[ by Howard Haykin ] Nasdaq proposes to amend Rule 4751(f)(4) to include a new Intraday Net Asset Value ("INAV") Pegged Order for index-based domestic equity ETFs.  Nasdaq would provide that INAV Pegged Orders are available for index based domestic equity ETFs, a change that Nasdaq expects will serve market participants that utilize these ETFs as a vehicle to invest or trade.  It also should serve the needs and interests of the Sponsors/Issuers of ETFs. Pricing. The ETF INAV Pegged Order will be priced relative to the Intraday Net Asset Value of the fund’s underlying portfolio.  The INAV is also known as Intraday Indicative Value (IIV), Intraday Optimized Portfolio Value (IOPV) and Intraday Portfolio Value (IPV) amongst other things.  The INAV is intended to approximate the fair value of the securities held in the portfolio by the ETF and should closely represent the value of the fund during the trading day. The INAV is disseminated via UTP Level 1, NASDAQ Basic, NASDAQ Level 2 and NASDAQ TotalView, in addition to widely available data vendors such as Bloomberg.  Typically INAVs are calculated using the last sale of the fund’s components.  INAVs can vary from the fund’s market price and/or can be valued outside of the fund’s prevailing bid/ask spread as a result of the supply and demand characteristics of the fund and/or liquidity present in the marketplace.  The INAV may remain unchanged for a certain period of time if the underlying values do not change, particularly in periods of low volatility. Additionally, the INAV may become stale as a result of a compromised data feed or disruption to the calculation and/or dissemination agent or other technology related malfunction.  INAVs are typically disseminated at least once every 15 seconds.  Rule 5705(a)(3)(C), for example, requires that the IIV for NASDAQ listed portfolio depository receipts is disseminated at least every 15 seconds. Fair Market Price. The fair market price of an ETF is more objective than the market price of a cash equity.  Mainly, the price of an ETF is based upon the price of the underlying portfolio of the ETF.  Therefore, if the components of the portfolio increase in value, so does the fund and conversely, if the components of the portfolio decrease in value, so does the fund.  In the cash equities marketplace pricing is more subjective in nature. Unfavorable executions occur in the ETF marketplace and this can be as a result of market participants not recognizing the liquidity characteristics of the product they are trading. Executions can occur with drastic variance from the INAV usually as a result of participants relying on market orders for execution.  The INAV Pegged Order type will be available for all index based domestic equity ETFs where there is dynamic INAV data and will offer market participants a greater level of transparency as to fair value, by bringing what has historically been a post-trade analytics tool into the pre-trade environment. Minimize Disparity: Market Execution Px vs. Underlying Fund's Value. More importantly, the INAV Pegged Order should minimize the disparity between the market execution price and the underlying fund’s value.  It will allow the market participant to achieve a greater sense of control over the execution price as it relates to the fund’s value by benchmarking to the estimated intraday fund’s value.  This added value to the investing public will be strongly supported by the ETF Sponsor community.  ETF Sponsors routinely deal with investors that have been subject to inferior executions. These complaints are almost unanimously as a result of people using market orders where the prevailing bid/ask in the market does not necessarily correlate to the fund’s value, and the quoted size does not meet the demand of the order.  The INAV Peg will also help to protect investors against any unintended overpayment for the security.  Pegged Orders are orders that, once entered, adjust in price automatically in response to changes in factors such as the NBBO, depending upon the type of Pegged Order.  An INAV Pegged Order will specify that its price will equal the prevailing INAV for the relevant ETF. As the INAV changes, so move the Pegged Orders. In the event that the INAV data feed were to be compromised or temporarily stopped being disseminated, the use of the INAV Pegged Order type would be suspended - i.e., no new INAV Pegged Orders would be accepted into the system - until such time as the Exchange was confident that the integrity of the INAV data feed had been restored and orders utilizing the INAV pegged functionality already in the system would be cancelled. The proposed rule change is in accordance with Rule 612 of Regulation NMS, which governs sub-penny quoting of National Market System stocks (the "Sub-Penny Rule").  The proposed rule change would not result in the display, rank, or acceptance of a bid or offer, an order, quotation, or indication of interest in any NMS stock that is priced in an increment smaller than $0.01 per share, unless the price of the bid or offer, order, indication of interest is priced less than $1.00 per share. Nasdaq intends to use an INAV as opposed to the end of day net asset value ("ED NAV") for a number of reasons.  While the ED NAV is more definitive in nature, it does not allow  for an intraday fund valuation, thus limiting one of the greatest advantages of the ETF structure, mainly the ability to trade throughout the entire trading session, as compared to the traditional Mutual Fund (which uses ED NAV based execution). Conversely, use of the INAV, while only indicative of the ETF’s value, offers investors a trade execution tool which should lead to a greater level of transparency as it relates to the ETF’s current value.  Relative to the current intraday order entry/execution order types, the INAV Pegged Order type would allow certainty of execution with a greater correlation to the ETF's fair value for those seeking to invest on a more informed basis.  However, despite NASDAQ’s rationale for using the INAV, investors should note that the INAV is only an estimation of a fund’s value, and this might differ from the ED NAV which is more definitive and disseminated on a daily basis. For further details, go to:   [Nasdaq Rule Filing 12-99, 8/22/12]. Nasdaq Staff Contacts. Direct questions to:  Steve Matthews, Sr. Assoc. General Counsel, The Nasdaq OMX Group - (301) 978-8458.