Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 Thereto To Add Generic Listing Standards for Index-Linked Securities, 42145-42149 [E6-11788]
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Federal Register / Vol. 71, No. 142 / Tuesday, July 25, 2006 / Notices
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 also will be
available for inspection and copying at
the principal office of the CBOE. 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
Number SR–CBOE–2006–60 and should
be submitted on or before August 15,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.16
Nancy M. Morris,
Secretary.
[FR Doc. E6–11794 Filed 7–24–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54167; File No. SR–
NASDAQ–2006–002]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Order Granting Accelerated
Approval of a Proposed Rule Change
and Amendment No. 1 Thereto To Add
Generic Listing Standards for IndexLinked Securities
sroberts on PROD1PC70 with NOTICES
July 18, 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 March 29,
2006, The NASDAQ Stock Market, LLC
(‘‘Nasdaq’’), filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Nasdaq. On May 5, 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,
as amended, from interested persons
and to approve the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to reflect in the
Nasdaq rules the generic listing
standards for index-linked notes
(‘‘ILNs’’) previously approved for NASD
pursuant to Rule 19b–4(e) under the
Act.4 These ‘‘generic’’ listing standards
were recently approved by the
Commission for The Nasdaq Stock
Market, Inc. (‘‘Nasdaq Market’’) as part
of the NASD, Inc. rule book,5 but
because their approval came several
days after the approval of Nasdaq’s
registration as a national securities
exchange,6 they were not a part of the
Nasdaq rule set included in the
Exchange Approval Order.
The text of the proposed rule change
is available on Nasdaq’s Web site
(https://www.nasdaq.com), at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
The text of the proposed rule change is
also set forth below. Proposed new
language is italicized; proposed
deletions are in [brackets].
*
*
*
*
*
4420. Quantitative Designation Criteria
In order to be listed on the Nasdaq
National Market, an issuer shall be
required to substantially meet the
criteria set forth in paragraphs (a), (b),
(c), (d), (e), (f), (g), (h), (i), (j), (k), (l), [or]
(m) or (n) below.
(a)–(l) No change.
(m) Index-Linked Securities
Index-linked securities are securities
that provide for the payment at maturity
of a cash amount based on the
performance of an underlying index or
indexes. Such securities may or may not
provide for the repayment of the original
principal investment amount. Nasdaq
may submit a rule filing pursuant to
Section 19(b)(2) of the Securities
Exchange Act of 1934 to permit the
listing and trading of index-linked
securities that do not otherwise meet the
standards set forth below in paragraphs
(1) through (9). Nasdaq will consider for
listing and trading pursuant to Rule
19b–4(e) under the Securities Exchange
Act of 1934 index-linked securities,
provided:
4 17
16 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1 Nasdaq made minor
revisions to the proposed rule text.
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CFR 240.19b–4(e).
Securities Exchange Act Release No. 53142
(Jan. 19, 2006), 71 FR 4180 (Jan. 25, 2006).
6 See Securities Act Release No. 53128 (Jan. 13,
2006), 71 FR 3550 (Jan. 23, 2006 ‘‘Exchange
Approval Order’’).
5 See
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42145
(1) Both the issue and the issuer of
such security meet the criteria for other
securities set forth in paragraph (f) of
this rule, except that the minimum
public distribution of the security shall
be 1,000,000 units with a minimum of
400 public holders, unless the security
is traded in $1,000 denominations, in
which case there is no minimum
number of holders.
(2) The issue has a term of not less
than one (1) year and not greater than
ten (10) years.
(3) The issue must be the nonconvertible debt of the issuer.
(4) The payment at maturity may or
may not provide for a multiple of the
positive performance of an underlying
index or indexes; however, in no event
will payment at maturity be based on a
multiple of the negative performance of
an underlying index or indexes.
(5) The issuer will be expected to have
a minimum tangible net worth in excess
of $250,000,000 and to exceed by at
least 20% the earnings requirements set
forth in paragraph (a)(1) of this Rule. In
the alternative, the issuer will be
expected: (i) to have a minimum
tangible net worth of $150,000,000 and
to exceed by at least 20% the earnings
requirement set forth in paragraph (a)(1)
of this Rule, and (ii) not to have issued
securities where the original issue price
of all the issuer’s other index-linked
note offerings (combined with indexlinked note offerings of the issuer’s
affiliates) listed on a national securities
exchange or traded through the facilities
of Nasdaq exceeds 25% of the issuer’s
net worth.
(6) The issuer is in compliance with
Rule 10A–3 under the Securities
Exchange Act of 1934.
(7) Initial Listing Criteria-Each
underlying index is required to have at
least ten (10) component securities. In
addition, the index or indexes to which
the security is linked shall either (A)
have been reviewed and approved for
the trading of options or other
derivatives by the Commission under
Section 19(b)(2) of the 1934 Act and
rules thereunder and the conditions set
forth in the Commission’s approval
order, including comprehensive
surveillance sharing agreements for
non-U.S. stocks, continue to be satisfied,
or (B) the index or indexes meet the
following criteria:
(i) Each component security has a
minimum market value of at least $75
million, except that for each of the
lowest weighted component securities in
the index that in the aggregate account
for no more than 10% of the weight of
the index, the market value can be at
least $50 million;
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(ii) Each component security shall
have trading volume in each of the last
six months of not less than 1,000,000
shares, except that for each of the lowest
weighted component securities in the
index that in the aggregate account for
no more than 10% of the weight of the
index, the trading volume shall be at
least 500,000 shares in each of the last
six months;
(iii) Each index will be calculated
based on a capitalization, modified
capitalization, price, equal-dollar or
modified equal-dollar weighting
methodology;
(iv) Indexes based upon the equaldollar or modified equal-dollar
weighting method will be rebalanced at
least quarterly;
(v) In the case of a capitalizationweighted or modified capitalizationweighted index, the lesser of the five
highest weighted component securities
in the index or the highest weighted
component securities in the index that
in the aggregate represent at least 30%
of the total number of component
securities in the index, each have an
average monthly trading volume of at
least 2,000,000 shares over the previous
six months;
(vi) No underlying component
security will represent more than 25%
of the weight of the index, and the five
highest weighted component securities
in the index do not in the aggregate
account for more than 50% of the
weight of the index (60% for an index
consisting of fewer than 25 component
securities);
(vii) 90% of the index’s numerical
value and at least 80% of the total
number of component securities will
meet the then current criteria for
standardized option trading on a
national securities exchange or a
national securities association;
(viii) Each component security shall
be issued by a 1934 Act reporting
company, shall be listed on Nasdaq or
another national securities exchange,
and shall be an ‘‘NMS stock’’ as defined
in Rule 600 of SEC Regulation NMS;
and
(ix) Foreign country securities or
American Depository Receipts (‘‘ADRs’’)
that are not subject to comprehensive
surveillance agreements do not in the
aggregate represent more than 20% of
the weight of the index.
(8) Index Maintenance and
Dissemination—(i) If the index is
maintained by a broker-dealer, the
broker-dealer shall erect a ‘‘firewall’’
around the personnel who have access
to information concerning changes and
adjustments to the index and the index
shall be calculated by a third party who
is not a broker-dealer. (ii) The current
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value of an index will be widely
disseminated at least every 15 seconds,
except as provided in the next clause
(iii). (iii) The values of the following
indexes need not be calculated and
widely disseminated at least every 15
seconds if, after the close of trading, the
indicative value of the index-linked
security based on one or more of such
indexes is calculated and disseminated
to provide an updated value: CBOE S&P
500 BuyWrite Index(sm), CBOE DJIA
BuyWrite Index(sm), CBOE Nasdaq-100
BuyWrite Index(sm). (iv) If the value of
an index-linked security is based on
more than one index, then the
composite value of such indexes must
be widely disseminated at least every 15
seconds.
(9) Surveillance Procedures. NASD
will implement on behalf of Nasdaq
written surveillance procedures for
index-linked securities. Nasdaq will
enter into adequate comprehensive
surveillance sharing agreements for
non-U.S. securities, as applicable.
(10) Index-linked securities will be
treated as equity instruments.
Furthermore, for the purpose of fee
determination, index-linked securities
shall be deemed and treated as Other
Securities.
[(m)] (n) NASD Regulation
No change.
*
*
*
*
*
4450. Quantitative Maintenance
Criteria
(a) and (b) No change.
(c) Other Securities Designated Pursuant
to Rule 4420(f) and Index-Linked
Securities
(1) The aggregate market value or
principal amount of publicly held units
(except index-linked securities that were
listed pursuant to Rule 4420(m)) must
be at least $1 million.
(2) Delisting or removal proceedings
will be commenced (unless the
Commission has approved the
continued trading) with respect to any
index-linked security that was listed
pursuant to paragraph (7)(B) of Rule
4420(m) if any of the standards set forth
in paragraph (7)(B) of such rule are not
continuously maintained, except that:
(i) the criteria that no single
component represent more than 25% of
the weight of the index and the five
highest weighted components in the
index may not represent more than 50%
(or 60% for indexes with less than 25
components) of the weight of the Index,
need only be satisfied for capitalization
weighted and price weighted indexes as
of the first day of January and July in
each year;
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(ii) the total number of components in
the index may not increase or decrease
by more than 331⁄3% from the number
of components in the index at the time
of its initial listing, and in no event may
be less than ten (10) components;
(iii) the trading volume of each
component security in the index must
be at least 500,000 shares for each of the
last six months, except that for each of
the lowest weighted components in the
index that in the aggregate account for
no more than 10% of the weight of the
index, trading volume must be at least
400,000 shares for each of the last six
months; and
(iv) in a capitalization-weighted or
modified capitalization-weighted index,
the lesser of the five highest weighted
component securities in the index or the
highest weighted component securities
in the index that in the aggregate
represent at least 30% of the total
number of stocks in the index have had
an average monthly trading volume of at
least 1,000,000 shares over the previous
six months.
(3) With respect to an index-linked
security that was listed pursuant to
paragraph (7)(A) of Rule 4420(m),
delisting or removal proceedings will be
commenced (unless the Commission has
approved the continued trading of the
subject index-linked security) if an
underlying index or indexes fails to
satisfy the maintenance standards or
conditions for such index or indexes as
set forth by the Commission in its order
under Section 19(b)(2) of the 1934 Act
approving the index or indexes for the
trading of options or other derivatives.
(4) Delisting or removal proceedings
will also be commenced with respect to
any index-linked security listed
pursuant to Rule 4420(m) (unless the
Commission has approved the
continued trading of the subject indexlinked security), under any of the
following circumstances:
(i) if the aggregate market value or the
principal amount of the securities
publicly held is less than $400,000;
(ii) if the value of the index or
composite value of the indexes is no
longer calculated or widely
disseminated on at least a 15-second
basis, provided, however, that the
values of the following indexes need not
be calculated and disseminated at least
every 15 seconds if, after the close of
trading, the indicative value of any
index-linked security linked to one or
more of such indexes is calculated and
disseminated to provide an updated
value: CBOE S&P 500 BuyWrite
Index(sm), CBOE DJIA BuyWrite
Index(sm), CBOE Nasdaq-100 BuyWrite
Index(sm); or
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(iii) if such other event shall occur or
condition exists which in the opinion of
Nasdaq makes further dealings on
Nasdaq inadvisable.
(d) through (i) 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
sroberts on PROD1PC70 with NOTICES
1. Purpose
The proposed rule change will add
generic listing standards to permit the
listing and trading of ILNs pursuant to
Rule 19b–4(e) under the Act.7 Rule 19b–
4(e) provides that the listing and trading
of a new derivative securities product
by a self-regulatory organization shall
not be deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4,8 if the Commission has
approved, pursuant to Section 19(b) of
the Act,9 the self-regulatory
organization’s trading rules, procedures
and listing standards for the product
class that would include the new
derivatives securities product, and the
self-regulatory organization has a
surveillance program for the product
class.10
Nasdaq believes adopting generic
listing standards for these securities and
applying Rule 19b–4(e) should fulfill
the intended objective of that Rule by
allowing those ILNs that satisfy the
proposed generic listing standards to
commence trading, without the need for
the public comment period and
Commission approval. This has the
potential to reduce the time frame for
bringing ILNs to market and thereby
reduce the burdens on issuers and other
market participants. The failure of a
particular index to comply with the
proposed generic listing standards
7 17
CFR 240.19b–4(e).
CFR 240.19b–4(c)(1).
9 15 U.S.C. 78s(b).
10 See Securities Exchange Act Release No. 40761
(Dec. 8, 1998), 63 FR 70952 (Dec. 22, 1998) (the
‘‘19b–4(e) Order’’).
8 17
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under Rule 19b–4(e), however, would
not preclude a separate filing pursuant
to Section 19(b)(2), requesting
Commission approval to list and trade a
particular ILN.
On January 19, 2006, the Commission
approved the proposed ILN standards
for the Nasdaq Market.11 However, on
January 13, 2006, the Commission also
approved Nasdaq’s registration as a
national securities exchange, and
because of the timing of the two
approvals, the ILN standards were not
included in the rule set that the
Commission approved for Nasdaq. The
purpose of this filing is to update the
Nasdaq rules accordingly.
The proposed Nasdaq Rule 4420(m) is
the same 12 as the corresponding NASD
Rule 4420(m) for the Nasdaq Market and
will be administered in the same
manner as the Nasdaq Market rule is
being administered currently. The
proposed rule will become operative as
soon as Nasdaq begins its operations as
an exchange.
In transitioning to Nasdaq the ILNs
that are listed on the Nasdaq Market,
Nasdaq will deem all such ILNs,
without exception, as subject to the
continued listing standards in proposed
Nasdaq Rules 4450(c)(3) and (c)(4).13
Index Securities will be treated as
equity instruments and will be subject
to all Nasdaq rules governing the trading
of equity securities, including trading
halt rules. Index Securities will be
subject to the same fee schedule as
Other Securities listed under Nasdaq
Rule 4420(f). The applicable fee
schedule is currently codified as Nasdaq
Rule 4530.
NASD Rule 4420(m).
proposal includes two clarifications. First,
it removes a potential conflict between the
provisions of Rules 4450(c)(1) and 4450(c)(4)(i) by
clarifying that Rule 4450(c)(1) does not apply to
ILNs (and, therefore, the minimum aggregate market
value or the principal amount of the publicly held
securities is $400,000, as stated in Rule
4450(c)(4)(i)). Second, it clarifies in the wording of
Rule 4420(m)(9) that despite NASD’s obligations
pursuant to a regulatory services agreement to
surveil Nasdaq trading, Nasdaq itself must enter
into appropriate written surveillance sharing
agreements. See Nasdaq Rule 4420(n). The
Commission made minor clarifying changes to this
footnote to conform it with Amendment No. 1.
Telephone conversation between Alex Kogan,
Associate General Counsel, Nasdaq, Florence E.
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, and Rahman
Harrison, Special Counsel, Division of Market
Regulation, Commission on July 17, 2006.
13 The Commission deleted text from this
paragraph pursuant to authorization by Nasdaq
staff. Telephone conversation between Alex Kogan,
Associate General Counsel, Nasdaq, Florence E.
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, and Rahman
Harrison, Special Counsel, Division of Market
Regulation, Commission on July 17, 2006.
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11 See
12 This
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42147
2. Statutory Basis
Nasdaq believes that the proposed
rule change, as amended, is consistent
with the provisions of Section 6 of the
Act,14 in general, and with Section
6(b)(5) of the Act,15 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, as amended, will
result in any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments on the proposed
rule change, as amended, were neither
solicited nor received.
III. 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2006–002 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2006–002. 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
14 15
15 15
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U.S.C. 78f.
U.S.C. 78f(b)(5).
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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. Copies of the filing also will be
available for inspection and copying at
the principal office of the Nasdaq. 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
Number SR–NASDAQ–2006–002 and
should be submitted on or before
August 15, 2006.
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IV. Commission’s Findings
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.16 In particular, the
Commission believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act 17 in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and 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 has previously
approved the listing and trading of
several Index Securities based on a
variety of debt structures and market
indexes.18 The Commission has also
recently approved, pursuant to Rule
19b–4(e) under the Act,19 generic listing
standards for these securities for the
Nasdaq Market,20 that, in all material
16 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
17 15 U.S.C. 78f(b)(5).
18 See Securities Exchange Act Release Nos.
41091 (Feb. 23, 1999), 64 FR 10515 (Mar. 4, 1999)
(Narrow-Based Index Options); 42787 (May 15,
2000), 65 FR 33598 (May 24, 2000) (ETFs); and
43396 (Sept. 29, 2000), 65 FR 60230 (Oct. 10, 2000)
(TIRs).
19 17 CFR 240.19b–4(e).
20 See Securities Exchange Act Release No. 53142
(Jan. 19, 2006), 71 FR 4180 (Jan. 25, 2006).
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respects, are identical to those listing
standards proposed by Nasdaq.
Consistent with its previous orders,
the Commission believes that generic
listing standards proposed by Nasdaq
for Index Securities should fulfill the
intended objective of Rule 19b–4(e)
under the Act by allowing those Index
Securities that satisfy the generic listing
standards to commence trading without
public comment and Commission
approval.21 This has the potential to
reduce the time frame for bringing Index
Securities to market and thereby reduce
the burdens on issuers and other market
participants and thus enhances
investors’ opportunities.
A. Trading of Index Securities
Taken together, the Commission finds
that Nasdaq’s proposal contains
adequate rules and procedures to govern
the trading of Index Securities listed
pursuant to Rule 19b–4(e) on Nasdaq.
All Index Security products listed under
the standards will be subject to the full
panoply of Nasdaq rules and procedures
that now govern the trading of Index
Securities and the trading of equity
securities on Nasdaq.
Nasdaq has proposed asset/equity
requirements and tangible net worth for
each Index Security issuer, as well as
minimum distribution, principal/market
value, and term thresholds for each
issuance of Index Securities. As set forth
more fully above, Nasdaq’s proposed
listing criteria include minimum market
capitalization, monthly trading volume,
and relative weighting requirements for
the Index Securities. These
requirements are designed to ensure that
the trading markets for index
components underlying Index Securities
are adequately capitalized and
sufficiently liquid, and that no one stock
dominates the index. The Commission
believes that these requirements should
minimize the potential for of
manipulation. The Commission also
finds that the requirement that each
component security underlying an
Index Security be listed on a national
securities exchange or traded through
the facilities of a national securities
system and subject to last sale reporting
will contribute to the transparency of
the market for Index Securities.
Alternatively, if the index component
securities are foreign securities that are
not reporting companies, the generic
listing standards permit listing of an
21 The Commission notes that the failure of a
particular index to comply with the proposed
generic listing standards under Rule 19b–4(e) under
the Act, however, would not preclude Nasdaq from
submitting a separate filing pursuant to Section
19(b)(2) of the Act, requesting Commission approval
to list and trade a particular index-linked product.
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Index Security if the Commission
previously approved the underlying
index for trading in connection with
another derivative product and if certain
surveillance sharing arrangements exist
with foreign markets. The Commission
believes that if it has previously
determined that such index and its
components were sufficiently
transparent, then Nasdaq may rely on
this finding, provided it has comparable
surveillance sharing arrangements with
the foreign market that the Commission
relied on in approving the previous
product.
The Commission believes that by
requiring pricing information for both
the relevant underlying index or
indexes and the Index Security to be
readily available and disseminated, the
proposed listing standards should help
ensure a fair and orderly market for
Index Securities approved pursuant to
such proposed listing standards.
The Commission also believes that the
requirement that at least 90 percent of
the component securities, by weight,
and 80 percent of the total number of
Underlying Securities, be eligible
individually for options trading will
prevent an Index Security from being a
vehicle for trading options on a security
not otherwise options eligible.
Nasdaq has also developed delisting
criteria that will permit Nasdaq to
suspend trading of an Index Security in
case of circumstances that make further
dealings in the product inadvisable. The
Commission believes that the delisting
criteria will help ensure a minimum
level of liquidity exists for each Index
Security to allow for the maintenance of
fair and orderly markets. Also, Nasdaq
will commence delisting proceedings in
the event that the value of the
underlying index or index is no longer
calculated and widely disseminated on
at least a 15-second basis.22
B. Surveillance
Nasdaq must have surveillance
procedures to monitor trading in any
products listed under the generic listing
standards. An Index Security, just like
an ETF, derives its value by reference to
the underlying index. For this reason,
the Commission has required that
markets that list index based securities
monitor the qualifications of not just the
actual security (e.g., the ETF, index
option, or Index Securities), but also of
the underlying indexes (and of the
index providers). In this regard, the
Commission believes that a surveillance
22 In the case of the BuyWrite Index Securities,
CBOE disseminates a daily index value.
Additionally, a daily indicative value for the
product is also disseminated.
E:\FR\FM\25JYN1.SGM
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Federal Register / Vol. 71, No. 142 / Tuesday, July 25, 2006 / Notices
sroberts on PROD1PC70 with NOTICES
sharing agreement between a selfregulatory organization proposing to list
a stock index derivative product and the
self-regulatory organization trading the
stocks underlying the derivative product
is an important measure for surveillance
of the derivative and underlying
securities markets. When a new
derivative securities product based
upon domestic securities is listed and
traded on an exchange or national
securities association pursuant to Rule
19b–4(e) under the Act, the selfregulatory organization should
determine that the markets upon which
all of the U.S. component securities
trade are members of the Intermarket
Surveillance Group (‘‘ISG’’), which
provides information relevant to the
surveillance of the trading of securities
on other market centers.23 For
derivative securities products based on
previously approved indexes that
contain securities from one or more
foreign markets, the self-regulatory
organization should have a
comprehensive Intermarket Surveillance
Agreement, as prescribed in the prior
Commission order, which covers the
securities underlying the new securities
product.24 With respect to indexes not
previously approved by the
Commission, the Commission finds that
Nasdaq’s commitment to implement
comprehensive surveillance sharing
agreements,25 as necessary, and the
definitive requirements that: (i) Each
component security shall be a registered
reporting company under the Act; and
(ii) no more than 20 percent of the
weight of the Underlying Index or
Underlying Indexes may be comprised
of foreign country securities or ADRs
not subject to a comprehensive
surveillance sharing agreement,26 will
make possible adequate surveillance of
trading of Index Securities listed
pursuant to the proposed generic listing
standards.
With regard to actual oversight,
Nasdaq represents that its surveillance
procedures are sufficient to detect
fraudulent trading among members in
the trading of Index Securities pursuant
to the proposed generic listing
standards.
23 See Securities Exchange Act Release No. 40761
(Dec. 8, 1998), 63 FR 70952 (Dec. 22, 1998) (File No.
S7–13–98). ISG was formed on July 14, 1983, to,
among other things, coordinate more effectively
surveillance and investigative information sharing
arrangements in the stock and options markets. The
Commission notes that all of the registered national
securities exchanges, as well as the NASD, are
members of the ISG.
24 Id.
25 Proposed Nasdaq Rule 4420(m)(9).
26 Proposed Nasdaq Rules 4420(m)(7)(viii)–(ix).
VerDate Aug<31>2005
18:02 Jul 24, 2006
Jkt 208001
C. Acceleration
The Commission finds good cause for
approving proposed rule change, as
amended, prior to the 30th day after the
date of publication of notice of filing
thereof in the Federal Register. The
proposal implements generic listing
standards substantially identical to
those already approved for the Nasdaq
Market. The Commission does not
believe that Nasdaq’s proposal raises
any novel regulatory issues. The
proposed generic listing criteria should
enable more expeditious review and
listing of Index Securities by Nasdaq,
thereby reducing administrative
burdens and benefiting the investing
public. Thus, the Commission finds
good cause to accelerate approval of the
proposed rule change, as amended.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,27 that the
proposed rule change (SR–NASDAQ–
2006–002), as amended, is hereby
approved on an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.28
Nancy M. Morris,
Secretary.
[FR Doc. E6–11788 Filed 7–24–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54170; File No. SR–
NASDAQ–2006–006]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule
Change as Amended by Amendment
No. 1 Regarding Restrictions on
Affiliations Between Nasdaq and Its
Members
July 18, 2006.
I. Introduction
On April 5, 2006, The NASDAQ Stock
Market LLC (‘‘Nasdaq’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’), pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to govern affiliations between
Nasdaq and its members and to limit in
certain respects Nasdaq’s regulatory
authority with respect to members with
which it is affiliated On April 12, 2006,
PO 00000
27 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
28 17
Frm 00075
Fmt 4703
Sfmt 4703
42149
Nasdaq filed Amendment No. 1 to the
proposed rule change. The proposed
rule change, as amended, was published
for comment in the Federal Register on
April 28, 2006.3 The Commission
received three comment letters on the
proposal.4 On June 20, 2006, Nasdaq
filed a response to comments.5 This
order approves the proposed rule
change, as amended.
II. Description of Proposal
Nasdaq Rule 2140 would prohibit
Nasdaq or an entity with which it is
affiliated from acquiring or maintaining
an ownership interest in, or engaging in
a business venture 6 with, a Nasdaq
member or an affiliate of a Nasdaq
member in the absence of an effective
filing with the Commission under
Section 19(b) of the Act.7 Further, the
rule would prohibit a Nasdaq member
from becoming an affiliate 8 of Nasdaq
or an affiliate of an entity affiliated with
Nasdaq in the absence of an effective
filing under Section 19(b) of the Act.9
However, Nasdaq’s rule excludes from
this restriction two types of affiliations.
First, a Nasdaq member or an affiliate
of a Nasdaq member could acquire or
hold an equity interest in The Nasdaq
Stock Market, Inc. that is permitted
pursuant to Nasdaq Rule 2130 without
filing such acquisition or holding under
Section 19(b) of the Act.10 Second,
Nasdaq or an entity affiliated with
Nasdaq could acquire or maintain an
3 See Securities Exchange Act Release No. 53697
(April 21, 2006), 71 FR 25265.
4 See e-mail from Richard Gold, Missoula, MT,
dated April 28, 2006 (‘‘Gold E-mail’’); and letters to
Nancy M. Morris, Secretary, Commission from
George R. Kramer, Deputy General Counsel,
Securities Industry Association, dated May 19, 2006
(‘‘SIA Letter’’), and Kim Bang, Bloomberg L.P.,
dated May 17, 2006 (‘‘Bloomberg Letter’’). One
commenter expressed general concerns about
already approved Nasdaq rules requiring members
to be broker-dealers, and did not address the
substance of the proposal. See Gold E-mail.
5 See letter to Nancy M. Morris, Secretary,
Commission, from Edward S. Knight, Executive
Vice President and General Counsel, Nasdaq, dated
June 20, 2006 (‘‘Nasdaq Response Letter’’).
6 Nasdaq defines a ‘‘business venture’’ as an
arrangement under which (A) Nasdaq or an entity
with which it is affiliated and (B) a Nasdaq member
or an affiliate of a Nasdaq member, engage in joint
activities with the expectation of shared profit and
a risk of shared loss from common entrepreneurial
efforts.
7 15 U.S.C. 78s(b).
8 Nasdaq defines the term ‘‘affiliate’’ under
proposed Rule 2140 as having the meaning
specified in Commission Rule 12b–2 under the Act;
provided, however, that for purposes of Nasdaq
Rule 2140, one entity shall not be deemed to be an
affiliate of another entity solely by reason of having
a common director.
9 15 U.S.C. 78s(b).
10 Nasdaq Rule 2130 provides that ‘‘[n]o member
or person associated with a member shall be the
beneficial owner of greater than twenty percent
(20%) of the then-outstanding voting securities of
The Nasdaq Stock Market, Inc.’’
E:\FR\FM\25JYN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 142 (Tuesday, July 25, 2006)]
[Notices]
[Pages 42145-42149]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11788]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54167; File No. SR-NASDAQ-2006-002]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change and Amendment No. 1 Thereto To Add Generic Listing
Standards for Index-Linked Securities
July 18, 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 March 29, 2006, The NASDAQ Stock Market, LLC (``Nasdaq''), filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Nasdaq. On May 5, 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,
as amended, from interested persons and to approve the proposal on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 Nasdaq made minor revisions to the
proposed rule text.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to reflect in the Nasdaq rules the generic listing
standards for index-linked notes (``ILNs'') previously approved for
NASD pursuant to Rule 19b-4(e) under the Act.\4\ These ``generic''
listing standards were recently approved by the Commission for The
Nasdaq Stock Market, Inc. (``Nasdaq Market'') as part of the NASD, Inc.
rule book,\5\ but because their approval came several days after the
approval of Nasdaq's registration as a national securities exchange,\6\
they were not a part of the Nasdaq rule set included in the Exchange
Approval Order.
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
\5\ See Securities Exchange Act Release No. 53142 (Jan. 19,
2006), 71 FR 4180 (Jan. 25, 2006).
\6\ See Securities Act Release No. 53128 (Jan. 13, 2006), 71 FR
3550 (Jan. 23, 2006 ``Exchange Approval Order'').
---------------------------------------------------------------------------
The text of the proposed rule change is available on Nasdaq's Web
site (https://www.nasdaq.com), at Nasdaq's principal office, and at the
Commission's Public Reference Room. The text of the proposed rule
change is also set forth below. Proposed new language is italicized;
proposed deletions are in [brackets].
* * * * *
4420. Quantitative Designation Criteria
In order to be listed on the Nasdaq National Market, an issuer
shall be required to substantially meet the criteria set forth in
paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l),
[or] (m) or (n) below.
(a)-(l) No change.
(m) Index-Linked Securities
Index-linked securities are securities that provide for the payment
at maturity of a cash amount based on the performance of an underlying
index or indexes. Such securities may or may not provide for the
repayment of the original principal investment amount. Nasdaq may
submit a rule filing pursuant to Section 19(b)(2) of the Securities
Exchange Act of 1934 to permit the listing and trading of index-linked
securities that do not otherwise meet the standards set forth below in
paragraphs (1) through (9). Nasdaq will consider for listing and
trading pursuant to Rule 19b-4(e) under the Securities Exchange Act of
1934 index-linked securities, provided:
(1) Both the issue and the issuer of such security meet the
criteria for other securities set forth in paragraph (f) of this rule,
except that the minimum public distribution of the security shall be
1,000,000 units with a minimum of 400 public holders, unless the
security is traded in $1,000 denominations, in which case there is no
minimum number of holders.
(2) The issue has a term of not less than one (1) year and not
greater than ten (10) years.
(3) The issue must be the non-convertible debt of the issuer.
(4) The payment at maturity may or may not provide for a multiple
of the positive performance of an underlying index or indexes; however,
in no event will payment at maturity be based on a multiple of the
negative performance of an underlying index or indexes.
(5) The issuer will be expected to have a minimum tangible net
worth in excess of $250,000,000 and to exceed by at least 20% the
earnings requirements set forth in paragraph (a)(1) of this Rule. In
the alternative, the issuer will be expected: (i) to have a minimum
tangible net worth of $150,000,000 and to exceed by at least 20% the
earnings requirement set forth in paragraph (a)(1) of this Rule, and
(ii) not to have issued securities where the original issue price of
all the issuer's other index-linked note offerings (combined with
index-linked note offerings of the issuer's affiliates) listed on a
national securities exchange or traded through the facilities of Nasdaq
exceeds 25% of the issuer's net worth.
(6) The issuer is in compliance with Rule 10A-3 under the
Securities Exchange Act of 1934.
(7) Initial Listing Criteria-Each underlying index is required to
have at least ten (10) component securities. In addition, the index or
indexes to which the security is linked shall either (A) have been
reviewed and approved for the trading of options or other derivatives
by the Commission under Section 19(b)(2) of the 1934 Act and rules
thereunder and the conditions set forth in the Commission's approval
order, including comprehensive surveillance sharing agreements for non-
U.S. stocks, continue to be satisfied, or (B) the index or indexes meet
the following criteria:
(i) Each component security has a minimum market value of at least
$75 million, except that for each of the lowest weighted component
securities in the index that in the aggregate account for no more than
10% of the weight of the index, the market value can be at least $50
million;
[[Page 42146]]
(ii) Each component security shall have trading volume in each of
the last six months of not less than 1,000,000 shares, except that for
each of the lowest weighted component securities in the index that in
the aggregate account for no more than 10% of the weight of the index,
the trading volume shall be at least 500,000 shares in each of the last
six months;
(iii) Each index will be calculated based on a capitalization,
modified capitalization, price, equal-dollar or modified equal-dollar
weighting methodology;
(iv) Indexes based upon the equal-dollar or modified equal-dollar
weighting method will be rebalanced at least quarterly;
(v) In the case of a capitalization-weighted or modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least 30% of
the total number of component securities in the index, each have an
average monthly trading volume of at least 2,000,000 shares over the
previous six months;
(vi) No underlying component security will represent more than 25%
of the weight of the index, and the five highest weighted component
securities in the index do not in the aggregate account for more than
50% of the weight of the index (60% for an index consisting of fewer
than 25 component securities);
(vii) 90% of the index's numerical value and at least 80% of the
total number of component securities will meet the then current
criteria for standardized option trading on a national securities
exchange or a national securities association;
(viii) Each component security shall be issued by a 1934 Act
reporting company, shall be listed on Nasdaq or another national
securities exchange, and shall be an ``NMS stock'' as defined in Rule
600 of SEC Regulation NMS; and
(ix) Foreign country securities or American Depository Receipts
(``ADRs'') that are not subject to comprehensive surveillance
agreements do not in the aggregate represent more than 20% of the
weight of the index.
(8) Index Maintenance and Dissemination--(i) If the index is
maintained by a broker-dealer, the broker-dealer shall erect a
``firewall'' around the personnel who have access to information
concerning changes and adjustments to the index and the index shall be
calculated by a third party who is not a broker-dealer. (ii) The
current value of an index will be widely disseminated at least every 15
seconds, except as provided in the next clause (iii). (iii) The values
of the following indexes need not be calculated and widely disseminated
at least every 15 seconds if, after the close of trading, the
indicative value of the index-linked security based on one or more of
such indexes is calculated and disseminated to provide an updated
value: CBOE S&P 500 BuyWrite Index(sm), CBOE DJIA BuyWrite Index(sm),
CBOE Nasdaq-100 BuyWrite Index(sm). (iv) If the value of an index-
linked security is based on more than one index, then the composite
value of such indexes must be widely disseminated at least every 15
seconds.
(9) Surveillance Procedures. NASD will implement on behalf of
Nasdaq written surveillance procedures for index-linked securities.
Nasdaq will enter into adequate comprehensive surveillance sharing
agreements for non-U.S. securities, as applicable.
(10) Index-linked securities will be treated as equity instruments.
Furthermore, for the purpose of fee determination, index-linked
securities shall be deemed and treated as Other Securities.
[(m)] (n) NASD Regulation
No change.
* * * * *
4450. Quantitative Maintenance Criteria
(a) and (b) No change.
(c) Other Securities Designated Pursuant to Rule 4420(f) and Index-
Linked Securities
(1) The aggregate market value or principal amount of publicly held
units (except index-linked securities that were listed pursuant to Rule
4420(m)) must be at least $1 million.
(2) Delisting or removal proceedings will be commenced (unless the
Commission has approved the continued trading) with respect to any
index-linked security that was listed pursuant to paragraph (7)(B) of
Rule 4420(m) if any of the standards set forth in paragraph (7)(B) of
such rule are not continuously maintained, except that:
(i) the criteria that no single component represent more than 25%
of the weight of the index and the five highest weighted components in
the index may not represent more than 50% (or 60% for indexes with less
than 25 components) of the weight of the Index, need only be satisfied
for capitalization weighted and price weighted indexes as of the first
day of January and July in each year;
(ii) the total number of components in the index may not increase
or decrease by more than 33\1/3\% from the number of components in the
index at the time of its initial listing, and in no event may be less
than ten (10) components;
(iii) the trading volume of each component security in the index
must be at least 500,000 shares for each of the last six months, except
that for each of the lowest weighted components in the index that in
the aggregate account for no more than 10% of the weight of the index,
trading volume must be at least 400,000 shares for each of the last six
months; and
(iv) in a capitalization-weighted or modified capitalization-
weighted index, the lesser of the five highest weighted component
securities in the index or the highest weighted component securities in
the index that in the aggregate represent at least 30% of the total
number of stocks in the index have had an average monthly trading
volume of at least 1,000,000 shares over the previous six months.
(3) With respect to an index-linked security that was listed
pursuant to paragraph (7)(A) of Rule 4420(m), delisting or removal
proceedings will be commenced (unless the Commission has approved the
continued trading of the subject index-linked security) if an
underlying index or indexes fails to satisfy the maintenance standards
or conditions for such index or indexes as set forth by the Commission
in its order under Section 19(b)(2) of the 1934 Act approving the index
or indexes for the trading of options or other derivatives.
(4) Delisting or removal proceedings will also be commenced with
respect to any index-linked security listed pursuant to Rule 4420(m)
(unless the Commission has approved the continued trading of the
subject index-linked security), under any of the following
circumstances:
(i) if the aggregate market value or the principal amount of the
securities publicly held is less than $400,000;
(ii) if the value of the index or composite value of the indexes is
no longer calculated or widely disseminated on at least a 15-second
basis, provided, however, that the values of the following indexes need
not be calculated and disseminated at least every 15 seconds if, after
the close of trading, the indicative value of any index-linked security
linked to one or more of such indexes is calculated and disseminated to
provide an updated value: CBOE S&P 500 BuyWrite Index(sm), CBOE DJIA
BuyWrite Index(sm), CBOE Nasdaq-100 BuyWrite Index(sm); or
[[Page 42147]]
(iii) if such other event shall occur or condition exists which in
the opinion of Nasdaq makes further dealings on Nasdaq inadvisable.
(d) through (i) 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
The proposed rule change will add generic listing standards to
permit the listing and trading of ILNs pursuant to Rule 19b-4(e) under
the Act.\7\ Rule 19b-4(e) provides that the listing and trading of a
new derivative securities product by a self-regulatory organization
shall not be deemed a proposed rule change, pursuant to paragraph
(c)(1) of Rule 19b-4,\8\ if the Commission has approved, pursuant to
Section 19(b) of the Act,\9\ the self-regulatory organization's trading
rules, procedures and listing standards for the product class that
would include the new derivatives securities product, and the self-
regulatory organization has a surveillance program for the product
class.\10\
---------------------------------------------------------------------------
\7\ 17 CFR 240.19b-4(e).
\8\ 17 CFR 240.19b-4(c)(1).
\9\ 15 U.S.C. 78s(b).
\10\ See Securities Exchange Act Release No. 40761 (Dec. 8,
1998), 63 FR 70952 (Dec. 22, 1998) (the ``19b-4(e) Order'').
---------------------------------------------------------------------------
Nasdaq believes adopting generic listing standards for these
securities and applying Rule 19b-4(e) should fulfill the intended
objective of that Rule by allowing those ILNs that satisfy the proposed
generic listing standards to commence trading, without the need for the
public comment period and Commission approval. This has the potential
to reduce the time frame for bringing ILNs to market and thereby reduce
the burdens on issuers and other market participants. The failure of a
particular index to comply with the proposed generic listing standards
under Rule 19b-4(e), however, would not preclude a separate filing
pursuant to Section 19(b)(2), requesting Commission approval to list
and trade a particular ILN.
On January 19, 2006, the Commission approved the proposed ILN
standards for the Nasdaq Market.\11\ However, on January 13, 2006, the
Commission also approved Nasdaq's registration as a national securities
exchange, and because of the timing of the two approvals, the ILN
standards were not included in the rule set that the Commission
approved for Nasdaq. The purpose of this filing is to update the Nasdaq
rules accordingly.
---------------------------------------------------------------------------
\11\ See NASD Rule 4420(m).
---------------------------------------------------------------------------
The proposed Nasdaq Rule 4420(m) is the same \12\ as the
corresponding NASD Rule 4420(m) for the Nasdaq Market and will be
administered in the same manner as the Nasdaq Market rule is being
administered currently. The proposed rule will become operative as soon
as Nasdaq begins its operations as an exchange.
---------------------------------------------------------------------------
\12\ This proposal includes two clarifications. First, it
removes a potential conflict between the provisions of Rules
4450(c)(1) and 4450(c)(4)(i) by clarifying that Rule 4450(c)(1) does
not apply to ILNs (and, therefore, the minimum aggregate market
value or the principal amount of the publicly held securities is
$400,000, as stated in Rule 4450(c)(4)(i)). Second, it clarifies in
the wording of Rule 4420(m)(9) that despite NASD's obligations
pursuant to a regulatory services agreement to surveil Nasdaq
trading, Nasdaq itself must enter into appropriate written
surveillance sharing agreements. See Nasdaq Rule 4420(n). The
Commission made minor clarifying changes to this footnote to conform
it with Amendment No. 1. Telephone conversation between Alex Kogan,
Associate General Counsel, Nasdaq, Florence E. Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, and
Rahman Harrison, Special Counsel, Division of Market Regulation,
Commission on July 17, 2006.
---------------------------------------------------------------------------
In transitioning to Nasdaq the ILNs that are listed on the Nasdaq
Market, Nasdaq will deem all such ILNs, without exception, as subject
to the continued listing standards in proposed Nasdaq Rules 4450(c)(3)
and (c)(4).\13\
---------------------------------------------------------------------------
\13\ The Commission deleted text from this paragraph pursuant to
authorization by Nasdaq staff. Telephone conversation between Alex
Kogan, Associate General Counsel, Nasdaq, Florence E. Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, and
Rahman Harrison, Special Counsel, Division of Market Regulation,
Commission on July 17, 2006.
---------------------------------------------------------------------------
Index Securities will be treated as equity instruments and will be
subject to all Nasdaq rules governing the trading of equity securities,
including trading halt rules. Index Securities will be subject to the
same fee schedule as Other Securities listed under Nasdaq Rule 4420(f).
The applicable fee schedule is currently codified as Nasdaq Rule 4530.
2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with the provisions of Section 6 of the Act,\14\ in general,
and with Section 6(b)(5) of the Act,\15\ 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change, as amended,
will result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change, as amended, were
neither solicited nor received.
III. 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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2006-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2006-002.
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
[[Page 42148]]
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. Copies of the filing also will
be available for inspection and copying at the principal office of the
Nasdaq. 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 Number SR-
NASDAQ-2006-002 and should be submitted on or before August 15, 2006.
IV. Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange.\16\ In particular, the Commission believes that
the proposed rule change is consistent with Section 6(b)(5) of the Act
\17\ in that it is designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and 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.
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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
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The Commission has previously approved the listing and trading of
several Index Securities based on a variety of debt structures and
market indexes.\18\ The Commission has also recently approved, pursuant
to Rule 19b-4(e) under the Act,\19\ generic listing standards for these
securities for the Nasdaq Market,\20\ that, in all material respects,
are identical to those listing standards proposed by Nasdaq.
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\18\ See Securities Exchange Act Release Nos. 41091 (Feb. 23,
1999), 64 FR 10515 (Mar. 4, 1999) (Narrow-Based Index Options);
42787 (May 15, 2000), 65 FR 33598 (May 24, 2000) (ETFs); and 43396
(Sept. 29, 2000), 65 FR 60230 (Oct. 10, 2000) (TIRs).
\19\ 17 CFR 240.19b-4(e).
\20\ See Securities Exchange Act Release No. 53142 (Jan. 19,
2006), 71 FR 4180 (Jan. 25, 2006).
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Consistent with its previous orders, the Commission believes that
generic listing standards proposed by Nasdaq for Index Securities
should fulfill the intended objective of Rule 19b-4(e) under the Act by
allowing those Index Securities that satisfy the generic listing
standards to commence trading without public comment and Commission
approval.\21\ This has the potential to reduce the time frame for
bringing Index Securities to market and thereby reduce the burdens on
issuers and other market participants and thus enhances investors'
opportunities.
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\21\ The Commission notes that the failure of a particular index
to comply with the proposed generic listing standards under Rule
19b-4(e) under the Act, however, would not preclude Nasdaq from
submitting a separate filing pursuant to Section 19(b)(2) of the
Act, requesting Commission approval to list and trade a particular
index-linked product.
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A. Trading of Index Securities
Taken together, the Commission finds that Nasdaq's proposal
contains adequate rules and procedures to govern the trading of Index
Securities listed pursuant to Rule 19b-4(e) on Nasdaq. All Index
Security products listed under the standards will be subject to the
full panoply of Nasdaq rules and procedures that now govern the trading
of Index Securities and the trading of equity securities on Nasdaq.
Nasdaq has proposed asset/equity requirements and tangible net
worth for each Index Security issuer, as well as minimum distribution,
principal/market value, and term thresholds for each issuance of Index
Securities. As set forth more fully above, Nasdaq's proposed listing
criteria include minimum market capitalization, monthly trading volume,
and relative weighting requirements for the Index Securities. These
requirements are designed to ensure that the trading markets for index
components underlying Index Securities are adequately capitalized and
sufficiently liquid, and that no one stock dominates the index. The
Commission believes that these requirements should minimize the
potential for of manipulation. The Commission also finds that the
requirement that each component security underlying an Index Security
be listed on a national securities exchange or traded through the
facilities of a national securities system and subject to last sale
reporting will contribute to the transparency of the market for Index
Securities. Alternatively, if the index component securities are
foreign securities that are not reporting companies, the generic
listing standards permit listing of an Index Security if the Commission
previously approved the underlying index for trading in connection with
another derivative product and if certain surveillance sharing
arrangements exist with foreign markets. The Commission believes that
if it has previously determined that such index and its components were
sufficiently transparent, then Nasdaq may rely on this finding,
provided it has comparable surveillance sharing arrangements with the
foreign market that the Commission relied on in approving the previous
product.
The Commission believes that by requiring pricing information for
both the relevant underlying index or indexes and the Index Security to
be readily available and disseminated, the proposed listing standards
should help ensure a fair and orderly market for Index Securities
approved pursuant to such proposed listing standards.
The Commission also believes that the requirement that at least 90
percent of the component securities, by weight, and 80 percent of the
total number of Underlying Securities, be eligible individually for
options trading will prevent an Index Security from being a vehicle for
trading options on a security not otherwise options eligible.
Nasdaq has also developed delisting criteria that will permit
Nasdaq to suspend trading of an Index Security in case of circumstances
that make further dealings in the product inadvisable. The Commission
believes that the delisting criteria will help ensure a minimum level
of liquidity exists for each Index Security to allow for the
maintenance of fair and orderly markets. Also, Nasdaq will commence
delisting proceedings in the event that the value of the underlying
index or index is no longer calculated and widely disseminated on at
least a 15-second basis.\22\
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\22\ In the case of the BuyWrite Index Securities, CBOE
disseminates a daily index value. Additionally, a daily indicative
value for the product is also disseminated.
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B. Surveillance
Nasdaq must have surveillance procedures to monitor trading in any
products listed under the generic listing standards. An Index Security,
just like an ETF, derives its value by reference to the underlying
index. For this reason, the Commission has required that markets that
list index based securities monitor the qualifications of not just the
actual security (e.g., the ETF, index option, or Index Securities), but
also of the underlying indexes (and of the index providers). In this
regard, the Commission believes that a surveillance
[[Page 42149]]
sharing agreement between a self-regulatory organization proposing to
list a stock index derivative product and the self-regulatory
organization trading the stocks underlying the derivative product is an
important measure for surveillance of the derivative and underlying
securities markets. When a new derivative securities product based upon
domestic securities is listed and traded on an exchange or national
securities association pursuant to Rule 19b-4(e) under the Act, the
self-regulatory organization should determine that the markets upon
which all of the U.S. component securities trade are members of the
Intermarket Surveillance Group (``ISG''), which provides information
relevant to the surveillance of the trading of securities on other
market centers.\23\ For derivative securities products based on
previously approved indexes that contain securities from one or more
foreign markets, the self-regulatory organization should have a
comprehensive Intermarket Surveillance Agreement, as prescribed in the
prior Commission order, which covers the securities underlying the new
securities product.\24\ With respect to indexes not previously approved
by the Commission, the Commission finds that Nasdaq's commitment to
implement comprehensive surveillance sharing agreements,\25\ as
necessary, and the definitive requirements that: (i) Each component
security shall be a registered reporting company under the Act; and
(ii) no more than 20 percent of the weight of the Underlying Index or
Underlying Indexes may be comprised of foreign country securities or
ADRs not subject to a comprehensive surveillance sharing agreement,\26\
will make possible adequate surveillance of trading of Index Securities
listed pursuant to the proposed generic listing standards.
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\23\ See Securities Exchange Act Release No. 40761 (Dec. 8,
1998), 63 FR 70952 (Dec. 22, 1998) (File No. S7-13-98). ISG was
formed on July 14, 1983, to, among other things, coordinate more
effectively surveillance and investigative information sharing
arrangements in the stock and options markets. The Commission notes
that all of the registered national securities exchanges, as well as
the NASD, are members of the ISG.
\24\ Id.
\25\ Proposed Nasdaq Rule 4420(m)(9).
\26\ Proposed Nasdaq Rules 4420(m)(7)(viii)-(ix).
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With regard to actual oversight, Nasdaq represents that its
surveillance procedures are sufficient to detect fraudulent trading
among members in the trading of Index Securities pursuant to the
proposed generic listing standards.
C. Acceleration
The Commission finds good cause for approving proposed rule change,
as amended, prior to the 30th day after the date of publication of
notice of filing thereof in the Federal Register. The proposal
implements generic listing standards substantially identical to those
already approved for the Nasdaq Market. The Commission does not believe
that Nasdaq's proposal raises any novel regulatory issues. The proposed
generic listing criteria should enable more expeditious review and
listing of Index Securities by Nasdaq, thereby reducing administrative
burdens and benefiting the investing public. Thus, the Commission finds
good cause to accelerate approval of the proposed rule change, as
amended.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\27\ that the proposed rule change (SR-NASDAQ-2006-002), as
amended, is hereby approved on an accelerated basis.
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\27\ 15 U.S.C. 78s(b)(2).
\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\28\
Nancy M. Morris,
Secretary.
[FR Doc. E6-11788 Filed 7-24-06; 8:45 am]
BILLING CODE 8010-01-P
