Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the Trading of 16 Commodity-Related Securities Pursuant to Unlisted Trading Privileges on a Pilot Basis, 10801-10805 [E7-4193]

Download as PDF Federal Register / Vol. 72, No. 46 / Friday, March 9, 2007 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–4192 Filed 3–8–07; 8:45 am] 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. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55386; File No. SR– NASDAQ–2007–016] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the Trading of 16 Commodity-Related Securities Pursuant to Unlisted Trading Privileges on a Pilot Basis March 2, 2007. 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 1, 2007, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. This order provides notice of the proposed rule change and approves 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 amend Rule 4630 to govern trading in any CommodityRelated Security (as defined below) and to make conforming amendments to Rule 4120. Pursuant to the amended rule and in accordance with the terms and conditions specified in this filing, Nasdaq also proposes to trade, pursuant to unlisted trading privileges, the 16 Commodity-Related Securities described below. The text of the proposed rule change is available from Nasdaq’s Web site at http://nasdaq.complinet.com, at Nasdaq’s principal office, and at the Commission’s Public Reference Room. jlentini on PROD1PC65 with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Aug<31>2005 21:24 Mar 08, 2007 Jkt 211001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Nasdaq is proposing to trade the following securities pursuant to UTP for a pilot period of three months beginning on March 5, 2007: (1) Shares of the PowerShares DB Commodity Index Tracking Fund, (2) shares of the PowerShares DB G10 Currency Harvest Fund, (3) shares of the PowerShares DB Agricultural Fund, (4) shares of the PowerShares DB Oil Fund, (5) shares of the PowerShares DB Base Metals Fund, (6) shares of the PowerShares DB Energy Fund, (7) shares of the PowerShares DB Silver Fund, (8) shares of the PowerShares DB Gold Fund, (9) shares of the PowerShares DB Precious Metals Fund, (10) iPath Dow Jones-AIG Commodity Index Total Return Exchange-Traded Notes, (11) iPath GSCI Total Return Index Exchange-Traded Notes, (12) iPath Goldman Sachs Crude Oil Total Return Index Exchange-Traded Notes, (13) shares of the iShares GSCI Commodity-Indexed Trust, (14) units of the United States Oil Fund, LP, (15) Claymore MACROShares Oil Up Tradeable Shares, and (16) Claymore MACROShares Oil Down Tradeable Shares (collectively, the ‘‘Covered Securities’’). The Commission previously approved the original listing and trading of each of the Covered Securities by the New York Stock Exchange (‘‘NYSE’’) or the American Stock Exchange (‘‘Amex’’).3 Since the 3 Securities Exchange Act Release No. 53105 (January 11, 2006), 71 FR 3129 (January 19, 2006) (SR–Amex–2005–059) (PowerShares DB Commodity Index Tracking Fund); Securities Exchange Act Release No. 54351 (August 23, 2006), 71 FR 51245 (August 29, 2006) (SR–Amex–2006– 44) (PowerShares DB G10 Currency Harvest Fund); Securities Exchange Act Release No. 55029 (December 29, 2006), 72 FR 806 (January 8, 2007) (SR–Amex–2006–76) (seven PowerShares DB commodity funds); Securities Exchange Act Release No. 53876 (May 25, 2006), 71 FR 32158 (June 2, 2006) (SR–NYSE–2006–16) (iPath Dow-Jones AIG Commodity Index Total Return Exchange-Traded Notes); Securities Exchange Act Release No. 53849 (May 22, 2006), 71 FR 30706 (May 30, 2006) (SR– NYSE–2006–20) (iPath GSCI Total Return Index Exchange-Traded Notes); Securities Exchange Act Release No. 54177 (July 19, 2006), 71 FR 42700 (July 27, 2006) (SR–NYSE–2006–19) (iPath PO 00000 Frm 00172 Fmt 4703 Sfmt 4703 10801 time of their listing on NYSE or Amex, the Covered Securities have traded on an over-the-counter (‘‘OTC’’) basis on systems operated as facilities of NASD by Nasdaq and its affiliates. Specifically, the products are currently traded on the ITS/CAES System, which Nasdaq operates for NASD pursuant to a Transitional System and Regulatory Services Agreement (the ‘‘Transitional Agreement’’). Under Rule 602 of Regulation NMS (the ‘‘Quote Rule’’),4 NASD is required to collect the best bid, best offer, and quotation sizes communicated otherwise than on an exchange by each NASD member acting in the capacity of an ‘‘OTC market maker’’ for any ‘‘NMS stock,’’ 5 unless the executed volume of such member, during the most recent calendar quarter, comprised one percent or less of the aggregate trading volume for such security (the ‘‘1% Rule’’).6 Nasdaq has operated ITS/CAES under the Transitional Agreement in order to allow NASD to fulfill its Quote Rule obligation to provide a quotation facility for non-Nasdaq exchange-listed securities (‘‘CQS Securities’’). On March 5, 2007, NASD expects to begin to fulfill its obligation to provide a quotation facility for CQS Securities without Nasdaq’s assistance through its Alternative Display Facility (the ‘‘ADF’’).7 Also at that time, Nasdaq expects to stop operating the ITS/CAES System. On July 28, 2006, the Commission granted NASD a limited exemption 8 Goldman Sachs Crude Oil Total Return Index Exchange-Traded Notes); Securities Exchange Act Release No. 54013 (June 16, 2006), 71 FR 36372 (June 26, 2006) (SR–NYSE–2006–17) (iShares GSCI Commodity-Indexed Trust); Securities Exchange Act Release No. 53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR–Amex–2005–127) (United States Oil Fund, LP); Securities Exchange Act Release No. 54839 (November 29, 2006), 71 FR 70804 (December 6, 2006) (SR–Amex–2006–82) (MACROShares Oil Up and Oil Down Tradeable Shares). 4 17 CFR 242.602. 5 ‘‘OTC market maker’’ means any dealer that holds itself out as being willing to buy from and sell to its customers, or others, in the United States, an NMS stock for its own account on a regular or continuous basis otherwise than on a national securities exchange in amounts of less than block size. See 17 CFR 242.600(b)(52). ‘‘NMS stock’’ means any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan. See 17 CFR 242.600(b)(47). 6 OTC market makers that are not subject to the 1% Rule may nevertheless elect to communicate quotations in exchange-listed securities to NASD, in which case NASD must disseminate such quotations. 7 NASD already uses the ADF to fulfill its obligations under the Quote Rule with respect to Nasdaq-listed securities. 8 See Letter from Robert L.D. Colby, Acting Director, Division of Market Regulation, E:\FR\FM\09MRN1.SGM Continued 09MRN1 10802 Federal Register / Vol. 72, No. 46 / Friday, March 9, 2007 / Notices jlentini on PROD1PC65 with NOTICES from the Quote Rule and granted OTC market makers a limited exemption from the 1% Rule by providing that an OTC market maker is not required to provide quotations to NASD, and NASD is not required to collect and disseminate such quotations, if the OTC market maker provides its quotations to a national securities exchange that in turn disseminates the quotations of each such OTC market maker, even if such quotations do not reflect the exchange’s best bid and offer. Thus, because Nasdaq disseminates depth-of-book information reflecting the quotations of each of its market makers, an OTC market maker may satisfy its 1% Rule obligations by quoting on Nasdaq. The Covered Securities have been eligible to trade on ITS/CAES because the Quote Rule requires NASD, as a national securities association, to provide a means for its members to post quotes for all NMS stocks. As an exchange, however, Nasdaq may not trade securities on a UTP basis unless Nasdaq ‘‘has in effect a rule or rules providing for transactions in the class or type of security to which the exchange extends unlisted trading privileges,’’ 9 and, in the case of ‘‘new derivatives securities products’’ within the meaning of SEC Rule 19b–4(e),10 it either has generic listing standards applicable to the product in question or receives Commission approval for a rule filing under Section 19 of the Act 11 to allow trading of the product. The Covered Securities are new derivative securities products for which Nasdaq does not have generic listing standards, and therefore Nasdaq must obtain Commission approval of a filing before trading them as an exchange. It had been Nasdaq’s expectation that it would not trade all of the Covered Securities as of March 5, 2007, in light of low trading volumes of some of the Covered Securities and the administrative requirements associated with product-specific filings. Based on input from its members and NASD, however, Nasdaq has concluded that there are OTC market makers in each of the Covered Securities that may be subject to the 1% Rule, based on recent trading volumes. Moreover, although the ADF is scheduled to become Commission, to T. Grant Callery, Executive Vice President and General Counsel, NASD (July 28, 2006). 9 17 CFR 240.12f–5. 10 ‘‘New Derivative Security Product’’ is defined as any type of option, warrant, hybrid securities product, or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest in, an underlying instrument. See 17 CFR 240.19b–4(e). 11 15 U.S.C. 78s. VerDate Aug<31>2005 21:24 Mar 08, 2007 Jkt 211001 operational for CQS Securities on March 5, 2007, an NASD member that is not already an ADF participant might not have sufficient time to move its quotations in the Covered Securities to the ADF by March 5. Accordingly, Nasdaq believes that it must begin trading the Covered Securities by March 5 in order to prevent disruptions in the markets for the Covered Securities and forestall regulatory compliance issues for OTC market makers subject to the 1% Rule in the Covered Securities. It does not appear that there would be sufficient time between now and March 5 for Nasdaq and Commission staff to process a detailed filing regarding each of the Covered Securities. Moreover, in cases where Covered Securities are issued by pooled investment vehicles that invest in commodity futures that are traded on futures exchanges that are not members of the Intermarket Surveillance Group (‘‘ISG’’), securities exchanges trading the Covered Securities have entered into regulatory information-sharing agreements with such futures exchanges. At this time, Nasdaq is in the process of entering into such agreements with ICE Futures and the Kansas Board of Trade, and is in the process of amending its existing agreement with the New York Mercantile Exchange (‘‘NYMEX’’) to cover additional commodities. Nasdaq has just completed an agreement with the London Metals Exchange, and expects to complete the remaining agreements in the near future, but not by March 5, 2007. In light of all of these considerations, Nasdaq is seeking Commission approval for a proposal to trade the Covered Securities for a three-month pilot period. During the pilot period, Nasdaq will complete all required regulatory information sharing agreements and will submit detailed product-specific filings covering each of the Covered Securities. Nasdaq deems the Covered Securities to be equity securities, thus rendering trading in the Covered Securities subject to its existing rules governing the trading of equity securities. During the period while a Covered Security is trading under this pilot filing, its trading hours will be 9:30 a.m. to 4 p.m., Eastern Time (‘‘ET’’). Nasdaq may, however, propose longer trading hours for some of the Covered Securities in a subsequent product-specific filing, depending on the extent of dissemination of intraday values and index values related to the Covered Security. Nasdaq will halt trading in a Covered Security under the conditions specified in Nasdaq Rules 4120 and 4121. The conditions for a halt include a PO 00000 Frm 00173 Fmt 4703 Sfmt 4703 regulatory halt by the listing market. UTP trading in the Covered Securities will also be governed by provisions of Nasdaq Rule 4120(b) relating to temporary interruptions in the calculation or wide dissemination of (i) the Intraday Indicative Value, Intraday Optimized Portfolio Value, or other comparable intraday valuation for a Covered Security; or (ii) the value of any index or any commodity-related value underlying a Covered Security.12 Additionally, Nasdaq may cease trading a Covered Security if other unusual conditions or circumstances exist which, in the opinion of Nasdaq, make further dealings on Nasdaq detrimental to the maintenance of a fair and orderly market. Nasdaq will also follow any procedures with respect to trading halts as set forth in Nasdaq Rule 4120(c). Finally, Nasdaq will stop trading a Covered Security if the listing market delists it. Nasdaq believes that its surveillance procedures are adequate to address any concerns about the trading of the Covered Securities on Nasdaq. Trading of the Covered Securities through ITS/ CAES is currently subject to NASD’s surveillance procedures for equity securities in general and ETFs in particular. After Nasdaq begins to trade the Covered Securities as an exchange, NASD, on behalf of Nasdaq, will continue to surveil Nasdaq trading, including Nasdaq trading of the Covered Securities. Nasdaq’s transition to exchange status will not result in any change in the surveillance process with respect to the Covered Securities.13 Nasdaq is able to obtain information regarding trading in the Covered Securities and the underlying futures through its members in connection with the proprietary or customer trades that such members effect on any relevant market. In addition, Nasdaq may obtain trading information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges who are members or affiliates of the ISG, including the Chicago Board 12 Nasdaq is amending Rule 4120 to make it applicable to any Commodity-Related Security (as defined below) and to include the term ‘‘commodity-related value’’ in the definition of a Required Value that must be disseminated under the conditions described in the rule. Thus, for example, the term ‘‘commodity-related value’’ would include the price of crude oil futures contracts on which the United States Oil Fund is based. 13 Surveillance of all trading on NASD facilities operated by Nasdaq, including the trading of the Covered Securities, is currently being conducted by NASD. After Nasdaq begins to trade the Covered Securities as an exchange, NASD will continue to surveil trading pursuant to a regulatory services agreement. Nasdaq is responsible for NASD’s performance under this regulatory services agreement. E:\FR\FM\09MRN1.SGM 09MRN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 72, No. 46 / Friday, March 9, 2007 / Notices of Trade. In addition, Nasdaq has a regulatory information sharing agreement with NYMEX covering gold and silver futures, and is in the process of amending the agreement to cover crude oil, heating oil, natural gas, copper, and unleaded gasoline. Nasdaq has also just entered into a regulatory sharing agreement with the London Metals Exchange related to aluminum, copper, lead, nickel, tin, and zinc. Nasdaq is also in the process of entering into information-sharing agreements with ICE Futures related to crude oil and gas oil, and with the Kansas Board of Trade related to wheat. Nasdaq will inform its members in Information Circulars of the special characteristics and risks associated with trading the Covered Securities. Specifically, the Information Circulars will discuss the following: (a) Applicable procedures for purchases and redemptions of Covered Securities; (b) Nasdaq Rule 2310, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in Covered Securities to customers; (c) how information regarding applicable intraday values is disseminated; (d) prospectus delivery requirements; and (e) trading information. In addition, the Information Circulars will reference that the Covered Securities are subject to various fees and expenses described in their applicable Registration Statements. The Information Circulars will also reference the fact that there is no regulated source of last-sale information regarding physical commodities, and that the Commission has no jurisdiction over the trading of physical commodities such as aluminum, gold, crude oil, heating oil, corn, and wheat, or the futures contracts on which the value of the certain Covered Securities are based. The Information Circulars will describe the public availability of information about the Covered Securities and underlying indexes or prices. The Information Circular will also discuss any relief granted by the Commission or the staff from any rules under the Act. In November 2006, the Commission approved Nasdaq Rule 4630 to govern the trading of Commodity-Based Trust Shares.14 Commodity-Based Trust Shares were defined as trust-issued receipts based on the value of an underlying commodity or index of commodities held by a trust. Nasdaq is now proposing to amend the rule to make it apply broadly to trading in any 14 Securities Exchange Act Release No. 54765 (November 16, 2006), 71 FR 67668 (November 22, 2006) (SR–NASDAQ–2006–009). VerDate Aug<31>2005 21:24 Mar 08, 2007 Jkt 211001 security issued by any trust, partnership, commodity pool or similar entity that invests, directly or through another entity, in any combination of commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives, or the value of which is determined by the value of commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives (a ‘‘Commodity-Related Security’’).15 All of the Covered Securities under this filing are Commodity-Related Securities and therefore governed by the amended rule. Under the amended rule: • A member acting as a registered market maker in a Commodity-Related Security will be obligated to establish adequate information barriers when such market maker engages in interdepartmental communications. For purposes of a Commodity-Related Security, ‘‘inter-departmental communications’’ are defined to include communications to other departments within the same firm or the firm’s affiliates that involve trading in commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives underlying such Commodity-Related Security. • A member acting as a registered market maker in a Commodity-Related Security must file with Nasdaq Regulation in a manner prescribed by Nasdaq Regulation and keep current a list identifying all accounts for trading in commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives underlying such Commodity-Related Security, that the market maker may have or over which it may exercise investment discretion. • A member acting as a registered market maker in a Commodity-Related Security shall make available to Nasdaq Regulation such books, records, or other information pertaining to transactions by such entity or registered or nonregistered employee affiliated with such entity for its or their own accounts for trading commodities, futures contracts, options on futures contracts, forward 15 The amended rule is thus intended to apply to instruments that have been defined as ‘‘investment shares,’’ ‘‘commodity-based trust shares,’’ ‘‘currency trust shares,’’ ‘‘commodity index trust shares,’’ or ‘‘partnership units’’ under the rules of Amex and NYSE Arca. The amended rule is also intended to apply to securities that have been defined as ‘‘paired trust shares’’ under such rules, with a reference price that is related to commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives. PO 00000 Frm 00174 Fmt 4703 Sfmt 4703 10803 contracts, commodity swaps, or other related derivatives underlying such Commodity-Related Security, as may be requested by Nasdaq Regulation. • In connection with trading a Commodity-Related Security or commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives underlying a CommodityRelated Security, the member acting as a market maker in a Commodity-Related Security shall not use any material nonpublic information received from any person associated with the member or employee of such person regarding trading by such person or employee in the commodities, futures contracts, options on futures contracts, forward contracts, commodity swaps, or other related derivatives underlying such Commodity-Related Security. The amended rule also requires members to provide a prospectus to all purchasers of a newly issued Commodity-Related Security. Finally, the amended rule stipulates that Nasdaq will file proposals under Section 19(b) of the Act before trading separate and distinct Commodity-Based Securities designated on different underlying commodity-related investments, and that the proposal filed with respect to particular Commodity-Related Security will specify the applicable trading hours for such Commodity-Related Security. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act 16 in general and Section 6(b)(5) of the Act 17 in particular, in that 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. In addition, Nasdaq believes that the proposal is consistent with Rule 12f–5 under the Act 18 because it deems the Covered Securities to be an equity securities, thus rendering trading in the Covered Securities subject to Nasdaq’s existing rules governing the trading of equity securities. 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 16 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 18 17 CFR 240.12f–5. 17 15 E:\FR\FM\09MRN1.SGM 09MRN1 10804 Federal Register / Vol. 72, No. 46 / Friday, March 9, 2007 / Notices jlentini on PROD1PC65 with NOTICES should be submitted on or before March 30, 2007. The Commission further believes that the proposal is consistent with Section 11A(a)(1)(C)(iii) of the Act,25 which sets C. Self-Regulatory Organization’s IV. Commission’s Findings and Order forth Congress’ finding that it is in the Statement on Comments on the Granting Accelerated Approval of the public interest and appropriate for the Proposed Rule Change Received From Proposed Rule Change protection of investors and the Members, Participants or Others maintenance of fair and orderly markets After careful review, the Commission Written comments on the proposed to assure the availability to brokers, finds that the proposed rule change is rule change were neither solicited nor dealers, and investors of information consistent with the requirements of the received. with respect to quotations for and Act and the rules and regulations transactions in securities. Quotations for thereunder applicable to a national III. Solicitation of Comments and last sale information regarding the securities exchange.19 In particular, the Interested persons are invited to Covered Securities are disseminated Commission finds that the proposed submit written data, views, and through the facilities of the CTA and the rule change is consistent with Section arguments concerning the foregoing, Consolidated Quotation System. 6(b)(5) of the Act,20 which requires that including whether the proposed rule an exchange have rules designed, among Furthermore, (i) the Intraday Indicative change is consistent with the Act. Value, Intraday Optimized Portfolio other things, to promote just and Comments may be submitted by any of Value, or other comparable intraday equitable principles of trade, to remove the following methods: valuation for a Covered Security; or (ii) impediments to and perfect the the value of any index or any Electronic Comments mechanism of a free and open market commodity-related value underlying a and a national market system, and in • Use the Commission’s Internet Covered Security, is calculated by the general to protect investors and the comment form (http://www.sec.gov/ original listing market and published public interest. The Commission rules/sro.shtml); or via the facilities of the Consolidated believes that this proposal should • Send an e-mail to ruleTape Association on a 15-second benefit investors by increasing comments@sec.gov. Please include File delayed basis throughout the trading Number SR–NASDAQ–2007–016 on the competition among markets that trade hours for the Covered Securities. In the Covered Securities. subject line. addition, if the listing market halts In addition, the Commission finds Paper Comments trading when either (i) the Intraday that the proposal is consistent with • Send paper comments in triplicate Section 12(f) of the Act,21 which permits Indicative Value, Intraday Optimized Portfolio Value, or other comparable to Nancy M. Morris, Secretary, an exchange to trade, pursuant to UTP, Securities and Exchange Commission, a security that is listed and registered on intraday valuation for a Covered Security; or (ii) the value of any index 100 F Street, NE., Washington, DC another exchange.22 The Commission or any commodity-related value 20549–1090. notes that it previously approved the underlying a Covered Security, is not All submissions should refer to File listing and trading of each of the being calculated or disseminated, the Number SR–NASDAQ–2007–016. This Covered Securities on either NYSE or file number should be included on the Amex.23 The Commission also finds that Exchange would halt trading in such Covered Security. subject line if e-mail is used. To help the the proposal is consistent with Rule Commission process and review your 12f–5 under the Act,24 which provides The Commission notes that, if a comments more efficiently, please use that an exchange shall not extend UTP Covered Security should be delisted by only one method. The Commission will to a security unless the exchange has in the listing exchange, the Exchange post all comments on the Commission’s effect a rule or rules providing for would no longer have authority to trade Internet Web site (http://www.sec.gov/ transactions in the class or type of the Covered Security pursuant to this rules/sro.shtml). Copies of the security to which the exchange extends order. submission, all subsequent UTP. The Exchange has represented that In support of this proposal, the amendments, all written statements it meets this requirement because it Exchange has made the following with respect to the proposed rule deems the Covered Securities to be representations: change that are filed with the equity securities, thus rendering trading 1. The Exchange’s surveillance Commission, and all written in the Covered Securities subject to the procedures are adequate to properly communications relating to the Exchange’s existing rules governing the monitor Exchange trading of the proposed rule change between the trading of equity securities. Covered Securities. Commission and any person, other than 2. Prior to the commencement of 19 In approving this rule change, the Commission those that may be withheld from the trading, the Exchange would inform its notes that it has considered the proposal’s impact public in accordance with the members in an Information Bulletin of on efficiency, competition, and capital formation. provisions of 5 U.S.C. 552, will be See 15 U.S.C. 78c(f). the special characteristics and risks available for inspection and copying in 20 15 U.S.C. 78f(b)(5). associated with trading the Covered the Commission’s Public Reference 21 15 U.S.C. 78l(f). Securities. Room. Copies of such filing also will be 22 Section 12(a) of the Act, 15 U.S.C. 78l(a), 3. Prior to the commencement of generally prohibits a broker-dealer from trading a available for inspection and copying at trading, the Exchange would inform its the principal office of the Exchange. All security on a national securities exchange unless the security is registered on that exchange pursuant members in an Information Bulletin the comments received will be posted to Section 12 of the Act. Section 12(f) of the Act requirement that members deliver a without change; the Commission does excludes from this restriction trading in any prospectus to investors purchasing security to which an exchange ‘‘extends UTP.’’ not edit personal identifying When an exchange extends UTP to a security, it newly issued Covered Securities prior to information from submissions. You allows its members to trade the security as if it were or concurrently with the confirmation of should submit only information that listed and registered on the exchange even though a transaction. you wish to make available publicly. All it is not so listed and registered. 23 See supra note 3. submissions should refer to File 25 15 U.S.C. 78k–1(a)(1)(C)(iii). 24 17 CFR 240.12f–5. Number SR–NASDAQ–2007–016 and necessary or appropriate in furtherance of the purposes of the Act. VerDate Aug<31>2005 21:24 Mar 08, 2007 Jkt 211001 PO 00000 Frm 00175 Fmt 4703 Sfmt 4703 E:\FR\FM\09MRN1.SGM 09MRN1 Federal Register / Vol. 72, No. 46 / Friday, March 9, 2007 / Notices This approval order is conditioned on the Exchange’s adherence to these representations. Exchanges that trade commodityrelated securities generally have in place surveillance arrangements with markets that trade the underlying commodities. The Commission notes that the Exchange has indicated that it currently is in the process of entering into information-sharing agreements with the ICE Futures and the Kansas Board of Trade, as well as amending its current information sharing agreement with NYMEX. Although the Exchange has not finalized these agreements, the Commission believes nevertheless that the Exchange’s proposal to trade the Covered Securities on a pilot basis is consistent with the Act in view of (1) the limited duration of the pilot period (three months), (2) the Exchange’s representation that these informationsharing agreements would be complete ‘‘in the near future,’’ and (3) the fact that the Exchange must submit a proposed rule change addressing each Covered Security, to continue trading the securities after the expiration of the pilot period. The Commission finds good cause for approving this proposal before the thirtieth day after the publication of notice thereof in the Federal Register. As noted previously, the Commission previously found that the listing and trading of each of the Covered Securities by either NYSE or Amex is consistent with the Act. The Commission presently is not aware of any regulatory issue that should cause it to revisit those findings or would preclude the trading of the Covered Securities on the Exchange pursuant to UTP. Furthermore, accelerated approval of this proposal is necessary to facilitate compliance by certain OTC market makers with the 1% Rule. Market disruption could result if these OTC market makers have no venue where they can publish their quotations in the Covered Securities. For these reasons, the Commission finds good cause to approve the amended proposal on an accelerated basis. jlentini on PROD1PC65 with NOTICES V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,26 that the proposed rule change (SR–NASDAQ– 2007–016), be and it hereby is, approved on an accelerated basis for a threemonth pilot period which will commence on March 5, 2007. 26 15 U.S.C. 78s(b)(2). VerDate Aug<31>2005 21:24 Mar 08, 2007 Jkt 211001 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.27 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–4193 Filed 3–8–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55393; File No. SR–NASD– 2007–016] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NASD Rules 4632C and 4632D To Reflect ‘‘As/Of’’ Trade Reporting and the Automated Reporting of Trade Cancellations to the NASD/NSX and NASD/BSE Trade Reporting Facilities March 2, 2007. 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 February 27, 2007, the National Association of Securities Dealers, Inc. (‘‘NASD’’) 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 substantially by the NASD. The NASD has filed this proposal pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposal effective upon filing with the Commission.5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The NASD proposes to amend NASD Rules 4632C, ‘‘Transaction Reporting,’’ and 4632D, ‘‘Transaction Reporting,’’ to reflect ‘‘as/of’’ (T+1) trade reporting and the automated reporting of trade cancellations to the NASD/NSX Trade Reporting Facility (the ‘‘NASD/NSX TRF’’) and the NASD/BSE Trade Reporting Facility (the ‘‘NASD/BSE TRF’’), respectively. The proposed amendments are substantially identical 27 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 5 The NASD has asked the Commission to waive the 30-day operative delay provided in Rule 19b– 4(f)(6)(iii). 17 CFR 240.19b–4(f)(6)(iii). 1 15 PO 00000 Frm 00176 Fmt 4703 Sfmt 4703 10805 to the current language of NASD Rule 4632, ‘‘Transaction Reporting,’’ relating to the NASD/Nasdaq Trade Reporting Facility (‘‘NASD/Nasdaq TRF’’), which the Commission approved on June 30, 2006.6 The text of the proposed rule change is available at the NASD, in the Commission’s Public Reference Room, and at http://www.nasd.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the NASD 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. The NASD 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 Commission approved the establishment of the NASD/NSX TRF 7 and the NASD/BSE TRF 8 on November 6, 2006, and December 13, 2006, respectively. The NASD/NSX TRF and NASD/BSE TRF provide members with additional mechanisms for reporting locked-in trades in exchange-listed securities executed otherwise than on an exchange. Currently, the NASD/NSX TRF does not accept reports of trades on an ‘‘as/ of’’ or next day (T+1) basis and the NASD/BSE TRF rules also do not contemplate the submission of ‘‘as/of’’ trade reports. The rules relating to the NASD/NSX TRF and the NASD/BSE TRF expressly provide that members must use an alternative electronic 6 See Securities Exchange Act Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006) (order approving File No. SR–NASD–2005–087). 7 See Securities Exchange Act Release No. 54715 (November 6, 2006), 71 FR 66354 (November 14, 2006) (order approving File No. SR–NASD–2006– 108). The NASD/NSX TRF commenced operation for the reporting of over-the-counter (‘‘OTC’’) trades in Nasdaq-listed securities on November 27, 2006, and began accepting reports of OTC trades in nonNasdaq exchange-listed securities on February 20, 2007. 8 See Securities Exchange Act Release No. 54931 (December 13, 2006), 71 FR 76409 (December 20, 2006) (order approving File No. SR–NASD–2006– 115). The NASD/BSE TRF will commence operation upon successful completion of system testing and certification (currently anticipated to be in the first quarter of 2007). E:\FR\FM\09MRN1.SGM 09MRN1

Agencies

[Federal Register Volume 72, Number 46 (Friday, March 9, 2007)]
[Notices]
[Pages 10801-10805]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-4193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55386; File No. SR-NASDAQ-2007-016]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to the Trading of 16 Commodity-Related Securities 
Pursuant to Unlisted Trading Privileges on a Pilot Basis

March 2, 2007.
    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 1, 2007, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
This order provides notice of the proposed rule change and approves the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend Rule 4630 to govern trading in any 
Commodity-Related Security (as defined below) and to make conforming 
amendments to Rule 4120. Pursuant to the amended rule and in accordance 
with the terms and conditions specified in this filing, Nasdaq also 
proposes to trade, pursuant to unlisted trading privileges, the 16 
Commodity-Related Securities described below.
    The text of the proposed rule change is available from Nasdaq's Web 
site at http://nasdaq.complinet.com, at Nasdaq's principal office, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq is proposing to trade the following securities pursuant to 
UTP for a pilot period of three months beginning on March 5, 2007: (1) 
Shares of the PowerShares DB Commodity Index Tracking Fund, (2) shares 
of the PowerShares DB G10 Currency Harvest Fund, (3) shares of the 
PowerShares DB Agricultural Fund, (4) shares of the PowerShares DB Oil 
Fund, (5) shares of the PowerShares DB Base Metals Fund, (6) shares of 
the PowerShares DB Energy Fund, (7) shares of the PowerShares DB Silver 
Fund, (8) shares of the PowerShares DB Gold Fund, (9) shares of the 
PowerShares DB Precious Metals Fund, (10) iPath Dow Jones-AIG Commodity 
Index Total Return Exchange-Traded Notes, (11) iPath GSCI Total Return 
Index Exchange-Traded Notes, (12) iPath Goldman Sachs Crude Oil Total 
Return Index Exchange-Traded Notes, (13) shares of the iShares GSCI 
Commodity-Indexed Trust, (14) units of the United States Oil Fund, LP, 
(15) Claymore MACROShares Oil Up Tradeable Shares, and (16) Claymore 
MACROShares Oil Down Tradeable Shares (collectively, the ``Covered 
Securities''). The Commission previously approved the original listing 
and trading of each of the Covered Securities by the New York Stock 
Exchange (``NYSE'') or the American Stock Exchange (``Amex'').\3\ Since 
the time of their listing on NYSE or Amex, the Covered Securities have 
traded on an over-the-counter (``OTC'') basis on systems operated as 
facilities of NASD by Nasdaq and its affiliates. Specifically, the 
products are currently traded on the ITS/CAES System, which Nasdaq 
operates for NASD pursuant to a Transitional System and Regulatory 
Services Agreement (the ``Transitional Agreement'').
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    \3\ Securities Exchange Act Release No. 53105 (January 11, 
2006), 71 FR 3129 (January 19, 2006) (SR-Amex-2005-059) (PowerShares 
DB Commodity Index Tracking Fund); Securities Exchange Act Release 
No. 54351 (August 23, 2006), 71 FR 51245 (August 29, 2006) (SR-Amex-
2006-44) (PowerShares DB G10 Currency Harvest Fund); Securities 
Exchange Act Release No. 55029 (December 29, 2006), 72 FR 806 
(January 8, 2007) (SR-Amex-2006-76) (seven PowerShares DB commodity 
funds); Securities Exchange Act Release No. 53876 (May 25, 2006), 71 
FR 32158 (June 2, 2006) (SR-NYSE-2006-16) (iPath Dow-Jones AIG 
Commodity Index Total Return Exchange-Traded Notes); Securities 
Exchange Act Release No. 53849 (May 22, 2006), 71 FR 30706 (May 30, 
2006) (SR-NYSE-2006-20) (iPath GSCI Total Return Index Exchange-
Traded Notes); Securities Exchange Act Release No. 54177 (July 19, 
2006), 71 FR 42700 (July 27, 2006) (SR-NYSE-2006-19) (iPath Goldman 
Sachs Crude Oil Total Return Index Exchange-Traded Notes); 
Securities Exchange Act Release No. 54013 (June 16, 2006), 71 FR 
36372 (June 26, 2006) (SR-NYSE-2006-17) (iShares GSCI Commodity-
Indexed Trust); Securities Exchange Act Release No. 53582 (March 31, 
2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) (United States 
Oil Fund, LP); Securities Exchange Act Release No. 54839 (November 
29, 2006), 71 FR 70804 (December 6, 2006) (SR-Amex-2006-82) 
(MACROShares Oil Up and Oil Down Tradeable Shares).
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    Under Rule 602 of Regulation NMS (the ``Quote Rule''),\4\ NASD is 
required to collect the best bid, best offer, and quotation sizes 
communicated otherwise than on an exchange by each NASD member acting 
in the capacity of an ``OTC market maker'' for any ``NMS stock,'' \5\ 
unless the executed volume of such member, during the most recent 
calendar quarter, comprised one percent or less of the aggregate 
trading volume for such security (the ``1% Rule'').\6\
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    \4\ 17 CFR 242.602.
    \5\ ``OTC market maker'' means any dealer that holds itself out 
as being willing to buy from and sell to its customers, or others, 
in the United States, an NMS stock for its own account on a regular 
or continuous basis otherwise than on a national securities exchange 
in amounts of less than block size. See 17 CFR 242.600(b)(52). ``NMS 
stock'' means any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan. See 17 CFR 
242.600(b)(47).
    \6\ OTC market makers that are not subject to the 1% Rule may 
nevertheless elect to communicate quotations in exchange-listed 
securities to NASD, in which case NASD must disseminate such 
quotations.
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    Nasdaq has operated ITS/CAES under the Transitional Agreement in 
order to allow NASD to fulfill its Quote Rule obligation to provide a 
quotation facility for non-Nasdaq exchange-listed securities (``CQS 
Securities''). On March 5, 2007, NASD expects to begin to fulfill its 
obligation to provide a quotation facility for CQS Securities without 
Nasdaq's assistance through its Alternative Display Facility (the 
``ADF'').\7\ Also at that time, Nasdaq expects to stop operating the 
ITS/CAES System.
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    \7\ NASD already uses the ADF to fulfill its obligations under 
the Quote Rule with respect to Nasdaq-listed securities.
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    On July 28, 2006, the Commission granted NASD a limited exemption 
\8\

[[Page 10802]]

from the Quote Rule and granted OTC market makers a limited exemption 
from the 1% Rule by providing that an OTC market maker is not required 
to provide quotations to NASD, and NASD is not required to collect and 
disseminate such quotations, if the OTC market maker provides its 
quotations to a national securities exchange that in turn disseminates 
the quotations of each such OTC market maker, even if such quotations 
do not reflect the exchange's best bid and offer. Thus, because Nasdaq 
disseminates depth-of-book information reflecting the quotations of 
each of its market makers, an OTC market maker may satisfy its 1% Rule 
obligations by quoting on Nasdaq.
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    \8\ See Letter from Robert L.D. Colby, Acting Director, Division 
of Market Regulation, Commission, to T. Grant Callery, Executive 
Vice President and General Counsel, NASD (July 28, 2006).
---------------------------------------------------------------------------

    The Covered Securities have been eligible to trade on ITS/CAES 
because the Quote Rule requires NASD, as a national securities 
association, to provide a means for its members to post quotes for all 
NMS stocks. As an exchange, however, Nasdaq may not trade securities on 
a UTP basis unless Nasdaq ``has in effect a rule or rules providing for 
transactions in the class or type of security to which the exchange 
extends unlisted trading privileges,'' \9\ and, in the case of ``new 
derivatives securities products'' within the meaning of SEC Rule 19b-
4(e),\10\ it either has generic listing standards applicable to the 
product in question or receives Commission approval for a rule filing 
under Section 19 of the Act \11\ to allow trading of the product. The 
Covered Securities are new derivative securities products for which 
Nasdaq does not have generic listing standards, and therefore Nasdaq 
must obtain Commission approval of a filing before trading them as an 
exchange.
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    \9\ 17 CFR 240.12f-5.
    \10\ ``New Derivative Security Product'' is defined as any type 
of option, warrant, hybrid securities product, or any other 
security, other than a single equity option or a security futures 
product, whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument. See 17 CFR 
240.19b-4(e).
    \11\ 15 U.S.C. 78s.
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    It had been Nasdaq's expectation that it would not trade all of the 
Covered Securities as of March 5, 2007, in light of low trading volumes 
of some of the Covered Securities and the administrative requirements 
associated with product-specific filings. Based on input from its 
members and NASD, however, Nasdaq has concluded that there are OTC 
market makers in each of the Covered Securities that may be subject to 
the 1% Rule, based on recent trading volumes. Moreover, although the 
ADF is scheduled to become operational for CQS Securities on March 5, 
2007, an NASD member that is not already an ADF participant might not 
have sufficient time to move its quotations in the Covered Securities 
to the ADF by March 5. Accordingly, Nasdaq believes that it must begin 
trading the Covered Securities by March 5 in order to prevent 
disruptions in the markets for the Covered Securities and forestall 
regulatory compliance issues for OTC market makers subject to the 1% 
Rule in the Covered Securities.
    It does not appear that there would be sufficient time between now 
and March 5 for Nasdaq and Commission staff to process a detailed 
filing regarding each of the Covered Securities. Moreover, in cases 
where Covered Securities are issued by pooled investment vehicles that 
invest in commodity futures that are traded on futures exchanges that 
are not members of the Intermarket Surveillance Group (``ISG''), 
securities exchanges trading the Covered Securities have entered into 
regulatory information-sharing agreements with such futures exchanges. 
At this time, Nasdaq is in the process of entering into such agreements 
with ICE Futures and the Kansas Board of Trade, and is in the process 
of amending its existing agreement with the New York Mercantile 
Exchange (``NYMEX'') to cover additional commodities. Nasdaq has just 
completed an agreement with the London Metals Exchange, and expects to 
complete the remaining agreements in the near future, but not by March 
5, 2007.
    In light of all of these considerations, Nasdaq is seeking 
Commission approval for a proposal to trade the Covered Securities for 
a three-month pilot period. During the pilot period, Nasdaq will 
complete all required regulatory information sharing agreements and 
will submit detailed product-specific filings covering each of the 
Covered Securities.
    Nasdaq deems the Covered Securities to be equity securities, thus 
rendering trading in the Covered Securities subject to its existing 
rules governing the trading of equity securities. During the period 
while a Covered Security is trading under this pilot filing, its 
trading hours will be 9:30 a.m. to 4 p.m., Eastern Time (``ET''). 
Nasdaq may, however, propose longer trading hours for some of the 
Covered Securities in a subsequent product-specific filing, depending 
on the extent of dissemination of intraday values and index values 
related to the Covered Security.
    Nasdaq will halt trading in a Covered Security under the conditions 
specified in Nasdaq Rules 4120 and 4121. The conditions for a halt 
include a regulatory halt by the listing market. UTP trading in the 
Covered Securities will also be governed by provisions of Nasdaq Rule 
4120(b) relating to temporary interruptions in the calculation or wide 
dissemination of (i) the Intraday Indicative Value, Intraday Optimized 
Portfolio Value, or other comparable intraday valuation for a Covered 
Security; or (ii) the value of any index or any commodity-related value 
underlying a Covered Security.\12\ Additionally, Nasdaq may cease 
trading a Covered Security if other unusual conditions or circumstances 
exist which, in the opinion of Nasdaq, make further dealings on Nasdaq 
detrimental to the maintenance of a fair and orderly market. Nasdaq 
will also follow any procedures with respect to trading halts as set 
forth in Nasdaq Rule 4120(c). Finally, Nasdaq will stop trading a 
Covered Security if the listing market delists it.
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    \12\ Nasdaq is amending Rule 4120 to make it applicable to any 
Commodity-Related Security (as defined below) and to include the 
term ``commodity-related value'' in the definition of a Required 
Value that must be disseminated under the conditions described in 
the rule. Thus, for example, the term ``commodity-related value'' 
would include the price of crude oil futures contracts on which the 
United States Oil Fund is based.
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    Nasdaq believes that its surveillance procedures are adequate to 
address any concerns about the trading of the Covered Securities on 
Nasdaq. Trading of the Covered Securities through ITS/CAES is currently 
subject to NASD's surveillance procedures for equity securities in 
general and ETFs in particular. After Nasdaq begins to trade the 
Covered Securities as an exchange, NASD, on behalf of Nasdaq, will 
continue to surveil Nasdaq trading, including Nasdaq trading of the 
Covered Securities. Nasdaq's transition to exchange status will not 
result in any change in the surveillance process with respect to the 
Covered Securities.\13\
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    \13\ Surveillance of all trading on NASD facilities operated by 
Nasdaq, including the trading of the Covered Securities, is 
currently being conducted by NASD. After Nasdaq begins to trade the 
Covered Securities as an exchange, NASD will continue to surveil 
trading pursuant to a regulatory services agreement. Nasdaq is 
responsible for NASD's performance under this regulatory services 
agreement.
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    Nasdaq is able to obtain information regarding trading in the 
Covered Securities and the underlying futures through its members in 
connection with the proprietary or customer trades that such members 
effect on any relevant market. In addition, Nasdaq may obtain trading 
information via the Intermarket Surveillance Group (``ISG'') from other 
exchanges who are members or affiliates of the ISG, including the 
Chicago Board

[[Page 10803]]

of Trade. In addition, Nasdaq has a regulatory information sharing 
agreement with NYMEX covering gold and silver futures, and is in the 
process of amending the agreement to cover crude oil, heating oil, 
natural gas, copper, and unleaded gasoline. Nasdaq has also just 
entered into a regulatory sharing agreement with the London Metals 
Exchange related to aluminum, copper, lead, nickel, tin, and zinc. 
Nasdaq is also in the process of entering into information-sharing 
agreements with ICE Futures related to crude oil and gas oil, and with 
the Kansas Board of Trade related to wheat.
    Nasdaq will inform its members in Information Circulars of the 
special characteristics and risks associated with trading the Covered 
Securities. Specifically, the Information Circulars will discuss the 
following: (a) Applicable procedures for purchases and redemptions of 
Covered Securities; (b) Nasdaq Rule 2310, which imposes suitability 
obligations on Nasdaq members with respect to recommending transactions 
in Covered Securities to customers; (c) how information regarding 
applicable intraday values is disseminated; (d) prospectus delivery 
requirements; and (e) trading information.
    In addition, the Information Circulars will reference that the 
Covered Securities are subject to various fees and expenses described 
in their applicable Registration Statements. The Information Circulars 
will also reference the fact that there is no regulated source of last-
sale information regarding physical commodities, and that the 
Commission has no jurisdiction over the trading of physical commodities 
such as aluminum, gold, crude oil, heating oil, corn, and wheat, or the 
futures contracts on which the value of the certain Covered Securities 
are based. The Information Circulars will describe the public 
availability of information about the Covered Securities and underlying 
indexes or prices. The Information Circular will also discuss any 
relief granted by the Commission or the staff from any rules under the 
Act.
    In November 2006, the Commission approved Nasdaq Rule 4630 to 
govern the trading of Commodity-Based Trust Shares.\14\ Commodity-Based 
Trust Shares were defined as trust-issued receipts based on the value 
of an underlying commodity or index of commodities held by a trust. 
Nasdaq is now proposing to amend the rule to make it apply broadly to 
trading in any security issued by any trust, partnership, commodity 
pool or similar entity that invests, directly or through another 
entity, in any combination of commodities, futures contracts, options 
on futures contracts, forward contracts, commodity swaps, or other 
related derivatives, or the value of which is determined by the value 
of commodities, futures contracts, options on futures contracts, 
forward contracts, commodity swaps, or other related derivatives (a 
``Commodity-Related Security'').\15\ All of the Covered Securities 
under this filing are Commodity-Related Securities and therefore 
governed by the amended rule. Under the amended rule:
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    \14\ Securities Exchange Act Release No. 54765 (November 16, 
2006), 71 FR 67668 (November 22, 2006) (SR-NASDAQ-2006-009).
    \15\ The amended rule is thus intended to apply to instruments 
that have been defined as ``investment shares,'' ``commodity-based 
trust shares,'' ``currency trust shares,'' ``commodity index trust 
shares,'' or ``partnership units'' under the rules of Amex and NYSE 
Arca. The amended rule is also intended to apply to securities that 
have been defined as ``paired trust shares'' under such rules, with 
a reference price that is related to commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives.
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     A member acting as a registered market maker in a 
Commodity-Related Security will be obligated to establish adequate 
information barriers when such market maker engages in inter-
departmental communications. For purposes of a Commodity-Related 
Security, ``inter-departmental communications'' are defined to include 
communications to other departments within the same firm or the firm's 
affiliates that involve trading in commodities, futures contracts, 
options on futures contracts, forward contracts, commodity swaps, or 
other related derivatives underlying such Commodity-Related Security.
     A member acting as a registered market maker in a 
Commodity-Related Security must file with Nasdaq Regulation in a manner 
prescribed by Nasdaq Regulation and keep current a list identifying all 
accounts for trading in commodities, futures contracts, options on 
futures contracts, forward contracts, commodity swaps, or other related 
derivatives underlying such Commodity-Related Security, that the market 
maker may have or over which it may exercise investment discretion.
     A member acting as a registered market maker in a 
Commodity-Related Security shall make available to Nasdaq Regulation 
such books, records, or other information pertaining to transactions by 
such entity or registered or non-registered employee affiliated with 
such entity for its or their own accounts for trading commodities, 
futures contracts, options on futures contracts, forward contracts, 
commodity swaps, or other related derivatives underlying such 
Commodity-Related Security, as may be requested by Nasdaq Regulation.
     In connection with trading a Commodity-Related Security or 
commodities, futures contracts, options on futures contracts, forward 
contracts, commodity swaps, or other related derivatives underlying a 
Commodity-Related Security, the member acting as a market maker in a 
Commodity-Related Security shall not use any material nonpublic 
information received from any person associated with the member or 
employee of such person regarding trading by such person or employee in 
the commodities, futures contracts, options on futures contracts, 
forward contracts, commodity swaps, or other related derivatives 
underlying such Commodity-Related Security.
    The amended rule also requires members to provide a prospectus to 
all purchasers of a newly issued Commodity-Related Security. Finally, 
the amended rule stipulates that Nasdaq will file proposals under 
Section 19(b) of the Act before trading separate and distinct 
Commodity-Based Securities designated on different underlying 
commodity-related investments, and that the proposal filed with respect 
to particular Commodity-Related Security will specify the applicable 
trading hours for such Commodity-Related Security.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \16\ in general and Section 6(b)(5) of the Act \17\ in 
particular, in that 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. In addition, Nasdaq believes that the proposal is 
consistent with Rule 12f-5 under the Act \18\ because it deems the 
Covered Securities to be an equity securities, thus rendering trading 
in the Covered Securities subject to Nasdaq's existing rules governing 
the trading of equity securities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 17 CFR 240.12f-5.
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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

[[Page 10804]]

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 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-2007-016 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-2007-016. 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 Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASDAQ-2007-016 and should be submitted on or before 
March 30, 2007.

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.\19\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\20\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and in general to protect investors and the public 
interest. The Commission believes that this proposal should benefit 
investors by increasing competition among markets that trade the 
Covered Securities.
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    \19\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\21\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\22\ The Commission notes that it previously approved the 
listing and trading of each of the Covered Securities on either NYSE or 
Amex.\23\ The Commission also finds that the proposal is consistent 
with Rule 12f-5 under the Act,\24\ which provides that an exchange 
shall not extend UTP to a security unless the exchange has in effect a 
rule or rules providing for transactions in the class or type of 
security to which the exchange extends UTP. The Exchange has 
represented that it meets this requirement because it deems the Covered 
Securities to be equity securities, thus rendering trading in the 
Covered Securities subject to the Exchange's existing rules governing 
the trading of equity securities.
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    \21\ 15 U.S.C. 78l(f).
    \22\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \23\ See supra note 3.
    \24\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\25\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations for and last sale information regarding the 
Covered Securities are disseminated through the facilities of the CTA 
and the Consolidated Quotation System. Furthermore, (i) the Intraday 
Indicative Value, Intraday Optimized Portfolio Value, or other 
comparable intraday valuation for a Covered Security; or (ii) the value 
of any index or any commodity-related value underlying a Covered 
Security, is calculated by the original listing market and published 
via the facilities of the Consolidated Tape Association on a 15-second 
delayed basis throughout the trading hours for the Covered Securities. 
In addition, if the listing market halts trading when either (i) the 
Intraday Indicative Value, Intraday Optimized Portfolio Value, or other 
comparable intraday valuation for a Covered Security; or (ii) the value 
of any index or any commodity-related value underlying a Covered 
Security, is not being calculated or disseminated, the Exchange would 
halt trading in such Covered Security.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that, if a Covered Security should be delisted 
by the listing exchange, the Exchange would no longer have authority to 
trade the Covered Security pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Covered Securities.
    2. Prior to the commencement of trading, the Exchange would inform 
its members in an Information Bulletin of the special characteristics 
and risks associated with trading the Covered Securities.
    3. Prior to the commencement of trading, the Exchange would inform 
its members in an Information Bulletin the requirement that members 
deliver a prospectus to investors purchasing newly issued Covered 
Securities prior to or concurrently with the confirmation of a 
transaction.

[[Page 10805]]

    This approval order is conditioned on the Exchange's adherence to 
these representations.
    Exchanges that trade commodity-related securities generally have in 
place surveillance arrangements with markets that trade the underlying 
commodities. The Commission notes that the Exchange has indicated that 
it currently is in the process of entering into information-sharing 
agreements with the ICE Futures and the Kansas Board of Trade, as well 
as amending its current information sharing agreement with NYMEX. 
Although the Exchange has not finalized these agreements, the 
Commission believes nevertheless that the Exchange's proposal to trade 
the Covered Securities on a pilot basis is consistent with the Act in 
view of (1) the limited duration of the pilot period (three months), 
(2) the Exchange's representation that these information-sharing 
agreements would be complete ``in the near future,'' and (3) the fact 
that the Exchange must submit a proposed rule change addressing each 
Covered Security, to continue trading the securities after the 
expiration of the pilot period.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. As noted previously, the Commission previously found 
that the listing and trading of each of the Covered Securities by 
either NYSE or Amex is consistent with the Act. The Commission 
presently is not aware of any regulatory issue that should cause it to 
revisit those findings or would preclude the trading of the Covered 
Securities on the Exchange pursuant to UTP. Furthermore, accelerated 
approval of this proposal is necessary to facilitate compliance by 
certain OTC market makers with the 1% Rule. Market disruption could 
result if these OTC market makers have no venue where they can publish 
their quotations in the Covered Securities. For these reasons, the 
Commission finds good cause to approve the amended proposal on an 
accelerated basis.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NASDAQ-2007-016), be and it 
hereby is, approved on an accelerated basis for a three-month pilot 
period which will commence on March 5, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4193 Filed 3-8-07; 8:45 am]
BILLING CODE 8010-01-P