July 31, 2014.
On May 28, 2014, The NASDAQ Stock Market LLC (“Exchange” or “Nasdaq”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) 
and Rule 19b-4 thereunder,
a proposed rule change to list and trade shares (“Shares”) of Global X Commodities Strategy ETF (“Fund”) under Nasdaq Rule 5735. The proposed rule change was published for comment in the Federal Register on June 16, 2014.
On June 27, 2014, the Exchange filed Amendment No. 1 to the proposed rule change.
The Commission received no comments on the proposal. This order grants approval of the proposed rule change, as modified by Amendment No. 1 thereto.
II. Description of the Proposal
Nasdaq proposes to list and trade Shares of the Fund under Nasdaq Rule 5735, which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by Global X Funds (“Trust”), which was established as a Delaware statutory trust on March 6, 2008.
The Trust is registered with the Commission as an investment company and has filed a registration statement on Form N-1A (“Registration Statement”) with the Commission.
Global X Management Company LLC will be the investment adviser (“Adviser”) and administrator (“Administrator”) to the Fund. The Fund and the Adviser will contract with an investment sub-adviser (“Sub-Adviser”) to provide day-to-day portfolio management of the Fund.
SEI Investments Distribution Company will be the principal underwriter and distributor of the Fund's Shares, and Brown Brothers Harriman (“Custodian”) will act as the custodian and transfer agent to the Fund.
The Exchange has made the following representations and statements in describing the Fund and its investment strategy, including other portfolio holdings and investment restrictions.
A. Investment Strategy
According to the Exchange, the Fund will be an actively managed ETF that will seek to achieve a total return that exceeds that of the Credit Suisse Composite Commodities Index (“Benchmark”),
consistent with Start Printed Page 45853prudent investment management. The Exchange represents that the Benchmark is a monthly rebalancing, long-only, fully collateralized futures index that offers multi-sector exposure to energy, industrial metals, precious metals, and agricultural commodities. It is a total return index that measures the hypothetical returns on an uncollateralized investment in certain futures contracts, plus the interest that could be earned on the funds committed to a collateralized investment in such contracts. In general, the Fund will pursue its objective by seeking to invest in commodity-linked futures—in similar weightings to the Benchmark—and in other commodity-linked instruments. The Fund's investments in commodity-linked futures and other commodity-linked instruments will be backed by an actively managed, low-volatility portfolio of fixed income instruments. Specifically with respect to the commodity-linked futures and other commodity-linked instruments holdings, the Fund will indirectly invest in exchange-traded futures contracts and exchange-traded commodity-linked instruments 
(collectively, “Commodities”) through a wholly-owned subsidiary controlled by the Fund and organized under the laws of the Cayman Islands (“Subsidiary”).
The Fund will not be an “index tracking” ETF and will not be required to invest in all of the components of the Benchmark. The Fund will generally seek to hold through the Subsidiary similar instruments to those included in the Benchmark and seek to gain exposure to commodities included in the Benchmark. The Exchange states that the Fund will invest in Commodities only through the Subsidiary.
B. Principal Investments of the Fund
The Fund will be an actively managed ETF that will seek to achieve a total return that exceeds that of the Benchmark. The Exchange states that under normal market conditions,
the Fund will invest in Commodities through the Subsidiary. The Fund's investment in the Subsidiary may not exceed 25% of the Fund's total assets. The remainder of the Fund's assets will be invested in: (1) Short-term, investment grade fixed income securities that include U.S. government and agency securities,
corporate debt obligations, and repurchase agreements; 
(2) money market instruments; 
(3) ETFs (other than those that are commodity-linked instruments) 
and other investment companies registered under the 1940 Act, including exchange-traded closed-end funds, that provide exposure to commodities, equity securities, and fixed income securities to the extent permitted under the 1940 Act and any applicable exemptive relief; (4) certain bank instruments; 
and (5) cash and other cash equivalents. In addition, the Fund may enter into foreign currency transactions on a spot (i.e., cash) basis.
The Exchange represents that the Fund will use the fixed income securities as investments and to collateralize the Subsidiary's commodity exposure on a day-to-day basis.
C. Investments of the Subsidiary
The Exchange represents that, under normal market conditions,
the Subsidiary is expected to invest in futures contracts in proportional weights and allocations that are similar to the Benchmark, as well as in other exchange-traded commodity-linked Start Printed Page 45854instruments.
The Subsidiary will have the same investment objective as the Fund; however, unlike the Fund, the Subsidiary may invest without limitation in Commodities. As indicated above, the Benchmark will include, and the Subsidiary will have holdings in, futures contracts that consist of only long positions in Commodities. Therefore, the Fund, through the Subsidiary, will benefit if a security or instrument increases in value. Conversely, the Fund, through the Subsidiary, will be adversely impacted if a security or instrument declines in value. The Fund, through the Subsidiary, may have a higher or lower exposure to any sector or component within the Benchmark at any time.
The Exchange states that the Subsidiary will be advised by the Sub-Adviser 
and that the Fund's investment in the Subsidiary is intended to provide the Fund with exposure to commodity markets within the limits of current federal income tax laws applicable to investment companies, such as the Fund. These federal income tax laws limit the ability of investment companies to invest directly in the derivative instruments. The Subsidiary's investments will provide the Fund with exposure to both domestic and international markets.
D. Investment Restrictions
The Fund intends to qualify for and to elect to be treated as a separate regulated investment company under Subchapter M of the Internal Revenue Code. In addition, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund's investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2X and -3X) of the Fund's Benchmark.
The Fund may not invest more than 25% of the value of its total assets in securities of issuers in any one industry or group of industries. This restriction will not apply to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities or to securities of other investment companies.
The Subsidiary's shares will be offered only to the Fund, and the Fund will not sell shares of the Subsidiary to other investors. The Fund (other than shares of the Subsidiary) and the Subsidiary will not invest in any non-U.S. equity securities. The Fund will not purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act or any applicable exemptive relief.
The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including securities deemed illiquid by the Adviser.
The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund's net assets are held in illiquid assets. Illiquid assets include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.
The Fund will not invest directly in Commodities. The Fund expects to primarily gain exposure to these investments by investing in the Subsidiary. In addition, the Fund and the Subsidiary will not invest in options contracts, swaps, or forward investments.
Additional information regarding the Trust, Fund, and Shares, including investment strategies and restrictions, risks, creation and redemption procedures, fees, portfolio holdings, disclosure policies, distributions and taxes, calculation of net asset value per share (“NAV”), availability of information, trading rules and halts, and surveillance procedures, among other things, can be found in the Notice and the Registration Statement, as applicable.
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's proposal to list and trade the Shares is consistent with the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.
In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act,
which requires, among other things, that the Exchange's rules be designed to promote just and equitable principles of trade, 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. The Commission notes that the Fund and the Shares must comply with the requirements of Nasdaq Rule 5735 to be listed and traded on the Exchange.
The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,
which sets forth Congress' finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information for the Shares will be available via Nasdaq proprietary quote Start Printed Page 45855and trade services, as well as in accordance with the Unlisted Trading Privileges and the Consolidated Tape Association plans for the Shares. In addition, the Intraday Indicative Value,
as defined in Rule 5735(c)(3), will be available on the NASDAQ OMX Information LLC proprietary index data service 
and will be updated and widely disseminated by one or more major market data vendors 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 will disclose on its Web site the identities and quantities of the portfolio of securities, Commodities, and other assets held by the Fund and the Subsidiary (the “Disclosed Portfolio,” as defined in Nasdaq Rule 5735(c)(2)) that will form the basis for the Fund's calculation of NAV at the end of the business day.
In addition, the Custodian, through the National Securities Clearing Corporation, will make available on each business day, prior to the opening of business of the Exchange, the list of the names and quantities of the instruments composing the creation basket, as well as the estimated cash component (if any), for that day. The Fund's NAV will be determined as of the close of trading (normally 4:00 p.m., Eastern Time (“E.T.”)) on each day the New York Stock Exchange (“NYSE”) is open for business.
Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. The previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Intra-day executable price quotations on the securities and other assets held by the Fund and the Subsidiary will be available from major broker-dealer firms or on the exchange on which they are traded, as applicable. Intra-day price information on the securities and other assets held by the Fund and the Subsidiary will also be available through subscription services, such as Bloomberg and Thomson Reuters. Specifically, pricing information for Commodities, ETFs (other than Commodities), and closed-end funds will be available on the exchanges on which they are traded and through subscription services. Pricing information for fixed income securities and money market instruments will be available through subscription services and broker-dealer firms. Additionally, the Trade Reporting and Compliance Engine (“TRACE”) of the Financial Industry Regulatory Authority (“FINRA”) will be a source of price information for certain fixed income securities held by the Fund. Information relating to the Benchmark, including its constituents, weightings, and changes to its constituents will be available on the Web site of CS. The Fund's Web site (www.globalxfunds.com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information.
The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. Nasdaq will halt trading in the Shares under the conditions specified in Nasdaq Rules 4120 and 4121, including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.
Trading in the Shares also will be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth additional circumstances under which Shares of the Fund may be halted. The Exchange represents that it has a general policy prohibiting the distribution of material, non-public information by its employees. In addition, the Exchange represents that the Adviser is not registered as a broker-dealer and is not affiliated with a broker-dealer.
Prior to Start Printed Page 45856the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares.
The Exchange represents that trading in the Shares will be subject to existing trading surveillances, administered by both Nasdaq and FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.
The Exchange further represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange states that FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and in the exchange-traded securities, commodity-linked instruments, and futures contracts held by the Fund and the Subsidiary with other markets and other entities that are members of the ISG and that FINRA may obtain trading information regarding trading in the Shares and in the exchange-traded securities, commodity-linked instruments, and futures contracts held by the Fund and the Subsidiary from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and in the exchange-traded securities, commodity-linked instruments, and futures contracts held by the Fund and the Subsidiary from markets and other entities that are members of ISG, which includes securities and futures exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Exchange states that FINRA, on behalf of the Exchange, will be able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA's TRACE.
The Exchange represents that the Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including:
(1) The Shares will be subject to Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares.
(2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and also FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws.
(4) Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (b) Nasdaq Rule 2111A, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (c) how and by whom information regarding the Intraday Indicative Value and the Disclosed Portfolio is disseminated; (d) the risks involved in trading the Shares during the Pre-Market and Post-Market Sessions when an updated Intraday Indicative Value will not be calculated or publicly disseminated; (e) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.
(5) For initial and continued listing, the Fund and the Subsidiary must be in compliance with Rule 10A-3 under the Act.
(6) The Fund's investments will be consistent with its respective investment objective. While the Fund and the Subsidiary may invest in inverse commodity-linked instruments, the Fund and the Subsidiary will not invest in leveraged or inverse leveraged (e.g., 2X or −3X) commodity-linked instruments.
(7) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including securities deemed illiquid by the Adviser, in accordance with Commission guidance.
(8) Not more than 10% of the weight (to be calculated as the value of the contract divided by the total absolute notional value of the Subsidiary's futures contracts) of the futures contracts held by the Subsidiary in the aggregate shall consist of instruments whose principal trading market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement.
(9) All commodity-linked instruments in which the Subsidiary invests will be traded on ISG member markets. Commodity-linked instruments include: (a) Exchange-traded funds (“ETFs”) that provide exposure to commodities as would be listed under Nasdaq Rules 5705 and 5735; and (b) pooled investment vehicles that invest primarily in commodities and commodity-linked instruments as would be listed under Nasdaq Rules 5710 and 5711(b), (d), (f), (g), (h), (i), and (j).
(10) The Fund and the Subsidiary will not invest in options contracts, swaps, or forward investments. In addition, the Fund will not invest directly in Commodities.
(11) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice, and the Exchange's description of the Fund.Start Printed Page 45857
For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1 thereto, is consistent with Section 6(b)(5) of the Act 
and the rules and regulations thereunder applicable to a national securities exchange.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASDAQ-2014-059), as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Kevin M. O'Neill,
[FR Doc. 2014-18533 Filed 8-5-14; 8:45 am]
BILLING CODE 8011-01-P