated in footnote 17 of the 2014 Notice and
Order, to mitigate leveraging risk, the Fund would continue to
segregate or ``earmark'' liquid assets or otherwise cover the
transactions that may give rise to such risk.
---------------------------------------------------------------------------
The 2014 Notice and Order indicated that the derivative instruments
specified therein would typically be valued at the closing price in the
market where such instruments are principally traded. Going forward,
exchange-listed Derivative Instruments would typically be valued at the
closing price in the market where such instruments are principally
traded and OTC Derivative Instruments would typically be valued using
information provided by independent pricing services.
Availability of Information
The Fund's Disclosed Portfolio, as defined in Nasdaq Rule
5735(c)(2), would include the Received Instruments and Derivative
Instruments held by the Fund. Intra-day executable price quotations for
the Received Instruments held by the Fund would be available from major
broker-dealer firms and/or market data vendors (and/or, if applicable,
on the exchanges on which
[[Page 22505]]
they are traded). Intra-day price information for the Received
Instruments would be available through subscription services, such as
Markit, Bloomberg and Thomson Reuters, which can be accessed by
authorized participants and other investors, and/or from independent
pricing services. Pricing information for Derivative Instruments would
be available from major broker-dealer firms and/or through subscription
services and, if applicable, from the exchanges on which they are
traded. Further, for the Fund, an estimated value, defined in Nasdaq
Rule 5735(c)(3) as the ``Intraday Indicative Value'' that reflects an
estimated intraday value of the Fund's portfolio, including, among
other things, Received Instruments and Derivative Instruments, would
continue to be disseminated.\20\
---------------------------------------------------------------------------
\20\ With respect to the Fund's other permitted investments,
statements regarding availability of pricing information included in
the Prior Release would continue to apply.
---------------------------------------------------------------------------
Surveillance
The Financial Industry Regulatory Authority (``FINRA''), on behalf
of the Exchange, or the Exchange, or both, would communicate as needed,
and may obtain trading information, regarding trading in the exchange-
listed Equity-Based Received Instruments (if any) and exchange-listed
Derivative Instruments held by the Fund with other markets and other
entities that are members of ISG.\21\ The Exchange may also obtain
information regarding trading such exchange-listed instruments held by
the Fund from markets and other entities with which the Exchange has in
place a comprehensive surveillance sharing agreement. Moreover, with
respect to Received Instruments that are fixed income securities,
FINRA, on behalf of the Exchange, would be able to access, as needed,
trade information for such securities held by the Fund to the extent
reported to FINRA's Trade Reporting and Compliance Engine
(``TRACE'').\22\
---------------------------------------------------------------------------
\21\ 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.
\22\ With respect to trading information relating to the Fund's
other permitted investments, statements regarding surveillance
included in the Prior Release would continue to apply.
---------------------------------------------------------------------------
Continued Listing Representations
All statements and representations made in this filing regarding
(a) the description of the portfolio or reference assets, (b)
limitations on portfolio holdings or reference assets, (c)
dissemination and availability of the reference asset or intraday
indicative values, or (d) the applicability of Exchange listing rules
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.
The Adviser represents that there would be no change to the Fund's
investment objectives. Except as provided herein, all representations
made in the Prior Release regarding (a) the description of the
portfolio or reference assets, (b) limitations on portfolio holdings or
reference assets, (c) dissemination and availability of the reference
asset or intraday indicative values, or (d) the applicability of
Exchange listing rules (collectively, ``Prior Release Continued Listing
Representations'') would remain unchanged.\23\ Except for the generic
listing provisions of Nasdaq Rule 5735(b)(1) (the ``generic listing
standards'') \24\ and as otherwise provided in this filing, the Fund
and the Shares would comply with the requirements applicable to Managed
Fund Shares under Nasdaq Rule 5735.
---------------------------------------------------------------------------
\23\ Certain provisions of the Prior Release, however, were
based on information as of a particular date and there has not been
an undertaking to update such information for purposes of this
filing. In addition, the Exchange notes that the current name of the
Fund's benchmark (defined in the 2013 Order as the ``Index'') is ICE
BofA US High Yield Constrained Index.
\24\ In particular, the Fund may not meet the criteria of Nasdaq
Rule 5735(b)(1)(B). Additionally, the Fund's investments in equity
securities are not generally expected to meet the criteria set forth
in Nasdaq Rule 5735(b)(1)(A) and, to the extent the Fund invests in
cash equivalents, such investments may not necessarily satisfy the
criteria set forth in Nasdaq Rule 5735(b)(1)(C) (for example, the
requirement that maturities be less than three months). As described
in this filing, the Fund's investments in Derivative Instruments
would meet the criteria set forth in the Derivatives GLS. For the
avoidance of doubt, Equity-Based Received Instruments (including
without limitation warrants and rights referenced above in footnote
11 and the accompanying text) will not be considered to be options
or any other type of derivative.
---------------------------------------------------------------------------
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 purposes of the proposed rule
change are (1) to expand the Fund's ability to hold certain fixed
income, equity and equity-like securities, positions and interests, and
(2) to expand the Fund's ability to invest in derivatives. Except as
provided herein, the Prior Release Continued Listing Representations
would remain unchanged. Except for the generic listing standards and as
otherwise provided in this filing, the Fund and the Shares would comply
with the requirements applicable to Managed Fund Shares under Nasdaq
Rule 5735.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares would continue to be listed and traded on the Exchange pursuant
to Nasdaq Rule 5735. FINRA, on behalf of the Exchange, or the Exchange,
or both, would communicate as needed, and may obtain trading
information, regarding trading in the exchange-listed Equity-Based
Received Instruments (if any) and exchange-listed Derivative
Instruments held by the Fund with other markets and other entities that
are members of ISG. The Exchange may also obtain information regarding
trading in such exchange-listed instruments held by the Fund from
markets and other entities with which the Exchange has in place a
comprehensive surveillance sharing agreement. Moreover, with respect to
Received Instruments that are fixed income securities, FINRA, on behalf
of the Exchange, would be able to access, as needed, trade information
for such securities held by the Fund to the extent reported to FINRA's
TRACE. Further, the Exchange notes that although the proposed changes
in this filing would permit the Fund to retain, without regard to the
ISG Restriction, Equity-Based Received Instruments, the Fund would not
hold more than 20% of its net assets in Equity-Based Received
Instruments (which would not be taken into account for purposes of
compliance with the 80% Requirement), and the Adviser expects that
generally, over time, significantly less than 20% of the Fund's net
assets would be comprised of Equity-Based Received Instruments.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the
[[Page 22506]]
public interest in that the Adviser represents that the primary purpose
of the proposed changes is to provide it with greater flexibility in
meeting the Fund's investment objectives by modifying certain
provisions in the Prior Release. Notwithstanding the proposed changes,
however, the Adviser's overall approach to managing the Fund (which, as
described in the 2013 Order, incorporates a combination of thorough and
continuous credit risk analysis, market evaluation, diversification,
and the ability to reallocate investments) would not change.
Additionally, the Fund would continue to invest 85% or more of its
portfolio in securities that the Adviser deems to be sufficiently
liquid at the time of investment in accordance with Commission guidance
and, in addition, the Adviser would continue to monitor portfolio
liquidity on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained.
With respect to the proposed changes relating to Received
Instruments, the Adviser believes that under certain circumstances, a
limited ability to retain Received Instruments beyond the parameters
set forth in the 2013 Order may serve to benefit shareholders to the
extent it helps the Fund to pursue its investment objectives by
retaining an investment interest, which the Adviser believes has merit,
relating to a particular issuer. The Exchange believes that concerns
related to manipulation should be mitigated given that the proposed
changes (a) would be limited in scope, and (b) would be subject to the
limits described above. As indicated above, the Fund's aggregate
holdings in Equity-Based Received Instruments would continue to not
qualify as Primary Investments and, accordingly, together with other
Non-Primary Investments, would be limited to 20% of the Fund's net
assets. Additionally, the Exchange notes the Adviser's expectation that
generally, over time, significantly less than 20% of the Fund's net
assets would be comprised of Equity-Based Received Instruments (which
means that significantly less than 20% of the Fund's net assets are
expected to be comprised of instruments that do not satisfy the ISG
Restriction). Further, Equity-Based Received Instruments would not be
taken into account for purposes of compliance with the 80% Requirement.
Based on the foregoing, the Exchange does not believe that the proposed
changes will adversely affect investors or Exchange trading.
With respect to the proposed changes relating to the Fund's ability
to invest in derivative instruments, the Exchange does not believe that
the proposed changes raise concerns under Section 6(b) of the Act given
that, going forward, the Fund would invest in Derivative Instruments in
accordance with the parameters of the Derivatives GLS.
In addition, a large amount of information would continue to be
publicly available regarding the Fund and the Shares, thereby promoting
market transparency. For example, the Intraday Indicative Value,
available on the Nasdaq Information LLC proprietary index data service,
would continue to be widely disseminated 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 would continue to disclose on the
applicable website \25\ the Disclosed Portfolio that will form the
basis for the Fund's calculation of net asset value (``NAV'') at the
end of the business day. In addition, the Fund's Disclosed Portfolio
would include the Received Instruments and Derivative Instruments held
by the Fund. Intra-day executable price quotations for the Received
Instruments held by the Fund would be available from major broker-
dealer firms and/or market data vendors (and/or, if applicable, on the
exchanges on which they are traded). Intra-day price information for
the Received Instruments would be available through subscription
services, such as Markit, Bloomberg and Thomson Reuters, which can be
accessed by authorized participants and other investors, and/or from
independent pricing services. Pricing information for Derivative
Instruments would be available from major broker-dealer firms and/or
through subscription services and, if applicable, from the exchanges on
which they are traded.
---------------------------------------------------------------------------
\25\ www.ftportfolios.com.
---------------------------------------------------------------------------
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 the additional flexibility to be afforded to
the Adviser under the proposed rule change is intended to enhance its
ability to meet the Fund's investment objectives, to the benefit of
investors. In addition, consistent with the Prior Release, NAV per
Share would continue to be calculated daily, and NAV and the Disclosed
Portfolio would continue to be made available to all market
participants at the same time. Further, as noted above and/or in the
Prior Release, investors would continue to 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 would provide the Adviser with additional
flexibility, thereby helping the Fund to achieve its investment
objectives. As such, it is expected that the Fund may become a more
attractive investment product in the marketplace and, therefore, that
the proposed rule change would not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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 become
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6) thereunder.\27\
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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.
---------------------------------------------------------------------------
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
[[Page 22507]]
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-2020-020 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-2020-020. 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-2020-020 and should be submitted
on or before May 13, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08488 Filed 4-21-20; 8:45 am]
BILLING CODE 8011-01-P