Notice2021-18943
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5750 (Proxy Portfolio Shares) To Provide for the Use of Custom Baskets Consistent With the Exemptive Relief Issued Pursuant to the Investment Company Act of 1940 Applicable to a Series of Proxy Portfolio Shares
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 2, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 168 (Thursday, September 2, 2021)</title>
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[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49357-49360]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92790; File No. SR-NASDAQ-2021-065]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Nasdaq Rule 5750
(Proxy Portfolio Shares) To Provide for the Use of Custom Baskets
Consistent With the Exemptive Relief Issued Pursuant to the Investment
Company Act of 1940 Applicable to a Series of Proxy Portfolio Shares
August 27, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 25, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 5750 (Proxy Portfolio
Shares) to provide for the use of ``Custom Baskets'' consistent with
the exemptive relief issued pursuant to the Investment Company Act of
1940 applicable to a series of Proxy Portfolio Shares. The text of the
proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, 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
[[Page 49358]]
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 5750 (Proxy Portfolio
Shares) \3\ to provide for the use of ``Custom Baskets'' consistent
with the exemptive relief issued pursuant to the Investment Company Act
of 1940 \4\ applicable to a series of Proxy Portfolio Shares.
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\3\ Nasdaq Rule 5750 defines the term ``Proxy Portfolio Share''
as a security that: (A) Represents an interest in an investment
company registered under the Investment Company Act of 1940
(``Investment Company'') organized as an open- end management
investment company, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies;
(B) is issued in a specified aggregate minimum number in return for
a deposit of a specified Proxy Basket and/or a cash amount with a
value equal to the next determined net asset value; (C) when
aggregated in the same specified minimum number, may be redeemed at
a holder's request, which holder will be paid specified Proxy Basket
and/or a cash amount with a value equal to the next determined net
asset value; and (D) the portfolio holdings for which are disclosed
within at least 60 days following the end of every fiscal quarter.
\4\ 15 U.S.C. 80a et seq.
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To effectuate this change, the Exchange proposes the following
amendments to Nasdaq Rule 5750:
First, the proposed rule change adopts new subparagraph (c)(6)
under Nasdaq Rule 5750 (Definitions), which defines ``Custom Basket'',
for the purposes of Nasdaq Rule 5750, to mean a portfolio of securities
that is different from the Proxy Basket and is otherwise consistent
with the exemptive relief issued pursuant to the Investment Company Act
of 1940 applicable to a series of Proxy Portfolio Shares. The proposed
rule change makes conforming amendments to the definition of Proxy
Portfolio Shares in Nasdaq Rule 5750(c)(1) and Reporting Authority in
Nasdaq Rule 5750(c)(3). The proposed rule change amends the definition
of ``Proxy Portfolio Share'' in Nasdaq Rule 5750(c)(1) to provide for
creations of shares in return for a deposit by the purchaser of, and
redemptions of shares at a holder's request in return for, a Custom
Basket rather than a Proxy Basket to the extent permitted by a fund's
exemptive relief.
In addition, the proposed rule change amends the definition of
``Reporting Authority'' in respect of a particular series of Proxy
Portfolio Shares in Nasdaq Rule 5750(c)(3) to provide for Custom
Baskets to the extent permitted by a fund's exemptive relief.
Currently, ``Reporting Authority'' in respect of a particular series of
Proxy Portfolio Shares means the Exchange, an institution, or a
reporting service designated by the Exchange or by the exchange that
lists a particular series of Proxy Portfolio Shares (if the Exchange is
trading such series pursuant to unlisted trading privileges) as the
official source for calculating and reporting information relating to
such series, including, but not limited to, the Proxy Basket; the Fund
Portfolio; the amount of any cash distribution to holders of Proxy
Portfolio Shares, net asset value, or other information relating to the
issuance, redemption or trading of Proxy Portfolio Shares. Nasdaq Rule
5750(c)(3) further provides that a series of Proxy Portfolio Shares may
have more than one Reporting Authority, each having different
functions. The proposed rule change adds ``Custom Basket'' to the non-
exclusive list of information relating to Proxy Portfolio Shares that a
Reporting Authority calculates and reports, i.e., including, but not
limited to, the Proxy Basket; the Fund Portfolio; the amount of any
cash distribution to holders of Proxy Portfolio Shares, net asset
value, or other information relating to the issuance, redemption or
trading of Proxy Portfolio Shares.
Second, the proposed rule change amends Nasdaq Rule 5750(d)
(Initial and Continued Listing), which currently provides criteria that
Proxy Portfolio Shares must satisfy for initial and continued listing
on the Exchange, to incorporate specific initial and continued listing
criteria for Custom Baskets. Specifically, Nasdaq Rule 5750(d)(1)(B)
currently provides that the Exchange will obtain a representation from
the issuer of each series of Proxy Portfolio Shares that the net asset
value per share for the series will be calculated daily and that each
of the following will be made available to all market participants at
the same time when disclosed: The net asset value, the Proxy Basket,
and the Fund Portfolio. The proposed rule change adopts an additional
requirement in Nasdaq Rule 5750(d)(1)(B) providing that the Exchange
will also obtain a representation from the issuer of each series of
Proxy Portfolio Shares that the issuer and any person acting on behalf
of the series of Proxy Portfolio Shares will comply with Regulation
Fair Disclosure under the Act, including with respect to any Custom
Basket.\5\
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\5\ 17 CFR 243.100-243.103. Regulation Fair Disclosure provides
that whenever an issuer, or any person acting on its behalf,
discloses material nonpublic information regarding that issuer or
its securities to certain individuals or entities--generally,
securities market professionals, such as stock analysts, or holders
of the issuer's securities who may well trade on the basis of the
information--the issuer must make public disclosure of that
information.
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Third, the proposed Rule change amends Nasdaq Rule 5750(d)(2)(A),
which currently provides that, with respect to each Proxy Basket, that
it will be publicly disseminated at least once daily and will be made
available to all market participants at the same time. Nasdaq Rule
5750(d)(2)(A) will be amended to provide that, with respect to each
Custom Basket utilized by a series of Proxy Portfolio Shares, each
business day, before the opening of trading in the regular market
session, the investment company shall make publicly available on its
website the composition of any Custom Basket transacted on the previous
business day, except a Custom Basket that differs from the applicable
Proxy Basket only with respect to cash.
The proposed rule change also makes conforming amendments to Nasdaq
Rule 5750(b)(5) and (6). In particular, Nasdaq Rule 5750(b)(5)
currently provides that, if the investment adviser to the Investment
Company issuing Proxy Portfolio Shares is registered as a broker-dealer
or is affiliated with a broker-dealer, such investment adviser will
erect and maintain a ``fire wall'' between the investment adviser and
personnel of the broker-dealer or broker-dealer affiliate, as
applicable, with respect to access to information concerning the
composition of and/or changes to the Fund Portfolio and/or the Proxy
Basket. Any person related to the investment adviser or Investment
Company who makes decisions pertaining to the Investment Company's Fund
Portfolio and/or the Proxy Basket or has access to nonpublic
information regarding the Fund Portfolio and/or the Proxy Basket or
changes thereto must be subject to procedures designed to prevent the
use and dissemination of material nonpublic information regarding the
Fund Portfolio and/or the Proxy Basket or changes thereto. The proposed
rule change amends Nasdaq Rule 5750(b)(5) to provide for Custom Baskets
to the extent permitted by a fund's exemptive relief. As proposed,
Nasdaq Rule 5750(b)(5) provides that if the investment adviser to the
Investment Company issuing Proxy Portfolio Shares is registered as a
broker-dealer or is affiliated with a broker-dealer, such investment
adviser will erect and maintain a ``fire wall'' between the investment
adviser and personnel of the broker-dealer or broker-
[[Page 49359]]
dealer affiliate, as applicable, with respect to access to information
concerning the composition of and/or changes to the Fund Portfolio, the
Proxy Basket, and/or the Custom Basket, as applicable. In addition,
proposed Nasdaq Rule 5750(b)(5) provides that any person related to the
investment adviser or Investment Company who makes decisions pertaining
to the Investment Company's Fund Portfolio, the Proxy Basket, and/or
the Custom Basket or has access to nonpublic information regarding the
Fund Portfolio, the Proxy Basket, and/or the Custom Basket, as
applicable, or changes thereto must be subject to procedures designed
to prevent the use and dissemination of material nonpublic information
regarding the Fund Portfolio, the Proxy Basket, and/or the Custom
Basket, as applicable, or changes thereto.
Nasdaq Rule 5750(b)(6) currently provides that any person or
entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to nonpublic information regarding the
Fund Portfolio or the Proxy Basket or changes thereto, must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Fund Portfolio or the
Proxy Basket or changes thereto. Moreover, if any such person or entity
is registered as a broker-dealer or affiliated with a broker-dealer,
such person or entity will erect and maintain a ``fire wall'' between
the person or entity and the broker-dealer with respect to access to
information concerning the composition and/or changes to such Fund
Portfolio or Proxy Basket. The proposed rule change similarly amends
Nasdaq Rule 5750(b)(6) to provide for Custom Baskets to the extent
permitted by a fund's exemptive relief. As proposed, Nasdaq Rule
5750(b)(6)provides that any person or entity, including a custodian,
Reporting Authority, distributor, or administrator, who has access to
nonpublic information regarding the Fund Portfolio, the Proxy Basket,
or the Custom Basket, as applicable, or changes thereto, must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Fund Portfolio,
the Proxy Basket, or the Custom Basket, as applicable, or changes
thereto. Moreover, if any such person or entity is registered as a
broker-dealer or affiliated with a broker-dealer, such person or entity
will erect and maintain a ``fire wall'' between the person or entity
and the broker-dealer with respect to access to information concerning
the composition and/or changes to such Fund Portfolio, Proxy Basket, or
Custom Basket, as applicable.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \6\ in general and 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 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. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \8\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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The Exchange believes that proposed rule change to provide for the
use of Custom Baskets consistent with the applicable exemptive relief
applicable to a series of Proxy Portfolio Shares will perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest in that it will permit use of Custom
Baskets, consistent with the applicable exemptive relief, in a manner
that will benefit investors by increasing efficiencies in the creation
and redemption process. More specifically, Custom Baskets provide an
issuer with flexibility in portfolio construction that may assist in
reducing taxable capital gains distributions for investors and may
generally improve tax efficiencies. Further, the use of Custom Baskets,
to the extent permitted by a fund's exemptive relief, may also result
in narrower bid/ask spreads and smaller premiums and discounts to the
net asset value for Proxy Portfolio Shares to the extent that the
Investment Company utilizes Custom Baskets with fewer securities which
may, in turn, allow Authorized Participants to more efficiently hedge
and participate generally in the Proxy Portfolio Shares. In addition to
this, the flexibility provided in the creation of Custom Baskets may
serve to increase competition between issuers. The Exchange believes
the proposed rule change will enhance competition among market
participants overall, to the benefit of investors and the marketplace.
The Exchange also believes that amending Nasdaq Rule 5750 to
incorporate specific initial listing criteria required to be met by
Proxy Portfolio Shares that utilize Custom Baskets is designed to
prevent fraudulent and manipulative acts and practices. The Exchange
believes that the daily dissemination of the composition of any Custom
Basket transacted on the previous day, except a Custom Basket that
differs from the applicable Proxy Basket only with respect to cash,
together with the right of Authorized Participants to create and redeem
each day at the net asset value, will enable market participants to
value and trade shares in a manner that will not lead to significant
deviations between the bid/ask price and net asset value of shares of a
series of Proxy Portfolio Shares.
Further, including Custom Baskets in the requirements of Nasdaq
Rule 5750(b)(5) and (6) would act as a safeguard against any misuse and
improper dissemination of nonpublic information related to a fund's
Custom Basket or changes thereto. The requirement that any person or
entity implement procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding a Custom
Basket will act to prevent any individual or entity from sharing such
information externally and the internal ``fire wall'' requirements
applicable where an entity is a registered broker-dealer or affiliated
with a broker-dealer will act to make sure that no entity will be able
to misuse the data for their own purposes. As such, the Exchange
believes that the proposed rule change to Nasdaq Rule 5750 is designed
to prevent fraudulent and manipulative acts and practices.
The Exchange also believes that the proposed initial and continued
listing standards are designed to promote disclosure and transparency
with respect to the use of Custom Baskets consistent with the
applicable exemptive relief. Specifically, the Exchange believes that
requiring as an initial listing condition that an issuer and any person
acting on behalf of the series of Proxy Portfolio Shares comply with
Regulation Fair Disclosure under the Act, including with respect to any
Custom Basket, would further the full and fair disclosure objectives of
Regulation Fair Disclosure to the benefit of the investing public and
all market participants. Additionally, with respect to each Custom
Basket utilized by a series of Proxy Portfolio Shares, the Exchange
believes that requiring, as a
[[Page 49360]]
continued listing condition, that each business day, before the opening
of trading in the regular market session, an investment company make
publicly available on its website the composition of any Custom Basket
transacted on the previous business day, except a Custom Basket that
differs from the applicable Proxy Basket only with respect to cash,
also furthers the goals of transparency and full and fair disclosure,
to the benefit of investors and the public interest.
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 purpose of the Act. The Exchange believes the
proposed rule change, by permitting the use of Custom Baskets, is
consistent with a fund's exemptive relief, would introduce additional
competition among various ETF products to the benefit of investors.
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
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.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#91e3e4fdf4bcf2fefcfcf4ffe5e2d1e2f4f2bff6fee7"><span class="__cf_email__" data-cfemail="e99b9c858cc48a8684848c879d9aa99a8c8ac78e869f">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-065 on the subject line.
Paper Comments
<bullet> 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-2021-065. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-065 and should be submitted
on or before September 23, 2021.
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\9\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-18943 Filed 9-1-21; 8:45 am]
BILLING CODE 8011-01-P
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