Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Nasdaq Rules 5705 and 5710 To Adopt a Disclosure Requirement for Certain Securities
| Published date | 19 December 2018 |
| Citation | 83 FR 65184 |
| Record Number | 2018-27409 |
| Section | Notices |
| Court | Securities And Exchange Commission |
Federal Register, Volume 83 Issue 243 (Wednesday, December 19, 2018)
[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Notices]
[Pages 65184-65186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27409]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84812; File No. SR-NASDAQ-2018-079]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Nasdaq Rules 5705 and
5710 To Adopt a Disclosure Requirement for Certain Securities
December 13, 2018.
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 November 29, 2018, 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 Rules 5705 and 5710 to adopt
a disclosure requirement for certain securities that seek to provide a
return based on a specified multiple or inverse multiple of an
underlying index or reference asset. Nasdaq is also proposing to amend
Nasdaq Rules 5705 and 5710 to include certain defined terms.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq rules allow the listing of securities that seek to exceed by
a multiple the performance (leveraged) or exceed by a multiple the
inverse of the performance (inverse) of an underlying index or
reference asset. Some of 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. Nasdaq believes that
some investors may not fully understand this risk and therefore
proposes to amend Nasdaq Rules
[[Page 65185]]
5705(b) (Index Fund Shares) and 5710 (Securities Linked to the
Performance of Indexes and Commodities (Including Currencies) to adopt
an additional disclosure requirement.
Specifically, the Exchange is proposing to amend Nasdaq Rule
5705(b)(1)(B) and Nasdaq 5710(d) to provide that issuers of leveraged
or inverse products that seek returns on a daily basis (``Multiple/
Inverse Daily Products'') must provide additional website disclosure
that highlights the daily return feature of these products including
the risks associated with holding these products for longer than one
day. The Exchange is also making clarifying changes to existing rule
language.
Currently, Nasdaq Rule 5705(b)(1)(B)(iv), which applies to issuers
of Index Fund Shares, requires that issuers make daily public website
disclosure of the holdings of leveraged and inverse products.\3\ The
Exchange proposes to amend this rule to require that issuers of
Multiple/Inverse Daily Products include on the product website a
statement that the product seeks returns for a single day and 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 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. While issuer 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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\3\ Nasdaq Rule 5705(b)(1)(B)(iv) requires: ``Daily public
website disclosure of portfolio holdings that will form the basis
for the calculation of the net asset value by the issuer of such
series, including, as applicable, the following instruments: a. The
identity and number of shares held of each specific equity security;
b. The identity and amount held for each specific fixed income
security; c. The specific types of Financial Instruments and
characteristics of such Financial Instruments; and d. Cash
equivalents and the amount of cash held in the portfolio.''
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Additionally, the Exchange proposes to amend Nasdaq Rule
5705(b)(1)(B) to define certain terms and clarify the rules. Nasdaq
also proposes to amend the preamble of Nasdaq Rule 5710 to include a
definition for ``Closing Indicative Value''.
In addition, Nasdaq proposes to modify Nasdaq Rule 5710(d), which
relates to Linked Securities, to include the same disclosure
requirement for Multiple/Inverse Daily Products that are Linked
Securities. Further, the Exchange proposes to amend Nasdaq Rule 5710(d)
to clarify that the limitations on leverage and inverse multiples are
based on the Closing Indicative Value (definition as proposed herein)
and measured on a daily basis, up to, and including the date of
maturity or redemption, as applicable. Nasdaq believes that this more
closely aligns the application of the listing standards to the proposed
disclosure requirements, as well as the daily values that determine the
daily performance of such products.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\5\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to, and perfect
the mechanisms 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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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendments requiring
additional disclosure for Multiple/Inverse Daily Products would enhance
investor protection and provide investors with valuable information
regarding the investment risks associated with these products. Further,
the additional proposed amendments, including amending Nasdaq Rule
5710(d) to include a definition of Closing Indicative Value, will
provide for additional transparency around listing standards and more
closely aligns the application of such listing standards to the
proposed disclosure requirements.
As such, the Exchange believes the proposed amendment is consistent
with the investor protection requirement of Section 6(b)(5).
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, as amended. The proposed
amendments are not intended to address competitive issues, but rather
to provide additional website disclosure that highlights the daily
return feature of Multiple/Inverse Daily Products, including the risks
associated with holding these products for longer than one day. The
Exchange believes that this change will provide additional investor
protection through enhanced transparency around the investment risk
associated with Multiple/Inverse Daily Products. Nasdaq also believes
that adding a definition for Closing Indicative Value to Nasdaq Rule
5710 will provide for additional clarity around listing standards and
more closely align the application of such listing standards to the
proposed disclosure requirements.
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 Exchange consents, the Commission shall: (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
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number NASDAQ-2018-079 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 NASDAQ-2018-079. 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/
[[Page 65186]]
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 NASDAQ-2018-079, and should be
submitted on or before January 9, 2019.
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\6\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27409 Filed 12-18-18; 8:45 am]
BILLING CODE 8011-01-P
