August 22, 2016.
On May 10, 2016, The NASDAQ Stock Market LLC (“Nasdaq” or “Exchange”) 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 the Amplify Dow Theory Forecasts Buy List ETF (“Fund”) of Amplify ETF Trust (“Trust”). On May 20, 2016, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1 thereto, was published for comment in the Federal Register on May 31, 2016.
On July 5, 2016, pursuant to section 19(b)(2) of the Act,
the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.
The Commission received no comment letters on the proposed rule change. This order grants approval of the proposed rule change, as modified by Amendment No. 1 thereto.
II. Exchange's Description of the Proposal
The Exchange proposes to list and trade the Shares under Nasdaq Rule 5735, which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by the Trust, which was established as a Massachusetts business trust on January 6, 2015.
According to the Exchange, 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.
The Fund, which will be an actively-managed exchange-traded fund (“ETF”), will be a series of the Trust.
Amplify Investments LLC will be the investment adviser (“Adviser”) to the Fund. The following entities will serve as investment sub-advisers (collectively, “Sub-Adviser”) to the Fund: Horizon Investment Services, LLC (“Horizon”) and Penserra Capital Management LLC (“Penserra”). Quasar Distributors LLC will be the principal underwriter and distributor of the Fund's Shares. U.S. Bancorp Fund Services LLC will act as the administrator, accounting agent, custodian, and transfer agent to the Fund. The Exchange represents that neither the Adviser nor any Sub-Adviser is a broker-dealer, although Penserra is affiliated with a broker-dealer.
Penserra has implemented and will maintain a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition of, and changes to, the portfolio.
The Exchange has made the following representations and statements in describing the Fund and its investment strategies, including the Fund's portfolio holdings and investment restrictions.
Start Printed Page 58984
A. Exchange's Description of the Fund's Principal Investments
The investment objective of the Fund will be to seek long-term capital appreciation. Under normal market conditions,
the Fund will seek to achieve its investment objective by investing at least 90% of its net assets (including investment borrowings) in companies included in the buy list (updated on a semi-weekly basis) (“Buy List”) of the Dow Theory
Forecasts, an investment newsletter of Horizon Publishing Company, LLC, an affiliate of Horizon. In general, the Buy List includes 25 to 40 U.S. exchange-traded stocks. All of such stocks are large-cap or mid-cap and are selected based on a proprietary quantitative ranking system known as Quadrix®. Quadrix® ranks approximately 5,000 stocks and scores target stocks based on their operating momentum; valuation; long-term term track record and financial strength; earnings-estimate trends; and share-price performance.
The Fund will seek diversification among the ten economic sectors of the U.S. stock market, and it is not anticipated that more than 45% of the portfolio will be invested in a single sector. Horizon will select the Fund's portfolio securities from the Buy List. Penserra will be responsible for implementing the Fund's investment program by, among other things, trading portfolio securities and performing related services, rebalancing the Fund's portfolio, and providing cash management services in accordance with the investment advice formulated by, and model portfolios delivered by, the Adviser and Horizon.
B. Exchange's Description of the Fund's Other Investments
The Fund may invest the remaining 10% of its net assets in short-term debt securities and other short-term debt instruments (described below), as well as cash equivalents, or it may hold cash. The percentage of the Fund invested in such holdings or held in cash will vary and will depend on several factors, including market conditions. The Fund may invest in the following short-term debt instruments: 
(1) Fixed rate and floating rate U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities; (2) certificates of deposit issued against funds deposited in a bank or savings and loan association; (3) bankers' acceptances, which are short-term credit instruments used to finance commercial transactions; (4) repurchase agreements,
which involve purchases of debt securities; (5) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; and (6) commercial paper, which is short-term unsecured promissory notes.
The Fund may invest in the securities of other ETFs and non-exchange listed open-end investment companies (referred to as “mutual funds”), including money market funds,
that, in each case, will be investment companies registered under the 1940 Act.
C. Exchange's Description of the Fund's Investment Restrictions
According to the Exchange, 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 or a Sub-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 may not invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries (other than securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or securities of other investment companies), except that the Fund may invest 25% or more of the value of its total assets in securities of issuers in a group of industries to approximately the same extent that the Buy List includes the securities of a particular group of industries.
All of the Fund's net assets that are invested in exchange-traded equity securities (including common stocks and ETFs) will be invested in securities that are listed on a U.S. exchange.
In addition, the Fund will not invest in derivative instruments, and the Fund's investments will be consistent with its investment objective and will not be used to enhance leverage.
Start Printed Page 58985
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, as modified by Amendment No. 1 thereto, is consistent with section 6(b)(5) of the Exchange Act,
which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, 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 also 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 the finding of Congress 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. According to the Exchange, quotation and last-sale information for the Shares will be available via Nasdaq proprietary quote and trade services, as well as in accordance with the Unlisted Trading Privileges and the Consolidated Tape Association (“CTA”) plans for the Shares. 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 “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, an estimated value, defined in Rule 5735(c)(3) as the “Intraday Indicative Value,” that reflects an estimated intraday value of the Fund's Disclosed Portfolio, will be disseminated. The Intraday Indicative Value, which will be made available on the NASDAQ OMX Information LLC proprietary index data service,
will be based upon the current value for the components of the Disclosed Portfolio 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. The Fund's NAV will be determined as of the close of regular trading on the New York Stock Exchange (“NYSE”) on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV will be determined as of that time.
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. Information regarding the previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last-sale information for U.S. exchange-traded equity securities (including common stocks and ETFs) will be available from the exchanges on which they are traded as well as in accordance with any applicable CTA plans. Open-end investment companies (other than ETFs) are typically priced once each business day and their prices will be available through the applicable fund's Web site or from major market data vendors. Pricing information for Short-Term Debt Instruments, repurchase agreements, certificates of deposit, and bank time deposits will be available from major broker-dealer firms, major market data vendors, and pricing services. Moreover, the Fund's Web site, which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund, as well as the Shares' ticker, CUSIP, and exchange information along with additional quantitative information updated on a daily basis, including, for the Fund: (1) Daily trading volume, the prior business day's reported NAV and closing price, mid-point of the bid/ask spread at the time of calculation of such NAV (“Bid/Ask Price”),
and a calculation of the premium and discount of the Bid/Ask Price against the NAV; and (2) data in chart format Start Printed Page 58986displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters.
The Commission 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 Rule 5735(d)(2)(D), which sets forth circumstances under which trading in the 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. Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, non-public information regarding the actual components of the portfolio.
In addition, Nasdaq Rule 5735(g) further requires that personnel who make decisions on the open-end fund's portfolio composition must be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding the open-end fund's portfolio. The Exchange states that Penserra is affiliated with a broker-dealer, and has implemented a fire wall with respect to its broker-dealer affiliate regarding access to information concerning the composition of, and changes to, the portfolio.
The Exchange represents that the Shares are deemed 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 the following:
(1) The Shares will be subject to Rule 5735, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares.
(2) Trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and also the Financial Industry Regulatory Authority (“FINRA”) on behalf of the Exchange, and 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.
(3) FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares and the exchange-traded securities and instruments held by the Fund (including common stocks and ETFs) with other markets and other entities that are members of the Intermarket Surveillance Group (“ISG”),
and FINRA may obtain trading information regarding trading in the Shares and such exchange-traded securities and instruments held by the Fund from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares and the exchange-traded securities and instruments held by the Fund from markets and other entities that are members of ISG, which includes securities exchanges, or with which the Exchange has in place a comprehensive surveillance sharing agreement.
(4) All of the Fund's net assets that are invested in exchange-traded equity securities (including common stocks and ETFs) will be invested in securities that trade in markets that are members of ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. In addition, the Fund will not invest in OTC secondary market securities.
(5) The Fund will not invest in derivative instruments, and the Fund's investments will be consistent with its investment objective and will not be used to enhance leverage.
(6) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(7) 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 the 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.
(8) For initial and continued listing, the Fund must be in compliance with Rule 10A-3 under the Exchange Act.
(9) 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 or a Sub-Adviser.
Start Printed Page 58987
(10) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.
(11) The Fund intends to enter into repurchase agreements only with financial institutions and dealers believed by the Adviser to present minimal credit risks in accordance with criteria approved by the Board of Trustees of the Trust. The Adviser will review and monitor the creditworthiness of such institutions and will monitor the value of the collateral at the time the transaction is entered into and at all times during the term of the repurchase agreement.
(12) The Fund may only invest in commercial paper rated A-1 or higher by S&P Ratings, Prime-1 or higher by Moody's, or F1 or higher by Fitch.
(13) While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
The Commission notes that the Fund and the Shares must comply with the initial and continued listing criteria in Nasdaq Rule 5735 for the Shares to be listed and traded on the Exchange. In addition, the Exchange represents that all statements and representations made in this filing regarding (a) the description of the portfolio, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange rules and surveillance procedures 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. This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice, as modified by Amendment No. 1 to the proposed rule change.
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,
Section 11A(a)(1)(C)(iii) 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 Exchange Act,
that the proposed rule change (SR-NASDAQ-2016-072), 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.38
Robert W. Errett,
[FR Doc. 2016-20453 Filed 8-25-16; 8:45 am]
BILLING CODE 8011-01-P