Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc. To Exempt All Securities Included in the NASDAQ 100 Index From the Price Test Set Forth in NASD Rule 3350(a), 35964-35966 [E6-9852]
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35964
Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Notices
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–CBOE–2006–41. This file number
should be included on the subject line
if e-mail 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 Web site (https://www.sec.gov/
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 inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing will also be
available for inspection and copying at
the principal office of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–CBOE–2006–41 and should be
submitted on or before July 13, 2006.
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54010; File No. SR–NASD–
2006–076]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change by the National
Association of Securities Dealers, Inc.
To Exempt All Securities Included in
the NASDAQ 100 Index From the Price
Test Set Forth in NASD Rule 3350(a)
wwhite on PROD1PC61 with NOTICES
June 16, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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19:08 Jun 21, 2006
Jkt 208001
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Nasdaq has submitted a proposed rule
change to exempt all securities included
in the NASDAQ 100 Index from the
price test set forth in NASD Rule
3350(a). The text of the proposed rule
change is below. Proposed new
language is underlined; proposed
deletions are in brackets.
3350 Short Sales
(a)–(b) No Change.
(c)(1)–(9) No Change.
(10) Sales of securities included in the
Nasdaq 100 Index.
(d)–(k) No Change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Nancy M. Morris,
Secretary.
[FR Doc. E6–9853 Filed 6–21–06; 8:45 am]
12 17
notice is hereby given that on June 15,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’), filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared substantially by
Nasdaq. The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq is proposing to amend Rule
3350(c) to create an exemption from the
short sale rule for securities included in
the Nasdaq 100 Index.
The NASDAQ 100 Index. First
introduced in 1985, the NASDAQ–100
Index was created to track the
performance of the largest non-financial
companies listed on The NASDAQ
Stock Market. Nasdaq states that the
NASDAQ–100 Index Tracking Stock,
also known as ‘‘QQQ’’, is the most
actively traded ETF and the most
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
actively traded listed equity security in
the U.S. by average daily share trading
volume. As of the end of the fourth
quarter of 2005, QQQ traded an average
of 90.4 million shares per day. Nasdaq
notes that QQQ has grown significantly
since its inception: From $14.5 million
in assets at the start to $20.3 billion in
assets as of December 31, 2005, and
from 300,000 total shares outstanding to
501.95 million at the end of the fourth
quarter of 2005.
In addition to the QQQ, Nasdaq states
that nearly 150 licensees have
contracted with Nasdaq to use the
NASDAQ–100 and other Nasdaq indices
as benchmarks for the issuing and
trading of their global financial
products. These third-party
underwritten products, such as equitylinked notes, index warrants, certificates
of deposits, leveraged products and
basket securities, were sold in 32
countries and amounted to $157.05
billion in underlying notional value as
of December 31, 2005.6 A total of 33
domestic and international mutual
funds use this barometer index as a
benchmark as well.
Nasdaq states that, as a result, the
Nasdaq 100 stocks are highly liquid. For
the month of April 2006, the average
daily volume for that group of securities
was over 880 million shares. The
average daily volume of an individual
Nasdaq 100 security was over 8.8
million shares and the mean daily
trading value of those securities was
over 3.4 million shares.
The Regulation SHO Pilot. On June
23, 2004, Commission approved new
and amended short sale regulations in
Regulation SHO under the Securities
Exchange Act of 1934 (the ‘‘Act’’). On
July 28, 2004, the Commission issued an
order creating a one year Pilot (‘‘Pilot’’)
suspending the provisions of Rule 10a–
1(a) under the Act and any short sale
price test of any exchange or national
securities association for short sales of
certain securities. The Pilot was created
pursuant to Rule 202T of Regulation
SHO, which established procedures to
allow the Commission to temporarily
suspend short sale price tests so that the
Commission could study the
effectiveness of short sale price tests. On
April 20, 2006, the Commission issued
an order extending the termination date
of the Pilot to August 6, 2007, the date
on which temporary Rule 202T expires.
The Pilot exempted a selected list of
securities from short sale price test
restrictions of SEC Rule 10a–1 and the
rules of self regulatory organizations,
including NASD Rule 3350. Nasdaq
notes that, of the roughly 1000 such
securities, roughly 47 percent are listed
E:\FR\FM\22JNN1.SGM
22JNN1
wwhite on PROD1PC61 with NOTICES
Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Notices
on Nasdaq and, of those, 24 currently
are included in the Nasdaq 100 Index.
Rationale for Proposed Exemption.
Nasdaq states that, first, the proposed
exemption is consistent with the goals
of short sale regulation because the
stocks included in the Nasdaq 100 Index
are highly liquid and not implicated by
the objectives of the short sale rule.
Congressional and Commission
objectives included allowing relatively
unrestricted short selling in an
advancing market, preventing short
selling at successively lower prices; and
preventing short sellers from
accelerating a declining market by
exhausting all remaining bids at one
price level. Nasdaq states that, given the
highly liquid nature of securities listed
in the Nasdaq 100 Index, the proposed
exemption poses no risk to investors.
Nasdaq states that this conclusion is
supported by the results of the Reg SHO
Pilot to date. Numerous academics have
used the implementation of Reg SHO as
a natural experiment to study the affects
of price-test exemptions on various
measures of market quality and trading
behavior. Nasdaq states that a recurring
finding among these studies is that there
is no indication that the pilot increased
short-sale volume or volatility,
decreased returns, or sacrificed market
efficiency. Nasdaq believes that the
results also show that bid-test rules had
little-to-no affect on market quality or
trading behavior for Nasdaq pilot stocks.
Nasdaq states that this finding is
consistent with the ability of shortsellers to circumvent Nasdaq’s bid-test
rule by routing orders to markets
without short-sale restrictions.
Given the highly liquid nature of
Nasdaq 100 securities and the absence
of a material impact from the removal of
price-based short sale restrictions on 24
of those securities, Nasdaq believes it
would benefit investors to exempt the
remaining stocks in the Nasdaq 100
Index. As described above, the Nasdaq
100 Index serves as the basis for billions
of dollars of assets and trading in the
basket of securities that make up the
index. Nasdaq believes that the
disparity of regulatory treatment
between Nasdaq 100 securities that are
included in the Pilot and those that are
not is inefficient and potentially
harmful to investors.
Nasdaq believes that the proposed
exemption will also remove the
disparity in short sale regulation that
currently exists between markets. As
opposed to the NASD, which has
voluntarily adopted a short sale rule for
Nasdaq securities, several exchanges
that trade Nasdaq securities do so with
no short sale regulation, encouraging
market participants to route short sale
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19:08 Jun 21, 2006
Jkt 208001
orders to their markets to avoid any
regulatory restriction. As a result, the
level of regulatory protection an
investor receives depends almost
entirely on the market to which the
investor’s order is routed. Nasdaq
believes that this disparity harms
customers on all markets by forcing
traders to choose between bypassing
limit orders posted on Nasdaq, delaying
executing those orders, or declining to
execute. Nasdaq states that the proposed
exemption is designed to help to
alleviate these issues.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,3 in
general, and with Section 15A(b)(5) of
the Act,4 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, remove impediments to a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
Nasdaq has requested that this
proposal be approved on an accelerated
basis. Nasdaq asserts that, given the
current disparity between short sale
3 15
4 15
PO 00000
U.S.C. 78o–3.
U.S.C. 78o–3(b)(5).
Frm 00106
Fmt 4703
Sfmt 4703
35965
regulation on Nasdaq and the lack of
short sale regulation on NYSE/Arca and
the National Stock Exchange, there is no
basis to conclude that this proposal will
generate legitimate controversy. Nasdaq
also states that these are highly active
and liquid securities that do not present
any of the risks commonly understood
as the underpinning for short sale
regulation.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2006–076 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASD–2006–076. This file
number should be included on the
subject line if e-mail 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 Web site (https://www.sec.gov/
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 inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549–1090. Copies of such filing
also will be available for inspection and
copying at the principal office of the
NASD. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
E:\FR\FM\22JNN1.SGM
22JNN1
35966
Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Notices
All submissions should refer to File
Number SR–NASD–2006–076 and
should be submitted on or before July
13, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Nancy M. Morris,
Secretary.
[FR Doc. E6–9852 Filed 6–21–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53998; File No. SR–NYSE–
2006–41]
Self-Regulatory Organizations; New
York Stock Exchange, Inc. (n/k/a New
York Stock Exchange LLC); Notice of
Filing and Amendment No. 1 Thereto
and Order Granting Accelerated
Approval of Proposed Rule Change To
List and Trade Thirty-Four
WisdomTree Exchange Traded Funds
June 15, 2006.
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 May 25,
2006 the New York Stock Exchange, Inc.
(n/k/a New York Stock Exchange LLC)
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. On June 15,
2006, the Exchange filed Amendment
No. 1 to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons and is
approving the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
wwhite on PROD1PC61 with NOTICES
NYSE proposes to list and trade the
following thirty-four (34) exchange
traded funds (‘‘ETFs’’), which are a type
of Investment Company Unit: (1)
WisdomTree Europe Total Dividend
Fund; (2) WisdomTree Europe HighYielding Equity Fund; (3) WisdomTree
Japan Total Dividend Fund; (4)
WisdomTree Japan High-Yielding
Equity Fund; (5) WisdomTree DIEFA
5 17
CFR 200.30–3(a)(12).
U.S.C 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, the Exchange stated that
the net asset value (‘‘NAV’’) per share for each Fund
would be disseminated to all market participants at
the same time.
1 15
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19:08 Jun 21, 2006
Jkt 208001
Fund; (6) WisdomTree DIEFA High
Yielding Equity Fund; (7) WisdomTree
Pacific ex-Japan Dividend Fund; (8)
WisdomTree Pacific ex-Japan HighYielding Equity Fund; 4 (9) WisdomTree
International LargeCap Dividend Fund;
(10) WisdomTree International MidCap
Dividend Fund; (11) WisdomTree
International SmallCap Dividend Fund;
(12) WisdomTree International
Dividend Top 100 Fund; (13)
WisdomTree Europe Dividend Top 100
Fund; (14) WisdomTree Europe
SmallCap Dividend Fund; (15)
WisdomTree Japan SmallCap Dividend
Fund; (16) WisdomTree International
Consumer Non-Cyclical Sector Fund;
(17) WisdomTree International Basic
Materials Sector Fund; (18) WisdomTree
International Communications Sector
Fund; (19) WisdomTree International
Consumer Cyclical Sector Fund; (20)
WisdomTree International Energy
Sector Fund; (21) WisdomTree
International Financial Sector Fund;
(22) WisdomTree International
Healthcare Sector Fund; (23)
WisdomTree International Industrial
Sector Fund; (24) WisdomTree
International Technology Sector Fund;
(25) WisdomTree International Utilities
Sector Fund; (26) WisdomTree
Emerging Markets Total Dividend Fund;
(27) WisdomTree Emerging Markets
High-Yielding Equity Fund; (28)
WisdomTree Emerging Markets
Dividend Top 100 Fund; (29)
WisdomTree Latin America Dividend
Fund; (30) WisdomTree Asia Emerging
Markets Total Dividend Fund; (31)
WisdomTree Asia Emerging Markets
High-Yielding Equity Fund; (32)
WisdomTree China Dividend Fund; (33)
WisdomTree Hong Kong Dividend
Fund; and (34) WisdomTree Singapore
Dividend Fund 5 (collectively, the
‘‘Funds’’).
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
NYSE 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
4 The Board of Trustees of WisdomTree Trust has
approved a name change for the WisdomTree DIPR
Fund and WisdomTree DIPR High-Yielding Fund to
WisdomTree Pacific ex-Japan Dividend Index Fund
and WisdomTree Pacific ex-Japan High-Yielding
Equity Fund, respectively, as of the effective date
of the Funds’ Registration Statement.
5 ‘‘WisdomTree,’’ ‘‘WisdomTree Investments,’’
‘‘High-Yielding Equity,’’ ‘‘Dividend Top 100,’’
‘‘WisdomTree DIEFA,’’ and ‘‘WisdomTree DIPR’’
are servicemarks of WisdomTree Investments, Inc.
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
in Item IV below. The NYSE 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
NYSE states that it has adopted listing
standards applicable to Investment
Company Units (‘‘ICUs’’) that are
consistent with the listing criteria
currently used by other national
securities exchanges, and trading
standards pursuant to which the
Exchange may either list and trade ICUs
or trade such ICUs on the Exchange on
an unlisted trading privileges (‘‘UTP’’)
basis.6
The Exchange now proposes to list
and trade under Section 703.16 of the
NYSE Listed Company Manual (the
‘‘Manual’’) and the Exchange’s Rule
1100 et seq. shares (‘‘Shares’’) of the
Funds. The Funds are separate
investment portfolios of the
WisdomTree Trust (the ‘‘Trust’’).7
Because the Funds invest in non-U.S.
securities not listed on a national
securities exchange or the Nasdaq Stock
Market, the Funds do not meet the
‘‘generic’’ listing requirements of
Section 703.16 of the Manual applicable
to listing of ICUs (permitting listing in
reliance upon Rule 19b–4(e) under the
Act),8 and cannot be listed without a
6 In 1996, the Commission approved Section
703.16 of the Manual, which sets forth the rules
related to the listing of ICUs. See Securities
Exchange Act Release No. 36923 (March 5, 1996),
61 FR 10410 (March 13, 1996) (SR–NYSE–95–23).
In 2000, the Commission also approved the
Exchange’s generic listing standards for listing and
trading, or the trading pursuant to UTP, of ICUs
under Section 703.16 of the Manual and Exchange
Rule 1100. See Securities Exchange Act Release No.
43679 (December 5, 2000), 65 FR 77949 (December
13, 2000) (SR–NYSE–00–46).
7 The Trust will be registered under the
Investment Company Act of 1940 (15 U.S.C. 80a),
(the ‘‘Investment Company Act’’). On March 13,
2006, the Trust filed with the Commission a
Registration Statement for certain of the Funds
(Nos. 1–15) on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a), and under the Investment
Company Act relating to the Funds (File Nos. 333–
132380 and 811–21864) (the ‘‘Registration
Statement’’). The Trust also consists of six funds
that invest in indexes comprised of dividendpaying U.S. equity securities, as described in the
Registration Statement. Telephone conference
between Florence Harmon, Senior Special Counsel,
Division of Market Regulation (‘‘Division’’),
Commission, and Michael Cavalier, Assistant
General Counsel, NYSE, on June 9, 2006.
On April 19, 2006, the Trust filed with the
Commission an Application for Orders under
sections 6(c) and 17(b) of the Investment Company
Act for the purpose of exempting of all the Funds
from various provisions of the Investment Company
Act and the rules thereunder (the ‘‘Application’’).
8 15 U.S.C. 78a.
E:\FR\FM\22JNN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 120 (Thursday, June 22, 2006)]
[Notices]
[Pages 35964-35966]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9852]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54010; File No. SR-NASD-2006-076]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change by the National
Association of Securities Dealers, Inc. To Exempt All Securities
Included in the NASDAQ 100 Index From the Price Test Set Forth in NASD
Rule 3350(a)
June 16, 2006.
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 June 15, 2006, the National Association of Securities Dealers, Inc.
(``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc.
(``Nasdaq''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared substantially by Nasdaq.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq has submitted a proposed rule change to exempt all
securities included in the NASDAQ 100 Index from the price test set
forth in NASD Rule 3350(a). The text of the proposed rule change is
below. Proposed new language is underlined; proposed deletions are in
brackets.
3350 Short Sales
(a)-(b) No Change.
(c)(1)-(9) No Change.
(10) Sales of securities included in the Nasdaq 100 Index.
(d)-(k) No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq 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. Nasdaq 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq is proposing to amend Rule 3350(c) to create an exemption
from the short sale rule for securities included in the Nasdaq 100
Index.
The NASDAQ 100 Index. First introduced in 1985, the NASDAQ-100
Index was created to track the performance of the largest non-financial
companies listed on The NASDAQ Stock Market. Nasdaq states that the
NASDAQ-100 Index Tracking Stock, also known as ``QQQ'', is the most
actively traded ETF and the most actively traded listed equity security
in the U.S. by average daily share trading volume. As of the end of the
fourth quarter of 2005, QQQ traded an average of 90.4 million shares
per day. Nasdaq notes that QQQ has grown significantly since its
inception: From $14.5 million in assets at the start to $20.3 billion
in assets as of December 31, 2005, and from 300,000 total shares
outstanding to 501.95 million at the end of the fourth quarter of 2005.
In addition to the QQQ, Nasdaq states that nearly 150 licensees
have contracted with Nasdaq to use the NASDAQ-100 and other Nasdaq
indices as benchmarks for the issuing and trading of their global
financial products. These third-party underwritten products, such as
equity-linked notes, index warrants, certificates of deposits,
leveraged products and basket securities, were sold in 32 countries and
amounted to $157.05 billion in underlying notional value as of December
31, 2005.6 A total of 33 domestic and international mutual funds use
this barometer index as a benchmark as well.
Nasdaq states that, as a result, the Nasdaq 100 stocks are highly
liquid. For the month of April 2006, the average daily volume for that
group of securities was over 880 million shares. The average daily
volume of an individual Nasdaq 100 security was over 8.8 million shares
and the mean daily trading value of those securities was over 3.4
million shares.
The Regulation SHO Pilot. On June 23, 2004, Commission approved new
and amended short sale regulations in Regulation SHO under the
Securities Exchange Act of 1934 (the ``Act''). On July 28, 2004, the
Commission issued an order creating a one year Pilot (``Pilot'')
suspending the provisions of Rule 10a-1(a) under the Act and any short
sale price test of any exchange or national securities association for
short sales of certain securities. The Pilot was created pursuant to
Rule 202T of Regulation SHO, which established procedures to allow the
Commission to temporarily suspend short sale price tests so that the
Commission could study the effectiveness of short sale price tests. On
April 20, 2006, the Commission issued an order extending the
termination date of the Pilot to August 6, 2007, the date on which
temporary Rule 202T expires.
The Pilot exempted a selected list of securities from short sale
price test restrictions of SEC Rule 10a-1 and the rules of self
regulatory organizations, including NASD Rule 3350. Nasdaq notes that,
of the roughly 1000 such securities, roughly 47 percent are listed
[[Page 35965]]
on Nasdaq and, of those, 24 currently are included in the Nasdaq 100
Index.
Rationale for Proposed Exemption. Nasdaq states that, first, the
proposed exemption is consistent with the goals of short sale
regulation because the stocks included in the Nasdaq 100 Index are
highly liquid and not implicated by the objectives of the short sale
rule. Congressional and Commission objectives included allowing
relatively unrestricted short selling in an advancing market,
preventing short selling at successively lower prices; and preventing
short sellers from accelerating a declining market by exhausting all
remaining bids at one price level. Nasdaq states that, given the highly
liquid nature of securities listed in the Nasdaq 100 Index, the
proposed exemption poses no risk to investors.
Nasdaq states that this conclusion is supported by the results of
the Reg SHO Pilot to date. Numerous academics have used the
implementation of Reg SHO as a natural experiment to study the affects
of price-test exemptions on various measures of market quality and
trading behavior. Nasdaq states that a recurring finding among these
studies is that there is no indication that the pilot increased short-
sale volume or volatility, decreased returns, or sacrificed market
efficiency. Nasdaq believes that the results also show that bid-test
rules had little-to-no affect on market quality or trading behavior for
Nasdaq pilot stocks. Nasdaq states that this finding is consistent with
the ability of short-sellers to circumvent Nasdaq's bid-test rule by
routing orders to markets without short-sale restrictions.
Given the highly liquid nature of Nasdaq 100 securities and the
absence of a material impact from the removal of price-based short sale
restrictions on 24 of those securities, Nasdaq believes it would
benefit investors to exempt the remaining stocks in the Nasdaq 100
Index. As described above, the Nasdaq 100 Index serves as the basis for
billions of dollars of assets and trading in the basket of securities
that make up the index. Nasdaq believes that the disparity of
regulatory treatment between Nasdaq 100 securities that are included in
the Pilot and those that are not is inefficient and potentially harmful
to investors.
Nasdaq believes that the proposed exemption will also remove the
disparity in short sale regulation that currently exists between
markets. As opposed to the NASD, which has voluntarily adopted a short
sale rule for Nasdaq securities, several exchanges that trade Nasdaq
securities do so with no short sale regulation, encouraging market
participants to route short sale orders to their markets to avoid any
regulatory restriction. As a result, the level of regulatory protection
an investor receives depends almost entirely on the market to which the
investor's order is routed. Nasdaq believes that this disparity harms
customers on all markets by forcing traders to choose between bypassing
limit orders posted on Nasdaq, delaying executing those orders, or
declining to execute. Nasdaq states that the proposed exemption is
designed to help to alleviate these issues.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\3\ in general, and with
Section 15A(b)(5) of the Act,\4\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, remove impediments to a free
and open market and a national market system, and, in general, to
protect investors and the public interest.
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\3\ 15 U.S.C. 78o-3.
\4\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
Nasdaq has requested that this proposal be approved on an
accelerated basis. Nasdaq asserts that, given the current disparity
between short sale regulation on Nasdaq and the lack of short sale
regulation on NYSE/Arca and the National Stock Exchange, there is no
basis to conclude that this proposal will generate legitimate
controversy. Nasdaq also states that these are highly active and liquid
securities that do not present any of the risks commonly understood as
the underpinning for short sale regulation.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2006-076 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-076. This
file number should be included on the subject line if e-mail 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 Web site (https://www.sec.gov/
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 inspection
and copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549-1090. Copies of such filing also will be
available for inspection and copying at the principal office of the
NASD. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.
[[Page 35966]]
All submissions should refer to File Number SR-NASD-2006-076 and
should be submitted on or before July 13, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-9852 Filed 6-21-06; 8:45 am]
BILLING CODE 8010-01-P
