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
FOOTNOTE 1 15 U.S.C. 78s(b)(1). END FOOTNOTE
FOOTNOTE 2 17 CFR 240.19b-4. END FOOTNOTE
The Exchange proposes to amend Nasdaq Rule 5705(b) to provide for the inclusion of cash in an index or portfolio underlying a series of Index Fund Shares. This filing is substantively identical to a
FOOTNOTE 3 See Securities Exchange Act Release No. 80777 (
The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the
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.
The Exchange proposes to amend Nasdaq Rule 5705(b)(3) and 5705(b)(4) to provide for the inclusion of cash in an index or portfolio underlying a series of Index Fund Shares. /4/ Nasdaq Rule 5705(b) provides “generic” criteria permitting listing and trading of Index Fund Shares pursuant to Rule 19b-4(e) under the Act /5/ when the underlying index or portfolio satisfies the criteria set forth in Nasdaq Rule 5705(b).
FOOTNOTE 4 See Nasdaq Rule 5705(b)(1)(A) and (B). END FOOTNOTE
FOOTNOTE 5 17 CFR 240.19b-4(e). END FOOTNOTE
The Exchange understands that certain index providers have included, or intend to include, cash as a component in indexes or portfolios that also include equity or fixed income securities components. An index provider may, for example, provide a certain index weighting allocation to cash or may periodically change an allocation to cash based on the index provider’s assessment of market risk associated with other asset classes in the applicable index. /6/
FOOTNOTE 6 The Exchange notes that shares of the following exchange-traded funds based on indexes or portfolios that include cash as a component are currently listed and traded on the
Accordingly, the Exchange proposes to amend Nasdaq Rule 5705(b)(3) and 5705(b)(4) to permit listing and trading of Index Fund Shares based on an index or portfolio that includes cash as a component. While open-end investment companies, like mutual funds, will generally hold an amount of cash, Nasdaq Rule 5705(b) currently provides that components of an index or portfolio underlying a series of Index Fund Shares consist of securities–namely,
Currently, Nasdaq Rule 5705(b)(3)(A)(i) provides that an underlying index or portfolio of
FOOTNOTE 7 Nasdaq Rule 5705(b)(
FOOTNOTE 8 Nasdaq Rule 5705(b)(3)(A)(i)a. would provide that component stocks (excluding Derivative Securities Products) that in the aggregate account for at least 90% of the weight of the
Nasdaq Rule 5705(b)(3)(A)(ii), which relates to international or global indexes or portfolios, would be amended to provide that components of an index or portfolio underlying a series of Index Fund Shares may consist of (a) only Non-
Nasdaq Rule 5705(b)(4) provides generic criteria applicable to listing and trading of Index Fund Shares whose underlying index or portfolio includes
FOOTNOTE 9 As defined in Nasdaq Rule 5705(b)(4),
FOOTNOTE 10 Nasdaq Rule 5705(b)(4)(A)(ii) would provide that Fixed Income Security components that in aggregate account for at least 75% of the
The Exchange notes that the Commission has previously approved Exchange rules allowing portfolios held by issues of Managed Fund Shares (actively managed exchange-traded funds) under Nasdaq Rule 5735 to include cash. /11/ Like the provision in Nasdaq Rule 5735, which states that there is no limit to cash holdings by an issue of Managed Fund Shares listed under the rule, there is no proposed limit to the weighting of cash in an index or portfolio underlying a series of Index Fund Shares. The Exchange believes this is appropriate in that cash does not, in itself, impose investment or market risk.
FOOTNOTE 11 See Nasdaq Rule 5735. END FOOTNOTE
The Exchange believes the proposed amendments, by permitting inclusion of cash as a component of indexes or portfolios underlying series of Index Fund Shares, would provide issuers of Index Fund Shares with additional choice in indexes or portfolios permitted to underlie Index Fund Shares that are 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. In addition, the proposed amendments would provide investors with greater ability to hold Index Fund Shares based on underlying indexes or portfolios that may accord more closely with an investor’s assessment of market risk, in that some investors may view cash as a desirable component of an underlying index or portfolio under certain market conditions.
2. Statutory Basis
–This is a summary of a
Citation: “82 FR 32734”
Document Number: “Release No. 34-81120; File No. SR-NASDAQ-2017-062”
Federal Register Page Number: “32734”