Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Amend Existing Rules for Portfolio Depository Receipts, Index Fund Shares, and Index-Linked Securities, 55533-55535 [06-8043]

Download as PDF Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices Section 6(b) of the Act,6 in general, and furthers the objectives of Section 6(b)(4) of the Act,7 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose 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 The Exchange neither solicited nor received comments on the proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 8 and Rule 19b–4(f)(2) 9 thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. 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: sroberts on PROD1PC70 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2006–76 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, U.S.C. 78f(b). U.S.C. 78f(b)(4). 8 15 U.S.C. 78s(b)(3)(A)(ii). 9 17 CFR 240.19b–4(f)(2). 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2006–76. 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 (http://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 also will be available for inspection and copying at the principal office of 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–2006–76 and should be submitted on or before October 13, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.10 Jill M. Peterson, Assistant Secretary. [FR Doc. 06–8037 Filed 9–21–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54459; File No. SR– NASDAQ–2006–035] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Amend Existing Rules for Portfolio Depository Receipts, Index Fund Shares, and Index-Linked Securities September 15, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 55533 notice is hereby given that on September 14, 2006, The NASDAQ Stock Market LLC (‘‘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 by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to approve the proposed rule change on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to amend its existing rules for portfolio depository receipts, index fund shares, and index-linked securities to provide that an eligible index may be calculated following a methodology weighting components based on one or more of the following: Sales, cash flow, book value, and dividends. The text of the proposed rule change is below. Proposed new language is italicized; there are no proposed deletions.3 * * * * * 4420. Quantitative Listing Criteria (a)–(h) No Change. (i) Portfolio Depository Receipts (1)–(2) No Change. (3)(A) No Change. (3)(B) Index Methodology and Calculation (i) The index underlying a series of Portfolio Depository Receipts will be calculated based on [either] the market capitalization, modified market capitalization, price, equal-dollar or modified equal-dollar weighting or a methodology weighting components of the index based on any, some or all of the following: Sales, cash flow, book value and dividends; (3)(B)(ii)–(iii) No Change. (3)(C)–(E) No Change. (4)–(7) No Change. (j) Index Fund Shares (1)–(2) No Change. (3)(A) No Change. (3)(B) Index Methodology and Calculation (i) The index underlying a series of Index Fund Shares will be calculated based on [either] the market capitalization, modified market capitalization, price, equal-dollar or modified equal-dollar weighting or a 6 15 7 15 VerDate Aug<31>2005 20:37 Sep 21, 2006 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Jkt 208001 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 3 Changes are marked to the rule text that appears in the electronic manual of Nasdaq found at http://www.complinet.com/nasdaq. E:\FR\FM\22SEN1.SGM 22SEN1 55534 Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices methodology weighting components of the index based on any, some or all of the following: Sales, cash flow, book value and dividends; (3)(B)(ii)–(iii) No Change. (3)(C)–(E) No Change. (4)–(7) No Change. (k)–(l) No Change. (m) Index-Linked Securities (1)–(6) No Change. (7) No Change. (7)(i)–(ii) No Change. (iii) Each index will be calculated based on a capitalization, modified capitalization, price, equal-dollar or modified equal-dollar weighting or a methodology weighting components of the index based on any, some or all of the following: Sales, cash flow, book value and dividends; (7)(iv)–(ix) No Change. (8)–(10) 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 III 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 sroberts on PROD1PC70 with NOTICES According to Nasdaq, the purpose of this proposed rule change is to amend Nasdaq’s existing generic listing standards pursuant to Rule 19b–4(e) of the Act 4 for portfolio depository receipts, index fund shares 5 and indexlinked securities to provide that an eligible index may be calculated following a methodology weighting components based on one or more of the following: Sales, cash flow, book value and dividends. This methodology is also referred to as the fundamentals weighting methodology. Nasdaq currently has generic listing standards (within the meaning of Rule CFR 240.19b–4(e). depository receipts and index fund shares are registered investment companies under the Investment Company Act of 1940 and are referred to in this filing as exchange traded funds (‘‘ETFs’’). 19b–4(e) of the Act 6), which permit the listing and trading of various qualifying ETFs and index linked notes (‘‘ILNs’’) subject to the procedures contained in Rule 19b–4(e). The existence of a generic listing standard allows qualifying ETFs and ILNs to list or trade without the need to file a rule change for each security under Rule 19b–4 of the Act.7 By amending its generic listing standards pursuant to Rule 19b–4(e), Nasdaq intends to reduce the time frame for listing portfolio depository receipts, index fund shares and index-linked securities that rely on an index utilizing a fundamentals weighting methodology and thereby reduce the burdens on issuers and other market participants. The current rules already provide that eligible indexes may be calculated based on either the market capitalization, modified market capitalization, price, equal-dollar or modified equal-dollar weighting methodology. The proposed rule change will specify one additional methodology. The fundamentals weighting methodology allows the weighting of the individual components of the index based on any, some or all of the following: sales, cash flow, book value, and dividends.8 ‘‘Sales’’ refers to the total of reported operating revenues less various adjustments to gross sales, such as returns, discounts, allowances, excise taxes, insurance charges, sales taxes, and value added taxes. In calculating the sales value, an index provider may opt to average the company’s applicable figures for several prior years (e.g., five prior years as reflected in the company’s Annual Report on Form 10–K). ‘‘Cash Flow’’ refers to operating income plus depreciation. For example, a manufacturer typically reports its operating income as its net sales plus other operating income minus the cost of goods sold and selling, general and administrative expenses. Depreciation expense for a manufacturer typically includes the depreciation that is directly related to or associated with tangible fixed assets and includes amortization of fixed assets that are part of plant, property and equipment, such as leased assets, leasehold improvements, and internal use software. For example, for a manufacturer depreciation expense excludes amortization of intangible assets. For banks, financial companies, and REITs, operating income refers to their total operating revenue minus total operating expenses. For REITs, 4 17 5 Portfolio VerDate Aug<31>2005 20:37 Sep 21, 2006 Jkt 208001 6 17 CFR 240.19b–4(e). CFR 240.19b–4. 8 In each instance, the index methodology will set forth the means of calculating sales, cash flow, book value, and dividends. depreciation expense includes depreciation relating to real estate property and includes corporate fixed asset depreciation if not separated from property depreciation. In calculating cash flow, an index provider may opt to average the company’s applicable figures for several prior years (e.g., five prior years as reflected in the company’s Annual Report on Form 10–K). ‘‘Book Value’’ refers to a company’s book value at the index review date. In accordance with accounting principles, book value generally means total common equity, which is derived from adding share capital and additional paid-in capital to retained earnings. In calculating book value, an index provider may opt to average the company’s applicable figures for several prior years (e.g., five prior years as reflected in the company’s Annual Report on Form 10–K). ‘‘Dividends’’ refers to total dividend distributions, including both special and regular dividends paid in cash. Generally, the total dividend amount that is declared to all classes of common shareholders includes regular cash, as well as special cash dividends, and excludes returns of capital and in-specie dividends. In calculating dividends, an index provider may opt to average the company’s applicable figures for several prior years (e.g., five prior years as reflected in the company’s Annual Report on Form 10–K). Nasdaq believes that the fundamentals weighting methodology is a transparent methodology that provides investors with an alternative to capitalization weighted index methodologies. Nasdaq believes that by amending its generic listing standards to provide for this new index calculation methodology, it is providing investors with more investment choices and thereby increasing competition in the marketplace. Nasdaq notes that products based on indexes using this methodology are already subject to the other requirements of the generic listing standards pursuant to Rule 19b–4(e).9 Therefore, Nasdaq requests accelerated approval in order to avoid unnecessary delay in the listing of otherwise eligible securities linked to fundamentals weighted indexes. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,10 in general and with Section 6(b)(5) of the Act,11 in particular, in that it is designed 7 17 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 9 17 CFR 240.19b–4(e). U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(5). 10 15 E:\FR\FM\22SEN1.SGM 22SEN1 Federal Register / Vol. 71, No. 184 / Friday, September 22, 2006 / Notices 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. Nasdaq believes that the proposed rule change should facilitate the listing and trading of portfolio depository receipts, index fund shares, and index-linked securities that rely on an index utilizing a fundamentals weighting methodology and should thereby reduce the burdens on issuers and other market participants. 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. 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 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–2006–035 and should be submitted on or before October 13, 2006. IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national III. Solicitation of Comments securities exchange.12 In particular, the Interested persons are invited to Commission finds that the proposed submit written data, views and rule change is consistent with Section arguments concerning the foregoing, 6(b)(5) of the Act,13 which requires, including whether the proposed rule among other things, that the rules of a change is consistent with the Act. national securities exchange be Comments may be submitted by any of designed to prevent fraudulent and the following methods: manipulative acts and practices, to promote just and equitable principles of Electronic Comments trade, to remove impediments to and • Use the Commission’s Internet perfect the mechanism for a free and comment form (http://www.sec.gov/ open market and a national market rules/sro.shtml); or system, and, in general, to protect • Send an e-mail to ruleinvestors and the public interest. comments@sec.gov. Please include File The proposed rule change amends Number SR–NASDAQ–2006–035 on the Nasdaq’s existing generic listing subject line. standards pursuant to Rule 19b–4(e) 14 Paper Comments for portfolio depository receipts, index fund shares, and index-linked securities • Send paper comments in triplicate to provide that an eligible index may be to Nancy M. Morris, Secretary, calculated following the ‘‘fundamentals Securities and Exchange Commission, weighting’’ or ‘‘fundamental index’’ 100 F Street, NE., Washington, DC methodology. This index calculation 20549–1090. methodology weights components based All submissions should refer to File on one or more of the following: sales, Number SR–NASDAQ–2006–035. This cash flow, book value, and dividends.15 file number should be included on the Including this index calculation subject line if e-mail is used. To help the methodology in Nasdaq’s generic listing Commission process and review your comments more efficiently, please use 12 In approving this rule change, the Commission only one method. The Commission will notes that it has considered the proposed rule’s post all comments on the Commission’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). Internet Web site (http://www.sec.gov/ 13 15 U.S.C. 78f(b)(5). rules/sro.shtml.) Copies of the 14 17 CFR 240.19b–4(e). submission, all subsequent 15 According to Nasdaq, in each instance, the amendments, all written statements index methodology will set forth the means of with respect to the proposed rule calculating sales, cash flow, book value, and dividends and thus will be transparent. change that are filed with the sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 20:37 Sep 21, 2006 Jkt 208001 PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 55535 standards will provide investors with more investment choices by offering an alternative to the other index methodologies, such as capitalizationweighted ones. The Commission notes that the indexes that would be based on the fundamentals weighting methodology will already be subject to the requirements of the generic listing standards pursuant to Rule 19b-4(e) of the Act,16 including trading volume and liquidity requirements. In addition, by amending its generic listing standards pursuant to Rule 19b–4(e) of the Act,17 Nasdaq should reduce the time frame for listing portfolio depository receipts, index fund shares, and index-linked securities that rely on an index utilizing a fundamentals weighting methodology. The proposed rule change should therefore facilitate the listing and trading of such securities and thereby reduce the burdens on issuers and other market participants. The Exchange has requested accelerated approval of the proposed rule change. The Commission finds good cause for approving the proposed rule change prior to the 30th day after the date of publication of the notice of filing in the Federal Register. The Commission believes the proposed rule change should provide investors with an alternative to the current index calculation methodologies. In addition, the proposed rule change should reduce the burden on issuers and market participants to list and trade portfolio depository receipts, index fund shares, and index-linked securities based on the fundamentals weighting methodology. Therefore, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,18 to approve the proposed rule change on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,19 that the proposed rule change (SR–NASDAQ– 2006–035) is approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.20 Jill M. Peterson, Assistant Secretary. [FR Doc. 06–8043 Filed 9–21–06; 8:45 am] BILLING CODE 8010–01–P 16 17 CFR 240.19b–4(e). 17 Id. 18 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 20 17 CFR 200.30–3(a)(12). 19 15 E:\FR\FM\22SEN1.SGM 22SEN1

Agencies

[Federal Register Volume 71, Number 184 (Friday, September 22, 2006)]
[Notices]
[Pages 55533-55535]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8043]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54459; File No. SR-NASDAQ-2006-035]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Amend Existing Rules for Portfolio Depository Receipts, 
Index Fund Shares, and Index-Linked Securities

September 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 September 14, 2006, The NASDAQ Stock Market LLC (``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 by Nasdaq. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons and to approve the proposed rule change on an accelerated 
basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend its existing rules for portfolio 
depository receipts, index fund shares, and index-linked securities to 
provide that an eligible index may be calculated following a 
methodology weighting components based on one or more of the following: 
Sales, cash flow, book value, and dividends.
    The text of the proposed rule change is below. Proposed new 
language is italicized; there are no proposed deletions.\3\
---------------------------------------------------------------------------

    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://www.complinet.com/
nasdaq.
---------------------------------------------------------------------------

* * * * *
4420. Quantitative Listing Criteria
    (a)-(h) No Change.
(i) Portfolio Depository Receipts
    (1)-(2) No Change.
    (3)(A) No Change.
    (3)(B) Index Methodology and Calculation
    (i) The index underlying a series of Portfolio Depository Receipts 
will be calculated based on [either] the market capitalization, 
modified market capitalization, price, equal-dollar or modified equal-
dollar weighting or a methodology weighting components of the index 
based on any, some or all of the following: Sales, cash flow, book 
value and dividends;
    (3)(B)(ii)-(iii) No Change.
    (3)(C)-(E) No Change.
    (4)-(7) No Change.
(j) Index Fund Shares
    (1)-(2) No Change.
    (3)(A) No Change.
    (3)(B) Index Methodology and Calculation
    (i) The index underlying a series of Index Fund Shares will be 
calculated based on [either] the market capitalization, modified market 
capitalization, price, equal-dollar or modified equal-dollar weighting 
or a

[[Page 55534]]

methodology weighting components of the index based on any, some or all 
of the following: Sales, cash flow, book value and dividends;
    (3)(B)(ii)-(iii) No Change.
    (3)(C)-(E) No Change.
    (4)-(7) No Change.
    (k)-(l) No Change.
(m) Index-Linked Securities
    (1)-(6) No Change.
    (7) No Change.
    (7)(i)-(ii) No Change.
    (iii) Each index will be calculated based on a capitalization, 
modified capitalization, price, equal-dollar or modified equal-dollar 
weighting or a methodology weighting components of the index based on 
any, some or all of the following: Sales, cash flow, book value and 
dividends;
    (7)(iv)-(ix) No Change.
    (8)-(10) 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 III 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
    According to Nasdaq, the purpose of this proposed rule change is to 
amend Nasdaq's existing generic listing standards pursuant to Rule 19b-
4(e) of the Act \4\ for portfolio depository receipts, index fund 
shares \5\ and index-linked securities to provide that an eligible 
index may be calculated following a methodology weighting components 
based on one or more of the following: Sales, cash flow, book value and 
dividends. This methodology is also referred to as the fundamentals 
weighting methodology.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.19b-4(e).
    \5\ Portfolio depository receipts and index fund shares are 
registered investment companies under the Investment Company Act of 
1940 and are referred to in this filing as exchange traded funds 
(``ETFs'').
---------------------------------------------------------------------------

    Nasdaq currently has generic listing standards (within the meaning 
of Rule 19b-4(e) of the Act \6\), which permit the listing and trading 
of various qualifying ETFs and index linked notes (``ILNs'') subject to 
the procedures contained in Rule 19b-4(e). The existence of a generic 
listing standard allows qualifying ETFs and ILNs to list or trade 
without the need to file a rule change for each security under Rule 
19b-4 of the Act.\7\ By amending its generic listing standards pursuant 
to Rule 19b-4(e), Nasdaq intends to reduce the time frame for listing 
portfolio depository receipts, index fund shares and index-linked 
securities that rely on an index utilizing a fundamentals weighting 
methodology and thereby reduce the burdens on issuers and other market 
participants.
---------------------------------------------------------------------------

    \6\ 17 CFR 240.19b-4(e).
    \7\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The current rules already provide that eligible indexes may be 
calculated based on either the market capitalization, modified market 
capitalization, price, equal-dollar or modified equal-dollar weighting 
methodology. The proposed rule change will specify one additional 
methodology. The fundamentals weighting methodology allows the 
weighting of the individual components of the index based on any, some 
or all of the following: sales, cash flow, book value, and 
dividends.\8\
---------------------------------------------------------------------------

    \8\ In each instance, the index methodology will set forth the 
means of calculating sales, cash flow, book value, and dividends.
---------------------------------------------------------------------------

    ``Sales'' refers to the total of reported operating revenues less 
various adjustments to gross sales, such as returns, discounts, 
allowances, excise taxes, insurance charges, sales taxes, and value 
added taxes. In calculating the sales value, an index provider may opt 
to average the company's applicable figures for several prior years 
(e.g., five prior years as reflected in the company's Annual Report on 
Form 10-K).
    ``Cash Flow'' refers to operating income plus depreciation. For 
example, a manufacturer typically reports its operating income as its 
net sales plus other operating income minus the cost of goods sold and 
selling, general and administrative expenses. Depreciation expense for 
a manufacturer typically includes the depreciation that is directly 
related to or associated with tangible fixed assets and includes 
amortization of fixed assets that are part of plant, property and 
equipment, such as leased assets, leasehold improvements, and internal 
use software. For example, for a manufacturer depreciation expense 
excludes amortization of intangible assets. For banks, financial 
companies, and REITs, operating income refers to their total operating 
revenue minus total operating expenses. For REITs, depreciation expense 
includes depreciation relating to real estate property and includes 
corporate fixed asset depreciation if not separated from property 
depreciation. In calculating cash flow, an index provider may opt to 
average the company's applicable figures for several prior years (e.g., 
five prior years as reflected in the company's Annual Report on Form 
10-K).
    ``Book Value'' refers to a company's book value at the index review 
date. In accordance with accounting principles, book value generally 
means total common equity, which is derived from adding share capital 
and additional paid-in capital to retained earnings. In calculating 
book value, an index provider may opt to average the company's 
applicable figures for several prior years (e.g., five prior years as 
reflected in the company's Annual Report on Form 10-K).
    ``Dividends'' refers to total dividend distributions, including 
both special and regular dividends paid in cash. Generally, the total 
dividend amount that is declared to all classes of common shareholders 
includes regular cash, as well as special cash dividends, and excludes 
returns of capital and in-specie dividends. In calculating dividends, 
an index provider may opt to average the company's applicable figures 
for several prior years (e.g., five prior years as reflected in the 
company's Annual Report on Form 10-K).
    Nasdaq believes that the fundamentals weighting methodology is a 
transparent methodology that provides investors with an alternative to 
capitalization weighted index methodologies. Nasdaq believes that by 
amending its generic listing standards to provide for this new index 
calculation methodology, it is providing investors with more investment 
choices and thereby increasing competition in the marketplace. Nasdaq 
notes that products based on indexes using this methodology are already 
subject to the other requirements of the generic listing standards 
pursuant to Rule 19b-4(e).\9\ Therefore, Nasdaq requests accelerated 
approval in order to avoid unnecessary delay in the listing of 
otherwise eligible securities linked to fundamentals weighted indexes.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\10\ in general and with Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed

[[Page 55535]]

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. Nasdaq believes that the 
proposed rule change should facilitate the listing and trading of 
portfolio depository receipts, index fund shares, and index-linked 
securities that rely on an index utilizing a fundamentals weighting 
methodology and should thereby reduce the burdens on issuers and other 
market participants.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 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 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 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2006-035 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-2006-035. 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 (http://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 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-2006-035 and should be submitted on or before 
October 13, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\13\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism for a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \12\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change amends Nasdaq's existing generic listing 
standards pursuant to Rule 19b-4(e) \14\ for portfolio depository 
receipts, index fund shares, and index-linked securities to provide 
that an eligible index may be calculated following the ``fundamentals 
weighting'' or ``fundamental index'' methodology. This index 
calculation methodology weights components based on one or more of the 
following: sales, cash flow, book value, and dividends.\15\
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    \14\ 17 CFR 240.19b-4(e).
    \15\ According to Nasdaq, in each instance, the index 
methodology will set forth the means of calculating sales, cash 
flow, book value, and dividends and thus will be transparent.
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    Including this index calculation methodology in Nasdaq's generic 
listing standards will provide investors with more investment choices 
by offering an alternative to the other index methodologies, such as 
capitalization-weighted ones. The Commission notes that the indexes 
that would be based on the fundamentals weighting methodology will 
already be subject to the requirements of the generic listing standards 
pursuant to Rule 19b-4(e) of the Act,\16\ including trading volume and 
liquidity requirements. In addition, by amending its generic listing 
standards pursuant to Rule 19b-4(e) of the Act,\17\ Nasdaq should 
reduce the time frame for listing portfolio depository receipts, index 
fund shares, and index-linked securities that rely on an index 
utilizing a fundamentals weighting methodology. The proposed rule 
change should therefore facilitate the listing and trading of such 
securities and thereby reduce the burdens on issuers and other market 
participants.
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    \16\ 17 CFR 240.19b-4(e).
    \17\ Id.
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    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause for approving the proposed 
rule change prior to the 30th day after the date of publication of the 
notice of filing in the Federal Register. The Commission believes the 
proposed rule change should provide investors with an alternative to 
the current index calculation methodologies. In addition, the proposed 
rule change should reduce the burden on issuers and market participants 
to list and trade portfolio depository receipts, index fund shares, and 
index-linked securities based on the fundamentals weighting 
methodology. Therefore, the Commission finds good cause, consistent 
with Section 19(b)(2) of the Act,\18\ to approve the proposed rule 
change on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NASDAQ-2006-035) is approved 
on an accelerated basis.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06-8043 Filed 9-21-06; 8:45 am]
BILLING CODE 8010-01-P