Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend the Generic Listing Standards for Portfolio Depositary Receipts and Index Fund Shares, 30652-30657 [E7-10556]
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30652
Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filings also
will be available for inspection and
copying at the principal office of the
DTC and on the DTC’s Web site,
https://www.dtcc.com. 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–DTC–
2006–16 and should be submitted on or
before June 22, 2007.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.16
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–10553 Filed 5–31–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55815; File No. SR–
NASDAQ–2007–027]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change and
Amendment No. 1 Thereto To Amend
the Generic Listing Standards for
Portfolio Depositary Receipts and
Index Fund Shares
hsrobinson on PROD1PC76 with NOTICES
May 25, 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 23,
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, II, and
III below, which Items have been
substantially prepared by Nasdaq. On
May 8, 2007, Nasdaq filed Amendment
No. 1 to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons and is simultaneously
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces and supersedes the
original filing in its entirety.
1 15
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approving 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 its existing
rules to eliminate the requirement that
the calculation methodology for the
index underlying an exchange traded
fund (‘‘ETF’’) be a methodology
specified by rule and to adopt generic
listing standards for a series of ETFs
based solely or in part on fixed income
indexes or securities. The text of the
proposed rule change is available at
Nasdaq, the Commission’s Public
Reference Room, and https://
nasdaq.complinet.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,
Nasdaq included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Rule 19b–4(e) under the Act 4
provides that the listing and trading of
a new derivative securities product by a
self-regulatory organization shall not be
deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4,5 if the Commission has
approved, pursuant to Section 19(b) of
the Act,6 the self-regulatory
organization’s trading rules, procedures
and listing standards for the product
class that would include the new
derivatives securities product, and the
self-regulatory organization has a
surveillance program for the product
class.7 Nasdaq has adopted generic
listing standards to satisfy this rule for
the listing and trading of portfolio
depositary receipts (‘‘PDRs’’) 8 and
index fund shares (‘‘IFSs’’) 9
4 17
CFR 240.19b–4(e).
CFR 240.19b–4(c)(1).
6 15 U.S.C. 78s(b).
7 See Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998).
8 Nasdaq Rule 4420(i).
9 Nasdaq Rule 4420(j).
5 17
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(collectively, exchange traded funds or
‘‘ETFs’’), among others. The proposed
rule change will eliminate from these
generic listing standards the
requirement that the calculation
methodology for the index underlying
an ETF be a methodology specified by
rule. In addition, the proposed rule
change will establish generic listing
standards, trading rules, and
procedures, including surveillance, to
permit the listing and trading pursuant
to Rule 19b–4(e) under the Act of ETFs
based solely on fixed income indexes
(‘‘Fixed Income Indexes’’) or on a
combination of equity and fixed income
indexes (‘‘Combination Indexes’’).
Index Methodology Change
Nasdaq rules currently permit Nasdaq
to list an ETF without filing a proposed
rule change if the ETF meets certain
requirements.10 Among those
requirements is the requirement in
Rules 4420(i)(3)(B) and 4420(j)(3)(B) that
the index be calculated based on 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. Nasdaq recently
made a filing with the Commission to
expand this list to accommodate new
products and now proposes to remove
this requirement to provide greater
flexibility to index providers and ETF
issuers to develop indexes that meet the
investment objectives of investors.
Further, removing these requirements
will reduce the time required for
products based on innovative index
calculation methodologies to be brought
to market. The indexes underlying ETFs
would continue to be required to meet
the other requirements of the generic
listing standards. For example, domestic
indexes require, without limitation, that
the most heavily weighted component
stock of an index not exceed 30% of the
weight of the index, and the five most
heavily weighted component stocks of
an index not exceed 65% of the weight
of the index,11 and that an index
include a minimum of 13 component
stocks.12 Similarly, the generic listing
standards for international or global
indexes require, without limitation, that
the most heavily weighted component
stock of an index not exceed 25% of the
weight of the index, and the five most
heavily weighted component stocks of
10 Nasdaq
Rules 4420(i) and 4420(j).
Rules 4420(i)(3)(A)(i)c. and
4420(j)(3)(A)(i)c.
12 Nasdaq Rules 4420(i)(3)(A)(i)d. and
4420(j)(3)(A)(i)d.
11 Nasdaq
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Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
an index not exceed 60% of the weight
of the index,13 and that an index
include a minimum of 20 component
stocks.14 Nasdaq believes that such
requirements will ensure that
underlying indexes are sufficiently
diversified, and that their components
are sufficiently liquid to serve as the
basis for an ETF.15
Use of Fixed Income and Combination
Indexes
The Commission has previously
approved the trading on Nasdaq of a
number of ETFs that are based on Fixed
Income Indexes.16 Nasdaq now
proposes to establish generic listing
standards, trading rules, and
procedures, including surveillance, to
permit the listing and trading pursuant
to Rule 19b–4(e) of ETFs based solely on
Fixed Income Indexes and Combination
Indexes. The Commission recently
approved similar standards for Amex.17
The proposed rule is substantially
similar to the Amex Rule.18 Adopting
generic listing standards for these
securities and applying Rule 19b–4(e)
should fulfill the intended objective of
that Rule by allowing ETFs that satisfy
the proposed generic listing standards to
commence trading, without the need for
a public comment period and
Commission approval. This has the
potential to reduce the time frame for
bringing securities to market and
thereby reduce the burdens on issuers
and other market participants. If a
particular index does not comply with
the proposed generic listing standards
under Rule 19b–4(e), Nasdaq may
submit a separate filing pursuant to
Section 19(b)(2) requesting Commission
hsrobinson on PROD1PC76 with NOTICES
13 Nasdaq
Rules 4420(i)(3)(A)(ii)c. and
4420(j)(3)(A)(ii)c.
14 Nasdaq Rules 4420(i)(3)(A)(ii)d. and
4420(j)(3)(A)(ii)d.
15 The Commission recently approved similar
changes to the rules of other exchanges. See
Securities Exchange Act Release Nos. 55544 (March
27, 2007), 72 FR 15923 (April 3, 2007) (approving
an American Stock Exchange LLC (‘‘Amex’’)
proposal (the ‘‘Amex Methodology Change’’));
55545 (March 27, 2007), 72 FR 15928 (April 3,
2007) and 55546 (March 27, 2007), 72 FR 15929
(April 3, 2007) (approving, on an accelerated basis,
similar changes to the rules of the New York Stock
Exchange (‘‘NYSE’’) and NYSE Arca, respectively).
16 Securities Exchange Act Release No. 55300
(February 15, 2007), 72 FR 8227 (February 23, 2007)
(SR–Nasdaq–2007–002, relating to the trading,
pursuant to unlisted trading privileges, of 14 ETFs).
17 Securities Exchange Act Release No. 55437
(March 9, 2007), 72 FR 12233 (March 15, 2007) (the
‘‘Amex Rule’’).
18 The Amex Rule includes certain provisions that
already appear elsewhere in Nasdaq’s rules and are
therefore not repeated. See, e.g., Rules 4420(i)(4)
and 4420(j)(4) (proposed to be renumbered as Rules
4420(i)(7) and 4420(j)(7)) relating to the trading
hours for PDRs and IFSs, respectively. See also Rule
4613(a)(1)(B) relating to the minimum trading
increment on Nasdaq.
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approval to list and trade the particular
index-linked product.
Proposed Rules 4420(i) and (j) define
the term ‘‘Fixed Income Securities’’ to
include notes, bonds (including
convertible bonds), debentures, or
evidence of indebtedness that include,
but are not limited to, U.S. Treasury
securities (‘‘Treasury Securities’’),
securities of government-sponsored
entities (‘‘GSE Securities’’), municipal
securities, trust-preferred securities,19
supranational debt,20 and debt of a
foreign country or subdivision thereof.
For purposes of the proposed definition,
a convertible bond is deemed to be a
Fixed Income Security until it is
converted into its underlying common
or preferred stock.21 Once converted,
the equity security may no longer
continue as a component of a fixed
income index under the proposed rules
and, accordingly, would have to be
removed from the index for the ETF to
remain listed pursuant to the proposed
rule.
Fixed Income Index Criteria
To list an ETF pursuant to the
proposed generic listing standards for
Fixed Income Indexes, the index
underlying the ETF must satisfy all the
conditions contained in proposed Rule
4420(i)(4) (for PDRs) or proposed Rule
4420(j)(4) (for IFSs). As with existing
generic listing standards for ETFs based
on domestic and international or global
indexes, these listing criteria are
designed to ensure that securities with
substantial market distribution and
liquidity account for a substantial
19 Trust-preferred securities are undated
cumulative securities issued from a special purpose
trust in which a bank or bank holding company
owns all of the common securities. The trust’s sole
asset is a subordinated note issued by the bank or
bank holding company. Trust preferred securities
are treated as debt for tax purposes so that the
distributions or dividends paid are a tax-deductible
interest expense.
20 Supranational debt represents the debt of
international organizations such as the World Bank,
the International Monetary Fund, regional
multilateral development banks, and multilateral
financial institutions. Examples of regional
multilateral development banks include the African
Development Bank, Asian Development Bank,
European Bank for Reconstruction and
Development, and the Inter-American Development
Bank. In addition, examples of multilateral
financial institutions include the European
Investment Bank and the International Fund for
Agricultural Development.
21 Under the Section 3(a)(11) of the Act, 15 U.S.C.
78c(a)(11), a convertible security is an equity
security. However, for the purposes of the proposed
generic listing criteria, Nasdaq believes that
defining a convertible security (prior to its
conversion) as a Fixed Income Security is
consistent with the objectives and intention of the
generic listing standards for fixed-income-based
ETFs as well as the Act.
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30653
portion of the weight of a Fixed Income
Index.22
To list an ETF based on a Fixed
Income Index pursuant to the proposed
generic listing standards, the index must
meet the following criteria:
• The index or portfolio must consist
of Fixed Income Securities;
• Components that in aggregate
account for at least 75% of the weight
of the index or portfolio must have a
minimum original principal amount
outstanding of $100 million or more;
• No component Fixed Income
Security (excluding a Treasury Security)
represents more than 30% of the weight
of the index, and the five highest
weighted component fixed income
securities in the index do not in the
aggregate account for more than 65% of
the weight of the index; 23
• An underlying index or portfolio
(excluding one consisting entirely of
exempted securities) must include a
minimum of 13 non-affiliated issuers; 24
and
• Component securities that in
aggregate account for at least 90% of the
weight of the index or portfolio must be
either: 25
I From issuers that are required to
file reports pursuant to Sections 13 and
15(d) of the Act; 26
I From issuers that have a
worldwide market value of outstanding
common equity held by non-affiliates of
$700 million or more;
I From issuers that have outstanding
securities that are notes, bonds,
debentures, or evidences of
indebtedness having a total remaining
principal amount of at least $1 billion;
I Exempted securities, as defined in
Section 3(a)(12) of the Act; 27 or
I From issuers that are governments
of foreign countries or political
subdivisions of foreign countries.
The proposed generic listing
requirements for ETFs based on Fixed
22 The index criteria are loosely based on the
standards contained in Commission and
Commodity Futures Trading Commission (‘‘CFTC’’)
rules regarding the application of the definition of
narrow-based security index to debt security
indexes. See Securities Exchange Act Release No.
54106 (July 6, 2006), 71 FR 39534 (July 13, 2006)
(File No. S7–07–06) (the ‘‘Joint Rules’’).
23 This is consistent with the standard for U.S.
equity ETFs set forth in Rules 4420(i)(3)(A)c. and
4420(j)(3)(A)c. and the standard set forth by the
Commission and the CFTC in the Joint Rules.
24 The required number of unaffiliated issuers
parallels the diversification requirement applicable
to U.S. equity ETFs as set forth in Rules
4420(i)(3)(A)d. and 4420(j)(3)(A)d.
25 Nasdaq notes that this proposed standard is
consistent with a similar standard in the Joint Rules
and is designed to ensure that the component fixed
income securities have sufficient publicly available
information.
26 15 U.S.C. 78m and 78o(d).
27 15 U.S.C. 78c(a)(12).
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30654
Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
Income Indexes would not require that
component securities in an underlying
index have an investment-grade
rating.28 In addition, the proposed
requirements do not include a minimum
trading volume, due to the lower trading
volume that generally occurs in the
fixed income markets as compared to
the equity markets.29
Listing and Trading of ETFs Based on
Combination Indexes
To list an ETF pursuant to the
proposed generic listing standards for
Combination Indexes, an index
underlying the ETF must satisfy all the
conditions contained in proposed Rule
4420(i)(5) (for PDRs) or Rule 4420(j)(5)
(for IFSs). As with ETFs based solely on
Fixed Income Indexes, the generic
listing standards are intended to ensure
that securities with substantial market
distribution and liquidity account for a
substantial portion of the weight of both
the equity and fixed income portions of
a Combination Index.
The proposed rules provide that
Nasdaq may list and trade ETFs based
on a combination of indexes or a series
of component securities representing
the U.S. or domestic equity market, the
international equity market, and the
fixed income market, pursuant to Rule
19b-4(e) under the Act, provided that: (i)
Such portfolio or combination of
indexes has been described in an
exchange rule approved by the
Commission for the trading of options,
PDRs, IFSs, Index-Linked Exchangeable
Notes, or Index-Linked Securities, and
all of the standards set forth in the
approval order are satisfied by the
exchange employing generic listing
standards; or (ii) the equity portion and
fixed income portion of the component
securities separately meet the criteria set
forth in Rule 4420(i)(3) (equities) and
proposed Rule 4420(i)(4) (fixed income)
for PDRs and Rule 4420(j)(3) (equities)
and proposed Rule 4420(j)(4) (fixed
income) for IFSs.
hsrobinson on PROD1PC76 with NOTICES
Index Maintenance and Information
Nasdaq proposes to establish
requirements regarding the maintenance
and dissemination of index information
in connection with ETFs based on Fixed
Income Indexes and Combination
Indexes. These rules would require that
the underlying value of a Fixed Income
Index be widely disseminated by one or
more major market data vendors at least
28 See
Joint Rules, 71 FR at 30537.
29 Nasdaq believes that the requirement to have a
minimum principal amount outstanding of $100
million, coupled with the proposed concentration
requirements, would reduce the likelihood that an
ETF listed under the proposal would be readily
susceptible to manipulation.
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once a day during the time when the
corresponding ETF trades on Nasdaq.30
The rules also would require that the
underlying value of a Combination
Index be widely disseminated by one or
more major market data vendors at least
once every 15 seconds during the time
when the corresponding ETF trades on
Nasdaq, provided that, with respect to
the fixed income components of the
Combination Index, their impact on the
index is required to be updated only
once each day.31 Nasdaq believes that
these provisions reflect the nature of the
fixed income markets as well as the
frequency of intra-day trading
information with respect to Fixed
Income Securities. If the index value
does not change during some or all of
the period when trading is occurring on
Nasdaq, the last official calculated index
value must remain available throughout
Nasdaq trading hours.
Moreover, if a Fixed Income Index or
Combination Index underlying an ETF
is maintained by a broker-dealer or fund
advisor, the broker-dealer or fund
advisor shall erect a ‘‘firewall’’ around
the personnel who have access to
information concerning changes and
adjustments to the index.32 In addition,
any advisory committee, supervisory
board, or similar entity that advises a
Reporting Authority or that makes
decisions on index composition,
methodology, and related matters, must
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the
index.33
Application of General Rules
Proposed Rules 4420(i)(6) and
4420(j)(6) set forth requirements
governing any ETF based on a Fixed
Income Index or Combination Index.
These include initial shares outstanding
and the dissemination of the Intraday
Indicative Value, which is an estimate
of the value of a share of each ETF,
updated at least every 15 seconds.
ETF Listing Criteria, Trading Rules,
and Procedures
Under Nasdaq’s proposal, an ETF
based on a Fixed Income Index or
Combination Index would be subject to
the listing criteria set out in proposed
30 Nasdaq Rules 4420(i)(4)(B)(ii) and
4420(j)(4)(B)(ii).
31 Nasdaq Rules 4420(i)(5)(A)(ii) and
4420(j)(5)(A)(ii).
32 Rules 4420(i)(4)(B)(i), 4420(i)(5)(A)(i),
4420(j)(4)(B)(i), and 4420(j)(5)(A)(i).
33 Rules 4420(i)(4)(B)(iii), 4420(i)(5)(A)(iii),
4420(j)(4)(B)(iii), and 4420(j)(5)(A)(iii).
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Fmt 4703
Sfmt 4703
Rules 4420(i)(9) and 4420(j)(9) 34
Accordingly, an ETF’s NAV must be
calculated at least once each day and
disseminated to all market participants
at the same time.35 Also, where the
value of the underlying index or
portfolio of securities on which the ETF
is based is no longer calculated or
available, or if the ETF replaces the
underlying index or portfolio with a
new index or portfolio, Nasdaq would
commence delisting proceedings unless
the new index or portfolio meets the
requirements of and listing standards set
forth in Rules 4420(i) and 4420(j), as
applicable.36 Nasdaq proposes to clarify
that if a sponsor of an ETF chose to
replace an index or portfolio that did
not meet any of Nasdaq’s generic listing
standards, approval by the Commission
of a separate filing pursuant to Section
19(b)(2) of the Act to list and trade that
ETF would be required.37 An ETF based
on a Fixed Income Index or
Combination Index would be traded, in
all respects, under Nasdaq’s existing
trading rules and procedures that apply
to ETFs generally, including with
respect to delisting and trading halts. In
particular, Rule 4120(a)(9) provides that,
if the Intraday Indicative Value or the
index value applicable to that series of
ETFs is not being disseminated as
required, Nasdaq may halt trading
during the day in which the
interruption to the dissemination of the
Intraday Indicative Value or the index
value occurs. If the interruption to the
dissemination of the Intraday Indicative
Value or the index value persists past
the trading day in which it occurred,
Nasdaq would halt trading no later than
the beginning of the trading day
following the interruption.38
As noted above, if a broker-dealer is
responsible for maintaining (or has a
role in maintaining) the underlying
index, the broker-dealer would be
required to erect and maintain a
‘‘firewall,’’ in a form satisfactory to
34 These rules will be renumbered from Rules
4420(i)(6) and 4420(j)(6).
35 See proposed Rules 4420(i)(9)(A)(ii) and
4420(j)(9)(A)(ii) (requiring that, before approving an
ETF for listing, Nasdaq will obtain a representation
from the ETF issuer that the NAV per share will be
calculated daily and made available to all market
participants at the same time).
36 See proposed Rules 4420(i)(9)(B)(i)b and
4420(j)(9)(B)(i)b.
37 The Commission previously approved a similar
clarification to the rules of the American Stock
Exchange. See Securities Exchange Act Release No.
54739 (November 9, 2006), 71 FR 66993 (November
17, 2006) (approving SR–Amex–2006–78).
38 If an ETF is traded on Nasdaq pursuant to
unlisted trading privileges, Nasdaq would halt
trading if the primary listing market halts trading
in such ETF because the Intraday Indicative Value
and/or the index value is not being disseminated.
See Rule 4120(b)(9).
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Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
Surveillance
Nasdaq represents that an ETF based
on a Fixed Income Index or
Combination Index would be covered
under NASD Regulation’s surveillance
program for ETFs, which NASD
Regulation administers for Nasdaq
under a regulatory services agreement.
NASD Regulation will implement
written surveillance procedures for
ETFs based on either a Fixed Income
Index or a Combination Index.39 Nasdaq
represents that NASD Regulation’s
surveillance procedures are adequate to
properly monitor the trading of ETFs
listed pursuant to the proposed new
listing standards. In addition, Nasdaq
also has a general policy prohibiting the
distribution of material, non-public
information by its employees.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,40 in
general and with Section 6(b)(5) of the
Act,41 in particular, in that the proposal
is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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.
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.
hsrobinson on PROD1PC76 with NOTICES
Written comments were neither
solicited nor received.
39 See
proposed Rules 4420(i)(6)(C) and
4420(j)(6)(C).
40 15 U.S.C. 78f.
41 15 U.S.C. 78f(b)(5).
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18:10 May 31, 2007
Jkt 211001
exchange.42 In particular, the
Commission believes that the proposal
Interested persons are invited to
is consistent with Section 6(b)(5) of the
submit written data, views and
Act 43 in that it is designed to prevent
arguments concerning the foregoing,
fraudulent and manipulative acts and
including whether the proposed rule
practices, to promote just and equitable
change is consistent with the Act.
principles of trade, to foster cooperation
Comments may be submitted by any of
and coordination with persons engaged
the following methods:
in facilitating transactions in securities,
to remove impediments to and perfect
Electronic Comments
the mechanism of a free and open
• Use the Commission’s Internet
market and a national market system,
comment form (https://www.sec.gov/
and, in general, to protect investors and
rules/sro.shtml); or
the public interest.
• Send an e-mail to ruleCurrently, the Exchange must file a
comments@sec.gov. Please include File
proposed rule change with the
Number SR–NASDAQ–2007–027 on the Commission pursuant to Section
subject line.
19(b)(1) of the Act 44 and Rule 19b–4
thereunder 45 to list or trade any ETF
Paper Comments
based on Fixed Income Securities. The
• Send paper comments in triplicate
Exchange also must file a proposed rule
to Nancy M. Morris, Secretary,
change to list or trade an ETF based on
Securities and Exchange Commission,
a Fixed Income or Combination Index
100 F Street, NE., Washington, DC
described in an exchange rule
20549–1090.
previously approved by the Commission
All submissions should refer to File
as an underlying benchmark for a
Number SR–NASDAQ–2007–027. This
derivative security. Rule 19b–4(e) under
file number should be included on the
the Act, however, provides that the
subject line if e-mail is used. To help the listing and trading of a new derivative
Commission process and review your
securities product by an SRO will not be
comments more efficiently, please use
deemed a proposed rule change
only one method. The Commission will pursuant to Rule 19b–4(c)(1) if the
post all comments on the Commission’s Commission has approved, pursuant to
Internet Web site (https://www.sec.gov/
Section 19(b) of the Act, the SRO’s
rules/sro.shtml). Copies of the
trading rules, procedures, and listing
submission, all subsequent
standards for the product class that
amendments, all written statements
would include the new derivative
with respect to the proposed rule
securities product, and the SRO has a
change that are filed with the
surveillance program for the product
Commission, and all written
class. The Exchange’s proposed rules for
communications relating to the
the listing and trading of ETFs pursuant
proposed rule change between the
to Rule 19b–4(e) based on (1) certain
Commission and any person, other than indexes with components that include
those that may be withheld from the
Fixed Income Securities or (2) indexes
public in accordance with the
or portfolios described in exchange
provisions of 5 U.S.C. 552, will be
rules previously approved by the
available for inspection and copying in
Commission as underlying benchmarks
the Commission’s Public Reference
for derivative securities fulfill these
Room. Copies of such filing also will be requirements. Use of Rule 19b–4(e) by
available for inspection and copying at
Nasdaq to list and trade such ETFs
the principal office of Nasdaq.
should promote competition, reduce
All comments received will be posted burdens on issuers and other market
participants, and make such ETFs
without change; the Commission does
available to investors more quickly. 46
not edit personal identifying
The Commission has approved for
information from submissions. You
listing and trading ETFs based on
should submit only information that
you wish to make available publicly. All certain fixed income indexes and
structured notes linked to a basket or
submissions should refer to the File
Number SR–NASDAQ–2007–027 and
42 In approving this proposal, the Commission has
should be submitted on or before June
considered its impact on efficiency, competition,
22, 2007.
and capital formation. See 15 U.S.C. 78c(f).
III. Solicitation of Comments
Nasdaq, to prevent the flow of nonpublic information regarding the
underlying index from the personnel
involved in the development and
maintenance of such index to others
such as sales and trading personnel.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
30655
43 15
IV. Commission Findings
After careful review, the Commission
finds that the proposed rule change, as
amended, is consistent with the Act and
the rules and regulations thereunder
applicable to a national securities
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(1).
45 17 CFR 240.19b–4.
46 The Commission notes that failure of a
particular ETF to satisfy the Exchange’s generic
listing standards does not preclude the Exchange
from submitting a separate proposal to list and trade
such ETF.
44 15
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01JNN1
hsrobinson on PROD1PC76 with NOTICES
30656
Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
index of Fixed Income Securities.47
Further, the Commission approved
substantially similar generic listing
standards for ETFs based on Fixed
Income Indexes and Combination
Indexes to be traded on Amex.48 The
Commission believes that adopting
generic listing standards for ETFs based
on Fixed Income and Combination
Indexes should fulfill the intended
objective of that rule by allowing those
ETFs that satisfy the proposed generic
listing standards to commence trading
without a rule filing. Taken together, the
Commission finds that the Nasdaq
proposal meets the requirements of Rule
19b–4(e). All products listed under the
proposed generic listing standards will
be subject to existing Nasdaq rules
governing the trading of ETFs.
Proposed Rule 4420(i) (for PDRs) and
proposed Rule 4420 (j) (for IFSs)
establish the standards for the
composition of a Fixed Income Index or
Combination Index underlying an ETF.
These requirements are designed,
among other things, to ensure that
components of an index or portfolio
underlying the ETF are adequately
capitalized and sufficiently liquid, and
that no one security dominates the
index. The Commission believes that
these standards are reasonably designed
to ensure that a substantial portion of
any underlying index or portfolio
consists of securities about which
information is publicly available, and
that when applied in conjunction with
the other applicable listing
requirements, will permit the listing and
trading only of ETFs that are sufficiently
broad-based in scope to minimize
potential manipulation. The
Commission further believes that the
proposed listing standards are
reasonably designed to preclude Nasdaq
from listing and trading an ETF that
might be used as a surrogate for trading
in unregistered securities.
The proposed generic listing
standards also will permit Nasdaq to list
and trade an ETF if the Commission
previously has approved a rule of
another exchange that contemplates
listing and trading a derivative security
based on the same underlying index.
Nasdaq would be able to rely on the
Commission’s earlier approval order,
provided that Nasdaq complies with the
commitments undertaken by the other
exchange set forth in the prior order,
including any surveillance-sharing
arrangements.
The Commission believes that
Nasdaq’s proposal is consistent with
47 See
48 See
note 16 supra.
note 17 supra.
VerDate Aug<31>2005
18:10 May 31, 2007
Section 11A(a)(1)(C)(iii) of the Act,49
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. Under the Exchange’s
proposed listing standards, the
underlying value of a Fixed Income
Index is required to be widely
disseminated by one or more major
market data vendors at least once a day
during the time when the corresponding
ETF trades on the Exchange. Likewise,
the underlying value of a Combination
Index is required to be widely
disseminated by one or more major
market data vendors at least once every
15 seconds during the time when the
corresponding ETF trades on the
Exchange, provided that, with respect to
the fixed income components of the
Combination Index, the impact on the
index is required to be updated only
once each day.
Furthermore, the Commission
believes that the proposed rules are
reasonably designed to promote fair
disclosure of information that may be
necessary to price an ETF appropriately.
If a Fixed Income Index or Combination
Index underlying such an ETF is
maintained by a broker-dealer or fund
advisor, that entity must erect a firewall
around the personnel who have access
to information concerning changes and
adjustments to the index. Any advisory
committee, supervisory board, or similar
entity that advises a Reporting
Authority or that makes decisions on
index composition, methodology, or
related matters must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material non-public
information regarding the index. The
Commission also notes that proposed
Rules 4420(i)(9)(A)(ii) and
4420(j)(9)(A)(ii), which would apply to
an ETF listed and traded pursuant to
this proposal, require that, before
approving an ETF for listing, the
Exchange will obtain a representation
from the ETF issuer that the NAV per
share will be calculated daily and made
available to all market participants at
the same time.
The Commission also believes that the
Exchange’s trading halt rules are
reasonably designed to prevent trading
in an ETF when transparency cannot be
assured. Rule 4120(a)(9) provides that, if
the Intraday Indicative Value or the
index value applicable to an ETF is not
49 15
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Frm 00121
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disseminated as required, the Exchange
may halt trading during the day in
which the interruption occurs. If the
interruption continues, the Exchange
will halt trading no later than the
beginning of the next trading day.50
Also, the Exchange will commence
delisting proceedings in the event that
the value of the underlying index is no
longer calculated and widely
disseminated on at least a 15-second
basis (for Combination Indexes) or at
least once a day (for Fixed Income
Indexes).
The Commission notes that the
Exchange represented that NASD
Regulation will implement written
surveillance procedures for ETFs based
on either a Fixed Income Index or
Combination Index.51 In approving this
proposal, the Commission has relied on
the Exchange’s representation that its
surveillance procedures are adequate to
properly monitor the trading of ETFs
listed pursuant to this proposal. This
approval order is conditioned on the
continuing accuracy of that
representation.
Acceleration
The Commission finds good cause to
approve the proposal, as amended, prior
to the thirtieth day after the proposal
was published for comment in the
Federal Register. The Commission
believes that accelerating approval of
the proposed rule change will expedite
the listing and trading of additional
ETFs based on Fixed Income and
Combination Indexes by the Exchange,
subject to consistent and reasonable
standards. The Commission also notes
that Nasdaq’s proposed generic listing
standards are substantially similar to the
Amex Rules that were approved by the
Commission. Thus, the Commission
finds good cause, consistent with
Section 19(b)(2) of the Act,52 to grant
accelerated approval of the proposed
rule change.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NASDAQ–
50 Nasdaq may also exercise discretion to halt
trading in a series of Portfolio Depository Receipts
or Index Fund Shares based on a consideration of
the following factors: (A) trading in underlying
securities comprising the index applicable to that
series has been halted in the primary market(s), (B)
the extent to which trading has ceased in securities
underlying the index, or (C) the presence of other
unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market. See
Nasdaq Rule 4120(a)(9).
51 See proposed Nasdaq Rules 4420(i)(6)(C) and
4420(j)(6)(C).
52 15 U.S.C. 78s(b)(2).
E:\FR\FM\01JNN1.SGM
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Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Notices
2007–027), as amended, is hereby
approved on an accelerated basis.53
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.54
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–10556 Filed 5–31–07; 8:45 am]
BILLING CODE 8010–01–P
SELECTIVE SERVICE SYSTEM
Computer Matching Between the
Selective Service System and the
Department of Education
Selective Service System.
Notice.
AGENCY:
ACTION:
In accordance with the Privacy Act of
1974 (5 U.S.C. 552a), as amended by the
Computer Matching and Privacy
Protection Act of 1988 (Pub. L. 100–
503), and the Office of Management and
Budget (OMB) Guidelines on the
Conduct of Matching Programs (54 FR
25818 (June 19, 1989)), and OMB
Bulletin 89–22, the following
information is provided:
1. Name of Participating Agencies
The Selective Service System (SSS)
and the Department of Education (ED).
2. Purpose of the Match
The purpose of this matching program
is to ensure that the requirements of
Section 12(f) of the Military Selective
Service System Act [50 U.S.C. App. 462
(f)] are met. This program has been in
effect since December 6, 1985.
hsrobinson on PROD1PC76 with NOTICES
3. Authority for Conducting the
Matching
Computerized access to the Selective
Service Registrant Registration Records
(SSS 10) enables ED to confirm the
registration status of applicants for
assistance under Title IV of the Higher
Education Act of 1965 (HEA), as
amended (20 U.S.C. 1070 et. seg.).
Section 12(f) of the Military Selective
Service Act, as amended [50 U.S.C.
App. 462(f)], denies eligibility for any
form of assistance or benefit under Title
IV of the HEA to any person required to
present himself for and submit to
registration under Section 3 of the
Military Selective Service System Act
[50 U.S.C. App. 453] who fails to do so
in accordance with that section and any
rules and regulations issued under that
section. In addition, Section 12(f)(2) of
the Military Selective Service System
Act specifies that any person required to
present himself for and submit to
registration under Section 3 of the
Military Selective Service System Act
must file a statement with the
institution of higher education where
the person intends to attend or is
attending that he is in compliance with
the Military Selective Service System
Act. Furthermore, Section 12(f)(3) of the
Military Selective Service System Act
authorizes the Secretary of Education, in
agreement with the Director of the
Selective Service, to prescribe methods
for verifying the statements of
compliance filed by students.
Section 484(n) of the HEA [20 U.S.C.
1091(n)], requires the Secretary to
conduct data base matches with SSS,
using common demographic data
elements, to enforce the Selective
Service registration provisions of the
Military Selective Service Act [50 U.S.C.
App. 462(f)], and further states that
appropriate confirmation of a person
shall fulfill the requirement to file a
separate statement of compliance.
4. Categories of Records and
Individuals Covered
1. Federal Student Aid Application
File (18–11–01).
Individuals covered are men born
after December 31, 1959, but at least 18
years old by June 30 of the applicable
award year.
2. Selective Service Registration
Records (SSS 10).
5. Inclusive Dates of the Matching
Program
Commence on July 1, 2007 or 40 days
after copies of the matching agreement
are transmitted simultaneously to the
Committee on Government Affairs of the
Senate, the Committee on Government
Operations of the House of
Representatives, and the Office of
Management and Budget, whichever is
later, and remain in effect for eighteen
months unless earlier terminated or
modified by agreement of the parties.
6. Address for Receipt of Public
Comments or Inquires
´
Mr. Gaston Naranjo, Selective Service
System, 1515 Wilson Boulevard,
Arlington, Virginia 22209–2425.
Dated: May 24, 2007.
William A. Chatfield,
Director.
[FR Doc. E7–10528 Filed 5–31–07; 8:45 am]
BILLING CODE 8015–01–P
53 15
U.S.C. 78s(b)(2).
54 17 CFR 200.30–3(a)(12).
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18:10 May 31, 2007
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30657
TENNESSEE VALLEY AUTHORITY
Environmental Impact Statement—
Mountain Reservoirs Land
Management Plan, Tennessee, North
Carolina, and Georgia
Tennessee Valley Authority.
Notice of intent.
AGENCY:
ACTION:
SUMMARY: The Tennessee Valley
Authority (TVA) will prepare an
environmental impact statement (EIS)
addressing the impacts of various
alternatives for managing project lands
on nine TVA reservoirs in southeastern
Tennessee, southwest North Carolina,
and northwest Georgia. Public comment
is invited concerning both the scope of
the EIS and environmental issues that
should be addressed as a part of this
EIS.
Comments on the scope of the
EIS should be received on or before June
30, 2007.
ADDRESSES: Written comments should
be sent to Kenneth P. Parr,
Environmental Stewardship and Policy,
Tennessee Valley Authority, 1101
Market Street, LP 5U–C, Chattanooga,
Tennessee 37402–2801. Comments may
be e-mailed to kpparr@tva.gov or
submitted by fax at (423) 751–3230.
FOR FURTHER INFORMATION CONTACT:
Laura M. Duncan, Tennessee Valley
Authority, 1101 Market St. PSC 1E–C,
Chattanooga, Tennessee 37402–2801.
Telephone (423) 876–6706. E-mail may
be sent to Mountain_Reservoirs@tva.gov.
SUPPLEMENTARY INFORMATION:
DATES:
Background
This notice is provided in accordance
with the Council on Environmental
Quality’s regulations (40 CFR parts 1500
to 1503), TVA’s procedures for
implementing the National
Environmental Policy Act (NEPA), and
Section 106 of the National Historic
Preservation Act (NHPA) and its
implementing regulations (36 CFR part
800).
The Mountain Reservoirs Land
Management Plan (Plan) will address
lands on the following reservoirs: Ocoee
1 (Parksville), Ocoee 2, and Ocoee 3 in
Polk County, Tennessee; Apalachia in
Polk County, Tennessee and Cherokee
County, North Carolina; Hiwassee in
Cherokee County, North Carolina;
Fontana in Swain and Graham Counties,
North Carolina; Chatuge in Clay County,
North Carolina and Towns County,
Georgia; Blue Ridge in Fannin County,
Georgia; and Nottely in Union County,
Georgia. These reservoirs were
completed between 1911 and 1944. All
of these reservoirs are operated for
E:\FR\FM\01JNN1.SGM
01JNN1
]]>Agencies
[Federal Register Volume 72, Number 105 (Friday, June 1, 2007)]
[Notices]
[Pages 30652-30657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10556]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55815; File No. SR-NASDAQ-2007-027]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To
Amend the Generic Listing Standards for Portfolio Depositary Receipts
and Index Fund Shares
May 25, 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 23, 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, II,
and III below, which Items have been substantially prepared by Nasdaq.
On May 8, 2007, Nasdaq filed Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons and is
simultaneously approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaces and supersedes the original filing
in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to amend its existing rules to eliminate the
requirement that the calculation methodology for the index underlying
an exchange traded fund (``ETF'') be a methodology specified by rule
and to adopt generic listing standards for a series of ETFs based
solely or in part on fixed income indexes or securities. The text of
the proposed rule change is available at Nasdaq, the Commission's
Public Reference Room, and https://nasdaq.complinet.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, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 19b-4(e) under the Act \4\ provides that the listing and
trading of a new derivative securities product by a self-regulatory
organization shall not be deemed a proposed rule change, pursuant to
paragraph (c)(1) of Rule 19b-4,\5\ if the Commission has approved,
pursuant to Section 19(b) of the Act,\6\ the self-regulatory
organization's trading rules, procedures and listing standards for the
product class that would include the new derivatives securities
product, and the self-regulatory organization has a surveillance
program for the product class.\7\ Nasdaq has adopted generic listing
standards to satisfy this rule for the listing and trading of portfolio
depositary receipts (``PDRs'') \8\ and index fund shares (``IFSs'') \9\
(collectively, exchange traded funds or ``ETFs''), among others. The
proposed rule change will eliminate from these generic listing
standards the requirement that the calculation methodology for the
index underlying an ETF be a methodology specified by rule. In
addition, the proposed rule change will establish generic listing
standards, trading rules, and procedures, including surveillance, to
permit the listing and trading pursuant to Rule 19b-4(e) under the Act
of ETFs based solely on fixed income indexes (``Fixed Income Indexes'')
or on a combination of equity and fixed income indexes (``Combination
Indexes'').
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
\5\ 17 CFR 240.19b-4(c)(1).
\6\ 15 U.S.C. 78s(b).
\7\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998).
\8\ Nasdaq Rule 4420(i).
\9\ Nasdaq Rule 4420(j).
---------------------------------------------------------------------------
Index Methodology Change
Nasdaq rules currently permit Nasdaq to list an ETF without filing
a proposed rule change if the ETF meets certain requirements.\10\ Among
those requirements is the requirement in Rules 4420(i)(3)(B) and
4420(j)(3)(B) that the index be calculated based on 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. Nasdaq recently made a filing with the
Commission to expand this list to accommodate new products and now
proposes to remove this requirement to provide greater flexibility to
index providers and ETF issuers to develop indexes that meet the
investment objectives of investors. Further, removing these
requirements will reduce the time required for products based on
innovative index calculation methodologies to be brought to market. The
indexes underlying ETFs would continue to be required to meet the other
requirements of the generic listing standards. For example, domestic
indexes require, without limitation, that the most heavily weighted
component stock of an index not exceed 30% of the weight of the index,
and the five most heavily weighted component stocks of an index not
exceed 65% of the weight of the index,\11\ and that an index include a
minimum of 13 component stocks.\12\ Similarly, the generic listing
standards for international or global indexes require, without
limitation, that the most heavily weighted component stock of an index
not exceed 25% of the weight of the index, and the five most heavily
weighted component stocks of
[[Page 30653]]
an index not exceed 60% of the weight of the index,\13\ and that an
index include a minimum of 20 component stocks.\14\ Nasdaq believes
that such requirements will ensure that underlying indexes are
sufficiently diversified, and that their components are sufficiently
liquid to serve as the basis for an ETF.\15\
---------------------------------------------------------------------------
\10\ Nasdaq Rules 4420(i) and 4420(j).
\11\ Nasdaq Rules 4420(i)(3)(A)(i)c. and 4420(j)(3)(A)(i)c.
\12\ Nasdaq Rules 4420(i)(3)(A)(i)d. and 4420(j)(3)(A)(i)d.
\13\ Nasdaq Rules 4420(i)(3)(A)(ii)c. and 4420(j)(3)(A)(ii)c.
\14\ Nasdaq Rules 4420(i)(3)(A)(ii)d. and 4420(j)(3)(A)(ii)d.
\15\ The Commission recently approved similar changes to the
rules of other exchanges. See Securities Exchange Act Release Nos.
55544 (March 27, 2007), 72 FR 15923 (April 3, 2007) (approving an
American Stock Exchange LLC (``Amex'') proposal (the ``Amex
Methodology Change'')); 55545 (March 27, 2007), 72 FR 15928 (April
3, 2007) and 55546 (March 27, 2007), 72 FR 15929 (April 3, 2007)
(approving, on an accelerated basis, similar changes to the rules of
the New York Stock Exchange (``NYSE'') and NYSE Arca, respectively).
---------------------------------------------------------------------------
Use of Fixed Income and Combination Indexes
The Commission has previously approved the trading on Nasdaq of a
number of ETFs that are based on Fixed Income Indexes.\16\ Nasdaq now
proposes to establish generic listing standards, trading rules, and
procedures, including surveillance, to permit the listing and trading
pursuant to Rule 19b-4(e) of ETFs based solely on Fixed Income Indexes
and Combination Indexes. The Commission recently approved similar
standards for Amex.\17\ The proposed rule is substantially similar to
the Amex Rule.\18\ Adopting generic listing standards for these
securities and applying Rule 19b-4(e) should fulfill the intended
objective of that Rule by allowing ETFs that satisfy the proposed
generic listing standards to commence trading, without the need for a
public comment period and Commission approval. This has the potential
to reduce the time frame for bringing securities to market and thereby
reduce the burdens on issuers and other market participants. If a
particular index does not comply with the proposed generic listing
standards under Rule 19b-4(e), Nasdaq may submit a separate filing
pursuant to Section 19(b)(2) requesting Commission approval to list and
trade the particular index-linked product.
---------------------------------------------------------------------------
\16\ Securities Exchange Act Release No. 55300 (February 15,
2007), 72 FR 8227 (February 23, 2007) (SR-Nasdaq-2007-002, relating
to the trading, pursuant to unlisted trading privileges, of 14
ETFs).
\17\ Securities Exchange Act Release No. 55437 (March 9, 2007),
72 FR 12233 (March 15, 2007) (the ``Amex Rule'').
\18\ The Amex Rule includes certain provisions that already
appear elsewhere in Nasdaq's rules and are therefore not repeated.
See, e.g., Rules 4420(i)(4) and 4420(j)(4) (proposed to be
renumbered as Rules 4420(i)(7) and 4420(j)(7)) relating to the
trading hours for PDRs and IFSs, respectively. See also Rule
4613(a)(1)(B) relating to the minimum trading increment on Nasdaq.
---------------------------------------------------------------------------
Proposed Rules 4420(i) and (j) define the term ``Fixed Income
Securities'' to include notes, bonds (including convertible bonds),
debentures, or evidence of indebtedness that include, but are not
limited to, U.S. Treasury securities (``Treasury Securities''),
securities of government-sponsored entities (``GSE Securities''),
municipal securities, trust-preferred securities,\19\ supranational
debt,\20\ and debt of a foreign country or subdivision thereof. For
purposes of the proposed definition, a convertible bond is deemed to be
a Fixed Income Security until it is converted into its underlying
common or preferred stock.\21\ Once converted, the equity security may
no longer continue as a component of a fixed income index under the
proposed rules and, accordingly, would have to be removed from the
index for the ETF to remain listed pursuant to the proposed rule.
---------------------------------------------------------------------------
\19\ Trust-preferred securities are undated cumulative
securities issued from a special purpose trust in which a bank or
bank holding company owns all of the common securities. The trust's
sole asset is a subordinated note issued by the bank or bank holding
company. Trust preferred securities are treated as debt for tax
purposes so that the distributions or dividends paid are a tax-
deductible interest expense.
\20\ Supranational debt represents the debt of international
organizations such as the World Bank, the International Monetary
Fund, regional multilateral development banks, and multilateral
financial institutions. Examples of regional multilateral
development banks include the African Development Bank, Asian
Development Bank, European Bank for Reconstruction and Development,
and the Inter-American Development Bank. In addition, examples of
multilateral financial institutions include the European Investment
Bank and the International Fund for Agricultural Development.
\21\ Under the Section 3(a)(11) of the Act, 15 U.S.C.
78c(a)(11), a convertible security is an equity security. However,
for the purposes of the proposed generic listing criteria, Nasdaq
believes that defining a convertible security (prior to its
conversion) as a Fixed Income Security is consistent with the
objectives and intention of the generic listing standards for fixed-
income-based ETFs as well as the Act.
---------------------------------------------------------------------------
Fixed Income Index Criteria
To list an ETF pursuant to the proposed generic listing standards
for Fixed Income Indexes, the index underlying the ETF must satisfy all
the conditions contained in proposed Rule 4420(i)(4) (for PDRs) or
proposed Rule 4420(j)(4) (for IFSs). As with existing generic listing
standards for ETFs based on domestic and international or global
indexes, these listing criteria are designed to ensure that securities
with substantial market distribution and liquidity account for a
substantial portion of the weight of a Fixed Income Index.\22\
---------------------------------------------------------------------------
\22\ The index criteria are loosely based on the standards
contained in Commission and Commodity Futures Trading Commission
(``CFTC'') rules regarding the application of the definition of
narrow-based security index to debt security indexes. See Securities
Exchange Act Release No. 54106 (July 6, 2006), 71 FR 39534 (July 13,
2006) (File No. S7-07-06) (the ``Joint Rules'').
---------------------------------------------------------------------------
To list an ETF based on a Fixed Income Index pursuant to the
proposed generic listing standards, the index must meet the following
criteria:
The index or portfolio must consist of Fixed Income
Securities;
Components that in aggregate account for at least 75% of
the weight of the index or portfolio must have a minimum original
principal amount outstanding of $100 million or more;
No component Fixed Income Security (excluding a Treasury
Security) represents more than 30% of the weight of the index, and the
five highest weighted component fixed income securities in the index do
not in the aggregate account for more than 65% of the weight of the
index; \23\
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\23\ This is consistent with the standard for U.S. equity ETFs
set forth in Rules 4420(i)(3)(A)c. and 4420(j)(3)(A)c. and the
standard set forth by the Commission and the CFTC in the Joint
Rules.
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An underlying index or portfolio (excluding one consisting
entirely of exempted securities) must include a minimum of 13 non-
affiliated issuers; \24\ and
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\24\ The required number of unaffiliated issuers parallels the
diversification requirement applicable to U.S. equity ETFs as set
forth in Rules 4420(i)(3)(A)d. and 4420(j)(3)(A)d.
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Component securities that in aggregate account for at
least 90% of the weight of the index or portfolio must be either: \25\
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\25\ Nasdaq notes that this proposed standard is consistent with
a similar standard in the Joint Rules and is designed to ensure that
the component fixed income securities have sufficient publicly
available information.
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[squf] From issuers that are required to file reports pursuant to
Sections 13 and 15(d) of the Act; \26\
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\26\ 15 U.S.C. 78m and 78o(d).
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[squf] From issuers that have a worldwide market value of
outstanding common equity held by non-affiliates of $700 million or
more;
[squf] From issuers that have outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion;
[squf] Exempted securities, as defined in Section 3(a)(12) of the
Act; \27\ or
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\27\ 15 U.S.C. 78c(a)(12).
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[squf] From issuers that are governments of foreign countries or
political subdivisions of foreign countries.
The proposed generic listing requirements for ETFs based on Fixed
[[Page 30654]]
Income Indexes would not require that component securities in an
underlying index have an investment-grade rating.\28\ In addition, the
proposed requirements do not include a minimum trading volume, due to
the lower trading volume that generally occurs in the fixed income
markets as compared to the equity markets.\29\
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\28\ See Joint Rules, 71 FR at 30537.
\29\ Nasdaq believes that the requirement to have a minimum
principal amount outstanding of $100 million, coupled with the
proposed concentration requirements, would reduce the likelihood
that an ETF listed under the proposal would be readily susceptible
to manipulation.
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Listing and Trading of ETFs Based on Combination Indexes
To list an ETF pursuant to the proposed generic listing standards
for Combination Indexes, an index underlying the ETF must satisfy all
the conditions contained in proposed Rule 4420(i)(5) (for PDRs) or Rule
4420(j)(5) (for IFSs). As with ETFs based solely on Fixed Income
Indexes, the generic listing standards are intended to ensure that
securities with substantial market distribution and liquidity account
for a substantial portion of the weight of both the equity and fixed
income portions of a Combination Index.
The proposed rules provide that Nasdaq may list and trade ETFs
based on a combination of indexes or a series of component securities
representing the U.S. or domestic equity market, the international
equity market, and the fixed income market, pursuant to Rule 19b-4(e)
under the Act, provided that: (i) Such portfolio or combination of
indexes has been described in an exchange rule approved by the
Commission for the trading of options, PDRs, IFSs, Index-Linked
Exchangeable Notes, or Index-Linked Securities, and all of the
standards set forth in the approval order are satisfied by the exchange
employing generic listing standards; or (ii) the equity portion and
fixed income portion of the component securities separately meet the
criteria set forth in Rule 4420(i)(3) (equities) and proposed Rule
4420(i)(4) (fixed income) for PDRs and Rule 4420(j)(3) (equities) and
proposed Rule 4420(j)(4) (fixed income) for IFSs.
Index Maintenance and Information
Nasdaq proposes to establish requirements regarding the maintenance
and dissemination of index information in connection with ETFs based on
Fixed Income Indexes and Combination Indexes. These rules would require
that the underlying value of a Fixed Income Index be widely
disseminated by one or more major market data vendors at least once a
day during the time when the corresponding ETF trades on Nasdaq.\30\
The rules also would require that the underlying value of a Combination
Index be widely disseminated by one or more major market data vendors
at least once every 15 seconds during the time when the corresponding
ETF trades on Nasdaq, provided that, with respect to the fixed income
components of the Combination Index, their impact on the index is
required to be updated only once each day.\31\ Nasdaq believes that
these provisions reflect the nature of the fixed income markets as well
as the frequency of intra-day trading information with respect to Fixed
Income Securities. If the index value does not change during some or
all of the period when trading is occurring on Nasdaq, the last
official calculated index value must remain available throughout Nasdaq
trading hours.
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\30\ Nasdaq Rules 4420(i)(4)(B)(ii) and 4420(j)(4)(B)(ii).
\31\ Nasdaq Rules 4420(i)(5)(A)(ii) and 4420(j)(5)(A)(ii).
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Moreover, if a Fixed Income Index or Combination Index underlying
an ETF is maintained by a broker-dealer or fund advisor, the broker-
dealer or fund advisor shall erect a ``firewall'' around the personnel
who have access to information concerning changes and adjustments to
the index.\32\ In addition, any advisory committee, supervisory board,
or similar entity that advises a Reporting Authority or that makes
decisions on index composition, methodology, and related matters, must
implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the index.\33\
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\32\ Rules 4420(i)(4)(B)(i), 4420(i)(5)(A)(i), 4420(j)(4)(B)(i),
and 4420(j)(5)(A)(i).
\33\ Rules 4420(i)(4)(B)(iii), 4420(i)(5)(A)(iii),
4420(j)(4)(B)(iii), and 4420(j)(5)(A)(iii).
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Application of General Rules
Proposed Rules 4420(i)(6) and 4420(j)(6) set forth requirements
governing any ETF based on a Fixed Income Index or Combination Index.
These include initial shares outstanding and the dissemination of the
Intraday Indicative Value, which is an estimate of the value of a share
of each ETF, updated at least every 15 seconds.
ETF Listing Criteria, Trading Rules, and Procedures
Under Nasdaq's proposal, an ETF based on a Fixed Income Index or
Combination Index would be subject to the listing criteria set out in
proposed Rules 4420(i)(9) and 4420(j)(9) \34\ Accordingly, an ETF's NAV
must be calculated at least once each day and disseminated to all
market participants at the same time.\35\ Also, where the value of the
underlying index or portfolio of securities on which the ETF is based
is no longer calculated or available, or if the ETF replaces the
underlying index or portfolio with a new index or portfolio, Nasdaq
would commence delisting proceedings unless the new index or portfolio
meets the requirements of and listing standards set forth in Rules
4420(i) and 4420(j), as applicable.\36\ Nasdaq proposes to clarify that
if a sponsor of an ETF chose to replace an index or portfolio that did
not meet any of Nasdaq's generic listing standards, approval by the
Commission of a separate filing pursuant to Section 19(b)(2) of the Act
to list and trade that ETF would be required.\37\ An ETF based on a
Fixed Income Index or Combination Index would be traded, in all
respects, under Nasdaq's existing trading rules and procedures that
apply to ETFs generally, including with respect to delisting and
trading halts. In particular, Rule 4120(a)(9) provides that, if the
Intraday Indicative Value or the index value applicable to that series
of ETFs is not being disseminated as required, Nasdaq may halt trading
during the day in which the interruption to the dissemination of the
Intraday Indicative Value or the index value occurs. If the
interruption to the dissemination of the Intraday Indicative Value or
the index value persists past the trading day in which it occurred,
Nasdaq would halt trading no later than the beginning of the trading
day following the interruption.\38\
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\34\ These rules will be renumbered from Rules 4420(i)(6) and
4420(j)(6).
\35\ See proposed Rules 4420(i)(9)(A)(ii) and 4420(j)(9)(A)(ii)
(requiring that, before approving an ETF for listing, Nasdaq will
obtain a representation from the ETF issuer that the NAV per share
will be calculated daily and made available to all market
participants at the same time).
\36\ See proposed Rules 4420(i)(9)(B)(i)b and 4420(j)(9)(B)(i)b.
\37\ The Commission previously approved a similar clarification
to the rules of the American Stock Exchange. See Securities Exchange
Act Release No. 54739 (November 9, 2006), 71 FR 66993 (November 17,
2006) (approving SR-Amex-2006-78).
\38\ If an ETF is traded on Nasdaq pursuant to unlisted trading
privileges, Nasdaq would halt trading if the primary listing market
halts trading in such ETF because the Intraday Indicative Value and/
or the index value is not being disseminated. See Rule 4120(b)(9).
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As noted above, if a broker-dealer is responsible for maintaining
(or has a role in maintaining) the underlying index, the broker-dealer
would be required to erect and maintain a ``firewall,'' in a form
satisfactory to
[[Page 30655]]
Nasdaq, to prevent the flow of non-public information regarding the
underlying index from the personnel involved in the development and
maintenance of such index to others such as sales and trading
personnel.
Surveillance
Nasdaq represents that an ETF based on a Fixed Income Index or
Combination Index would be covered under NASD Regulation's surveillance
program for ETFs, which NASD Regulation administers for Nasdaq under a
regulatory services agreement. NASD Regulation will implement written
surveillance procedures for ETFs based on either a Fixed Income Index
or a Combination Index.\39\ Nasdaq represents that NASD Regulation's
surveillance procedures are adequate to properly monitor the trading of
ETFs listed pursuant to the proposed new listing standards. In
addition, Nasdaq also has a general policy prohibiting the distribution
of material, non-public information by its employees.
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\39\ See proposed Rules 4420(i)(6)(C) and 4420(j)(6)(C).
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\40\ in general and with Section
6(b)(5) of the Act,\41\ in particular, in that the proposal is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\40\ 15 U.S.C. 78f.
\41\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2007-027 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-2007-027.
This file number should be included on the subject line if e-mail is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of 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 the File Number SR-NASDAQ-
2007-027 and should be submitted on or before June 22, 2007.
IV. Commission Findings
After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\42\ In particular, the Commission believes that the proposal
is consistent with Section 6(b)(5) of the Act \43\ in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\42\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\43\ 15 U.S.C. 78f(b)(5).
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Currently, the Exchange must file a proposed rule change with the
Commission pursuant to Section 19(b)(1) of the Act \44\ and Rule 19b-4
thereunder \45\ to list or trade any ETF based on Fixed Income
Securities. The Exchange also must file a proposed rule change to list
or trade an ETF based on a Fixed Income or Combination Index described
in an exchange rule previously approved by the Commission as an
underlying benchmark for a derivative security. Rule 19b-4(e) under the
Act, however, provides that the listing and trading of a new derivative
securities product by an SRO will not be deemed a proposed rule change
pursuant to Rule 19b-4(c)(1) if the Commission has approved, pursuant
to Section 19(b) of the Act, the SRO's trading rules, procedures, and
listing standards for the product class that would include the new
derivative securities product, and the SRO has a surveillance program
for the product class. The Exchange's proposed rules for the listing
and trading of ETFs pursuant to Rule 19b-4(e) based on (1) certain
indexes with components that include Fixed Income Securities or (2)
indexes or portfolios described in exchange rules previously approved
by the Commission as underlying benchmarks for derivative securities
fulfill these requirements. Use of Rule 19b-4(e) by Nasdaq to list and
trade such ETFs should promote competition, reduce burdens on issuers
and other market participants, and make such ETFs available to
investors more quickly. \46\
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\44\ 15 U.S.C. 78s(b)(1).
\45\ 17 CFR 240.19b-4.
\46\ The Commission notes that failure of a particular ETF to
satisfy the Exchange's generic listing standards does not preclude
the Exchange from submitting a separate proposal to list and trade
such ETF.
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The Commission has approved for listing and trading ETFs based on
certain fixed income indexes and structured notes linked to a basket or
[[Page 30656]]
index of Fixed Income Securities.\47\ Further, the Commission approved
substantially similar generic listing standards for ETFs based on Fixed
Income Indexes and Combination Indexes to be traded on Amex.\48\ The
Commission believes that adopting generic listing standards for ETFs
based on Fixed Income and Combination Indexes should fulfill the
intended objective of that rule by allowing those ETFs that satisfy the
proposed generic listing standards to commence trading without a rule
filing. Taken together, the Commission finds that the Nasdaq proposal
meets the requirements of Rule 19b-4(e). All products listed under the
proposed generic listing standards will be subject to existing Nasdaq
rules governing the trading of ETFs.
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\47\ See note 16 supra.
\48\ See note 17 supra.
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Proposed Rule 4420(i) (for PDRs) and proposed Rule 4420 (j) (for
IFSs) establish the standards for the composition of a Fixed Income
Index or Combination Index underlying an ETF. These requirements are
designed, among other things, to ensure that components of an index or
portfolio underlying the ETF are adequately capitalized and
sufficiently liquid, and that no one security dominates the index. The
Commission believes that these standards are reasonably designed to
ensure that a substantial portion of any underlying index or portfolio
consists of securities about which information is publicly available,
and that when applied in conjunction with the other applicable listing
requirements, will permit the listing and trading only of ETFs that are
sufficiently broad-based in scope to minimize potential manipulation.
The Commission further believes that the proposed listing standards are
reasonably designed to preclude Nasdaq from listing and trading an ETF
that might be used as a surrogate for trading in unregistered
securities.
The proposed generic listing standards also will permit Nasdaq to
list and trade an ETF if the Commission previously has approved a rule
of another exchange that contemplates listing and trading a derivative
security based on the same underlying index. Nasdaq would be able to
rely on the Commission's earlier approval order, provided that Nasdaq
complies with the commitments undertaken by the other exchange set
forth in the prior order, including any surveillance-sharing
arrangements.
The Commission believes that Nasdaq's proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Act,\49\ 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. Under the Exchange's proposed listing standards, the
underlying value of a Fixed Income Index is required to be widely
disseminated by one or more major market data vendors at least once a
day during the time when the corresponding ETF trades on the Exchange.
Likewise, the underlying value of a Combination Index is required to be
widely disseminated by one or more major market data vendors at least
once every 15 seconds during the time when the corresponding ETF trades
on the Exchange, provided that, with respect to the fixed income
components of the Combination Index, the impact on the index is
required to be updated only once each day.
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\49\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Furthermore, the Commission believes that the proposed rules are
reasonably designed to promote fair disclosure of information that may
be necessary to price an ETF appropriately. If a Fixed Income Index or
Combination Index underlying such an ETF is maintained by a broker-
dealer or fund advisor, that entity must erect a firewall around the
personnel who have access to information concerning changes and
adjustments to the index. Any advisory committee, supervisory board, or
similar entity that advises a Reporting Authority or that makes
decisions on index composition, methodology, or related matters must
implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the index. The Commission also notes that proposed Rules
4420(i)(9)(A)(ii) and 4420(j)(9)(A)(ii), which would apply to an ETF
listed and traded pursuant to this proposal, require that, before
approving an ETF for listing, the Exchange will obtain a representation
from the ETF issuer that the NAV per share will be calculated daily and
made available to all market participants at the same time.
The Commission also believes that the Exchange's trading halt rules
are reasonably designed to prevent trading in an ETF when transparency
cannot be assured. Rule 4120(a)(9) provides that, if the Intraday
Indicative Value or the index value applicable to an ETF is not
disseminated as required, the Exchange may halt trading during the day
in which the interruption occurs. If the interruption continues, the
Exchange will halt trading no later than the beginning of the next
trading day.\50\ Also, the Exchange will commence delisting proceedings
in the event that the value of the underlying index is no longer
calculated and widely disseminated on at least a 15-second basis (for
Combination Indexes) or at least once a day (for Fixed Income Indexes).
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\50\ Nasdaq may also exercise discretion to halt trading in a
series of Portfolio Depository Receipts or Index Fund Shares based
on a consideration of the following factors: (A) trading in
underlying securities comprising the index applicable to that series
has been halted in the primary market(s), (B) the extent to which
trading has ceased in securities underlying the index, or (C) the
presence of other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market. See Nasdaq Rule
4120(a)(9).
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The Commission notes that the Exchange represented that NASD
Regulation will implement written surveillance procedures for ETFs
based on either a Fixed Income Index or Combination Index.\51\ In
approving this proposal, the Commission has relied on the Exchange's
representation that its surveillance procedures are adequate to
properly monitor the trading of ETFs listed pursuant to this proposal.
This approval order is conditioned on the continuing accuracy of that
representation.
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\51\ See proposed Nasdaq Rules 4420(i)(6)(C) and 4420(j)(6)(C).
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Acceleration
The Commission finds good cause to approve the proposal, as
amended, prior to the thirtieth day after the proposal was published
for comment in the Federal Register. The Commission believes that
accelerating approval of the proposed rule change will expedite the
listing and trading of additional ETFs based on Fixed Income and
Combination Indexes by the Exchange, subject to consistent and
reasonable standards. The Commission also notes that Nasdaq's proposed
generic listing standards are substantially similar to the Amex Rules
that were approved by the Commission. Thus, the Commission finds good
cause, consistent with Section 19(b)(2) of the Act,\52\ to grant
accelerated approval of the proposed rule change.
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\52\ 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,
that the proposed rule change (SR-NASDAQ-
[[Page 30657]]
2007-027), as amended, is hereby approved on an accelerated basis.\53\
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\53\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\54\
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\54\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-10556 Filed 5-31-07; 8:45 am]
BILLING CODE 8010-01-P
