Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to the Generic Listing Standards for Index Multiple Exchange Traded Fund Shares and Index Inverse Exchange Traded Fund Shares, 51672-51676 [E8-20517]
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51672
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices
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 100 F Street, NE., Washington, DC
20549 on official business days between
the hours of 10 a.m. and 3 p.m. Copies
of such filing also will be available for
inspection and copying at the principal
office of the self-regulatory organization.
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–2008–070, and
should be submitted on or before
September 25, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–20516 Filed 9–3–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58440; File No. SR–
NASDAQ–2008–071]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Order Granting Accelerated
Approval of Proposed Rule Change
Relating to the Generic Listing
Standards for Index Multiple Exchange
Traded Fund Shares and Index Inverse
Exchange Traded Fund Shares
sroberts on PROD1PC77 with NOTICES
August 28, 2008.
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 August
20, 2008, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18:46 Sep 03, 2008
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq is filing a proposed rule
change to amend Nasdaq Rule 4420(j) to
list and trade, or trade pursuant to
unlisted trading privileges (‘‘UTP’’),
shares of a series of Index Multiple
Exchange Traded Fund Shares
(‘‘Multiple Fund Shares’’) and Index
Inverse Exchange Traded Fund Shares
(‘‘Inverse Fund Shares’’) (collectively,
the ‘‘Fund Shares’’). The text of the
proposed rule change is available from
Nasdaq’s Web site at https://
nasdaq.cchwallstreet.com, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
Proposed new language is italicized;
proposed deletions are in brackets.3
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4420. Quantitative Listing Criteria
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(a)–(i) No Change.
(j) Index Fund Shares
(1) No Change
(A) No Change
(B)(i) The term ‘‘Index Fund Share’’
includes a security issued by an openend management investment company
that seeks to provide investment results
that either exceed the performance of a
specified domestic equity, international
or global equity, or fixed income index
or a combination thereof by a specified
multiple or that correspond to the
inverse (opposite) of the performance of
a specified domestic equity,
international or global equity, or fixed
income index or a combination thereof
by a specified multiple. Such a security
is issued in a specified aggregate
number in return for a deposit of a
specified number of shares of stock, a
specified portfolio of fixed income
securities or a combination of the above
and/or cash as defined in subparagraph
(1)(B)(ii) of this rule with a value equal
to the next determined net asset value.
When aggregated in the same specified
minimum number, Index Fund Shares
may be redeemed at a holder’s request
by such open-end investment company
which will pay to the redeeming holder
the stock, fixed income securities or a
combination thereof and/or cash with a
3 Changes are marked to the rule text that appears
in the electronic manual of Nasdaq found at https://
nasdaq.cchwallstreet.com.
1 15
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Items I and II below, which Items have
been prepared by Nasdaq. The
Commission is publishing this notice
and order to solicit comments on the
proposed rule change from interested
persons and to approve the proposal on
an accelerated basis.
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value equal to the next determined net
asset value.
(ii) In order to achieve the investment
result that it seeks to provide, such an
investment company may hold a
combination of financial instruments,
including, but not limited to, stock
index futures contracts; options on
futures contracts; options on securities
and indices; equity caps, collars and
floors; swap agreements; forward
contracts; repurchase agreements and
reverse repurchase agreements (the
‘‘Financial Instruments’’), but only to
the extent and in the amounts or
percentages as set forth in the
registration statement for such Index
Fund Shares.
(iii) Any open-end management
investment company which issues Index
Fund Shares referenced in this
subparagraph (1)(B) that seeks to
provide investment results, before fees
and expenses, in an amount that
exceeds ¥200% of the percentage
performance on a given day of a
particular domestic equity, international
or global equity or fixed income
securities index or a combination
thereof shall not be approved by the
Exchange for listing and trading
pursuant to Rule 19b–4(e) under the
Securities Exchange Act of 1934.
(iv) For the initial and continued
listing of a series of Index Fund Shares
referenced in the provisions of this
subparagraph (1)(B) of this rule, the
following requirements must be adhered
to:
Daily public Web site disclosure of
portfolio holdings that will form the
basis for the calculation of the net asset
value by the issuer of such series,
including, as applicable, the following
instruments:
a. The identity and number of shares
held of each specific equity security;
b. The identity and amount held for
each specific fixed income security;
c. The specific types of Financial
Instruments and characteristics of such
Financial Instruments; and
d. Cash equivalents and the amount
of cash held in the portfolio.
If the Exchange becomes aware that
the net asset value related to an Index
Fund Shares included in the provisions
of this subparagraph (1)(B)(ii) of this
rule, is not being disseminated to all
market participants at the same time or
the daily public Web site disclosure of
portfolio holdings does not occur, the
Exchange shall halt trading in such
series of Index Fund Share, as
appropriate. The Exchange may resume
trading in such Index Fund Shares only
when the net asset value is disseminated
to all market participants at the same
time or the daily public Web site
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disclosure of portfolio holdings occurs,
as appropriate.
(C) [(B)] Reporting Authority. The
term ‘‘Reporting Authority’’ in respect
of a particular series of Index Fund
Shares means Nasdaq, a wholly-owned
subsidiary of Nasdaq, or an institution
or reporting service designated by
Nasdaq or its subsidiary as the official
source for calculating and reporting
information relating to such series,
including, but not limited to, any
current index or portfolio value; the
current value of the portfolio of any
securities required to be deposited in
connection with issuance of Index Fund
Shares; the amount of any dividend
equivalent payment or cash distribution
to holders of Index Fund Shares, net
asset value, and other information
relating to the issuance, redemption or
trading of Index Fund Shares.
Nothing in this paragraph shall imply
that an institution or reporting service
that is the source for calculating and
reporting information relating to Index
Fund Shares must be designated by
Nasdaq; the term ‘‘Reporting Authority’’
shall not refer to an institution or
reporting service not so designated.
(D) [(C)] US Component Stock. The
term ‘‘US Component Stock’’ shall mean
an equity security that is registered
under Sections 12(b) or 12(g) of the Act,
or an American Depository Receipt, the
underlying equity security of which is
registered under Sections 12(b) or 12(g)
of the Act.
(E) [(D)] Non-US Component Stock.
The term ‘‘Non-US Component Stock’’
shall mean an equity security that (a) is
not registered under Sections 12(b) or
12(g) of the Act, (b) is issued by an
entity that is not organized, domiciled
or incorporated in the United States,
and (c) is issued by an entity that is an
operating company (including Real
Estate Investment Trusts (REITs) and
income trusts, but excluding investment
trusts, unit trusts, mutual funds, and
derivatives).
(2)–(10) No Change
(k)–(o) No Change.
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sroberts on PROD1PC77 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,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item III below, and
is set forth in Sections A, B, and C
below.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq Rule 4420(j) provides
standards for listing Index Fund Shares
(‘‘IFSs’’) on the Exchange. Nasdaq
proposes to amend the definition of
‘‘Index Fund Share’’ set forth in
proposed Nasdaq Rule 4420(j)(1)(B) to
permit the listing and trading, or trading
pursuant to UTP, of Fund Shares and to
properly reflect the fact that domestic
equity, international or global equity, or
fixed income securities indexes or a
combination thereof may be used as the
underlying performance benchmark for
Fund Shares. Accordingly, this proposal
would enable the Exchange to list and
trade Multiple Fund Shares and certain
Inverse Fund Shares pursuant to Rule
19b–4(e) of the Act.4 The Exchange also
notes that the Commission has approved
the original listing and trading of Fund
Shares on the American Stock Exchange
LLC (‘‘Amex’’).5
Generic Listing Standards
Nasdaq Rule 4420(j) provides
standards for listing IFSs, which are
securities issued by an open-end
management investment company
(open-end mutual fund) based on a
portfolio of securities that seeks to
provide investment results that
correspond generally to the price and
yield performance or total return
performance of a specified foreign or
domestic securities index or fixed
income index. Pursuant to Nasdaq Rule
4420(j)(1)(A), IFSs must be issued in a
specified aggregate minimum number in
return for a deposit of specified
securities and/or a cash amount, with a
value equal to the next determined net
asset value (‘‘NAV’’). When aggregated
in the same specified minimum number,
IFSs must be redeemed by the issuer for
the securities and/or cash, with a value
equal to the next determined NAV.
Consistent with Nasdaq Rule
4420(j)(9)(A)(ii), the NAV is calculated
once a day after the close of the regular
trading day.
The proposed revisions to Nasdaq
Rule 4420(j) would allow the listing and
trading of Multiple Fund Shares and
Inverse Fund Shares that sought to
provide investment results, before fees
and expenses, in an amount not
exceeding ¥200% of the underlying
benchmark index pursuant to Rule 19b–
4 17
CFR 240.19b–4(e).
Securities Exchange Act Release No. 57660
(April 14, 2008), 73 FR 21391 (April 21, 2008) (SR–
Amex–2007–131).
5 See
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4(e) under the Act,6 where the other
applicable generic listing standards for
IFSs are satisfied. In connection with
Inverse Funds that seek to provide
investment results, before fees and
expenses, in an amount that exceeds
¥200% of the underlying benchmark
index, the Exchange’s proposal would
continue to require specific Commission
approval pursuant to Section 19(b)(2) of
the Act.7 In particular, Nasdaq Rule
4420(j)(1)(B)(iii) would expressly
prohibit Inverse Funds that seek to
provide investment results, before fees
and expenses, in an amount that
exceeds ¥200% of the underlying
benchmark index, from being approved
by the Exchange for listing and trading
pursuant to Rule 19b–4(e) under the
Act.8
Current Nasdaq Rule 4420(j)(1)(A)(i),
in pertinent part, defines the term
‘‘Index Fund Share’’ as based on a
specified foreign or domestic stock
index. In conjunction with the current
proposal, the Exchange proposes to
amend this definition to include
domestic equity, international or global
equity, or fixed income securities
indexes and combinations thereof as
permissible underlying performance
benchmarks. The Exchange states that
the proposed revision is consistent with
Nasdaq Rule 4420(j) reflecting the fact
that domestic equity, international or
global equity, or fixed income securities
indexes or a combination thereof may be
used as the underlying performance
benchmark for IFSs, including Fund
Shares.
The Exchange believes that adopting
generic listing and trading standards for
Fund Shares based on domestic equity,
international or global equity and/or
fixed income securities indexes and
applying Rule 19b–4(e) should fulfill
the intended objective of that Rule by
allowing those IFSs that satisfy the
proposed standards to commence
trading, without the need for
individualized Commission approval.
The proposed rules have the potential to
reduce the time frame for bringing Fund
Shares to market, thereby reducing the
burdens on issuers and other market
participants.9
The Commission has approved
generic standards providing for the
listing and trading of derivative
6 17
CFR 240.19b–4(e).
U.S.C. 78s(b)(2).
8 17 CFR 240.19b–4(e).
9 The Exchange submits that the failure of a
particular Fund Share portfolio to comply with the
proposed generic listing and trading standards
under Rule 19b–4(e) would not, however, preclude
the Exchange from submitting a separate filing
pursuant to Section 19(b)(2) requesting Commission
approval to list and trade a particular Fund Share.
7 15
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sroberts on PROD1PC77 with NOTICES
products pursuant to Rule 19b–4(e)
based on indexes previously approved
by the Commission under Section
19(b)(2) of the Act 10 and also notes that
the generic listing standards provide for
indexes that have been approved by the
Commission in connection with the
listing of Portfolio Depository Receipts,
Index Fund Shares or Index-Linked
Securities. The Exchange believes that
the application of that standard to Fund
Shares is appropriate because the
underlying securities index will have
been subject to detailed and specific
Commission review in the context of the
approval of listing of other derivatives.
The Exchange notes that existing
Nasdaq Rule 4420(j)(9)(B) provides
continued listing standards for all IFSs.
For example, where the value of the
underlying index or portfolio of
securities on which the IFS is based is
no longer calculated or available, or in
the event that the IFS chooses to
substitute a new index or portfolio for
the existing index or portfolio, the
Exchange would commence delisting
proceedings if the new index or
portfolio does not meet the
requirements of and listing standards set
forth in Nasdaq Rule 4420(j). If an IFS
chose to substitute an index that did not
meet any of the generic listing standards
for listing of IFSs pursuant to Rule 19b–
4(e) of the Act,11 then for continued
listing and trading, approval by the
Commission of a separate filing
pursuant to Section 19(b)(2) of the Act 12
to list and trade that IFS is required. In
addition, the Exchange further notes
that existing Nasdaq Rule
4420(j)(9)(A)(ii) provides that, prior to
approving an IFS for listing, the
Exchange will obtain a representation
from the issuer that the NAV per share
will be calculated daily and made
available to all market participants at
the same time.
The Exchange proposes to add Nasdaq
Rule 4420(j)(1)(B)(iv) to provide for the
halt of trading for Fund Shares if the
Exchange becomes aware that the openend investment company fails to
properly disseminate the appropriate
NAV to market participants at the same
time. In addition, the proposed rule
would also require a halt to trading if
the open-end investment company
issuing the Fund Shares failed to
provide daily public Web site disclosure
of its portfolio holdings. In particular,
proposed Nasdaq Rule 4420(j)(1)(B)(iv)
provides that the Exchange will halt
10 15 U.S.C. 78s(b)(2). See Securities Exchange
Act Release No. 54765 (November 16, 2006), 71 FR
67668 (November 22, 2006) (SR–Nasdaq–2006–009)
(Commodity-Linked Securities).
11 17 CFR 240.19b–4(e).
12 15 U.S.C. 78s(b)(2).
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trading in a series of Multiple Fund
Shares and/or Inverse Fund Shares if
the Exchange becomes aware that the
open-end investment company issuing
the Fund Shares fails to disseminate the
appropriate NAV to all market
participants at the same time and/or
fails to provide daily public Web site
disclosure of its portfolio holdings.
The investment objective associated
with the Fund Shares must be expected
to achieve investment results, before
fees and expenses, by a specified
multiple (Multiple Fund Shares) or
inversely up to ¥200% (Inverse Fund
Shares) of the underlying performance
benchmark domestic equity,
international or global equity and/or
fixed income indexes, as applicable.
Fund Shares differ from traditional
exchange-traded fund shares in that
they do not merely correspond to the
performance of a given securities index,
but rather attempt to match a multiple
or inverse of such underlying index
performance.
In order to achieve investment results
that provide either a positive multiple
or inverse of the benchmark index,
Fund Shares may hold a combination of
financial instruments, including, but not
limited to: Stock index futures
contracts; options on futures; options on
securities and indices; equity caps,
collars and floors; swap agreements;
forward contracts; repurchase
agreements; and reverse repurchase
agreements (the ‘‘Financial
Instruments’’). Normally, 100% of the
value of the underlying portfolios for
the Inverse Fund Shares will be devoted
to Financial Instruments and money
market instruments, including U.S.
government securities and repurchase
agreements (the ‘‘Money Market
Instruments’’). The underlying
portfolios for Multiple Fund Shares may
consist of a combination of securities,
Financial Instruments and Money
Market Instruments.
Limitation on Leverage
In connection with Inverse Funds that
seek to provide investment results,
before fees and expenses, in an amount
that exceeds ¥200% of the underlying
benchmark index, the Exchange’s
proposal would continue to require
specific Commission approval pursuant
to Section 19(b)(2) of the Act.13 In
particular, Nasdaq Rule 4420(j)(1)(B)(iii)
would expressly prohibit Inverse Funds
that seek to provide investment results,
before fees and expenses, in an amount
that exceeds ¥200% of the underlying
benchmark index, from being approved
by the Exchange for listing and trading
13 15
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U.S.C. 78s(b)(2).
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pursuant to Rule 19b–4(e) under the
Act.14
In connection with Multiple Fund
Shares, Nasdaq Rule 4420(j)(1)(B) does
not provide a similar limitation on
leverage. Instead, the proposal would
permit the underlying registered
management investment company or
fund to seek to provide investment
results, before fees and expenses, that
correspond to any multiple, without
limitation, of the percentage
performance on a given day of a
particular domestic equity, international
or global equity, or fixed income
securities indexes or a combination
thereof.
Availability of Information About Fund
Shares and Underlying Indexes
Proposed Nasdaq Rule
4420(j)(1)(B)(iv) provides that the
portfolio composition of a Fund will be
disclosed on a public Web site. Web site
disclosure of portfolio holdings that will
form the basis for the calculation of the
NAV by the issuer of a series of Fund
Shares will be made daily and will
include, as applicable, the identity and
number of shares held of each specific
equity security, the identity and amount
held of each fixed income security, the
specific types of Financial Instruments
and characteristics of such instruments,
cash equivalents and amount of cash
held in the portfolio of a fund. This
public Web site disclosure of the
portfolio composition of a Fund, that
will form the basis for the calculation of
the NAV, will coincide with the
disclosure of the same information to
‘‘Authorized Participants.’’ 15 Investors
will have access to the current portfolio
composition of a Fund through the
Fund’s Web site and/or at the
Exchange’s Web site at https://
www.nasdaqomx.com.
Trading Halts
Existing trading halt requirements for
IFSs will apply to Fund Shares. Nasdaq
will halt trading in Fund Shares under
the conditions specified in Nasdaq
Rules 4120 and 4121, as well as subject
to proposed Nasdaq Rule
4420(j)(1)(B)(iv). The conditions for a
halt include a regulatory halt by the
listing market. UTP trading in Fund
14 17
CFR 240.19b–4(e).
Participants are the only persons
that may place orders to create and redeem Creation
Units. Authorized Participants must be registered
broker-dealers or other securities market
participants, such as banks and other financial
institutions that are exempt from registration as
broker-dealers to engage in securities transactions,
who are participants in DTC. The format of the
disclosure of portfolio holdings to Authorized
Participants may differ from the format of the
public Web site disclosure.
15 Authorized
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Shares will also be governed by
provisions of Nasdaq Rule 4120(b)
relating to temporary interruptions in
the calculation or wide dissemination of
the calculation of the estimated NAV
(‘‘Intraday Indicative Value’’), which is
updated regularly during the trading
day, among other values.
If Nasdaq becomes aware that the
NAV or the identities and quantities of
the portfolio of securities and other
assets (the ‘‘Disclosed Portfolio’’) with
respect to a Fund Share is not
disseminated to all market participants
at the same time, it will halt trading in
such series until such time as the NAV
or the Disclosed Portfolio is available to
all market participants.
In the case of the Financial
Instruments held by a Multiple or
Inverse Fund, the Exchange represents
that a notification procedure will be
implemented so that timely notice from
the investment adviser of such Multiple
or Inverse Fund is received by the
Exchange when a particular Financial
Instrument is in default or shortly to be
in default. The Exchange will then
determine on a case-by-case basis
whether a default of a particular
Financial Instrument justifies a trading
halt of the Multiple and/or Inverse Fund
Shares.
Additionally, Nasdaq may cease
trading Fund Shares 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 Fund
Shares if the listing market delists them.
Suitability
Prior to commencement of trading,
the Exchange will issue an Information
Circular to its members and member
organizations providing guidance with
regard to member firm compliance
responsibilities (including suitability
obligations) when effecting transactions
in the Fund Shares and highlighting the
special risks and characteristics of
Funds Shares as well as applicable
Exchange rules.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Fund Shares in Baskets
(and that Fund Shares are not
individually redeemable); (2) Nasdaq
Rule 2310, which imposes suitability
obligations on Nasdaq members with
respect to recommending transactions in
Fund Shares to customers; (3) how
information regarding the Intraday
Indicative Value is disseminated; (4) the
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requirement that members deliver a
prospectus to investors purchasing
newly issued Fund Shares prior to or
concurrently with the confirmation of a
transaction; (5) the risks involved in
trading Fund Shares during the PreMarket and Post-Market Sessions when
an updated Intraday Indicative Value
will not be calculated or publicly
disseminated; and (6) trading
information.
The Exchange notes that investors
purchasing Fund Shares directly from a
Fund will receive a prospectus.
Members purchasing Fund Shares from
a Fund for resale to investors will
deliver a prospectus to such investors.
The Information Circular will also
discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
In addition, the Information Circular
will reference that Fund Shares are
subject to various fees and expenses
described in the Registration Statement.
The Information Circular will also
disclose the trading hours of the Fund
Shares of the Funds and that the NAV
for the Fund Shares will be calculated
after 4 p.m. (Eastern Time) each trading
day.
Surveillance
The Exchange intends to utilize its
existing surveillance procedures
applicable to derivative products
(including exchange-traded funds) to
monitor trading in Fund Shares. The
Exchange represents that such
procedures are adequate to address any
concerns about the trading of Fund
Shares on Nasdaq. Trading of Fund
Shares through Nasdaq will be subject
to FINRA’s surveillance procedures for
equity securities in general and ETFs in
particular.16 The Exchange may obtain
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges who are members or affiliate
members of the ISG.17
2. Statutory Basis
Nasdaq believes that the proposal is
consistent with Section 6(b) of the Act 18
in general and Section 6(b)(5) of the
Act 19 in particular 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
16 FINRA surveils trading on Nasdaq pursuant to
a regulatory services agreement. Nasdaq is
responsible for FINRA’s performance under this
regulatory services agreement.
17 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
18 15 U.S.C. 78f.
19 15 U.S.C. 78f(b)(5).
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51675
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system. The
Exchange believes that the proposed
rules will facilitate the listing and
trading of Fund Shares and will
enhance competition among market
participants, to the benefit of investors
and the marketplace. In addition, the
listing and trading criteria set forth in
the proposed rules are intended 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 impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
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 (www.sec.gov/rules/
sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2008–071 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2008–071. 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 (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
E:\FR\FM\04SEN1.SGM
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51676
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices
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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the 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–2008–071 and
should be submitted on or before
September 25, 2008.
sroberts on PROD1PC77 with NOTICES
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change
After careful consideration, 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.20 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,21 which
requires that the rules of an exchange be
designed, among other things, to
prevent fraudulent and manipulative
acts and practices, 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.
Pursuant to Section 19(b) of the Act 22
and Rule 19b–4 thereunder,23 the listing
and trading of a new derivative
securities product is a proposed rule
change that must be filed with and
approved by the Commission. Rule 19b–
4(e) under the Act 24 further provides
that the listing and trading of a new
derivative securities product by an
exchange will not be deemed a
proposed rule change pursuant to Rule
19b–4(c)(1) under the Act 25 if the
Commission has approved, pursuant to
Section 19(b) of the Act, the exchange’s
trading rules, procedures, and listing
20 In approving this rule change, the Commission
notes that it has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(5).
22 15 U.S.C. 78s(b)(1).
23 17 CFR 240.19b–4.
24 17 CFR 240.19b–4(e).
25 17 CFR 240.19b–4(c)(1).
VerDate Aug<31>2005
18:46 Sep 03, 2008
Jkt 214001
standards for the product class that
would include the new derivative
securities product, and the exchange has
a surveillance program for the product
class.
The Commission believes that the
Exchange’s adoption of listing and
trading standards for Index Fund Shares
that meet the requirements of Nasdaq
Rule 4420(j) should fulfill the intended
objective of Rule 19b–4(e) by allowing
such Index Fund Shares to commence
trading on the Exchange without the
need for individualized Commission
approval. Accordingly, the proposed
rule should allow the Exchange to bring
these securities to market without delay,
thereby reducing the burdens on issuers
and other market participants while
promoting competition.
The Commission finds that the
Exchange’s proposal contains adequate
rules and procedures to govern the
trading and listing pursuant to Rule
19b–4(e) of Inverse Fund Shares and
Multiple Fund Shares listed pursuant to
Rule 19b–4(e) on the Exchange. Among
other things, the proposal would require
daily public Web site disclosure of a
fund’s portfolio holdings and
dissemination of its NAV to all market
participants at the same time, or else the
Exchange would be obligated to halt
trading in the fund’s shares. In addition,
Fund Shares listed and/or traded under
the proposed ‘‘generic’’ standards would
be subject to existing Nasdaq rules that
govern the continued listing and trading
of Index Fund Shares.
The Commission finds good cause for
approving this proposal before the 30th
day after the publication of notice
thereof in the Federal Register. The
Commission notes that it has recently
approved a similar proposal of another
exchange,26 and Nasdaq’s proposal does
not raise any novel regulatory issues.
Accordingly, the Commission believes
that accelerating approval of this
proposal is appropriate and will enable
the Exchange to amend its rules to
reflect the standards for listing and
trading Inverse and Multiple Fund
Shares, thereby conforming Nasdaq’s
rules to those of other exchanges
without delay.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,27 that the
proposed rule change (SR–NASDAQ–
2008–071) be, and it hereby is, approved
on an accelerated basis.
26 See Securities Exchange Act Release No. 57660
(April 14, 2008), 73 FR 21391 (April 21, 2008) (SR–
Amex–2007–131). The Commission notes that it
received no comments on the Amex’s proposal.
27 15 U.S.C. 78s(b)(2).
PO 00000
Frm 00056
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–20517 Filed 9–3–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58429; File No. SR–NYSE–
2008–71]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending
NYSE Rule 123B (Exchange Automated
Order Routing System) To Allow a
Member Organization To Provide Other
Market Participants With Access to the
Exchange on an Agency Basis
August 27, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
18, 2008, New York Stock Exchange
LLC (‘‘NYSE’’ 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 prepared by NYSE. NYSE filed the
proposed rule change as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders it effective upon filing
with the Commission. 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
NYSE proposes to amend NYSE Rule
123B to set forth the requirements that
would allow a member organization to
provide other market participants with
access to the Exchange on an agency
basis for the entry and execution of
orders on the Exchange.5 The text of the
proposed rule change is available at
NYSE, the Commission’s Public
28 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).
4 17 CFR 240.19b–4(f)(6).
5 NYSE Rule 54 provides that only members are
permitted to ‘‘make or accept bids or offers,
consummate transactions, or otherwise transact
business on the Floor for any security admitted to
dealings on the [Exchange].* * * ’’ See also NYSE
Rule 2.
1 15
E:\FR\FM\04SEN1.SGM
04SEN1
]]>Agencies
[Federal Register Volume 73, Number 172 (Thursday, September 4, 2008)]
[Notices]
[Pages 51672-51676]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-20517]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58440; File No. SR-NASDAQ-2008-071]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Relating to the Generic Listing Standards for Index
Multiple Exchange Traded Fund Shares and Index Inverse Exchange Traded
Fund Shares
August 28, 2008.
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 August 20, 2008, 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 prepared by Nasdaq. The Commission is
publishing this notice and order to solicit comments on the proposed
rule change from interested persons and to approve the proposal on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is filing a proposed rule change to amend Nasdaq Rule
4420(j) to list and trade, or trade pursuant to unlisted trading
privileges (``UTP''), shares of a series of Index Multiple Exchange
Traded Fund Shares (``Multiple Fund Shares'') and Index Inverse
Exchange Traded Fund Shares (``Inverse Fund Shares'') (collectively,
the ``Fund Shares''). The text of the proposed rule change is available
from Nasdaq's Web site at https://nasdaq.cchwallstreet.com, at Nasdaq's
principal office, and at the Commission's Public Reference Room.
Proposed new language is italicized; proposed deletions are in
brackets.\3\
---------------------------------------------------------------------------
\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at https://
nasdaq.cchwallstreet.com.
---------------------------------------------------------------------------
* * * * *
4420. Quantitative Listing Criteria
* * * * *
(a)-(i) No Change.
(j) Index Fund Shares
(1) No Change
(A) No Change
(B)(i) The term ``Index Fund Share'' includes a security issued by
an open-end management investment company that seeks to provide
investment results that either exceed the performance of a specified
domestic equity, international or global equity, or fixed income index
or a combination thereof by a specified multiple or that correspond to
the inverse (opposite) of the performance of a specified domestic
equity, international or global equity, or fixed income index or a
combination thereof by a specified multiple. Such a security is issued
in a specified aggregate number in return for a deposit of a specified
number of shares of stock, a specified portfolio of fixed income
securities or a combination of the above and/or cash as defined in
subparagraph (1)(B)(ii) of this rule with a value equal to the next
determined net asset value. When aggregated in the same specified
minimum number, Index Fund Shares may be redeemed at a holder's request
by such open-end investment company which will pay to the redeeming
holder the stock, fixed income securities or a combination thereof and/
or cash with a value equal to the next determined net asset value.
(ii) In order to achieve the investment result that it seeks to
provide, such an investment company may hold a combination of financial
instruments, including, but not limited to, stock index futures
contracts; options on futures contracts; options on securities and
indices; equity caps, collars and floors; swap agreements; forward
contracts; repurchase agreements and reverse repurchase agreements (the
``Financial Instruments''), but only to the extent and in the amounts
or percentages as set forth in the registration statement for such
Index Fund Shares.
(iii) Any open-end management investment company which issues Index
Fund Shares referenced in this subparagraph (1)(B) that seeks to
provide investment results, before fees and expenses, in an amount that
exceeds -200% of the percentage performance on a given day of a
particular domestic equity, international or global equity or fixed
income securities index or a combination thereof shall not be approved
by the Exchange for listing and trading pursuant to Rule 19b-4(e) under
the Securities Exchange Act of 1934.
(iv) For the initial and continued listing of a series of Index
Fund Shares referenced in the provisions of this subparagraph (1)(B) of
this rule, the following requirements must be adhered to:
Daily public Web site disclosure of portfolio holdings that will
form the basis for the calculation of the net asset value by the issuer
of such series, including, as applicable, the following instruments:
a. The identity and number of shares held of each specific equity
security;
b. The identity and amount held for each specific fixed income
security;
c. The specific types of Financial Instruments and characteristics
of such Financial Instruments; and
d. Cash equivalents and the amount of cash held in the portfolio.
If the Exchange becomes aware that the net asset value related to
an Index Fund Shares included in the provisions of this subparagraph
(1)(B)(ii) of this rule, is not being disseminated to all market
participants at the same time or the daily public Web site disclosure
of portfolio holdings does not occur, the Exchange shall halt trading
in such series of Index Fund Share, as appropriate. The Exchange may
resume trading in such Index Fund Shares only when the net asset value
is disseminated to all market participants at the same time or the
daily public Web site
[[Page 51673]]
disclosure of portfolio holdings occurs, as appropriate.
(C) [(B)] Reporting Authority. The term ``Reporting Authority'' in
respect of a particular series of Index Fund Shares means Nasdaq, a
wholly-owned subsidiary of Nasdaq, or an institution or reporting
service designated by Nasdaq or its subsidiary as the official source
for calculating and reporting information relating to such series,
including, but not limited to, any current index or portfolio value;
the current value of the portfolio of any securities required to be
deposited in connection with issuance of Index Fund Shares; the amount
of any dividend equivalent payment or cash distribution to holders of
Index Fund Shares, net asset value, and other information relating to
the issuance, redemption or trading of Index Fund Shares.
Nothing in this paragraph shall imply that an institution or
reporting service that is the source for calculating and reporting
information relating to Index Fund Shares must be designated by Nasdaq;
the term ``Reporting Authority'' shall not refer to an institution or
reporting service not so designated.
(D) [(C)] US Component Stock. The term ``US Component Stock'' shall
mean an equity security that is registered under Sections 12(b) or
12(g) of the Act, or an American Depository Receipt, the underlying
equity security of which is registered under Sections 12(b) or 12(g) of
the Act.
(E) [(D)] Non-US Component Stock. The term ``Non-US Component
Stock'' shall mean an equity security that (a) is not registered under
Sections 12(b) or 12(g) of the Act, (b) is issued by an entity that is
not organized, domiciled or incorporated in the United States, and (c)
is issued by an entity that is an operating company (including Real
Estate Investment Trusts (REITs) and income trusts, but excluding
investment trusts, unit trusts, mutual funds, and derivatives).
(2)-(10) No Change
(k)-(o) No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below, and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq Rule 4420(j) provides standards for listing Index Fund
Shares (``IFSs'') on the Exchange. Nasdaq proposes to amend the
definition of ``Index Fund Share'' set forth in proposed Nasdaq Rule
4420(j)(1)(B) to permit the listing and trading, or trading pursuant to
UTP, of Fund Shares and to properly reflect the fact that domestic
equity, international or global equity, or fixed income securities
indexes or a combination thereof may be used as the underlying
performance benchmark for Fund Shares. Accordingly, this proposal would
enable the Exchange to list and trade Multiple Fund Shares and certain
Inverse Fund Shares pursuant to Rule 19b-4(e) of the Act.\4\ The
Exchange also notes that the Commission has approved the original
listing and trading of Fund Shares on the American Stock Exchange LLC
(``Amex'').\5\
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
\5\ See Securities Exchange Act Release No. 57660 (April 14,
2008), 73 FR 21391(April 21, 2008) (SR-Amex-2007-131).
---------------------------------------------------------------------------
Generic Listing Standards
Nasdaq Rule 4420(j) provides standards for listing IFSs, which are
securities issued by an open-end management investment company (open-
end mutual fund) based on a portfolio of securities that seeks to
provide investment results that correspond generally to the price and
yield performance or total return performance of a specified foreign or
domestic securities index or fixed income index. Pursuant to Nasdaq
Rule 4420(j)(1)(A), IFSs must be issued in a specified aggregate
minimum number in return for a deposit of specified securities and/or a
cash amount, with a value equal to the next determined net asset value
(``NAV''). When aggregated in the same specified minimum number, IFSs
must be redeemed by the issuer for the securities and/or cash, with a
value equal to the next determined NAV. Consistent with Nasdaq Rule
4420(j)(9)(A)(ii), the NAV is calculated once a day after the close of
the regular trading day.
The proposed revisions to Nasdaq Rule 4420(j) would allow the
listing and trading of Multiple Fund Shares and Inverse Fund Shares
that sought to provide investment results, before fees and expenses, in
an amount not exceeding -200% of the underlying benchmark index
pursuant to Rule 19b-4(e) under the Act,\6\ where the other applicable
generic listing standards for IFSs are satisfied. In connection with
Inverse Funds that seek to provide investment results, before fees and
expenses, in an amount that exceeds -200% of the underlying benchmark
index, the Exchange's proposal would continue to require specific
Commission approval pursuant to Section 19(b)(2) of the Act.\7\ In
particular, Nasdaq Rule 4420(j)(1)(B)(iii) would expressly prohibit
Inverse Funds that seek to provide investment results, before fees and
expenses, in an amount that exceeds -200% of the underlying benchmark
index, from being approved by the Exchange for listing and trading
pursuant to Rule 19b-4(e) under the Act.\8\
---------------------------------------------------------------------------
\6\ 17 CFR 240.19b-4(e).
\7\ 15 U.S.C. 78s(b)(2).
\8\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
Current Nasdaq Rule 4420(j)(1)(A)(i), in pertinent part, defines
the term ``Index Fund Share'' as based on a specified foreign or
domestic stock index. In conjunction with the current proposal, the
Exchange proposes to amend this definition to include domestic equity,
international or global equity, or fixed income securities indexes and
combinations thereof as permissible underlying performance benchmarks.
The Exchange states that the proposed revision is consistent with
Nasdaq Rule 4420(j) reflecting the fact that domestic equity,
international or global equity, or fixed income securities indexes or a
combination thereof may be used as the underlying performance benchmark
for IFSs, including Fund Shares.
The Exchange believes that adopting generic listing and trading
standards for Fund Shares based on domestic equity, international or
global equity and/or fixed income securities indexes and applying Rule
19b-4(e) should fulfill the intended objective of that Rule by allowing
those IFSs that satisfy the proposed standards to commence trading,
without the need for individualized Commission approval. The proposed
rules have the potential to reduce the time frame for bringing Fund
Shares to market, thereby reducing the burdens on issuers and other
market participants.\9\
---------------------------------------------------------------------------
\9\ The Exchange submits that the failure of a particular Fund
Share portfolio to comply with the proposed generic listing and
trading standards under Rule 19b-4(e) would not, however, preclude
the Exchange from submitting a separate filing pursuant to Section
19(b)(2) requesting Commission approval to list and trade a
particular Fund Share.
---------------------------------------------------------------------------
The Commission has approved generic standards providing for the
listing and trading of derivative
[[Page 51674]]
products pursuant to Rule 19b-4(e) based on indexes previously approved
by the Commission under Section 19(b)(2) of the Act \10\ and also notes
that the generic listing standards provide for indexes that have been
approved by the Commission in connection with the listing of Portfolio
Depository Receipts, Index Fund Shares or Index-Linked Securities. The
Exchange believes that the application of that standard to Fund Shares
is appropriate because the underlying securities index will have been
subject to detailed and specific Commission review in the context of
the approval of listing of other derivatives.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(2). See Securities Exchange Act Release
No. 54765 (November 16, 2006), 71 FR 67668 (November 22, 2006) (SR-
Nasdaq-2006-009) (Commodity-Linked Securities).
---------------------------------------------------------------------------
The Exchange notes that existing Nasdaq Rule 4420(j)(9)(B) provides
continued listing standards for all IFSs. For example, where the value
of the underlying index or portfolio of securities on which the IFS is
based is no longer calculated or available, or in the event that the
IFS chooses to substitute a new index or portfolio for the existing
index or portfolio, the Exchange would commence delisting proceedings
if the new index or portfolio does not meet the requirements of and
listing standards set forth in Nasdaq Rule 4420(j). If an IFS chose to
substitute an index that did not meet any of the generic listing
standards for listing of IFSs pursuant to Rule 19b-4(e) of the Act,\11\
then for continued listing and trading, approval by the Commission of a
separate filing pursuant to Section 19(b)(2) of the Act \12\ to list
and trade that IFS is required. In addition, the Exchange further notes
that existing Nasdaq Rule 4420(j)(9)(A)(ii) provides that, prior to
approving an IFS for listing, the Exchange will obtain a representation
from the issuer that the NAV per share will be calculated daily and
made available to all market participants at the same time.
---------------------------------------------------------------------------
\11\ 17 CFR 240.19b-4(e).
\12\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
The Exchange proposes to add Nasdaq Rule 4420(j)(1)(B)(iv) to
provide for the halt of trading for Fund Shares if the Exchange becomes
aware that the open-end investment company fails to properly
disseminate the appropriate NAV to market participants at the same
time. In addition, the proposed rule would also require a halt to
trading if the open-end investment company issuing the Fund Shares
failed to provide daily public Web site disclosure of its portfolio
holdings. In particular, proposed Nasdaq Rule 4420(j)(1)(B)(iv)
provides that the Exchange will halt trading in a series of Multiple
Fund Shares and/or Inverse Fund Shares if the Exchange becomes aware
that the open-end investment company issuing the Fund Shares fails to
disseminate the appropriate NAV to all market participants at the same
time and/or fails to provide daily public Web site disclosure of its
portfolio holdings.
The investment objective associated with the Fund Shares must be
expected to achieve investment results, before fees and expenses, by a
specified multiple (Multiple Fund Shares) or inversely up to -200%
(Inverse Fund Shares) of the underlying performance benchmark domestic
equity, international or global equity and/or fixed income indexes, as
applicable. Fund Shares differ from traditional exchange-traded fund
shares in that they do not merely correspond to the performance of a
given securities index, but rather attempt to match a multiple or
inverse of such underlying index performance.
In order to achieve investment results that provide either a
positive multiple or inverse of the benchmark index, Fund Shares may
hold a combination of financial instruments, including, but not limited
to: Stock index futures contracts; options on futures; options on
securities and indices; equity caps, collars and floors; swap
agreements; forward contracts; repurchase agreements; and reverse
repurchase agreements (the ``Financial Instruments''). Normally, 100%
of the value of the underlying portfolios for the Inverse Fund Shares
will be devoted to Financial Instruments and money market instruments,
including U.S. government securities and repurchase agreements (the
``Money Market Instruments''). The underlying portfolios for Multiple
Fund Shares may consist of a combination of securities, Financial
Instruments and Money Market Instruments.
Limitation on Leverage
In connection with Inverse Funds that seek to provide investment
results, before fees and expenses, in an amount that exceeds -200% of
the underlying benchmark index, the Exchange's proposal would continue
to require specific Commission approval pursuant to Section 19(b)(2) of
the Act.\13\ In particular, Nasdaq Rule 4420(j)(1)(B)(iii) would
expressly prohibit Inverse Funds that seek to provide investment
results, before fees and expenses, in an amount that exceeds -200% of
the underlying benchmark index, from being approved by the Exchange for
listing and trading pursuant to Rule 19b-4(e) under the Act.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(2).
\14\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
In connection with Multiple Fund Shares, Nasdaq Rule 4420(j)(1)(B)
does not provide a similar limitation on leverage. Instead, the
proposal would permit the underlying registered management investment
company or fund to seek to provide investment results, before fees and
expenses, that correspond to any multiple, without limitation, of the
percentage performance on a given day of a particular domestic equity,
international or global equity, or fixed income securities indexes or a
combination thereof.
Availability of Information About Fund Shares and Underlying Indexes
Proposed Nasdaq Rule 4420(j)(1)(B)(iv) provides that the portfolio
composition of a Fund will be disclosed on a public Web site. Web site
disclosure of portfolio holdings that will form the basis for the
calculation of the NAV by the issuer of a series of Fund Shares will be
made daily and will include, as applicable, the identity and number of
shares held of each specific equity security, the identity and amount
held of each fixed income security, the specific types of Financial
Instruments and characteristics of such instruments, cash equivalents
and amount of cash held in the portfolio of a fund. This public Web
site disclosure of the portfolio composition of a Fund, that will form
the basis for the calculation of the NAV, will coincide with the
disclosure of the same information to ``Authorized Participants.'' \15\
Investors will have access to the current portfolio composition of a
Fund through the Fund's Web site and/or at the Exchange's Web site at
https://www.nasdaqomx.com.
---------------------------------------------------------------------------
\15\ Authorized Participants are the only persons that may place
orders to create and redeem Creation Units. Authorized Participants
must be registered broker-dealers or other securities market
participants, such as banks and other financial institutions that
are exempt from registration as broker-dealers to engage in
securities transactions, who are participants in DTC. The format of
the disclosure of portfolio holdings to Authorized Participants may
differ from the format of the public Web site disclosure.
---------------------------------------------------------------------------
Trading Halts
Existing trading halt requirements for IFSs will apply to Fund
Shares. Nasdaq will halt trading in Fund Shares under the conditions
specified in Nasdaq Rules 4120 and 4121, as well as subject to proposed
Nasdaq Rule 4420(j)(1)(B)(iv). The conditions for a halt include a
regulatory halt by the listing market. UTP trading in Fund
[[Page 51675]]
Shares will also be governed by provisions of Nasdaq Rule 4120(b)
relating to temporary interruptions in the calculation or wide
dissemination of the calculation of the estimated NAV (``Intraday
Indicative Value''), which is updated regularly during the trading day,
among other values.
If Nasdaq becomes aware that the NAV or the identities and
quantities of the portfolio of securities and other assets (the
``Disclosed Portfolio'') with respect to a Fund Share is not
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the NAV or the Disclosed
Portfolio is available to all market participants.
In the case of the Financial Instruments held by a Multiple or
Inverse Fund, the Exchange represents that a notification procedure
will be implemented so that timely notice from the investment adviser
of such Multiple or Inverse Fund is received by the Exchange when a
particular Financial Instrument is in default or shortly to be in
default. The Exchange will then determine on a case-by-case basis
whether a default of a particular Financial Instrument justifies a
trading halt of the Multiple and/or Inverse Fund Shares.
Additionally, Nasdaq may cease trading Fund Shares 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 Fund Shares if the listing market delists them.
Suitability
Prior to commencement of trading, the Exchange will issue an
Information Circular to its members and member organizations providing
guidance with regard to member firm compliance responsibilities
(including suitability obligations) when effecting transactions in the
Fund Shares and highlighting the special risks and characteristics of
Funds Shares as well as applicable Exchange rules.
Specifically, the Information Circular will discuss the following:
(1) The procedures for purchases and redemptions of Fund Shares in
Baskets (and that Fund Shares are not individually redeemable); (2)
Nasdaq Rule 2310, which imposes suitability obligations on Nasdaq
members with respect to recommending transactions in Fund Shares to
customers; (3) how information regarding the Intraday Indicative Value
is disseminated; (4) the requirement that members deliver a prospectus
to investors purchasing newly issued Fund Shares prior to or
concurrently with the confirmation of a transaction; (5) the risks
involved in trading Fund Shares during the Pre-Market and Post-Market
Sessions when an updated Intraday Indicative Value will not be
calculated or publicly disseminated; and (6) trading information.
The Exchange notes that investors purchasing Fund Shares directly
from a Fund will receive a prospectus. Members purchasing Fund Shares
from a Fund for resale to investors will deliver a prospectus to such
investors. The Information Circular will also discuss any exemptive,
no-action and interpretive relief granted by the Commission from any
rules under the Act.
In addition, the Information Circular will reference that Fund
Shares are subject to various fees and expenses described in the
Registration Statement. The Information Circular will also disclose the
trading hours of the Fund Shares of the Funds and that the NAV for the
Fund Shares will be calculated after 4 p.m. (Eastern Time) each trading
day.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (including exchange-traded
funds) to monitor trading in Fund Shares. The Exchange represents that
such procedures are adequate to address any concerns about the trading
of Fund Shares on Nasdaq. Trading of Fund Shares through Nasdaq will be
subject to FINRA's surveillance procedures for equity securities in
general and ETFs in particular.\16\ The Exchange may obtain information
via the Intermarket Surveillance Group (``ISG'') from other exchanges
who are members or affiliate members of the ISG.\17\
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\16\ FINRA surveils trading on Nasdaq pursuant to a regulatory
services agreement. Nasdaq is responsible for FINRA's performance
under this regulatory services agreement.
\17\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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2. Statutory Basis
Nasdaq believes that the proposal is consistent with Section 6(b)
of the Act \18\ in general and Section 6(b)(5) of the Act \19\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. The Exchange believes that the
proposed rules will facilitate the listing and trading of Fund Shares
and will enhance competition among market participants, to the benefit
of investors and the marketplace. In addition, the listing and trading
criteria set forth in the proposed rules are intended to protect
investors and the public interest.
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\18\ 15 U.S.C. 78f.
\19\ 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 impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
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 (www.sec.gov/
rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2008-071 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2008-071. 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 (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
[[Page 51676]]
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, 100 F Street, NE., Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
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-2008-071 and should be submitted on or before
September 25, 2008.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
After careful consideration, 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.\20\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\21\ which
requires that the rules of an exchange be designed, among other things,
to prevent fraudulent and manipulative acts and practices, 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.
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\20\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\21\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 19(b) of the Act \22\ and Rule 19b-4
thereunder,\23\ the listing and trading of a new derivative securities
product is a proposed rule change that must be filed with and approved
by the Commission. Rule 19b-4(e) under the Act \24\ further provides
that the listing and trading of a new derivative securities product by
an exchange will not be deemed a proposed rule change pursuant to Rule
19b-4(c)(1) under the Act \25\ if the Commission has approved, pursuant
to Section 19(b) of the Act, the exchange's trading rules, procedures,
and listing standards for the product class that would include the new
derivative securities product, and the exchange has a surveillance
program for the product class.
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\22\ 15 U.S.C. 78s(b)(1).
\23\ 17 CFR 240.19b-4.
\24\ 17 CFR 240.19b-4(e).
\25\ 17 CFR 240.19b-4(c)(1).
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The Commission believes that the Exchange's adoption of listing and
trading standards for Index Fund Shares that meet the requirements of
Nasdaq Rule 4420(j) should fulfill the intended objective of Rule 19b-
4(e) by allowing such Index Fund Shares to commence trading on the
Exchange without the need for individualized Commission approval.
Accordingly, the proposed rule should allow the Exchange to bring these
securities to market without delay, thereby reducing the burdens on
issuers and other market participants while promoting competition.
The Commission finds that the Exchange's proposal contains adequate
rules and procedures to govern the trading and listing pursuant to Rule
19b-4(e) of Inverse Fund Shares and Multiple Fund Shares listed
pursuant to Rule 19b-4(e) on the Exchange. Among other things, the
proposal would require daily public Web site disclosure of a fund's
portfolio holdings and dissemination of its NAV to all market
participants at the same time, or else the Exchange would be obligated
to halt trading in the fund's shares. In addition, Fund Shares listed
and/or traded under the proposed ``generic'' standards would be subject
to existing Nasdaq rules that govern the continued listing and trading
of Index Fund Shares.
The Commission finds good cause for approving this proposal before
the 30th day after the publication of notice thereof in the Federal
Register. The Commission notes that it has recently approved a similar
proposal of another exchange,\26\ and Nasdaq's proposal does not raise
any novel regulatory issues. Accordingly, the Commission believes that
accelerating approval of this proposal is appropriate and will enable
the Exchange to amend its rules to reflect the standards for listing
and trading Inverse and Multiple Fund Shares, thereby conforming
Nasdaq's rules to those of other exchanges without delay.
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\26\ See Securities Exchange Act Release No. 57660 (April 14,
2008), 73 FR 21391 (April 21, 2008) (SR-Amex-2007-131). The
Commission notes that it received no comments on the Amex's
proposal.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\27\ that the proposed rule change (SR-NASDAQ-2008-071) be, and it
hereby is, approved on an accelerated basis.
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\27\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20517 Filed 9-3-08; 8:45 am]
BILLING CODE 8010-01-P
